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MATERIALS FOR THE STUDY
OF ECONOMICS
r> 1 1 4 14
CURRENT ECONOMIC PROBLEMS
THE UNIVERSITY OP CHICAGO PRESS
CHICAGO. ILLINOIS
THE BAKER & TAYLOR COMPANY
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SHANGHAI
CURRENT ECONOMIC
PROBLEMS
A SERIES OF READINGS IN THE CONTROL OF
INDUSTRIAL DEVELOPMENT
EDITED BY
WALTON HALE HAMILTON
REVISED EDITION
THE UNIVERSITY OF CHICAGO PRESS
" CHICAGO, ILLINOIS
Copyright igi4 By
Walton Hale Hamilton
Copyright iqis and 1919 By
The University of Chicago
All Rights Reserved
Preliminary Edition Privately Printed By
The University of Michigan 1914
Published August 1915
Second Impression February 1916
Third Impression September 1916
Revised Edition September 1919
Second Impression August 1920
Third Impression March 1921
• » •
Composed and Printed By
The University of Chicago Press
Chicago, Illinois, U.S.A.
HB
TO
FRED M. TAYLOR
To hold the balance true
between the material and the
human values of life is the oldest
and the newest economic
problem.
PREFACE
If intent has found expression in accomplishment, this volume is
best described by its subtitle, "A Series of Readings in the Control
of Industrial Development." The theory upon which the book has
been constructed can be reduced to a few simple propositions which
an increasing number of economists (and many in kindred disci-
plines) will regard as axiomatic. They are that our society is a de-
veloping one; that the institutions which make up its structure are
interdependent ; that industry occupies a place of prime importance in
determining its nature ; that current problems rest upon the triple fact
of an immutable human nature, a scheme of social arrangements based
upon individualism, and a world-wide industry organized about the
machine technique; that current problems represent a lack of har-
mony between these elements ; and that conscious attention to these
interrelated problems is the means through which industrial develop-
ment is to be controlled.
In this belief the editor has gathered together, adapted, and
arranged the readings which follow. Variety and multiplicity are
not inconsistent with unity. The experience of other teachers with
this volume indicates that the thread of the economic discussion
which the editor has tried to present in the words of the many writers
whom he has used has not been lost, and that the argument, despite
its multiplicity of authorship, moved forward from chapter to
chapter.
It hardly needs to be said that at most this book gives only a per-
spective of economic problems. It aims to reveal the outstanding
features of economic organization, not to make a detailed study of the
institutions which make it up. Its intent is to translate current eco-
nomic problems into the problem of the control of industrial develop-
ment, not to deal with these problems separately or conclusively.
Since one cannot know his subject without seeing it from the outside,
it aims to present an outside view of questions of the day and to indi-
cate their places in the larger universe which contains them. It aims to
give the perspective which precedes specialized study and to maVe it
real and relevant. It is no substitute for that specialized study itself.
xii PREFACE
Many teachers of economics found this collection useful in the
form in which it was published three years ago. In this revised form
it is hoped that the volume has regained some of the values of which
the swift march of events has robbed it in the last three years. The
fundamental idea upon which the book is constructed has, of course,
been modified, but its identity has not been lost. The materials now
included are of more immediate value as illustrations, but the con-
ception of economics which runs through them is much the same.
It hardly seems necessary to point out the many changes which have
been made. The new reader will take the book for whatever it is
worth, oblivious to its past. The curious one (if such there be) can
easily discover the nature of the revision by a comparison with the
first edition.
It remains for the editor to make some mention of his many obli-
gations. He has drawn largely upon the classroom experience of
those who were associated with him at the University of Michigan
and the University of Chicago. He is under particular obligations
to Mr. Fred M. Taylor, of the University of Michigan, and Mr. J.
Maurice Clark and Mr. Harold G. Moulton of the University of
Chicago. His obligations to L. R. Hamilton are too many to be
catalogued here. The editor's obligations to various authors and
publishers who have generously permitted the use of much valuable
copyright material are set forth in detail in the bibliographical
footnotes. W. H. H.
Amherst College
August 12, 1919
TABLE OF CONTENTS
I. The Problem of Control in Industrial Society
PAGE
Introduction ^
A. Modern Industrial Society
1. The Essential Characteristics of Modern Industrialism. An
editorial 2
2. The Current Stage in Social Development. An editorial . . 5
B. The Nature, of Economic Problems
3. What an Economic Problem Is Like. An editorial .... 13
C. The Nature of Progress
4. What Is Progress ? James Bryce 18
5. Evolution or Progress ? L. T. Hobhouse 19
6. Criteria of Progress. James Bryce 22
D. The Control of Economic Activity
7. The Agencies of Social Control. Elizabeth Hughes .... 26
8. The Family as an Agency of Control. An editorial .... 29
9. The State as an Institution of Control. Edwin Cannan ... 30
E. The Theory of Laissez Faire
10. The Fundamental Law of Nature. William Blackstone .
11. A Diatribe against Human Institutions. J.J.Rousseau
12. A Plea against Governmental Restraints. Adam Smith .
13. A General Condemnation of Government. William Godwin .
14. The Identity of Individual and Social Good. Piercy Ravenstone
15. A Protest against Useless Restrictions. Jeremy Bentham
16. Opportunity. John J. Ingalls
32
33
33
35
36
36
37
F. The Interpretation of Laissez Faire
17. The Philosophy of Individualism. Albert V. Dicey . ... 38
18. The Individualistic Theory of Government. John Stuart Mill 40
19. The Authoritative Basis of Laissez Faire. An editorial ... 45
G. The Protest against Individualism
20. The Tyranny of the Machine. Joseph Harding Underwood . . 46
21. The Passing of the Frontier. Thomas B. IVIacaulay, James Bryce,
and Peter Finley Dunne 47
22. The New Issues. William Garrott Brown 48
sdii
xiv CONTENTS
H. The Reappearance of the Problem of Control
PAGE
23. The Individualistic Basis of Social Control. Thomas Hill Green . 52
24. Laissez Faire in Practice. L. T. Hobhouse 54
25. Liberty and Interference. W. Jethro Brown 57
n. The Antecedents of Modem Industrialism
Introduction 60
A. Pre-industrial Economy
26. The Manor, a Self-sufficient Economy. William J. Ashley
27. Wage Work and the Handicraft System. Carl Biicher .
28. Ordinances of the Gild Merchant of Southampton
29. Ordinances of the White Tawyers
30. Preamble to the Ordinances of the Gild of the Tailors, Exeter
3 1 . Household Industry in America. RoUo Milton Tryon
B. Pre-industrial Commerce
61
64
66
68
69
69
32. A Definition of Commerce. J. Dorsey Forrest 71
23- The Attitude of the ISIediaeval Church toward Commerce.
WiUiam J. Ashley 72
34. The Contribution of the Church to Commerce. J. Dorsey Forrest 74
35. Italian Commerce in the Fourteenth Century. Thomas B.
Macaulay 76
C. Pre-industrial Policy
36. Property and Service on the Manor. An editorial ...
37. SoUdarity in the Mediaeval Town. An editorial
38. Articles of the Spurriers of London
39. Mediaeval Tricks of Trade. Berthold von Regensburg .
40. The Control of Industry in the Gild Period. L. F. Salzmann
41. Labor on the Southern Plantation. An editorial
D. Pre-industrial Rights and Duties
77
80
83
83
85
89
42. The Classic Statement of the Organic Nature of Society. St. Paul 90
43. The Gospel of Stewardship. St. Thomas Aquinas .... 91
44. The Bill of Rights. Statutes of the Realm 92
45. The Theory of Natural Rights 93
a) The Declaration of Independence. Continental Congress . 93
b) The Rights of Men and of Citizens. National Assembly of
France 94
c) The American Bill of Rights. Constitution of the United States 94
d) Some Addenda. Constitution of the Um'ted States ... 95
CONTENTS TV
in. The Industrial Revolution
PAGE
Introduction ^ . . . gj
A. The Antecedents of the Revolution
46. English Industry on the Eve of the Revolution. Arnold Toynbee 98
47. Geographical Discovery and the Revolution. WiUiam Cunningham 102
B. The Nature and Scope or the Revolution
48. Technology and the Revolution 103
49. The Comprehensiveness of the Revolution. J. H. Clapham . . 107
C. The New Industrialism
50. The Function of Capital. J. Dorsey Forrest no
51. The Factory System. Carl Biicher 112
52. The Machine Process. Thorstein Veblen 113
53. The New Domestic System. Herbert J. Davenport . . 115
D. The World of Labor
54. Why Labor Resists Machines. Edwin Cannan .... 118
55. Labor's Willing Slaves. Edwin Arnold 120
56. The Wage Slaves. Allan L. Benson 121
E. National Expressions of Industrialism
57. Individualism and American Efficiency. Arthur Shadwell . . 122
58. German Socialized Efficiency. Samuel P. Orth . . . .126
F. The Extension of Industrialism
59. The Competitive Victory of Western Culture. James Bryce . 130
60. The Economic Conflict of Western and Primitive Culture. Freida S.
Miller 131
61. Industrial Penetration. Henri Hauser 134
62. Concessions and the War. Alvin Johnson 137
IV. The Pecuniary Basis of Economic Organization
Introduction 141
A. Price as an Organizing Force
63. The Social Order. Edwin Cannan 142
64. Competition and Industrial Co-operation. Richard Whately . 144
XVI
CONTENTS
B. The ORGANiZAnoN of Prices
65. The Nature of the Price-System. An editorial .
66. The Constraints of the Price-System. Walton H. Hamilton
PAGE
146
ISO
C. Pecuniary Competition
67. Economic Activity as a Struggle for Existence. Arthur Fairbanks
68. Competition and Organization. Charles H. Cooley .
69. The Ethics of Competition
a) The Beneficence of Competition. Charles Kingsley
h) The Selfishness of Competition. S. J. Chapman .
c) The Utility of Competition. An editorial
70. The Plane of Competition. Henry C. Adams .
156
158
159
159
160
160
161
D. Price-Fixing by Authority
71. The Statute of Laborers. Statutes of the Realm
72. The Futility of Price-Fixing. John Witherspoon
73. The Problem of Controlling Prices. J. Maurice Clark
E. The Function of the Middlemen
74. A Condemnation of Forestallers. Statutes of the Realm
75. If Forestallers Had Their Deserts.
76. The Function of the Middleman.
77. Middlemen in the Produce Trade.
George Washington
Hartley Withers .
Edwin G. Noiirse
F. Speculation
78. The Gamble of Life. John W. Gates ....
79. The Twilight Zone. Harry J. Howland
80. The Ethics of Speculation. The Outlook
81. Hedging on the Wheat Market. Albert C. Stephens
82. The Ups and Downs of Securities. Francis W. Hirst
83. The Functions of Exchanges. Charles A. Conant
G. The Corporation
84. The Nature of the Business Corporation. Harrison S. SmaUey
85. Corporate Distribution of Risks and Control. W. H. Lyon .
86. The Management of the Corporation. Wesley C. Mitchell .
87. The Function of the Corporation. J. B. Canning
H. The Organization of Trades
88. Competition and Association. Henry Clay
89. The Relations between Trades. John A. Hobson
90. The "Planlessness" of Production. Wesley C. Mitchell
163
165
166
169
169
170
171
173
173
176
178
180
183
i8s
188
190
192
19s
197
200
CONTENTS xvii
V. Problems of the Business Cycle
PAGE
Introduction 203
A. The Delicate Mechanism of Industry
91. The Delicate Organization of Industry. Thorstein Veblen . 204
92. The Spirit of Business Enterprise. Wesley C. Mitchell . . .206
93. The Interdependence of Prices. Wesley C. Mitchell . . .208
94. The Sensitive Mechanism of Credit. Harold G. Moulton . 211
B. The Economic Cycle
95. The Sensitiveness of Industrial Society. Leon C. Marshall . . 215
96. The Rhythm of Business Activity. Wesley C. Mitchell . . .216
C. The Course of a Crisis
97. The Irrepressible Crisis. W. H. Lough, Jr 222
98. The Arrested Crisis of 1907. Edwin R. A. SeUgman . . .226
99. The Course of the Panic of 1907. Ralph Scott Harris . . .228
100. The Order of Events in a Crisis. Arthur T. Hadley . . .230
D. Industrial Conditions during a Depression
loi. Panics versus Depressions. George H. Hull 232
102. The Extent of the Depression of 1907-8. Moody's Magazine 233
E. War and the Cycle
103. The Beginning of the War. Federal Reserve Bulletin
104. Eight Months Later. Federal Reserve Bulletin .
105. The Winter of 191 7-1 8. Federal Reserve Bulletin
106. The End of the War. Federal Reserve Bulletin .
107. Production and Prices. Wesley C. Mitchell
F. Control of the Industrial Cycle
234
235
236
238
239
108. Panic Rules for Banks. Walter Bagehot 240
109. How a Panic Was Averted in 1914. Journal of Political
Economy • • 241
no. Emergency Elasticity of Credit. Harold G. Moulton . . . 243
111. Bettering Business Barometers. Wesley C. Mitchell . 245
112. The Severity of the Trade Cycle in America. W. A. Paton . . 248
xviii CONTENTS
VI. The Problem of Economic Organization for War
PAGE
Introduction 251
A. The Nature of Modern :War
113. War and the State of the Industrial Arts. Adam Smith . . 252
114. War and Economic Organization. Clarence E. Ayres . . . 256
115. The Larger Economic Strategy. An editorial 259
B. The Sinews of War
•
116. The Demands of War. An editorial 264
117. The Organization of Man Power. Mark Sullivan . . , .266
118. The Insatiable Demand for Munitions. Edwin Montagu . . 269
119. The Scientific Basis of War Technique. George K. Burgess . . 270
C. Methods of Industrial Mobilization
120. Voluntary Army Recruiting. Andre ChevriUon .... 274
121. Voluntary Enhstment of Factories. Harold G. Moulton . . 275
122. Voluntary Mobilization of Labor. Leon C. Marshall . . .278
123. Work or Fight. General Enoch Crowder 279
124. Priorities. Alvin Johnson 280
125. Industrial Conscription. Harold G. Moulton 281
D. Mobilization in Liberal Countries
126. The Penalty of Taking the Lead. Thorstein Veblen
127. Social Customs and Efficiency in War. Harold G. Moulton .
128. A Nation of Amateurs. Leon C. Marshall . . . .
129. The Consumer's Dilemma
c) The Appeal to Spend. Advertisement in New York Times
b) Practical Patriotism. Advertisement in New York Times .
c) Consumptive Slackers. Thomas Nixon Carver .
130. The Curtailment of Nonessentials. Federal Reserve Bulletin .
284
286
288
291
291
292
293
293
E. Getting Out of War
131. The Rate of Demobilization. Journal of Political Economy 295
132. Keeping Production Up. David Friday 299
133. The Fetish of Reconstruction. An editorial 303
CONTENTS XIX
Vn. The Problem of International Trade
PAGE
Introduction 3°?
A. The Basis of International Trade
134. International Co-operation. Charles Gide
135. The Law of Comparative Costs. Fred M. Taylor ...
136. The Theory of Free Trade. An editorial
137. The Favorable Balance of Trade. Thomas Mun and Charles W
Fairbanks
138. The Mystery of the Balance of Trade. Hartley Withers
B. The Perennial Argument for Restriction
309
311
313
315
316
139. Keeping Trade at Home 3^9
140. Gold and Wealth. Martin Luther . . . . . . .321
141. The Production of Prosperity. Daniel Defoe 321
142. The Ten Commandments of National Commerce. A German
Circular 323
143. The Test of Faith. Roswell A. Benedict 323
144. The Seen and the Unseen. Frederic Bastiat 324
C. The Case for Protection
145. America's Allegiance to Protection. Albert J. Leffingwell . .326
146. Protection and the Formation of Capital. Alvin Johnson . . 328
147. The Economics of Protection. An editorial 33 1
D. The Tariff and Wages
148. High Wages an Obstacle to Manufacture. Daniel Webster . . 334
149. Protection and High Wages. American Economist .... 336
150. The Effect of Industrial Changes on Wages. Alvin Johnson . 337
E. Tariff Policy in Process
151. A Half-Century of Tariff History. Harrison S. Smalley . . . 338
152. Recent Tariff History. An editorial 342
153. What a Tariff Bill Is Like. The Underwood-Simmons Act . . 344
154. The Tariff Commission. Journal oj Political Economy . . . 347
F. The Argument from Experience
155. Protection and Prosperity. Robert Ellis Thompson . 349
256. Free Trade and Prosperity. Liberal Party Pamphlet . . .35°
XX CONTENTS
G. Protection in Practice
PAGE
157. A Hvunble Request of Congress. Wool Growers and Manu-
facturers 351
158. A Recipe for Securing Duties. S. N. D. North and William
Whitman 352
159. The Tariff a Local Issue. Congressional Record . . . .353
160. Tariff for Politics Only. Peter Finley Dvmne 354
161. Tricks of Tariff Making. H. Parker Willis 357
162. The Impossibility of Ascertaining Costs. H. Parker Willis . . ^359
H. The Tariff and World-Trade
163. Recent Changes in the World's Trade. Grosvenor M. Jones . . 360
164. The Increase in Shipping. Raymond Garfield Gettell . . . 364
165. New Policies in Foreign Trade. William B. Colver .... 366
166. Export Associations. The Americas 369
I. Trade and the Peace of the World
167. Protection and National Defense. An editorial . . . .370
168. The Future of Trade and Peace. J. Russel Smith . . . .372
169. The Cult of National Self -Sufl&ciency. Edwin Cannan . . -374
Vin. The Problem of Railway Regulation
Introduction 376
A. The Basis of the Problem
170. The Dual Nature of the Railway Corporation. An editorial . .378
171. The Economic Basis of Regulation. I. Leo Sharfman . . . 379
172. The Futility of Railway Competition. Arthur T. Hadley . .384
B. Aspects of Rate-Making
173. Freight Classification. William Z. Ripley 386
174. State Regulation and Inefficient Service. C. O. Ruggles . . 388
175. The Futility of Costs as a Basis for Rates. Sydney Charles
Williams 389
176. Charging What the Traffic Will Bear. W. M. Acworth . . . 392
177. The Rate Theory of the Interstate Commerce Commission. M. B.
Hammond 393
CONTENTS xxi
C. The Nature A>fD Extent of Regulation
PAGE
178. Complaints against the Railroad System. The CuEom Committee 395
179. The Provisions of the Interstate Commerce Act. Logan G.
McPherson 397
180. The Provisions of the Elkins Act. Report of Interstate Commerce
Commission 397
181. The Provisions of the Hepburn Bill. Logan G. McPherson . . 398
182. The Mann-Elkins Act. Railway and Engineering Review . . 400
183. The Adamson Act. United States Supreme Court .... 401
D. Valuation of the Railroads
184. Necessity for Valuation of Railway Property, Interstate Com-
merce Commission 402
185. Market Value as a Basis for Rates. Robert H. Whitten . . 404
186. Physical Valuation as the Basis of Rates. Samuel 0. Dunn . 405
187. The "Railway Value" of Land. United States Supreme Court 408
E. The Railroads in War Time
188. The Beginning of Federal Control. Journal of Political Economy . 410
189. The Policy of the Railroad Administration. William G. McAdoo . 411
190. The Results of Federal Control. J. Maurice Clark . . . .412
191. The Outcome and the Future. T. W. Van Metre . . . .415
F. The Crisis in Railway Policy
192. Solution by Experimentation. William G. McAdoo 418
193. The Plan of the "Railroads." Journal of Political Economy . 420
194. SociaUzing the Railroads. John A. Fitch 421
195. The Supply of Capital. Alvin Johnson 423
196. The Requisites of a National Pohcy. James D. Magee . . . 426
IX. The Problem of Capitalistic Monopoly
Introduction 429
A. Is Monopoly Inevitable
197. The Perennial Problem of Monopoly 431
a) An Early Corner in Grain. Genesis 41 : 46-49, 53-57; 47 : 13 : 22 431
b) A Vindication of Philosophy. Aristotle 432
c) An Early Use of Class Price. John Gower 432
d) In the Merrie England of Queen Bess. David Hume . . . 433
xxii CONTENTS
PAGE
198. The Perennial Protest against Monopoly 434
a) A Proverb about Corners. Proverbs 11:25-26
b) The Ethics of Monopoly. Martin Luther
c) The Pests of Monopoly. Sir John Culpepper
d) The Inexpediency of Monopoly. Adam Smith
e) Monopoly Indefensible. National Democratic Party
199. Monopoly the Result of Natural Growth. George Gunton
200. Monopoly the Result of Artificial Conditions. Woodrow Wilson
434
434
434
435
435
435
437
B. Conditions of Monopolization
201. The Failure of Competition. Henry W. Macros ty . . . .439
202. The Incentives to Monopoly. Chester W. Wright . .>^ . . 441
203. Large-Scale Production and Monopoly. Charles J. Bullock . . 443
204. Monopoly and Efl&ciency. Louis D. Brandeis 449
C. Types of Unfair Competition
205. Competitive Methods in the Tobacco Business^ Meyer Jacobstein 452
206. Competitive Methods in the Cash Register Business. Henry
Rogers Seager 454
207. The "Tieing" Agreement. W. H. S. Stevens 456
208. Monopoly Control of Cost Goods. W. H. S. Stevens . . . 458
D. The Regulation of Monopoly
209. Law and the Forms of Combination. Bruce Wyman . . . 459
210. The Sherman Anti-Trust Act. United States Statutes . . .462
2X1. The Meaning of Restraint of Trade. United States Supreme Court 463
212. An Appraisal of the Sherman Act. Allyn A. Young . . . 464
213. Provisions of the Clayton Act. W. H. S. Stevens .... 468
214. The Trade Commission and Clayton Acts. W. H. S. Stevens 469
E. The Future of Regulation
215. Standardization and Combination. Homer Hoyt .... 471
216. Results of Regulating Combinations. E. Dana Durand . . 474
X. The Problems of Population
Introduction 480
A. The Question of Numbers
217. Utopia and the Serpent. Thomas Huxley 481
218. Appraisals of Population. An Early Historian, An Early Poet,
Aristotle, Sir William Temple, Sir Josiah Child, Daniel Defoe,
Sir James Steuart, Arthur Young, Adam Ferguson, and "A Much-
Harmed Native of India . . 482
CONTENTS xxiii
B, The Malthusian Theory
PAGE
219. The Theory of Population. Thomas Robert Malthus . . .485
220. Malthusianism a Support of Capitalism. Piercy Ravenstone . 488
221. Malthus versus the Malthusians. Leonard T. Hobhouse . 490
222. Population Pressure and War. Edwin Alsworth Ross . . 492
C. The Coming of the Immigrant
223. The Immigrant Invasion. Frank Julian Warne .... 496
224. Immigration in a Single Year. F. A. Ogg 500
225. The Current Status of Immigration. National Industrial Con-
ference Board 5°°
D. Immigration and Industrial Development
226. Our Industrial Debt to Immigrants. Peter Roberts . . 502
227. The Manna of Cheap Labor. Edwin Alsworth Ross . . . 504
E. Immigration and Labor Conditions
228. The Elevation of the Native Laborer. William S. Rossiter . 505
229. The Industrial Menace of the Immigrant. Edward Alsworth Ross 507
230. Immigration and Unionism. W. Jett Lauck 510
F. The Restriction of Immigration
231. A Protest against Immigration. United Garment Workers 511
232. An Immigration Program. The Immigration Commission 512
233. The Pro and Con of the Literacy Test . . . . . -513
o) The Necessity for the Educational Test. P.F.Hall . . .513
b) Pauperism and Illiteracy. Kate H. Claghorn . . . .514
c) From the Men at the Gates. Louis S. Amonson . . .515
d) Chir Immigration Policy. Woodrow Wilson 515
G. The Future of the Immigrant
234. The Immigrant an Industrial Peasant. H. G. Wells . 516
235. The Problem of Americanization. Henry W. Famam . . 518
236. Industry and Americanization, Esther Everett Lape . . .520
237. The Economics of Immigration. Frank A. Fetter . . .522
238. The Influence of the Immigrant on America. Walter E. Weyl 524
H. The Quality of Population
239. The Breeding of Men. Plato 527
240. Derby Day and Social Reform. Martin Conway . . . .528
241. Eugenics and the Social Utopia. George P. Mudge . . . .529
xxiv CONTENTS
PAGE
242 Immigration and Eugenics. Walter E. Weyl 530
243 The Rationale of Eugenics. James A. Field 532
I. The Population Problem of Today
244. Population Pressure in Japan. Walter E. Weyl .... 535
245. The Threat of Emigration. Frances A. Kellor 539
246. War and a Population Policy. James A. Field 541
XI. The Problems of Economic Insecurity
Introduction 545
A. Insecukity under Modern Industrialism
247. Competition and Personal Insecurity. Thomas Kirkup . . . 547
248. Machinery and the Demand for Labor. John A. Hobson . . 549
249. Economic Insecurity and Insurance. William F. Willoughby . 552
B. Unemployment
250. Character and Types of Unemployment. W. H. Beveridge . -554
251. An Ideal System of Labor Exchanges. John B. Andrews . . 556
252. United States Employment Service. Woodrow Wilson . . . 560
253. Cyclical Distribution of Government Orders. Sidney and Beatrice
Webb . . . . • 561
254. The Relief of Unemployment. Mayor's Committee in New York 563
C. Industrial Accidents
255. The Machine Process and Industrial Accident. E. H. Downey 566
256. Casualties in War and Industry. Pennsylvania Department of
Labor 569
257. Some Sample Accidents. Pennsylvania Department of Labor . 570
258. Imputation of Responsibility for Accidents. A Railway Company 572
259. Industrial Accidents and the Theory of Negligence. Lee K. Frankel
and Miles M. Dawson 572
260. The Incidence of Work Accidents. E. H. Downey . . . -575
261. The Necessity of Employer's LiabiUty. Adna F. Weber . . 577
D. Sickness and Health
262. The Nation's Physical Fitness. Provost Marshal General . . 578
263. The Industrial Cost of Sickness. Joseph P. Chamberlain . . 580
264. Why Sickness Insurance Should Be Compulsory. I. M. Rubinow 581
265. The British National Insurance Bill. Warren S. Thompson . . 582
266. Health Insurance for the United States. B. S. Warren and Edgar
Sydenstricker 584
CONTENTS XXV
E. The Standard of Living
PAGE
267. The Nature of the Standard of Living. Frank Hatch StreightoS . 586
268. The War and the Standard of Living. W. F. Ogbum . . .588
F. The Minimum Wage
269. The Promise of a Minimum Wage. A. N, Holcombe . . . SQi
270. The Case for Wage Boards. Constance Smith 593
271. The Futility of the Minimum Wage. J. Laurence LaughUn . . 596
272. A Minimimi Wage for Immigrants. Paul U. Kellogg . . . 598
273. The Progress of the Minimum Wage. American Labor Legislation
Review 600
274. Compulsory Arbitration in Theory and Practice. James Edward
le Rossignol and William Downie Stewart 602
G. The Hazards of the Child
275. The Hazard of Birth. Charles J. Hastings . . . .
276. The Hazard of the War. S. Josephine Baker . . . .
277. The Hazard of the Coming of Industrialism. Ruth Mclntire
278. The Hazard of Industry. John Curtis Underwood .
279. The Hazard of the Family Income. An editorial
280. The Hazard of the Courts. United States Supreme Court
605
606
608
610
610
612
Xn. The Problems of Uniomsm and the Wage Contract
Introduction 615
A. Group and Class Consciousness
/-
281. Bourgeoisie and Proletariat. Werner Sombart 617
282. The Historical Basis of Trade-Unionism. Sidney and Beatrice
Webb 619
283. The Organization of the Ill-paid Classes. Charles H. Cooley 620
284. Types of Unionism. Robert F. Hoxie 622
285. The Extent of Trade-Unionism. Leo Woknan 626
B. Viewpoints and Unionism
286. The Viewpoint of the Trade-Unionist; Robert F. Hoxie . . 628
287. Articles of Faith 632
a) An Economic Creed. National Association of Manufacturers . 632
h) A Political Creed. National Association of Manufacturers 633
c) An Industrial Creed. John D. Rockefeller, Jr 634
288. The Purposes of Trade-Unionism. John Mitchell .... 636
xxvi CONTENTS
C. The Theory of Unionism
PAGE
289. The Principle of Uniformity. Robert F. Hoxie .... 638
290. Collective Bargaining and the Trade Agreement. John R. Com-
mons 641
291. The Economics of the Closed Shop. Frank P. Stockton . . 644
292. The Ethics of the Closed Shop. James H. Tufts .... 648
D. The Weapons of Industrial Conflict
293. The Function of the Strike in Collective Bargaining. John Mitchell 650
294. The UtiUty of the Strike. Frank JuUan Warne . . . .651
295. The Striker and the Worker. Solon Lauer
296. Wanted — ^Jobs Breaking Strikes. American Industries .
297. The Ef&cacy of Secret Service. Burns Detective Agency
298. The Boycott of the Butterick Company. A. J. Portenar
299. Ostracism as an Industrial Weapon. Frank JuUan Warne
300. The Scab. Dyer D. Lum
652
653
653
654
655
657
E. Unionism in War Time
301. The Challenge to American Labor 659
a) Great Britain. James H. Thomas 659
h) France. New Republic 660
c) Italy, Francesco Saverio Nitti 660
302. A Declaration of Principles. American Alliance for Labor and
Democracy 660
303. A War-Time Labor Policy, War Labor Conference Board . . 663
F, Woman's Invasion
304. Replacement of Men by Women. New York Department of Labor 666
305. The Health of Women in Industry. Janet M. Campbell . 671
306. Will There Be a Sex War in Industry ? Mary Stocks . . .673
G. Revolutionary Unionism
307. Sabotage . . 677
c) A Definition of Sabotage. Arturo M. Giovannitti . . .677
h) Go Cannie. Arturo M. Giovannitti 677
c) Put Salt in the Sugar. Montpelier Labor Exchange . . 678
d) The Effectiveness of Sabotage. Arturo M. Giovannitti . . 679
e) The Universality of Sabotage. Industrial Worker . . . 679
308. The Standpoint of SyndicaUsm. Louis Levine . . . . . 681
309. Where Radicalism Thrives. Commission on Industrial Relations . 683
CONTENTS xxvii
TCrn. Problem of Control within Industry
PAGE
Introduction 686
A. Unrest
310. War and National Unity. Garton Foundation 687
311. Portrayal of Unrest in War. Felix Frankfurter . . . .691
B. Output
312. Selling Labor Short. Walter Drew 695
313. The Limits of Sabotage. Thorstein Veblen 697
314. The Increase in Production. Garton Foundation .... 700
C. Efficiency
315. Labor and Efficiency. Frederic W. Taylor 705
316. The Nature of Scientific Management. Maurice L. Cooke . . 707
317. The Attitude of Organized Labor. American Federation of Labor 709
318. Modem Industry and Craft Skill. International Moulders^ Journal 709
319. Scientific Management and Welfare. Robert F. Hoxie . . -711
320. Employment Management. New Republic 713
321. Industrial Physiology. Frederic S. Lee 714
D. Constitutionalization
322. Joint Standing Industrial Councils. Whitley Committee . 716
323. The Organization of Works Committees. Whitley Committee 722
324. National Councils for Industry. British Ministry of Labor . . 723
325. A National Industrial Council. British National Industrial Con-
ference 727
E. Politics
326. Instincts and Employment. Irving Fisher 729
327. The Midvale Plan. Midvale Steel Corporation .... 731
328. The Colorado Plan. Colorado Fuel and Iron Company . , . 736
329. The Future of Industrial Relations. Henry P. Kendall . . . 739
F. Standards
330. Standards for Children Entering Employment. Conference on
Chnd Welfare 741
331. Standards for Women in Industry. United States Department
of Labor 743
332. International Labor Standards. International Labor Conference . 746
xxviii CONTENTS
XIV. Social Reform and Legal Institutions
PAGE
Introduction 751
A. The Legal System
333. The Economic Basis of Law. Achille Loria 753
334. Social Rights and the Legal System. Roscoe Pound . . -754
335. Law and Social Statics. Oliver W. Holmes 757
336. The Social Function of Law. Homer Hoyt . . . . . 758
B. Private Property
337. Progress and Property. Paul Elmer More 762
338. Mine — Property and Rights. David M. Parry .... 764
339. My Apology. P. Property . 766
340. The Constitutional Position of Property in America. Arthur T.
Hadley 769
C. Industrial Liberty
341. The Mediatory Character of Freedom. Thomas Hill Green .
342. Contract and Personal Responsibility. Arthur T. Hadley
343. Labor and Freedom of Contract. Chicago Industrial Exhibit
344. Static Assumptions of Contractual Freedom. Roscoe Pound
345. Contractual Rights — ^Legal and Real. Thorstein Veblen .
D. The Courts and Labor
775
777
779
780
783
346. Limitation of the Working-Day 784
a) The Supremacy of Freedom of Contract. Illinois Supreme Court 784
b) Maternity and State Regulation. United States Supreme Court 785
c) The Supremacy of the Police Power. United States Supreme
Court 786
347. Reciprocal Nature of Employer's and Employee's Rights. United
States Circuit Court 787
348. Unionism and the Conditions of Employment. United States
Supreme Coiurt 788
349. The Legality of Unionizing a Shop. Louis D. Brandeis . . . 791
350. The Legal Issue in the Minimum Wage. Thomas Reed Powell . 793
XV. Social Reform and Taxation
Introduction "... 797
A. The Theory of Public Finance
351. Expenditures and Social Organization. Henry Carter Adams . 798
352. The Individualistic Theory of Taxation. William Kennedy , . 800
CONTENTS xxix
PAGE
353. Canons of Taxation. Adam Smith 802
354. The Burden of Taxation. S, J. Chapman 803
B. Nature of War Finance
355. Conscription of Income. O. W. W. Sprague 804
356. Destruction of Capitol: A Business View. National City Bank
of New York 805
357. The War Burden upon the Common Man. Herbert J. Davenport Sof
358. The Evils of Inflation. A. C. Miller 809
C. War Taxes
359. The Income Tax. Edwin R. A. Seligman 811
360. The Excess-Profits Tax. Edwin R. A. Seligman . . . .815
361. A Tax on Luxuries. United States Treasury Department . . 819
362. The New Revenue Act. Thomas Sewall Adams . . . .821
D. Tendencies in Finance
363. Standardizing Expenditure. William Leavitt Stoddard . . . 823
364. Spheres of Taxation. Journal of Political Economy . . . .825
365. Public Capitalization of the Inheritance Tax. Alvin Johnson . 827
XVI. Comprehensive Schemes of Reform
Introduction 831
A. The Voice of Social Protest
366. Privilege and Power 832
a) Woe to the Idle Rich. Amos 832
b) The Daughters of Zion. Isaiah 832
c) Why the Lords? John BaU 833
d) Government and Inequality. Sir Thomas More . . . .833
e) The Possibilities of Production. Richard Jeffrey . . .834
f) The Beginning of It All. J. J. Rousseau 834
367. "Progress and Poverty" 834
a) In the Wake of Trade. Oliver Goldsmith 834
b) When There Was a Frontier. J. B. McMaster . . . .835
c) Labor and Value. Poorman's Guardian 836
__ d) The Poor in Manchester. Frederick Engels . . . .836
- e) Packingtown as a Residential Section. A. M. Simons . . 837
f) Hallelujah on the Bum. Songs of the Workers . . . .838
368. Expanding Wants and Social Unrest. A Cape Cod Fisherman . 838
XXX CONTENTS
B. The Buiujen of the War
PAGE
369. Costs in Treasure and Men. Fire Companies Building Corporation 839
370. The Economic Costs. J. A. Hobson 841
371. The Ultimate Burdens. An editorial 844
C. State Socialism
372. The Economic Failure of Capitalism. J. Ramsay Macdonald . 847
373. The Central Aim of Socialism. Thomas Kirkup .... 849
374. The Transition to the SociaUst State. 0. D. Skelton . . . 851
375. Socialism and Inequality. N. G. Pierson 852
376. SociaUsm and the Factors of Production 855
D. Socialist Arguments for the Masses
-377. Capitalism — a. Vampire System. George E. Littlefield . . . 858
378. The CapitaUst's Ten Commandments. W. Willis Harris . . 859
379. A Confession of Faith. Progressive Thought 860
E. Gild Socialism
380. The Tendency in Workshop Control. W. Gallacher and J. Paton . 860
381. Labor Pohcy after the War. G. D. H. Cole 866
F. Some Reconstruction Programs
382. A Business Program. United States Chamber of Commerce . . 870
383. A Church Program. National Catholic War Coimcil . . . 874
384. A Labor Program. British Labor Party 878
XVn. The Control of Industrial Development
Introduction 890
A. Industry an Instrument
385. A Functional Society. R. H. Tawney 892
386. The Ethics of Industry. James H. Tufts 894
387. Surplus Wealth for the Common Good. British Labor Party . 897
B. Control by Magic — Panaceas
388. Stable Money and the Future. George H. Shibley .... 899
389. The Way Out. John Rajonond Cummings 899
390. Universal Federation. King C. Gillette 900
391. A New Earth. L. G. Chiozza Money 902
C. Control by Method
392. Control — ^Agitation vs. Method. Wesley C. Mitchell . . . 904
393. The Socialization of Kiiowledge. J. Maurice Clark .... 908
CONTENTS
XXXI
D. Checks on Development
394. Indiistrial Freedom and Prosperity.
395. The Futility of Utopian Legislation.
396. The Price-System and Development,
James J. Hill .
Elihu Root
Walton H. Hamilton
E. Control by Education
397. Education and Control. An editorial ....
398. The Function of Vocational Training. Edwin F. Gay
399. Education and Social Theory. A. Glutton Brock
400. A Primary Culture for Democracy. Charles H. Cooley
401. The Function of the College. Alexander Meiklejohn
F. The Future of Industrml Society
402. Progress and Discontent. Thomas B. Macaulay
403. The Banquet of Life. William Graham Sumner
404. Wanted: A New Symbolism. Alvin Johnson .
PAGE
912
915
917
922
924
927
930
933
935
936
939
THE PROBLEM OF CONTROL IN INDUSTRIAL
SOCIETY
The perplexing economic questions of the day, as we shall learn, are not
simple little affairs which can be separated from the "prevailing system" and
analyzed and "solved" in isolation. They are so closely related that a change
in one affects many others. They are inseparable parts of that complex of
institutions, traditions, conventions, and activities to which we attach the
name Modern Industrialism, and they are intimately associated with the multi-
farious legal, political, economic, ethical, and social aspects of this larger
system. It is, therefore, in view of this larger whole that our problems are
what they are.
There is nothing singular in our possession of troublesome problems.
They are the common heritage of the ages. When the universe was con-
trived enough of antagonism was left in it to keep some problems constantly
before us. The sweep of change constantly adds new recruits to this array.
It may be that somehow or other problems get "solved" ; it may be that they
merely become obsolesceht and, like old machinery, are "scrapped"; it may be
that they are forced to surrender their places to newcomers ; or it may be that
they tend to lose their identity in that of other problems. Perhaps all of these
things happen ; but, however that may be, old problems tend to disappear.
But, strangely or naturally enough, as you may choose to view it, we never
have an end of problems. As old ones depart, new ones, without awaiting
welcome come forward. Some of these newcomers are old problems appear-
ing in new forms; for, after all, there is much that is fundamental in life and
institutions. The questions of efficiency, of poverty, of social classes, and of
work and reward are as old as society. But some problems are new; and
even the old ones are for us quite distinct from their predecessors — distinct
in the economic status of the individuals affected, distinct in the scheme of
values surrounding them, and distinct in the treatment for which they call.
All of these problems, old and new alike, are aspects of the development
of society; they emerge or assume new forms as the social complex de-
velops. They give evidence of a lack of compatibility somewhere between
the many and various aspects of social life — between institution and institu-
tion, between activity and custom, between practice and ideal. Their con-
scious — or unconscious — solution is nothing else than a restoration of har-
mony between antagonistic elements. Since, too, growth is not uniform, their
passing leads usually to the rise of new problems. Their "solution" has the
further effect of contributing to the development of society; the process is
advanced.
A word which we are coming to use repeatedly in discussing these prob-
lems is "control." Once upon a time that word was in good repute and people
talked quite naturally about "obligations" and what the church, the state, or
another social institution had a right to impose upon the individual. Then
there came a period when we were quite conscious of our rights as individuals ;
when this word lost its vogue. Then it came about that we professed an
adherence to laissez-faire, the principle of individualism, a belief in natural
rights, or some form of doctrine to the effect that individuals should be free
and social arrangements should be left alone.
In the latter half of the nineteenth century the spirit of individualism and
the theory of laissez-faire were dominant. But increasingly we came to the
2 CURRENT ECONOMIC PROBLEMS
double realization that we were not letting all institutions alone, but only cer-
tain ones that some of us thought ought to be left alone and that, if we col-
lectively were not controlling institutions some among us were. This, with
a growing, conception that laissez-faire has not imparted the most orderly
direction to social development, caused us little by little to bring back into our
vocabularies words like "direction," "authority," and "guidance," and to bring
again a measure of conscious control into the scheme of arrangements which
make up the world in which we live our daily lives. It led, too, to the elab-
oration of a theory of the control of economic life and social development.
But this newer stage, like others which have preceded it, has raised its
problems. What is control ? What are the agencies through which it is exer-
cised? Why, after all, do we need it?_ It leads, too, to the most fundamental
of all economic problems, because it is not an economic problem at all — of
what are our ends? What are our aims? What is the industrial system for,
any way? What can we do with it? And what is it doing with us? The
answer to this larger question conditions our answers to smaller questions
which are more properly economic. We need to recognize at the beginning of
our study that the world is not all industrial and that all study is not in eco-
nomics. But these questions are not enough for the moment. They are with
us ; or rather we will never get away from them. But just now we need to get
on with our study.
A. MODERN INDUSTRIAL SOCIETY
1. The Essential Characteristics of Modern Industrialism^
An understanding of the nature of modern industrialism is essen-
tial to an intelligent grasp of its problems and a rational attempt at
their solution. Such an understanding comes most easily from a
study of the process by which modern industrial culture has come
to be what it is. Like all historical work of value, such a study must
have a definite goal before it. It must aim to reveal those institu-
tions, those intellectual and emotional forces, which have given char-
acter to the prevailing system, which are responsible for its problems
and which condition their solution. For that reason it is best to begin
the historical account of modern culture with a brief statement of its
essential characteristics.
Modern industrialism is a peculiar culture ; it is a thing apart.
Nothing like it has previously existed. The Chinese system of the
Far East, clinging tenaciously to the past, has developed a system
Vvhich is a sprawling, conglomerate fact. The nearer Orient, India,
for instance, has repressed self-assertion, has subordinated the ma-
terial side of social life, and has produced, as if from a mold, a rigidly
hard social system. Even the European states of the ancient world
failed to organize themselves as industrial and social wholes. For
example, the Greeks showed nowhere their inability at organization
more clearly than in failing to associate the individual's gain from
his labor with a service to a larger group. The unity achieved by
*An editorial (1914).
PROBLEM OF CONTROL IN INDUSTRIAL SOCIETY 3
Rome was a mechanical, not an organic, unity. Both alike despised
manual labor, and, for that reason, failed to lay an adequate founda-
tion for a permanent industrial system. How distinct is modern
industrialism is revealed by a brief citation of some of its peculiar
aspects. The list mentioned below is not intended to be all compre-
hensive and the characteristics mutually exclusive. It is merely a
statement of some of the characteristics of our system which the
student of current economic problems should keep clearly in mind.
First, America and Western Europe, Christendom, in fact, con-
stitutes a single industrial society. Differences in race, language,
government, and religious creed are almost negligible in comparison
with what the Western World has in common. Even where these
differences exist, the basic elements of these institutions are much
the same. As ideal or actuality universality has long been a char-
acteristic of the system. The Roman Empire was universal. When
the earthly society disintegrated, it remained in idea as a universal,
heavenly kingdom. The Catholic church, patterned after this heav-
enly society, kept the ideal alive when more substantial unity was
impossible. Toward the realization of universality society tended to
be organized in the Catholic church. At last, when the spell of
Catholicism was broken, political, social, and particularly industrial
and commercial institutions had tied the Western World together
into a single industrial culture.
Second, Western Civilization is an extremely fluid culture. Few
legal and authoritative restrictions are placed upon one's right to
choose his own occupation. There are no hard and fast class lines.
In the thought of the people there are practically none. Freedom
of movement from place to place is allowed. In all of life's relations
there is such fluidity that the adaptation of population, natural re-
sources, and acquired capital to each other and to changed conditions
is not only rapid but is constantly in process. Briefly, Christian teach-
ing, the presence of the opportunities afforded by the American con-
tinent, and the industrial revolution, have all emphasized this
characteristic.
Third, ours is a humanistic and a material culture. A contempt
for human life and the material means to well-being, a denial "of the
world, the flesh, and the devil," a desire to escape from "the vain
pomp and glory of the world," has never been an essential part of
the attitude of Western peoples toward life. Even monasticism
came to be based upon the theory that life in this world is worth while.
This institution became a means through which otherworld obliga-
tions, placed upon man by the peculiar conditions accompanying the
disintegration of Roman society, could be vicariously satisfied by a
small part of society, and the greater part could be released to live
4 CURRENT ECONOMIC PROBLEMS
the better life of the world. Men who fervently sing "For such a
worm as I" and "This world's wilderness of woe, this world is not
my home" do not discover new continents, invent printing and the
steam engine, and erect world-wide industrial systems. Unlike
Greeks and Romans with us the idea of the worthwhileness of life
has carried with it the idea of the dignity of manual toil, which has
furnished an adequate foundation upon which to build an industrial
culture.
Fourth, our culture is in a very high degree a pecuniary culture.
More than by any one thing our economic conduct is actuated by
the desire for pecuniary profit. We go into those occupations prom-
ising the highest pecuniary returns. Our capital breaks over national
barriers when the rate of interest abroad mounts higher. Even back
in the Middle Ages, penance, a sacrament of the church, was put on
a pecuniary basis. Escape from the consequences of certain actions
was allowed to those who had accumulated wealth. Thus the accumu-
lation of wealth and the stratification of society upon a pecuniary
basis was encouraged. Today in the court, in the church, in the
press, in social circles, the man of wealth is treated with greater con-
sideration because of his wealth. The three characteristics mentioned
above, fluidity, humanism, and the dominance of the pecuniary motive
have made our culture a highly industrial culture, for it is in industry
that these motives find their fullest expression.
Fifth, our culture places the value of human actions and institu-
tions in some end or institution over and beyond themselves. The
justification of individual activity is not to be found in personal good.
The actions of individuals are found worthy of praise only because
of a larger and a greater "society," toward which they are as means
to an end. Laissez-faire is defended not as a means to self-aggrandize-
ment, but as a theory of social welfare. "Big business" talks in terms
of "pay envelopes," "full dinner pails," and "general prosperity."
But the end from which the value comes is even less immediate than
present society. The justification of the present is in the future.
Back in the Middle Ages one's conduct was regulated by one's desire
for his "soul's salvation." As men little by little ceased to have souls,,
and "life's fulness" came more and more to be recognized as life's
end, the emphasis formerly attached to the other world associated
itself with an ideal society which was striving for realization in the
church. Even today, obscured as it may seem, an ideal future society
is the potent force in evaluating conduct, individual and social. How
potent is this idea of the future a few statements will show. We use
"roundabout" processes of production. In legislation we seek to con-
serve the interests of capital, future goods, rather than give our
attention to conserving immediate income. We speak In terms of
PROBLEM OF CONTROL IN INDUSTRIAL SOCIETY 5
progress and evolution. We condemn, as never before, industry and
politics because of its "shortsightedness." We give serious consid-
eration to such a radical program of industrial reform as socialism.
The value of the present thing is in large part a value derived from
a future ideal. Thus a spirit of idealism, seeing a realization of its
purposes in a less immediate society, is a very vital factor in determin-
ing the course of industrial development.
These several characteristics, material and emotional as all of
them are, are vital because they underlie our culture, condition our
growth, and must be clearly^ recognized in any program of political,
social, and industrial reform.
2. The Current Stage in Social Development-
It is in the economic world of here and now that we are interested.
Amid its complex of activities, institutions, conventions, ideals, stand-
ards, and modes of thought we order our lives. Its multifarious and
baffling problems are our problems — ours to "muddle" or to "solve."
How we handle them will determine quite largely what the economic
world of tomorrow is to be like. For these problems are aspects of
our industrial system ; they are incidents in the development of our
economic society. They emerge, or assume new forms, as the larger
whole develops. With its onward sweep severally they pass into
oblivion, lose themselves in new problems, assume unfamiliar forms,
or otherwise manage to get "solved." They are not distinct things ;
they cannot be detached from the larger scheme of affairs to which
they belong. They cannot be disposed of in isolation, as if the
universe were one thing and each of them another. They are
intimately associated with each other, with the economic system to
which they belong, and with the larger world, which includes the
legal, political, ethical, social, and all other aspects of life, economic
and non-economic. To understand them aright we must know some-
thing of this larger whole in its current manifestations.
In its rapid development our society is approaching the end of
what, in no invidious sense, we may call the exploitative period. Our
development in the nineteenth century was dominated by our stores
of natural wealth and by the use of an expanding and developing
machine technique. The century witnessed the conquest of a con-
tinent, seemingly possessed of never-failing resources. The gifts of
forest, waterfall, stream, soil, and mine, by the magic touch of mod-
ern technique, were transformed into a golden stream of wealth.
The expanding system absorbed larger and larger volumes of capital
2An editorial (1915, 1919).
6 CURRENT ECONOMIC PROBLEMS
and increment after increment of alien labor. Its object and end was
prosperity.
This process of getting rich absorbed quite largely our attention
and our energy. Our thought was for virgin fields for machine
effort. Our impatience was at the slowness of our very rapid indus-
trial development. Our powers of control, so far as they were con-
sciously used, were aimed at speeding up. We made no inquisitive
search into our legal arrangements, our fundamental institutions, or
our ethical standards. We did not perceive that development in one
aspect of life leaves incompatibilities that need attention. It did not
readily occur to us that improvement should occur elsewhere than in
the technique of production, the growth of business organization, and
the expansion of the pecuniary system. In short, we neither tried
to discover, nor succeeded in discovering, society. We had problems,
of course — many more than we had need for. But they were con-
cerned v/ith removing the barriers that opposed the establishment of a
pecuniary system on a nation-wide plan.
This neglect of the non-industrial side of life expressed itself
most conspicuously in a formidable and overgrown individualism.
Since we were growing wealthy, all was well We rarely thought
of attributing responsibility for what we did not like to society, insti-
tutions, conditions, or environment. Quite as rarely did we attribute
prosperity to the abundance of our natural resources. We firmly
believed that each individual "was master of his fate" ; that "oppor-
tunity knocks once at every gate" ; that "there is plenty of room at
the top"; and that successful men are "self-made."
This habit of thought worked its way into the whole range of our
institutions. A fundamental assumption of individualism was that
all men were equal. A resulting principle of action was that the
state should give "equal rights to all, and special privileges to none."
Equality suggested the attainment of political wisdom by calculation.
Accordingly the object of legislation was "the greatest good to the
greatest number." Since each person possessed one, and only one,
vote, it was evident that our government was a democracy. In ethics
our conduct was measured by individualistic standards. In education, "
by setting up the system of free electives, we made the individual
student the best judge of the training that was good for him. In
economics our attention was given very largely to the market ; the
distribution of wealth and proposals of social reform were alike
treated as if they were mere questions of value theory ; and we
elaborated and generally accepted the doctrine that one "gets what
he produces." Even our religious systems were characterized by an
intense and dogmatic individualism.
PROBLEM OF CONTROL IN INDUSTRIAL SOCIETY 7
It was, perhaps, inevitable that we should not escape looking at
things too narrowly. We manifested a contempt for philosophy and
general theory. We encouraged specialization, but overlooked the
broad and general training which should underlie it. We investigated
particular subjects without knowing the general fields to which they
belonged. We attempted to resolve phenomena into general schemes
without understanding the laws which govern the phenomena. We
formulated, analyzed, and attempted to solve our problems as if they
were so many distinct entities. We saw the whole only as an aggre-
gation of parts, and society only as a collection of individuals.
Closely associated was a notion of social change in mechanical
terms. When we became impatient with this or that, we demanded
an immediate remedy. We turned to the state as the obvious agent,
one which we professed to distrust, and demanded legislation. If
our attention was not distracted by some new "abuse," we usually
turned out the party in power if immediate results were not forth-
coming. Even our reformers usually gave us panaceas for all social
ills, or demanded a reconstruction of the whole scheme of life.
Many of our highest social values are associated with individual-
ism. Its note must be retained to keep the system from being resolved
into an orderly, mechanical, prosaic, and dull scheme of things. With-
out it, it is hard to see how society can most fully utilize its capacity
for development. In the America of the nineteenth century it helped
to solve the problems of a young society as perhaps nothing else
could have done. The individual pluck, energy, and initiative which
it called forth were just the qualities necessary to the gigantic and
crude stage of development through which the country was passing.
It remains in the present, however, in a very dominant form, thor-
oughly ingrained in our institutions and in the social philosophy of
classes which occupy quite important positions in society.
But for some time we have been conscious that we are approach-
ing the end of this exploitative period. We have by no means reached
the end of our resources ; but we have come to see that they are no
longer boundless. It is evident that there is real danger of wasting
our patrimony. Opportunities for sudden wealth are no longer
plentiful. We have awakened to the necessity of economy, of giving
long and careful thought to our social arrangements. We are begin-
ning to find out, too, that our prosperity has entailed its costs. We
gave conscious thought to securing a well-developed machine-system,
a large population, and a large measure of individual liberty, believing
that these would bless us with wealth. We succeeded in securing
these things. But we neglected to take thought for the cultural
incidence of the industrial system. As a result we have acquired a
8 CURRENT ECONOMIC PROBLEMS
number of things for which we did not ask, that may well be con-
sidered the costs of our material progress. Our urban life has its
full complement of slums, overcrowding, vice and poverty. There is
clearly evident a tendency toward a stratification of society on a
pecuniary basis, with a funded-income class at the top and a prole-
tariat of alien blood at the bottom. There is growing a spirit of
protest based upon a philosophy quite foreign to that which underlies
our cherished institutions. Our vast pecuniary system is making the
lot of labor, and capital, too, for that matter, extremely insecure.
Moreover, we are beginning to see that our prosperity is imposing
its costs upon the next generation, in conditions and institutions which
we did not will, in problems which we helped to raise but cannot solve,
and in depleted resources with which to work out its social salvation.
As we realize these things, there grows up among us a reaction
against the extreme individualism of the nineteenth century. We
are imposing limitations upon what we conceive individual initiative
and energy to be capable of accomplishing; we doubt if the ladder
which leads to the top has its full number of rungs ; all successful
men are no longer "self-made." We occasionally even make excuses
for the man who fails. We have discovered "environment," and
speak quite frequently of "exceptional opportunities," "social con-
ditions," and the "favor of fortune." We are beginning to associate
those things which we do not like with an "overdeveloped individual-
ism," and to see "grave dangers" in unrestricted liberty.
This change is manifesting itself in a changed attitude toward
our institutions. Quite frequently we use the word "privilege" in
connection with the activities of government. Seemingly forgetful
of our former boasts, we are today demanding reforms which will
make our government "democratic." We are not distrustful of the
fundamental soundness of our legal institutions, such as property,
contract, equality before the law, etc., but we are beginning to sus-
pect that they bear too many signs of having been forged to meet
the needs of frontier and craft societies ; that they are more con-
sonant with the plow and the spinning-wheel than with the power-
loom and the locomotive. We are qualifying ethical standards which
we regard as valid with the adjective social. In education the elective
system is giving way to a flexible curriculum adapted to the newer
society. A spirit of group and class welfare is expressing itself in
such voluntary associations as the trade and craft unions, and is
beginning to permeate legislation. We are beginning to trust the
state, and are no longer affrighted by the cry of paternalism. In
economics we use the term "social value" ; we have begun to insist
that economic theory is not confined to value theory ; and we are
more clearly recognizing that distribution of wealth and projects of
PROBLEM OF CONTROL IN INDUSTRIAL SOCIETY 9
social reform are concerned with institutional arrangements. Our
religious systems are more and more emphasizing the note of "social
service."
With the reaction from individualism has come a protest against
our habit of considering the particular apart from the general. We
are beginning to learn that things in general matter; and that the
reality of our problems lies in their connection with social life in
its varied and multifarious aspects. We are realizing that specializa-
tion, to be anything more than clerical, must have a broad basis. We
are coming to see that the whole is something quite different from
the sum of its parts; that society is not a mere aggregation of indi-
viduals.
Quite naturally enough the impatience that comes from the newer
view of things has enough of the older thought in it to place great
reliance in mechanics. It wants results and wants them now. In-
stinctively it turns to the state and demands legislation. But, in spite
of that, we are surely, if slowly, learning that there are decided
limitations upon what can be accomplished by tinkering. We know
that laws must be passed, and that there are many things which
immediately they can be made to do. But we are beginning to under-
stand that in many cases they produce their results, not from theit
direct enforcement, but from a series of reactions which they star*^,
and these results can only gradually appear. We are learning, too,
that there are other and more delicate instruments of control, such
as the educational system, codes of professional ethics, occupational
associations, and even conventions and traditions, that we may use
in the furtherance of our schemes, and that these delicate instru-
ments will reach many things too subtle and too minute to be touched
by the bolder and cruder machinery of the state.
In view of this it is not surprising that we are at last learning
that we do not have to be forever in a hurry. We must pay for
what we get. Perfect societies are not El Dorados or Klondikes to
be stumbled upon. A Utopia, even if it can be realized, cannot be
juggled out of a hat by a social magician. We must through devel-
opment gradually assume the social form we desire. Only knowledge
is obtained ; wisdom is attained. Even our socialists, who, only
yesterday, were promising us "a new heaven and a new earth," have
learned that there is a tomorrow.
And withal, in our radicalism, if you choose to call it such, we
are becoming more conservative. If we have begun to ask imperti-
nent questions about classes, property, and social arrangements gen-
erally, it is not because we are condemning, but only because we are
socially inquisitive. We would prove all things in order that we may
hold fast to that which is good. Yet more ciearly than ever before
lo CURRENT ECONOMIC PROBLEMS
we realize the vastness, complexity, and even the mysteriousness of
our social system. We know that we understand how various insti-
tutions and agents work very imperfectly. We know that many that
seem to us to be without responsibility are intimately associated with
some very important functions. We are not quite sure that we
could create agencies which would perform the same functions more
efficiently or with less cost. These things incline us to caution, to
take easy steps, to examine results carefully before proceeding, and
to use very flexible programs. But, if our knowledge is small, and
if the difficulties are great, the call is for a greater determination, a
more farsighted vision, a more careful, comprehensive, and patient
study, and greater deliberation about ways and means.
In view of this particular crisis in our development we must
consider our problems. We must recognize the part which the older
society, the older institutional system, and the older individualistic
thought have played and are still playing. We must as clearly recog-
nize the newer tendencies, both in the institutional system and in the
newer attitudes toward our economic arrangements. Many of these
problems we shall find to be old. When the universe was contrived
many antagonisms were left. The enigmas of rich and poor, of waste
and poverty, of privilege and oppression, have been presented to us
by the many ages which they have bafHed. As likely as not we shall
leave them as part of our heritage to succeeding generations. Some
of them appeared with the machine-system, and have become more
and more conspicuous as the newer technique conquered the con-
tinent. Of these are the problems connected with huge aggregates
of wealth, such as railroads and capitalistic monopolies. Some come
from incompatibilities between advancing and stationary aspects of
social development. The legal problem involved in employer's lia-
bility is typical of this class. Some are manifestations of a later stage
of the machine culture. Of this kind are the problems of the rela-
tionship of wealth to welfare in a society organized upon a pecuniary
basis. Some have to do with the ends which industry should be made
to serve. The problem of reorganizing industry to serve the needs
of war and of converting it back to the uses of peace is a bundle of.
enigmas of this kind. Of some of these problems we have long been
conscious. The events of the decade before the war brought others
before us. The many problems raised by the war and the many
changes following in its wake forced us to look less superficially at
our industrial arrangements and revealed many things there which
we had only remotely suspected. Who knows but there are many
others which are with us, but which we cannot see because of intel-
lectual blindness? But, old or new, familiar or unfamiliar, evident or
invisible, all of these problems are part and parcel of modern indus-
PROBLEM OF CONTROL IN INDUSTRIAL SOCIETY li
trialism. They are all involved in the gigantic pecuniary system
vv^hich knits together our social life. The oldest of them is with us a
problem very different in form from its earlier prototype which con-
fronted our ancestors. They are all aspects of the larger question,
Can our society determine the direction of its own development ?
To find an answer to such a question would involve a quest into
all of life. Here we must modestly limit ourselves to a general
survey of the current aspects of modern industrialism. Our pro-
cedure makes it imperative, first of all, clearly to realize that our
system is developing and that in this development the various aspects
of social life mutually influence each other. To that end it is well,
first of all, to ask ourselves whether, or in what sense, we can control
the development of industrial society. To be sure such an inquiry is
a rather abstract one for the beginning of our study. But it has two
distinct advantages. In the first place it gives us a large problem
which can gradually be translated into more specific questions and
general concepts which can little by little be given a content in the
pages that follow. Second, it makes us conscious of the social im-
portance of our task and prevents our losing sight of what we are
about in a study of its details. After we have considered the prob-
lem of the control of industrial society, by inquiring into the "forces"
causing development, the means of control we possess, and the theory
of control that we are to make use of, we shall turn to a short his-
torical account of how industrial society came to be what it is. This
should serve the double purpose of illustrating the problem of control
in a developing society and of revealing something of the nature of
the industrial society with which we have to deal. The emphasis in
this historical sketch falls appropriately upon "the antecedents of
modern industrialism" and upon the series of changes which have
given society its current structure and which we call "the industrial
revolution." The partial control which we are to exercise over de-
velopment is to come from our handling of particular problems.
Accordingly we must next consider a number of somewhat different
problems, always with a clear idea of their relations to each other
and to the developing whole. The few which will be treated are
typical of the many which confront us. These fall into two some-
what distinct groups, the first centering about the problem of
the organization of industrial society, the second concerning them-
selves with human values and the welfare of the various groups
which make up society as affected by the structure of modern in-
dustry.
The primary question in the first group is that of the mechanical
perfection with which price organizes society. The problem is com-
plicated by the rhythm of the business cycle. Associated with it is
12 CURRENT ECONOMIC PROBLEMS
the more difficult question of whether such an organization, quite
apart from its mechanical perfection, can be made to serve the ends
we would have it serve. This involves, among other things, a con-
sideration of the extent to which, and the means by which, it can be
adapted to an end outside itself, as, for instance, effective service in
warfare. An aspect of this larger problem of organization is the
question of the extent to which the economic entity should be made
to correspond to the political entity ; this appears most clearly in the
issues which center in the tariff. Internal problems of organization,
of tremendous social consequence, particularly in the tendencies im-
plicit in their gradual solution, are found in the regulation of rail-
roads and capitalistic monopolies.
Of the second group of problems, perhaps the most compre-
hensive is that of the control of population, quantitatively and quali-
tatively, through immigration and through births. Its proper solution
should do much to lessen the intensity of the other social problems.
A second, somewhat less baffling, but still extremely difficult, is that
of eliminating economic insecurity from the lot of the wageworker.
A third, perhaps most evident in the program of trade unionism, is
concerned with the rise of group- and class-consciousness, the spirit
of group solidarity implicit in so much of the recent social legisla-
tion, and the clash between the institutional systems of individualism
and of collectivism. These questions, clearly explicit before the
war, have been restated in such ways that they cannot be escaped.
The position of the hand worker in the industrial order and the
nature and extent of the control which shall be accorded the laborer
over industry and industrial processes are matters that press for
intelligent solution. A great part of the change which is impending
will doubtless be accomplished by the voluntary consent of the par-
ties affected, or, at least, through other agencies of control than the
government. But, despite the fact that for the moment the prestige of
the state as an instrument of direction is eclipsed, and industrial mat-
ters can never be adequately dealt with by a highly centralized
authority, some increase in state activity in behalf of the individual
seems inevitable. This makes imperative the problem of elaborating
the new fiscal policy entered upon in the last few years whose object
has been the finding of new sources of revenue. Finally, whether
ominous or prophetic, we need to note a rising spirit of protest which
demands a radical reconstruction of our whole scheme of social life
and values.
Such a quest promises no guaranteed solutions of perplexing prob-
lems. It will not yield magical formulas for disposing of the enigmas
which have perplexed the generations. It will give no assurance that
PROBLEM OF CONTROL OF INDUSTRIAL SOCIETY 13
succeeding ages will have no baffling and bewildering questions to
disturb their peaceful repose. It will furnish no open sesame to a
social Utopia. On the contrary, quite likely it will show that the
perfect society is far in the future. It may even convey the dismal
lesson that our limited resources will ever prevent the emancipation
of the sons of Adam from bondage to social economy. But the search
should yield some positive results. It should put us in position to
essay further quests into particular aspects of our industrial system.
It should prevent our dissipating our energies in an attempt to realize
the unattainable by impossible methods. It should save us from
thraldom to social and economic alchemy. Even more important, it
should show us that our problems are in process of gradual solution ;
that they have long-time aspects much more important than the im-
mediate issues which we see ; and that vision, as well as emotion, is
called for in dealing with them. Here and there, too, we should pick
up bits which together we can weave into a partial and tentative
program. If our quest makes this beginning, it will have served its
purpose.
B. THE NATURE OF ECONOMIC PROBLEMS
3. What an Economic Problem Is Like^
In this day of rapidly changing values, particularly in economic
life and thought, it is difficult to determine what an economic prob-
lem is, whence it comes, what gives it currency, and whither it is
going. To the end of understanding a problem aright, the follow-
ing list of general characteristics is given. Here they are put down
in abstract terms ; the materials given in the pages that follow should
enat)le the reader to translate them into the more tangible concepts in
which he does his ordinary thinking.
The title commits this volume to the domain of current economic
problems ; but currency is not a mere matter of the transitory and
ephemeral aspects of economic life, such as are noted in the morn-
ing paper. The most recent industrial merger, the latest bit of legic
lation, the court decision just announced do not mark out its province.
The economic questions currently discussed and subject to immediate
political action do not fix its bounds. Such things as these, distinct
as they seem to be, are mere passing phases of larger and more com-
plex problems. For their beginnings we must look into the far-distant
past ; their ends it is not yet vouchsafed to us to see. They are in
process of gradual solution. The issues which they involve are
much more intricate and subtle and much less comprehensible than
3An editorial, 1915, 1919.
14 ~ CURRENT ECONOMIC PROBLEMS
their immediate aspects would seem to indicate. In form and content
each is closely identified with the stage of industrial development
which we have reached. Each involves something of almost every
phase of our complicated social life. As separate problems they are
merely aspects of a larger reality. If, then, we would understand
them aright, we must study them in their historical setting as inci-
dents in the development of society.
Their essential unity makes the word problems in the title un-
fortunate. The term seems to imply the separate treatment of a
number of loosely connected questions. The editor disclaims such
pretentiousness in his use of it. He has no intention of presenting
an aggregation of summaries from many particular fields of eco-
nomic knowledge. He purports to give no epitome of a dozen differ-
ent volumes discussing as many different problems. In this book he
can neither make use of the methods, nor accomplish the results, of
advanced study. A proper understanding of each of these problems
is contingent upon a mastery of the workings of some very intricate
economic machinery, a careful examination of a large amount of
factual material, a painstaking analysis and interpretation of the
phenomena of the field of study, and an elaboration of the con-
clusions drawn from it. To attempt such a task for each of the
problems presented here in the space available is impossible ; it would
result in a mere formal presentation of half-truths. The object of this
volume is of another kind ; it is introductory. It attempts to present
a general view of the whole as a necessary preliminary to a study
of particular problems. So far as the latter are separately treated,
they are presented as aspects of the larger whole.
A study of problems implies a search for anszvers. But, if this
volume is to be judged by its ability to supply the earnest student
with the right answer to each of the questions it discusses, it must
indeed be found a dismal failure. The number of problems with
which it deals precludes the detailed study which should precede
the formation of "final" opinions. Besides, it is extremely doubtful
whether the problems of industrial society can be settled dogmatically.
As economists we can, and should perhaps, dogmatize about sucH
principles as "the law of diminishing returns." But no economic
problem can be resolved by the application of a single simple law ;
it is part of a situation much too complex and subtle and peculiar
for that. Nor can it be made to yield to the magic that lies in a sepa-
ration of all proposals into the two simple classes of the "good" and
the "bad." Nor yet can its solution emerge as the result of a process
of calculating resulting utilities and disutilities. Every proposal in-
volves a distribution of costs and utilities between the present and
PROBLEM OF CONTROL OF INDUSTRIAL SOCIETY 15
the future, and between different classes in society. It has not one,
but many, economic consequences, good and bad. It is sure to affect
in countless ways, for better or for worse, the legal, political, ethical,
religious, and social aspects of life. There is no magical instrument
of measurement which can unlock such a riddle by promising that a
certain definite surplus of good or ill will follow the application of a
given proposal. Such values are incommensurable by any known
instrument of calculation.
Yet, to make judgments in the face of these complex schemes of
incommensurable values is the essence of the problems which we
are to discuss. If their solutions are to be advanced, if industrial
society is to develop, such judgments must be made. We cannot
blink the fact that every proposal advanced involves both the good
and the bad, the desirable and the undesirable. We cannot forget
that to get some of the good things we want, we must give up other
good things ; that to escape some of the costs we are unwilling to
incur, we must endure others. In short, the "solution" of an eco-
nomic problem involves a choice between conflicting and incom-
mensurable values. The decision which it requires transcends the
utmost that can be pent up in any strictly economic terms ; it is
contingent upon nothing less than our ideal of the socially desirable.
But, if our efforts are to be effective, we must aim at the attainable.
We must take full account of the limitations imposed upon the
"solution" of problems by contemporary activities, prevailing insti-
tutions, and the attitudes of the various classes which make up society.
In view of the large economic and intellectual environment surround-
ing them, economic problems are not suddenly to be disposed of ;
definite and final answers are not to be found for them. Rather they
are gradually to be solved ; they must have everdeveloping answers.
Upon this theory of a choice betzueen conflicting and incom-
mensurable values the readings which follow have been selected.
They come from the most miscellaneous sources. They represent all
the prominent attitudes, from the most conservative to the most
radical, which condition the direction of our development. They are
written by men possessed of the widest variety of opinion — economic,
political, and sociological. They represent emotionally as well as
intellectually (for feelings count as strongly as logic in the practical
affairs of our everyday world) the conflicting views and arguments
which contemporary society is bringing to bear upon its problems.
They contain sound argument, good judgment, truth. They contain,
too, much of overstatement, fallacious reasoning, and falsehood.
But all are important for, sound or unsound, true or false, they are
active elements of the problems we would solve. The reader should
not too definitely attempt to separate them into the "true" and the
1 6 CURRENT ECONOMIC PROBLEMS
"false." All thought is conditioned by its fundamental assumptions.
Matters of personality, of class, of time, and of place manage to make
their way into all intellectual work. Those who regard themselves
as most immune are frequently most subject to these disturbing
influences. Undoubtedly fundamental differences about economic
programs frequently grow out of the possession or non-possession
of the "facts." But far oftener they are due to conflicting attitudes
which represent endeavors to find social good by generalizing indi-
vidual interests. Some such study is necessary to a clear apprecia-
tion of the many conflicting values involved in the conscious judg-
ments upon which the solution of our problems depend.
In quite another way, the miscellaneous character of these read-
ings should prove valuable. They should help the reader to approach
economic questions without personal or class bias ; they should lead
him to see that his own opinions, despite the authority of their
source and their venerable age, are not necessarily the expression
of economic verity ; and they should induce in him some willingness
to hold in abeyance his judgment on economic questions. Vital and
valid arguments in support of a proposition in which one thoroughly
disbelieves should do much to prevent haste in the formation of his
final judgments. Even erroneous arguments have their pedagogical
value. Stimulation is by provocation as well as by suggestion ; and
It is hoped that more than one of the readings which follow will
provoke the reader into a more careful formulation of his opinions
and a clearer statement of his reasons for possessing them. Above
all, it is hoped that in a constructive way they may give the begin-
nings of a flexible and developing economic program. Its fulness can,
and should, come with time, study, and reflection.
It cannot be denied that many of the readings touch upon ques-
tions which many think cannot be discussed without "danger to
society" ; and that others present views which "threaten to subvert
our institutions." Fortunately the disposition to exclude "dangerous
subjects" and "dangerous views" from academic discussion is much
less pronounced than it used to be. There seems to the editor little
doubt that the danger is, if not altogether absent, at least unduly
magnified. To the extent that it is real, however, an injunction
against discussion is not the proper method of minimizing it. The
safe course lies rather in getting students to think clearly in terms
of economic situations and to recognize in this thinking the many
fundamental economic values which usually fail of popular consid-
eration. The erection of signs prohibiting trespass is the best method
of enticing college students into forbidden fields of discussion. Much
better is it to invite to this forbidden territory under proper guid-
ance. It is hoped that the selections which follow will reveal some
PROBLEM OF CONTROL IN INDUSTRIAL SOCIETY 17
of these values and will do something to induce intelligent thought.
To the end of showing the setting of our current problems and
the many conflicting values which they involve, the book has been
made to consist of a large number of short readings rather than a
small number of long ones. Whatever may be the value of the
latter type of manual for advanced work, its usefulness in elementary
instruction is largely its power of compelling labor. A small number
of readings cannot at all cover the field adequately; they cannot
furnish a clear perspective of the subject as a whole; they cannot
introduce economic problems in their larger setting. They contain
much extraneous matter; they include discussions of subtle points
lost on all except advanced students ; and they are prone to cause the
student to lose the main issues in a world of detail. They commit
the fundamental error of attempting to exhibit the particulars before
the student has seen the whole. They make it difficult for the average
student to discriminate between the accidental and the essential ; and
too frequently their use leads to a substitution of heroic clerical work
for intellectual exertion. In the readings here presented an attempt
has been made to eliminate the nonessential and the confusing.
This induced simplicity is not intended to convey the idea that
the problems involved are simple, and that social economics is a
subject which can easily be "mastered." On the contrary, few teach-
ers will be tempted to charge this volume with an elucidation of the
merely obvious. On the contrary, the very difficulty of the subjects
treated makes it necessary that the many and conflicting arguments
be presented as simply and definitely as possible. One of the func-
tions of the book is to show the difficulty and complexity of the prob-
lems. Perhaps nothing is doing more to complicate the solution of
our problems at the present time and to prevent the elaboration of a
definite program than the belief of so many people that these same
problems are simple and easily understood, and that "evils" are re-
sponsive to simple prescriptions. To convey the idea of simplicity
and intelligibility, when these are not of the subject discussed, is to
fail on the very threshold of economic study.
In an introductory course, the primary desideratum is not the
acquisition by the student of facts and formulas, which he can hand
back at examination, having no further use for them. It is rather
to induce on his part a developing appreciation of the situation as
a whole and of the relation of institutions and problems to each other
and to it. It is more desirable that he come to understand the sub-
ject than that he amass formal knowledge about it. It is preferable
that he learn to think intelligently in terms of a complex industrial
situation than that he acquire a vast collection of "principles" that
formally explain its working. The readings are intended to supply
i8 CURRENT ECONOMIC PROBLEMS
not factual material upon which the student can be quizzed, but
rather matter that will raise questions and provoke thought. They
are intended to prepare for recitation by giving the instructor and
the students something to discuss together. The function of the
instructor is to direct and guide discussion, and to see that the
thought of the students is intelligent and intelligible.
It is no part of the function of this volume, therefore, to lighten
the instructor's labors. Ease and a shifting of responsibility can
better be found in the formal lecture or in quizzing from a text. The
editor believes quite firmly that the value of any course in economics
is pretty much what the instructor makes it. He is the factor of
vital importance. If the course is to be successful in aiding the
student properly to begin the long-to-be-continued process of getting
a fair conception of the economic world and of formulating an eco-
nomic program, it must be the instructor's ozvn course. He alone
knows the factors involved in his own classroom problem. He must
determine its content, fix its arrangement, and shape the tools which
he uses to its peculiar need. Books, problems, and other pedagogical
devices are at best but instruments. If a book of this kind has any
advantage over a formal text, it is in the freedom which it allows to
instructor and student, both in making the most of the recitation and
in the ordering of the course. Wherever it is used, unity must come,
not from the book itself, but from the teacher's own plan, and from
his skillful use of the complementary tools he employs. The function
of this volume is to give not leisure, but intellectual liberty.
C. THE NATURE OF PROGRESS*
4. What Is Progress?
BY JAMES BRYCE
When we say that man has advanced, or is advancing, of what
lines of advance are we thinking? The lines of movement are really
as numerous as are the aspects of man's nature and the activities
which he puts forth. Taking his physical structure, is mankind on
the whole becoming stronger, healthier, less injured by habits whicH
depress nervous and muscular forces, and are the better stocks of
men increasing faster than the inferior stocks? Considered as an
acquisitive being, has man more of the things that make for comfort,
more food and clothing, better dwellings, more leisure ? Intellectually
regarded, has he a higher intelligence, more knowledge and opportuni-
ties for acquiring knowledge, more creative capacity, more perception
of beauty and susceptibility to aesthetic pleasures ? Considered in his
^Adapted from an article in the Atlantic Monthly, C, 147. Copyright, 1907.
PROBLEM OF CONTROL IN INDUSTRIAL SOCIETY 19
social relations, has he more personal freedom, is he less exposed
to political oppression, has he fuller security for life and property,
are there more or less order and concord within each community,
more or less peace between nations? Lastly, is man improving as a
moral being? Is there more virtue in the world, more sense of justice,
more sympathy, more kindliness, more of a disposition to regard the
feelings and interests of others and to deal gently with the weak?
In each and all of these departments there may be progress, but not
necessarily the same rate of progress, and we can perfectly well
imagine a progress in some points only, accompanied by a stagnation
or even a decline in other points.
When we talk of the progress of the world, do we mean an ad-
vance in all these respects, or only in some, and if so in which of
them? If in all of them, which are the most typical and the most
significant? Suppose there has been an advance in some, and in
others stagnation or retrogression, how shall we determine which
are the most important, the most fraught with promise or discourage-
ment? An examination of the language of popular writers indicates
that the current conception has been seldom analyzed. Such writers
have seemed to have assumed that an improvement in some aspects
of human life means an improvement in all, perhaps an improvement
to something like the same extent. Another question suggests itself.
Is the so-called law of progress a constant one? Suppose its action
in the past to have been proved, can we count upon its continuing
in the future, or may the causes to which its action has been due
some time or other come to an end? I pass over other points that
might be raised. It is enough to have shown in how vague a sense
the current term has been used.
5. Evolution or Progress?^
BY L. T. HOBHOUSE
I use the term "evolution" in regard to human society, and also
the term "progress." This should imply that there is some differ-
ence between them. By evolution I mean any sort of growth ; by
social progress, the growth of social life in respect to those qualities
to which human beings attach or can rationally attach value. Social
progress, then, is only one among many possibilities of social evolu-
tion. At least it is not to be assumed that every and any form of
social evolution is also a form or stage in social progress. For ex-
ample, the caste system is a product of social evolution, and the more
rigid and narrow the caste, the more complex the hierarchy, the more
completely has the caste system evolved. But most of us would
^Adapted from Social Evolution and Political Theory, pp. 7-25. Copy-
right by the Columbia University Press, 191 1.
20 CURRENT ECONOMIC PROBLEMS
question very strongly whether it could be considered in any sense
a phase of social progress. So again there is at the present day a
vigorous evolution of cartels, monopolies, rings and trusts ; there is
an evolution of imperialism, of militarism, of socialism, of a hundred
tendencies as to the good or evil of which people differ.
The fact that a thing is evolving is no proof that it is good ; the
fact that society has evolved is no proof that it has progressed. The
point is important because under the influence of biological concep-
tions the two ideas are often confused, and the fact that human
beings have lived under certain conditions is taken as proof of the
value of those conditions, or perhaps as proving the futility of ethi-
cal ideas which run counter to evolutionary processes. Thus in a
recent article I find a contemptuous reference to "the childlike desire
to make things fair," which is "so clearly contrary to the order of
the universe which progresses by natural selection." In this brief
remark you will observe two immense assumptions, and one stark
contradiction. The first assumption is that the universe progresses —
not humanity, observe, nor the mass of organic beings, nor even the
earth, but the universe. The second is that it progresses by natural
selectfon, a hypothesis which has not yet adequately explained the
bare fact of the variation of organic forms on the surface of the
earth. The contradiction'is that progress is incompatible with fair-
ness, the basic element in all judgments of value, so that we are called
upon to recognize as valuable that by which our fundamental notions
of value are set at naught.
By studying certain sides of organic process people arrive at a
particular hypothesis of the nature of the process. They erect this
hypothesis into an universal and necessary law, and straightway call
upon everyone else to acknowledge the law and conform to it in
action. They do not see that they have passed from one sense of law
to another, that they have confused a generalization with a command,
and a statement of facts with a principle of action. They accord-
ingly miss the starting-point from which a distinct conception of
progress and its relation to human effort becomes possible. But for
any useful theory of the bearing of evolution on social effort this con--
ception is vital. We can get no light upon the subject unless we
begin with the clear perception that the object of social eflFort is the
realization of ends to which human beings can rationally attach value,
that is to say, the realization of ethical ends ; and this being under-
stood, we may suitably use the term progress of any steps leading
towards such realization.
Our conclusion so far is that the nature of social progress cannot
be determined by barely examining the actual conditions of social
evolution. Evolution and progress are not the same thing. They
PROBLEM OF CONTROL IN INDUSTRIAL SOCIETY 21
may be opposed. They might even be so fundamentally opposed that
progress would be impossible.
Because of the influence of biological notions on social and eco-
nomic thought, one phase of the Darwinian theory must be noted.
The main effect of his work in the world of science was to generate
the conception of the progress of organic forms by means of a con-
tinuous struggle for existence wherein those best fitted by natural
endowment to cope with the surroundings would tend to survive. In
our field, after Darwin, it began to be held that man, in spite of his
philosophy, was still an animal, still subject to the same laws of
reproduction and variation, still modifiable in the same manner by
the indirect selections of the individuals best fitted to their environ-
ment. The biological social philosopher had not to trouble himself
about what was best ; nor, like the social investigator, to remain in
doubt as to the broadest principles regulating the life of society. On
both these questions his doubts were already solved by what he had
learned in biology itself. The best was that which survived, and the
persistent elimination of the unfit was the one method generally neces-
sary to secure the survival of the best. Armed with this generaliza-
tion he found himself able to view the world at large with much
complacency.
To him life was constantly and necessarily growing better. In
every species the least fit were always being destroyed and the stand-
ard of the survivors proportionately raised. No doubt there remained
in every society many features which at first sight seemed objectiona-
ble. But here again the evolutionist was in the happy position of
being able to verify the existence of a soul of goodness in things evil.
Was there acute industrial competition ? It was the process by which
the fittest came to the top. Were the losers in the struggle left to
welter in dire poverty ? They would the sooner die out. Were hous-
ing conditions a disgrace to civilization? They were the natural
environment of an unfit class, and the means whereby such a class
prepared the way for its own extinction. Was infant mortality ex-
cessive? It weeded out the sickly and the weaklings. Was there
pestilence or famine ? So many more of the unfit would perish. Did
tuberculosis claim a heavy toll? The tubercular germs are great
selectors skilled at probing the w^eak spots of living tissue. Were
there wars and rumors of wars? War alone would give to the con-
quering race its due, the inheritance of the earth. In a word the only
blot that the evolutionist could see upon the picture was the "maudlin
sentiment" which seeks to hold out a hand to those who are down.
The one sinner against progress is the man who tries to save the lamb
from the wolf. Could we abolish this unscientific individual, the
prospects of the world would be unclouded.
22 • CVRMNT ECONOMIC PROBLEMS
Yet, before we apply biological conceptions to social affairs, we
generally suppose that the highest ethics is that which expresses the
completest mutual sympathy and the most highly evolved society that
in which the efforts of its members are most completely coordinated
to common ends; in which discord is most fully subdued to harmony.
Accordingly we are driven to one of two alternatives. Either our
valuations are completely false, our notions of higher or lower un-
meaning, or progress does not depend upon the naked struggle for
existence. The biologist would cheerfully accept the first alternative.
As we have already seen, he is disposed to tell us that we vainly seek
to distort truth by importing our ethical standards. He is quite ready
to insist that we must subordinate our judgments of value to the
survival test. We must judge good that which succeeds. Unfortu-
nately for him at that stage his whole theory becomes a barren tautol-
ogy. Progress now in his view results from the survival of the fittest,
because progress is the process wherein the fittest survive. Again it
is always the fittest who survive, because the fact of their survival
proves their fitness.
6. The Criteria of Progress®
BY JAMES BRYCE
In our study of the supposed forward movement of mankind, let
us begin with two comparatively easy lines of inquiry : the physical
characteristics of the human species, and the conditions under which
the specie's has to live ; and let us see what conclusions can be reached
by examining these.
Additions to the number of the human race are popularly treated
as if they were an undoubted benefit. We see every nation and every
community regarding its own increase as something to be proud of.
But is the increase of the race any gain to the race? The population
of Europe is three or four times, and that of North America twenty
times, as large as it was two centuries ago. This proves that there
is much more food available for the support of life, much more pro-
duction of all sorts of commodities, and in particular an immense
increase in the area of land used for producing food, with an improve-
ment in the methods of extracting food from the land. So the growth
of a city like Boston or Chicago proves that there has been an immense
increase in industry. Men work harder, or at any rate more efficiently,
and have far better appliances for production at their command.
Whether they live happier lives is another matter. It used to be
said that he who made two ears of corn grow where only one ear
^Adapted from an article in the Atlantic Monthly, C, 147-56. Copy-
right, 1907.
PROBLEM OF CONTROL IN INDUSTRIAL SOCIETY 23
had grown before was a benefactor to the race. Is that necessarily
so? The number of men who can Hve off the soil is larger, but the
men need not be better off. If there is more food there are also
more mouths. Their lives may be just as hard, their enjoyments
just as limited. Some parts of the earth are already too crowded
for comfort. The notion that population is per se a benefit and a
mark of progress seems to be largely a survival from a time when
each tribe or city needed all the arms it could maintain, to wield
sword and spear against its enemies. "As arrows in the hands of a
giant, even so are young children," says the Psalmist ; and when men
are needed to fight against the Hittites, this is a natural reflection.
It may also be due partly to an unthinking association between growth
and prosperity.
Let us pass to quality. The most remarkable fact of the last
few centuries has been the relatively more rapid growth of those
whom we call the more advanced races, Teutonic, Celtic, and Sla-
vonic. Nineteen centuries ago there were probably less than ten
million people belonging to these three races. There are today proba-
bly over three hundred and fifty million, while the so-called back-
ward races have increased more slowly and are now everywhere
under the control of the more advanced races. In duration of life,
too, there is unquestionably an improvement. Lunacy, however, is
increasing. This seems to imply that there are factors in modern
life which tend to breed disorders in the brain. In this connection
a still more serious question arises.
The law of differentiation and improvement by means of natural
selection and the survival of the fittest may reasonably be thought
to have done its work during the earlier period of the history of
mankind. The races which have survived and come to dominate the
earth have been the stronger races; and, while strife lasted, there
has always been a tendency for physical strength and intelligence to
go on increasing. The upper classes in every community were always
stronger and handsomer than the classes at the bottom of the scale.
The birth-rate was probably higher among the aristocrats, and the
chance of the survival of infants better. But in modern society the
case is quite otherwise. The richer and more educated classes marry
later and as a rule have smaller families than the poorer class, whose
physique is generally weaker and whose intelligence is generally on
a somewhat lower level. The result is that a class in which physical
strength and a cultivated intelligence are hereditary increases more
slowly than do classes inferior in these qualities. Fortunately, the
lines of class distinction are much less sharply drawn than they were
some centuries ago. The upper class is always being recruited by per-
sons of energy and intellect from the poorer classes. Still we have
24 CURRENT ECONOMIC PROBLEMS
here a new cause which may tend to depress the average level of
human capacity.
The improvement, so far as attained, in the physical quality of
mankind is largely due to such changes in its environment as the
greater abundance of food and clothing, the better conditions of hous-
ing, the diffusion of property among all classes in the community.
Along these lines the improvement has been extraordinary. The
luxury of the rich, the comfort of the middle class, the comparative
immunity of the poorer classes from famine and pestilence, have
increased within the last two centuries more than they had during
many preceding centuries.
Most remarkable of all has been the cause of these improvements,
namely, the increase in our knowledge of natural laws and the power
over natural forces which has been thereby acquired. Man has now,
by comprehending Nature, become her master. These are the things
which are commonly in our mind when we talk of progress. It is the
wonderful gains made in these things which are visible and tangible
and which affect our daily life at every turn that have struck the
popular mind, and have seemed to mark, not only a long onward step,
but the certainty of further advance. Material progress has seemed
to sweep everything else along with it.
Whether this be so is the very question we have to consider. Does
our increased knowledge and command of nature, do all those bene-
fits and comforts which that mastery has secured, so greatly facilitate
intellectual and moral progress that we may safely assume that there
will be an increase in intelligence, in virtue, and in all that is covered
by the word "happiness" ? It seems hard not to believe it.
Certainly we see under these new conditions less anxiety, less
occupation with the hard necessities of finding food and clothing.
Work itself is less laborious, because more largely done by machinery.
There is more leisure that can be used for the acquisition of knowl-
edge and for setting thought free to play upon subjects other than
practical. The opportunities for obtaining knowledge have been
extended and cheapened. Transportation has become cheap, easy,
and swift, enriching and refreshing the mind by foreign traveL
Works of art are produced more abundantly. The mere increase of
population and purchasing power has a favoring influence upon intel-
lect, because there is more demand for the products of intellect and
more persons employed in their production. Thus it is clear that
material progress provided at least unprecedented facilities and
opportunities for intellectual progress, and the quantity of intellectual
activity has enormously increased.
Quality, however, must also be considered. Plato hinted that the
invention of writing had weakened the powers of the human mind.
PROBLEM OF CONTROL IN INDUSTRIAL SOCIETY 25
We may well doubt whether the intellectual excellence of the age
can be measured by the number of speeches or the amount of printed
matter it produces, and whether the incessant reading of newspapers
and magazines tends on the whole to strengthen the habit of thinking.
Material progress has affected the forms which intellectual activ-
ity takes and the lines of inquiry which it follows. But there is no
evidence that it has done more to strengthen than to depress the
intensity and originality and creative energy of intellect itself ; nor
have these qualities shown themselves more abundant as the popula-
tion of the earth has increased. As for accomplishment intellectually,
may there not be a limit to this kind of advance, and may we not be
approaching that limit?
But, if it has proved difficult to say how far material progress
and the diffusion and extension of knowledge have stimulated and
are likely to stimulate intellectual progress, still harder is it to esti-
mate their influence on the standard of moral excellence. What is
moral progress ? The ancient philosophers would have described its
aim as being harmony with nature, that is, with those tendencies in
man which lead him to his highest good by raising him above sense
temptations. Augustine or Thomas Aquinas would have placed it in
conformity to God's will to which all thoughts and passions should
be attuned. Neither of these ideals had any relation to material
progress, and saints would probably have thought such progress hurt-
ful rather than helpful to the soul.
To estimate the degree in which some sins or vices have declined
and others have developed, the extent to which some virtues have
grown more common and others more rare ; to calculate the re-
spective ethical values of the qualities in which there has been an
improvement and a decline ; and to strike a general balance after
appraising the worth of all these assets — this is a task on which few
would care to enter. No analysis and no synthesis could make much
of data so uncertain in quantity and so disputable in quality. Differ-
ent virtues rise and fall, bloom and wither, as they inspire joy or
command admiration.
It may, however, be suggested that there is one thing whose rela-
tion to material progress must somehow be the ultimate test of every
kind of advance. It is happiness. But what is happiness ? Is it pleas-
ure? Are pleasures to be measured by a qualitative as well as a
quantitative analysis? Shall we measure them by the intensity by
which they are felt or by the fineness and elevation of the feeling
to which they appeal? Is the satisfaction which Pericles felt in
watching the performance of a drama of Sophocles greater or less
than the satisfaction which one of his slaves felt in draining a jar of
wine?
26 CURRENT ECONOMIC PROBLEMS
The comparison of our own age with preceding ages does not
solve the problem. Most of us probably rejoice that we did not live
in the fifth or even the seventeenth century. But can we be sure
that the individual man in those centuries had a worse time than the
average man now has ? He was in many points less sensitive to suf-
fering than we are, and he may have enjoyed some things more
intensely. True, the fear of torment brooded like a black cloud over
the minds of past generations. Yet we know that many persons look
back to the A^es of Faith as ages when man's mind was far more
full of peace and hope than at present.
Happiness is largely a matter of temperament, and temperament
largely depends upon physiological conditions, and the physiological
conditions of life are much affected by economic and social condi-
tions. How can we then determine whether the excitement and
variety of modern life make for happiness?
We may seem to be better equipped for prophecy than we were,
because we have come to know all the surface of the earth, and its
resources, and the races that dwell thereon, and their respective gifts
and capacities. But how these elements will combine and work
together is a problem apparently as inscrutable as ever. The bark
that carries man and his fortunes traverses an ocean where the winds
are variable and the currents unknown.
D. THE CONTROL OF ECONOMIC ACTIVITY
7. The Agencies of Social ControP
BY ELIZABETH HUGHES
The prominence attached to government interference with indus-
trial enterprise has caused the other ways in which society orders,
directs, and defines the efforts of individuals to be overlooked. Social
control, it must be remembered, has many channels through which to
spread and need confine itself at no time to the single course of overt
legislation.
Group will operates most persistently and potently through the
great unwritten rules and restrictions imposed by custom, which
through their very familiarity often escape observation. A glance
at Eastern, then at Western, civilization may serve to show by con-
trast how far-reaching and permeating is custom's influence upon
industrial life. In eastern countries custom decrees that trades shall
be hereditary ; that the tools and methods used by ancestors shall
continue to be used by present-day workers ; and that human labor
shall not be supplanted in any marked degree by machine effort, but
^1915-
PROBLEM OF CONTROL IN INDUSTRIAL SOCIETY 27
only supplemented somewhat by it. Western civilization, on the con-
trary, adopts as its fetish the new rather than the old, favors develop-
ment rather than stagnation — in a word, tends to make change itself
customary and normal. In production machinery is extensively used,
and a child may follow quite another trade than his father's, or, if he
adopts his parent's calling, need not execute it in precisely the same
manner. But though Western society is not stereotyped to the degree
to which the social groups of the Orient are, it nevertheless shows
more than traces of conservatism. Mill-owners, for example, through
custom, cling to child labor ; merchants determine selling prices by
adding customary percentages of profit, differing greatly in different
trades ; the standardization of woman's dress makes little headway
against the custom of frequent and radical changes in style ; spring
millinery is marketed in January in spite of untoward weather ; extra
clerks are hired at Christmas to meet the demands of those whom no
society for the suppression of useless giving can deter from eleventh-
hour activity in buying. It is custom which leads people to continue
patronizing the dealer and the brand of goods they have formerly
found satisfactory — or unsatisfactory — instead of accepting the "just-
as-good" substitutes. Without the power of custom "good will"
could not be capitalized as an asset, and trade-marks would not be
desirable. Custom, then, does actively and potently aid in regulating
industry.
The various institutions of society epitomize forms of social con-
trol. Schools with their industrial departments in a measure sup-
plant the older system of apprenticeship and by their vocational
guidance bureaus attempt to place children in fitting occupations.
The press, the pulpit, and the platform are agents for the dissemina-
tion of ideas ; and, by the impression of group ideas and standards
upon individuals, foster the establishment of social solidarity.
Through these a societ>''s codes of ethics find expression : exploita-
tion of workmen, for example, is frowned upon ; an opportunity for
everyone is coming to be regarded as a matter of right ; and it is
insisted that competition shall be free and not "cut-throat."
In addition to the general ethical codes of society are the particu-
lar codes of the different professions. For instance the code of the
medical profession exercises a restraining and compelling influence
over many activities of its members. It is responsible alike for the
custom of non-advertisement of medical services, a large amount of
charity work, and a system of class prices that frequently becomes
"charging what the traffic will bear." The medical man's code rules
out many of the things which law permits, and stands in sharp con-
trast to the principles of the business man who still holds to the
"eye-for-an-eye" doctrine and looks upon shrewdness and sagacity
28 CURRENT ECONOMIC PROBLEMS
as cardinal virtues, honesty as a matter of policy, and good will as
desirable private capital. He is, however, unlike the medical man,
constrained to charge rich and poor a single price for his wares, thus
more adequately protecting "the consumer's surplus" of the well-to-
do class than it is protected from the medical fraternity. On the
contrary there is no gratuitous gift to the ne'er-do-well.
Lawyers, ministers, and teachers— each in turn have their codes.
The tyranny of social custom shows itself especially in the standard
of living which each of the professional classes is expected to main-
tain. Salaries and fees must be high enough in the aggregate to
make a given standard attainable with circumspect expenditure.
A man in choosing his profession adopts along with his choice
an obligation to obey the ethical code society, and the particular group
he has joined expects him to follow. If medicine, he must live up
to the ethics of the medical profession ; if law, he must obey its behests
under penalty of debarment; if certain particular lines of business,
he must rise or stoop to the plane of competition maintained in these
lines, since nonconformity automatically excludes through business
disaster those who do not conform.
He may subject himself still further to voluntary compulsion by
joining a club or an association ; for clubs and associations, of what-
ever sort they be, have in common the exercise of general control
over members. The trade-unionist, for example, may not "scab"
even if he is unemployed because of a strike he did not vote for;
nor may he speed up even though he can easily increase his earnings
through piece-work ; nor work overtime without extra pay ; nor buy
anything without a union label; nor print anything except on a
union press. Just so the employer who has allied himself with an
employers' association must uphold in relation to his laborers those
principles and stipulations upon which the association has agreed. He
must conduct his business less in accord with his individual will and
more as the group has deemed best. Again there is the Consumers'
League, whose members pledge themselves to patronize only those
manufacturers who measure up to a standard set by the League and
attain thereby unto an honored place on its white list and win fhe
right to use the Consumers' label.
Enough has been said to show that government regulation is only
one form of social control. In fact, it would seem as if, in a demo-
cratic society, legislation is only resorted to when there is conflict in
control exterted by different groups within society at large. The
more satisfactory the control by the smaller group, the less the eco-
nomic or social oppression of one by another, the less the interference
of society at large through law and governmental control.
PROBLEM OF CONTROL IN INDUSTRIAL SOCIETY 29
8. The Family as an Agency of Control^
The importance of social control lies in its performance of two
functions. The first is the organization of industrial society; the
second, the direction of social activities to ends that constitute prog-
ress. These results require for their accomplishment the use of
a variety of institutions. So prevalent has become the habit of ex-
pressing this problem in terms of the individual and the state that
we are prone to overlook the less obvious, but extremely important,
agencies of control. The influences of some of these, both in holding
society together and in directing its development, are far more ex-
tensive and their sanctions far more compelling than even state
authority. In fact such is their power that one of the principal
functions of the state has come to be forcing upon a small minority
modes of action which have been developed through other agencies
and which have already come to exercise a compelling influence
over the majority. A single example, that of the family, will serve
to show the nature and efficiency of these usually neglected agencies.
The industrial system is in general manned by adults ; so we are
too prone to overlook the industrial importance of children. The
latter constitute an incipient industrial force ; to them the manage-
ment and operation of the industrial system will in course of time be
intrusted. How this task is performed depends to a large extent
upon influences brought to bear upon them while they are still
unincumbered with actWe industrial duties. The system demands
personal efficiency ; it must have workers who are capable of sus-
tained effort. This is an acquired characteristic. The savage does
not possess it ; improper home influences may prevent the civilized
child from acquiring it. Its acquisition is very closely associated
with habits of home discipline. The common ethical standards
to be applied to business dealings are also quite dependent upon the
same influences. The home develops individual norms ; these grow
into class and social norms, which exercise over the individual vital
control of actions through all-compelling imperatives and inhibitions.
Industrial efficiency likewise depends upon the proper distribu-
tion of workers among the different occupations. The decisions af-
fecting this distribution are not always made by the heads of fami-
lies, but all of them are surrounded by many and varied family
influences. The preparation for entering the chosen occupations is
usually made under the same influences. Since the organization of
society as well as its development is contingent upon a proper distri-
bution into occupational groups, the importance of this cannot very
well be underestimated. The freedom which an individual pos-
sesses to choose and change his own occupation usually does not
^An editorial (1915).
30 CURRENT ECONOMIC PROBLEMS
come to him until a time when an exercise of this freedom would be
attended by losses too great to permit it.
Both the immediate welfare and the progress of society vitally
depend upon the proportions between the three factors of produc-
tion — land, labor, and capital. The family, more than any other
institution, controls the increase in the two factors subject to in-
crease, capital and labor. The origin of capital, as we know, is in
savings. Savings are what is left of the family income when the
family expenses have been met. Since the expenditure depends very
largely upon family habits, the dependence of capital upon this insti-
tution is clearly seen. Family influences, too, are quite potent in
inculcating habits of thrift or prodigality, thus affecting capital
accumulation in the next generation.
The supply of labor is controlled through a control of the number
of people. A new state, possessed of undeveloped resources, can
partially control its numbers, through regulation of immigration.
But such a state has least need for controlling its numbers. As the
country develops, as resources are utilized, and as immigration falls
off, a control of numbers becomes more and more a control of the
birth-rate. No state has thus far succeeded directly in controlling
the number of births. Even indirectly its influence has not been very
potent. This matter has been in the past, and will be in the future
very largely, left to the family. Yet upon this question of numbers
rest very vital economic considerations, including the questions of
wages, standards of living, capacity for material development, etc.
In brief, the forces influencing the sizes of the productive funds
out of which wealth is to be increased are very largely familial.
It is often said that wants are the mainspring of economic activ-
ity ; that it is the possession of wants which is responsible for our
industrial system. If this is so we must remember that the wants
which lead to industrial endeavor, particularly to the fullest utiliza-
tion of personal productive capacities, are familial, rather than per-
sonal, wants. The beginning and end of the economic process lie
in the family. It is, both directly and indirectly, one of the most
potent factors in organizing society and in determining the direction
of its development.
9. The State as an Institution of ControP
BY EDWIN CANNAN
The existence of the state and the order enforced by it makes it
possible for property to play a part in organization. We might
^Adapted from Wealth; A Brief Explanation of the Causes of Economic
Welfare, pp. 89-95. Copyright by P. S. King & Co., 1914.
PROBLEM OF CONTROL IN INDUSTRIAL SOCIETY 31
conceive a state of things where co-operation carried on under the
influence of property might exist without any organized authority of
government. But such a state of things has never been reahzed, nor
is Hkely to be. So the state has been necessary in the past and is
Hkely to continue to be so in the immediate future. Further, even
in a society of perfectly just men it would be desirable to have some
common authority to make changes when necessary. Otherwise
progress would be exceedingly slow, since it would have to be im-
perceptible. If fast enough to be perceptible, it would seem to violate
custom and would, therefore, be tabooed, in the absence of machinery
for discussing reasons and passing judgment on them.
In the eighteenth century there grew up a school of thinkers who
said to the governments of the time, "laissez faire" or "let alone."
The more philosophical among them were influenced by the cult of
nature prevalent at the time, thinking that certain institutions were
natural and therefore good, while others were artificial and bad.
They wanted the institutions which they thought natural let alone
and the others abolished. The practical men wanted certain institu-
tions abolished which they regarded as harmful, and did not trouble
themselves to think of the others. The natural institutions of the
philosophers are now seen to be nothing but slight modifications of
the institutions of their own time. To the practical man, the precept
"laissez faire" never meant "leave everything alone," nor even "leave
all natural things alone," but simply, "leave alone certain things which
I think ought to be left alone." The practical men got their way to
a considerable extent, and therefore it has become the fashion to
speak of the "laissez-faire period." But there never was and never
can be a state which practices this policy. The very establishment of
the state negatives a policy of complete "let alone."
In primitive times the demand upon the authority which repre-
sents the state is constantly for the enforcement of "good old cus-
toms." When the state complies, it is not letting alone but taking
an active part in the enforcement of these customs, which might
otherwise fall into disuse owing to violation by interested parties.
Moreover, the enforcement of these customs, coupled with neglect to
enforce other customs, involves a discrimination favorable to prog-
ress. Consequently there was a large amount of "state interference"
even in periods when the state seemed to do nothing except to rein-
force the people's respect for custom.
The general enforcement of law and order and the facilitation of
necessary and desirable changes in that law and order, though per-
haps the most vital, is by no means the only important function of the
state in economic organization. Separate property in land has never
covered the face of any considerable country. A network of narrow
32 CURRENT ECONOMIC PROBLEMS
strips forming the means of communication is always found outside
the limits of private property. Without this reservation from pri-
vate property any considerable amount of communication would be
impossible. Hence provision of the means of communication has
always been in the hands of the state. Where private parties build
railways they are granted by the state the right of eminent domain,
or the power to buy the land they need to get the required consecu-
tive strip, even if the owners do not wish to sell. They have to pay
only fair "compensation."
In modern times a number of other things have grown up which
resemble the means of communication in being spread over large
areas in thin lines. Water, drainage, gas and electric lighting, tele-
graphic and telephonic communications, require a laying of a net-
work of wires all over the face of the world. It is constantly neces-
sary to acquire private property for a part of this work. These
things are very similar to roads, railways, and canals in many of
their characteristics, and are therefore dealt with in much the same
way. In helping to provide these engineering works required for
the progress of invention and the thicker population in modern times,
the state may be said to be arranging for a necessary supplement to
the organization based on separate property.
Some kind of organization covering the whole industrial terri-
tory and armed with certain disciplinary powers is obviously neces-
sary, and is supplied by the state; badly as it works in its earlier
forms, it is never worse than the chaos which preceded it, and as time
goes on it is gradually improved.
E. THE THEORY OF LAISSEZ FAIRE
10. The Fundamental Law of Nature^**
BY WILLIAM BLACKSTONE
As, therefore, the Creator is a being, not only of infinite power
and wisdom, but also of infinite goodness, he has been pleased so to
contrive the constitution and frame of humanity, that we should
want no other prompter to enquire after and pursue the rule of right,
but only our self love, that universal principle of action. For he has
so intimately connected, so inseparably interwoven the laws of ex-
ternal justice with the happiness of each individual that the latter
cannot be attained but by observing the former, and if the former be
punctually obeyed, it cannot but induce the latter. In consequence of
which mutual connection of justice and human felicity, he has not
perplexed the law of nature with a multitude of abstracted rules and
^^Commentaries on the L^ws of England (1765) ; Book i, sec. 2.
PROBLEM OF CONTROL OF INDUSTRIAL SOCIETY ^7,
precepts, referring merely to the fitness or unfitness of things, as
some have vainly surmised, but has graciously reduced the rule of
obedience to this one paternal precept, "that man should pursue his
own true and substantial happiness." This is the foundation of what
we call ethics or natural law ; for the several articles into which it is
branched in our system amount to no more than demonstrating that
this or that action tends to man's real happiness, and therefore very
justly concluding that the performance of it is a part of the law of
nature ; or, on the other hand, that this or that action is destructive
to man's real happiness, and therefore that the law of nature for-
bids it.
11. A Diatribe against Human Institutions^^
BY J. J. ROUSSEAU
All things are good as their author made them, but everything
degenerates in the hands of man. By man our native soil is forced
to nourish plants brought from foreign regions, and one tree is made
to bear the fruit of another. Man brings about a general confusion
of elements, climates, and seasons ; he mutilates his dogs, his horses,
and his slaves ; he seems to delight only in monsters and deformity.
He is not content with anything as Nature left it.
As things now are, a man left to himself from his birth would,
in his association with others, prove the most preposterous creature
possible. The prejudices, authority, necessity, example, and, in short,
the vicious social institutions in which we find ourselves submerged,
would stifle everything natural in him, and yet give him nothing in
return. He would be like a shrub which has sprung up by accident
in the middle of the highway, to perish by being thrust this way and
that and trampled upon by passers-by. All our wisdom consists in
servile prejudices ; all our customs are but suggestions, anxiety, and
constraint. Civilized man is born, lives, dies in a state of slavery.
At his birth he is sewed in swaddling clothes ; at his death he is
nailed in a coffin ; as long as he preserves the human form he is fet-
tered by our institutions.
12. A Plea Against Governmental Restraints^'*
BY ADAM SMITH
Every individual is continually exerting himself to find out the
most advantageous employment for whatever capital he can com-
mand. It is his own advantage, indeed, and not that of the society,
^''■Emile ou I'education (1762), liv. i.
^^Adapted from An Inquiry Into the Nature and Causes of the Wealth
of Nations (1776), Book IV, chap. ii.
34 ' CURRENT ECONOMIC PROBLEMS
which he has in view. But the study of his own advantage, naturally,
or rather necessarily, leads him to prefer that employment which is
most advantageous to the society.
The produce of industry is what it adds to the subject or materials
upon which it is employed. In proportion as the value of this produce
is great or small, so will likewise be the profits of the employer. But
it is only for the sake of profit that any man employs a capital in the
support of industry; and he will always, therefore, endeavor to em-
ploy it in the support of that industry of which the produce is likely
to be of the greatest value, or to exchange for the greatest quantity
either of money or of other goods.
But the annual revenue of every society is always precisely equal
to the exchangeable value of the whole annual produce of its industry,
or, rather, is precisely the same thing with that exchangeable value.
As every individual, therefore, endeavors as much as he can both to
employ his capital in the support of domestic industry, and so to
direct that industry that its produce may be of the greatest value,
every individual necessarily labors to render the annual revenue of
the society as great as he can. He generally, indeed, neither intends
to promote the public interest, nor knows how much he is promoting
it. By preferring the support of domestic to that of foreign industry,
he intends only his own security ; and by directing that industry in
such a manner as its produce may be of the greatest value, he intends
only his own gain, and he is in this, as in many other cases, led by an
invisible hand to promote an end which was no part of his intention.
Nor is it always the worse for the society that it was no part of it.
By pursuing his own interest he frequently promotes that of the
society more eflFectually than when he really intends to promote it.
I have never known much good done by those who affected to trade for
the public good. It is an affection, indeed, not very common among
merchants, and very few words need be employed in dissuading them
from it.
What is the species of domestic industry which his capital can
employ, and of which the produce is likely to be of the greatest value,
every individual, it is evident, can, in his local situation, judge much"
better than any statesman or lawgiver can do for him. The states-
man who should attempt to direct private people in what manner they
ought to employ their capitals would not only load himself with a
most unnecessary attention, but assume an authority which could
safely be trusted, Tiot only to no single person, but to no council or
senate whatever, and which would nowhere be so dangerous as in the
hands of a man who had folly and presumption enough to fancy
himself fit to exercise it.
PROBLEM OF CONTROL OF INDUSTRIAL SOCIETY 35
13. A General Condemnation of Governments^
BY WILLIAM GODWIN
Society is an ideal existence and not on its own account entitled
to the smallest regard. The wealth, prosperity, and glory of the
whole are unintelligible chimeras. Set no value on anything, but
in proportion as you are convinced of its tendency to make individual
men happy and virtuous. Benefit, by every practical mode, man
wherever he exists ; but be not deceived by the specious idea of afford-
ing services to a body of men, for which no individual man is the
better. Individuals cannot have too frequent or unlimited inter-
course with each other; but societies of men have no interests to
explain and adjust, except so far as error and violence may render
explanation necessary. This consideration annihilates at once the
principal objects of that mysterious and crooked policy which has
hitherto occupied the attention of governments.
Government can have but two legitimate purposes, the suppres-
sion of mjustice against individuals within the community and the
common defense against external invasion.
Legislation,- that is, the authoritative enunciation of abstract or
general propositions, is a function of equivocal nature and will never
be exercised in a pure state of society, or a state approaching to
purity, but with great caution and unwillingness. It is the most abso-
lute of the functions of government, and government is itself a
remedy that invariably brings its own evils along with it. Legisla-
tion, as it has been usually understood, is not an affair of human
competence. Reason is the only legislator, and her decrees are irre-
vocable and uniform. The functions of society extend, not to the
making, but the interpreting of law; it cannot decree, it can only
declare that which the nature of things has already decreed and the
propriety of which irresistibly flows from the circumstances of the
case.
The true reason why the mass of mankind has so often been made
the dupe of knaves has been the mysterious and complicated nature
of the social system. Once annihilate the quackery of government,
and the most home-bred understanding will be prepared to scorn the
shallow artifices of the state juggler that would mislead him. With
what delight must every well informed friend of mankind look for-
ward to the auspicious period, the dissolution of political govern-
ment, of that brute engine, which has been the only perennial cause of
the vices of mankind, and which has mischiefs of various forms in-
corporated with substance, and not otherwise to be removed than by
its utter annihilation.
^^Adapted from An Enquiry Concerning Political Justice and Its Influence
on General Virtue and Happiness (i793), PP- 5M, 561, 564. 555. 168, 575, 579.
36 CURRENT ECONOMIC PROBLEMS
14. The Identity of Individual and Social Good^*
BY PIERCY RAVENSTONE
Nature has implanted in every man's breast an instinct which
teaches him intuitively to pursue his own happiness; and, by con-
necting the welfare of every part of society with that of the whole,
she has wisely ordained that he shall not be able to realize his own
wishes without contributing to the happiness of others.
Every man may thus safely be intrusted with the care of work-
ing out his own prosperity. It is not necessary for governments, it
is therefore no part of their duty to teach to individuals what will
most conduce to the success of their pursuits ; they are ill-calculated
for such a superintendence. All care of this sort is on their part
wholly impertinent. Their functions are of quite a different nature;
to correct the vicious attachment to their own interests which too
frequently induces men to seek their own apparent good by the injury
of others, which would disorder the whole scheme of society, to bring
about what they mistakenly consider their own happiness. To re-
strain, not to direct, is the true function of the government; it is
the only one it is called on to perform, it is the only one it can safely
execute. It never goes out of its province without doing mischief.
The mischief is not always apparent, for the constitution of the
patient is often sufficiently strong to resist the deleterious effects of
the quackery. But it is not safe to try experimens which can do no
good, merely because the strength of the patient may prevent them
from being injurious.
The spirit of interference has never manifested itself so strongly
as of late years. It constitutes the very essence of modern political
economy. Everything is to be done by the state ; nothing is to be
left to the discretion of individuals. It is proposed to transfer men
into a species of political nursery-ground, where the quality of plants
is to be regulated with mathematical exactness, to be fitted to the
capacity of the soil ; where every exurberance in their shoots is to be
immediately pruned away, and their branches confined within the
bounds of the supporting espalier.
15. A Protest against Useless Restrictions^'^
BY JEREMY BENTHAM
Ashnrst. — The law of this country only lays such restraints on
the actions of individuals as are necessary for the safety and good
order of the community at large.
i^From /^ Feiv Doubts as to the Correctness of Some Opinions Generally
Entertained on the Subjects of Population and Political Economy (1821),
pp. 2-3.
i^From Truth against Ashurst, in Works of Jeremy Bentham (1823),
V, 234.
PROBLEM OF CONTROL OF INDUSTRIAL SOCIETY 37
Truth. — I sow corn ; partridges eat it, and if I attempt to defend
it against the partridges, I am fined or sent to gaol : all this, for fear
a great man, who is above sowing corn, should be in want of par-
tridges.
The trade I was born to is overstocked; hands are wanting in
another. If I offer to work at that other, I may be sent to gaol for
it. Why ? Because I have not been working at it as an apprentice
for seven years. What's the consequence? That, as there is no
work for men in my original trade, I must either come upon the
parish or starve.
There is no employment for me in my own parish: there is
abundance in the next. Yet if I offer to go there, I am driven away.
Why? Because I might become unable to work one of these days,
and so I must not work while I am able. I am thrown upon one parish
now, for fear I should fall upon another, forty or fifty years hence.
At this rate how is work ever to be got done? If a man is not poor,
he won't work : and if he is poor, the law won't let him. How then
is it that so much is done as is done? As pockets are picked — ^by
stealth, and because the law is so wicked that it is only here and there
that a man can be found wicked enough to think of executing it.
Pray, Mr. Justice, how is the community you speak of the better
for any of these restraints? and where is the necessity of them? and
how is safety strengthened or good order benefited by them ?
But these are only three out of this thousand.
•
16. Opportunity
" BY JOHN J. INGALLS
Master of human destines am I !
Fame, love, and fortune on my footsteps wait ;
Cities and fields I walk : I penetrate
Deserts and seas remote, and passing by
Hovel and mart and palace, soon or late
I knock unbidden once at every gate !
If sleeping wake; if feasting rise before
I turn away. It is the hour of fate
And those who follow me reach every state
Mortals desire, and conquer every foe
Save death ; but those who doubt or hesitate
Condemned to failure, penury, and woe
Seek me in vain and uselessly implore.
I answer not, and I return no more !
38 CURRENT ECONOMIC PROBLEMS
F. THE INTERPRETATION OF LAISSEZ FAIRE
17. The Philosophy of Individualism"
BY ALBERT V. DICEY
Individualism as regards legislation is popularly connected with
the name and the principles of Bentham. The ideas which underlie
the Benthamite or individualistic scheme of reform may conveniently
be summarized under three leading principles and two corollaries.
I. English law, as it existed at the end of the eighteenth cen-
tury, had developed almost haphazard, as the result of customs or
modes of thought which had prevailed at different periods. The laws
had for the most part never been enacted. In order to amend the
fabric of the law we must, so Bentham insisted, lay down a plan
grounded on fixed principles. Legislation, in short, he proclaimed,
is a science based on the characteristics of human nature, and the
art of lawmaking, if it is to be successful, must be the application of
legislative principles.
II. The right aim of legislation is the carrying out of the prin-
ciple of utility, or, in other words, the proper end of every law is the
promotion of the greatest happiness of the greatest number.
This principle is the formula with which popular memory has
most closely connected the name of Bentham. Whatever objections
this principle may be open to, one may with confidence assert that
it is far more applicable to law than to morals, for at least two
reasons : First, legislation deals with numbers and with whole classes
of men; morality deals with individuals. It is obviously easier to
determine what are the things which as a general rule promote the
happiness of a large number of persons, than to form even a con-
jecture as to what may constitute the happiness of an individual.
Let it be noted that the law aims not at positive happiness, but only
at the creation of conditions under which it is likely that its subjects
will prosper. Secondly, law is concerned primarily with external
actions, and is only very indirectly concerned with motives. Morality,
on the other hand, is primarily concerned with motives and feelings.
But it is far easier to maintain that the principle of utility is the
proper standard of right action than that it supplies the foundation
on which rests the conviction of right or wrong.
Ideas of happiness, it has been objected, vary in different ages,
countries, and among different classes ; a legislator, therefore, gains
no real guidance from the domga that laws should aim at promoting
the greatest happiness of the greatest number. To this objection
^^Adapted from Lectures on the Relation between Law and Public Opinion
in England during the Nineteenth Century, pp. 125-49. Copyright by Mac-
millan & Co., 1905.
PROBLEM OF CONTROL OF INDUSTRLAL SOCIETY 39
there exists at least two answers. The first is that, even if the varia-
biHty of men's conceptions of happiness be admitted, the concession
proves no more than that the appHcation of the principle of utility is
conditioned by the ideas of human welfare which prevail at a given
time in a given country. There is no reason why utilitarianism
should refuse to accept this conclusion. Different laws may promote
the happiness of different people. The second reply is that, as regards
the conditions of public prosperity, the citizens of civilized states
have, in modern times, reached a large amount of agreement. For
instance, who can seriously doubt that a plentiful supply of cheap
food, efficient legal protection against violence and fraud, and the
freedom of all classes from excessive labor conduce to the public wel-
fare ? What man out of Bedlam ever dreamed of a country the hap-
pier for pestilence, famine, and war ? Laws deal with very ordinary
matters, and deal with them in a rough and ready manner. The char-
acter, therefore, of a law, may well be tested by the rough criterion
embodied in the doctrine of utility.
There still exists, however, an objection that must be examined
with care. Bentham and his disciples have displayed a tendency to
underestimate the diversity between human beings. They have too
easily accepted the notion of uniformity in ideas of happiness in dif-
ferent countries and different ages. This supposition has facilitated
legislation, but it has led to the feeling that laws which in the nine-
teenth century promoted the happiness of Englishmen, must at all
times promote the happiness of the inhabitants of all countries.
The foundation then of legislative utilitarianism is the combina-
tion of two convictions. The one is the belief that the end of human
existence is the attainment of happiness ; the other is the assurance
that legislation is a science and that the aim of laws is the promotion
of human happiness.
III. Every person is in the main and as a general rule the best
judge of his own happiness. Hence legislation should aim at the
removal of all those restrictions on the free action of an individual
which are not necessary for securing the like freedom on the part of
his neighbors.
This dogma of laissez faire is not from a logical point of view
an essential article of the utilitarian creed. A benevolent despot
might enforce upon his people laws which, though they might diminish
individual liberty, were likely, nevertheless, to insure the well-being
of his people. Yet laissez faire was practically the most vital part
of Bentham's doctrine. Bentham perceived that under a system of
ancient customs modified by haphazard legislation, unnumbered re-
straints were placed on the actions of individuals, which were in no
sense necessary for the safety and good order of the community at
40 CURRENT ECONOMIC PROBLEMS
large, and he inferred at once that these restraints were evils. Con-
sequently we have from him the eulogy of laissez faire. But with
him and his disciples it was a totally different thing from easy ac-
quiescence in the existing conditions of life. It was a war cry. It
sounded the attack upon every restriction, not justifiable by some
definite and assignable reason of utility.
From these three guiding principles of legislative utilitarianism —
the scientific character of sound legislation, the principle of utility,
faith in laissez faire — English individualists have in practice deduced
the two corollaries : that the law ought to extend to the sphere and
enforce the obligation of contracts ; and that, as regards the posses-
sion of political power, every man ought to count for one and no
man count for more than one. Each of these ideas has been con-
stantly entertained by men who have never reduced it to a formula
or carried it out to its full logical result ; each of these two ideas has
profoundly influenced modern legislation,
18. The Individualistic Theory of Government"
BY JOHN STUART MILL
We have now reached the question to what objects governmental
intervention in the affairs of society may or should extend. The
supporters of interference have been content with asserting a gen-
eral right and duty on the part of government to intervene, where-
ever its intervention would be useful ; and when those who have been
called the laissez-faire school have attempted any definite limitation
of the province of government, they have usually restricted it to the
protection of person and property against force and fraud ; a defini-
tion to which neither they nor anyone else can deliberately adhere,
since it excludes some of the most indispensable and unanimously
recognized of the duties of government.
Whatever theory we adopt respecting the foundation of the social
union, and under whatever political institutions we live, there is a
circle around every individual human being, which no government,
be it that of one, or a few, or of the many, ought to be permitted to*
overstep : there is a part of the life of every person who has come to
years of discretion, within which the individuality of that person
ought to reign uncontrolled either by any other individual or by the
public collectively. That there is, or ought to be, some space in human
existence thus entrenched around, and sacred from authoritative
intrusion, no one who professes the smallest regard to human free-
dom or dignity will call in question.
i^Adapted from Principles of Political Economy (1848), Book V, chap. xi.
PROBLEM OF CONTROL IN INDUSTRIAL SOCIETY- 41
Even in those portions of conduct which do affect the interests of
others, the onus of making out a case always lies on the defenders
of legal prohibitions. It is not a merely constructive or presumptive
injury to others, which will justify the interference of law with indi-
vidual freedom. To be prevented from doing what one is inclined to,
or from acting according to one's own judgment of what is desirable,
is not only always irksome, but always tends to starve the develop-
ment of some portion of the bodily or mental faculties, either sensitive
or active ; and unless the conscience of the individual goes freely
with the legal restraint, it partakes, either in a great or in a small
degree, of the degradation of slavery.
A second general objection to government agency is that every
increase of the functions developing on the government is an increase
of its power, both in the form of authority, and still more, in the
indirect form of influence. The public collectively is abundantly
ready to impose, not only its generally narrow views of its interests,
but its abstract opinions, and even its tastes, as laws binding upon
individuals. And the present civilization tends so strongly to make
the power of persons acting in masses the only substantial power in
society, that there never was more necessity for surrounding indi-
vidual independence of thought, speech, and conduct, with the most
powerful defences. Hence it is no less important in a democratic
than in any other government, that all tendency on the part of public
authorities to stretch their interference should be regarded with unre-
mitting jealousy.
A third general objection to government agency rests on the prin-
ciple of the division of labor. Every additional function undertaken
by the government is a fresh occupation imposed upon a body already
overcharged with duties. A natural consequence is that most things
are ill done; much not done at all, because the government is not
able to do it without delays which are fatal to its purpose.
I have reserved for the last place one of the strongest of the
reasons against the extension of government agency. Even if the
government could comprehend within itself, in each department, all
the most eminent intellectual capacity and active talent of the nation,
it would not be the less desirable that the conduct of a large portion
of the affairs of society should be left in the hands of the persons
immediately interested in them. A people among whom there is no
habit of spontaneous action for a collective interest who look habit-
ually to their government to command or prompt them in all matters
of joint concern have their faculties only half developed; their edu-
cation is defective in one of its most important branches. There can-
not be a combination of circumstances more dangerous to human
welfare than that in which intelligence and talent are maintained at
42 • Current economic problems
a high standard within a governing corporation, but starved and dis-
couraged outside the pale. Few will dispute the more than sufficiency
of these reasons, to throw, in every instance, the burden of making
out a strong case, not on those who resist, but on those who recom-
mend government interference. Laissez faire, in short, should be the
general practice ; every departure from it, unless required by some
great good, is a certain evil.
But we must now turn to the second part of our task, and direct
our attention to cases, in which some of those general objections are
altogether absent, while those which can never be got rid of entirely
are overruled by counter-considerations of still greater importance.
Can it be affirmed, for instance, that the consumer is the most
competent judge of the end? Is the buyer always qualified to judge
of the commodity ? The proposition can be admitted only with numer-
ous abatements and exceptions. This is peculiarly true of those
things which are chiefly useful as tending to raise the character of
human beings. The uncultivated cannot be competent judges of cul-
tivation. Those who most need to be made wiser and better usually
desire it least, and if they desired it, would be incapable of finding
the way to it by their own lights. In the matter of education, the
intervention of government is justifiable, because the case is not one
in which the interest and judgment of the consumer are a sufficient
security for the goodness of the commodity. Let us now consider
other cases, where, for one reason or another, governmental inter-
ference is necessary. These may be classed under several heads.
First, the individual who is presumed to be the best judge of his
own interests may be incapable of judging or acting for himself ; may
be a lunatic, an idiot, an infant; or, though not wholly incapable,
may be of immature years and judgment. In this case the founda-
tion of the laissez-faire principle breaks down entirely. The person
most interested is not the best judge of the matter, nor a competent
judge at all. To take an example from the pecuHar province of politi-
cal economy ; it is right that children, and young persons not yet ar-
rived at maturity, should be protected, so far as the eye and hand of
the state can reach, from being over-worked. Freedom of contract,
in the case of children, is but another word for freedom of coercion.
Education also is not a thing which parents or relatives should have
it in their power to withhold.
But the classing together, for this and other purposes, of women
and children, appears to me both indefensible in principle and mis-
chievous in practice. Children below a certain age cannot judge or
act for themselves, but women are as capable as men of appreciating
and managing their own concerns, and the only hindrance to their
doing so arises from the injustice of their present social position. If
PROBLEM OF CONTROL IN INDUSTRIAL SOCIETY 43
women had as absolute a control as men have over their own persons
and their own patrimony or acquisitions, there would be no plea for
limiting their hours of laboring for themselves, in order that they
might have time to labor for the husband, in what is called his home.
Women employed in factories are the only women in the laboring
rank of life whose position is not that of slaves and drudges.
A second exception is when an individual attempts to decide irrev-
ocably now what will be best for his interest at some future and
distant time. The practical maxim of leaving contracts free is not
applicable without great limitations in case of engagements in per-
petuity; and the law should be extremely jealous of such engage-
ments.
The third exception which I shall notice has reference to the
great class of cases in which the individuals can only manage the
concern by delegated agency, and in which the so-called private man-
agement is, in point of fact, hardly better entitled to be called man-
agement by the persons interested, than administration by a public
officer. Whatever, if left to spontaneous agency, can only be done
by joint stock associations will often be as well, and sometimes bet-
ter done, as far as the actual work is concerned by the state. Gov-
ernment management is, indeed, proverbially jobbing, careless, and
ineffective, but so likewise has generally been joint-stock manage-
ment.
To a fourth cause of exception I must request particular atten-
tion, it being one to which, as it appears to me, the attention of
political economists has not yet been sufficiently drawn. There are
matters in which the interference of law is required, not to overrule
the judgment of individuals respecting their own interest, but to give
effect to that judgment ; they being unable to give effect to it except
by concert, which concert again cannot be effectual unless it receives
validity and sanction from the law. For illustration I may advert
to the question of diminishing the hours of labor. Let us suppose that
a general reduction of the hours of factory labor, say from ten to
nine, would be for the advantage of the work people ; that they would
receive as high wages, or nearly as high, for nine hours' labor as they
receive for ten. If this would be the result, and if the operatives
generally are convinced that it would, the limitation, some may say,
will be adopted spontaneously. I answer that it will not be adopted
unless the body of operatives bind themselves to one another to abide
by it. For however beneficial the observance of the regulation might
be to the class collectively, the immediate interest of every individual
would lie in violating it ; and the more numerous those were who
adhered to the rule, the more would individuals gain by departing
from it.
44 CURRENT ECONOMIC PROBLEMS
Fifthly, the argument against government interference cannot
apply to the very large class of cases, in which those acts of indi-
viduals with which the government claims to interfere, are not done
by those individuals for their own interest, but for the interest of
other people. This includes, among other things, the important and
much agitated subject of public charity. Though individuals should,
in general, be left to do for themselves whatever it can reasonably be
expected that they should be capable of doing, yet when they are at
any rate not to be left to themselves, but to be helped by other people,
the question arises whether it is better that they should receive this
help exclusively from individuals, and therefore uncertainly and
casually, or by systematic arrangements, in which society acts through
its organ, the state. Other cases, falling within the same general
principle, are those in which the acts done by individuals, though
intended solely for their own benefit, involve consequences extending
indefinitely beyond them, to interests of the nation or of posterity,
for which society in its collective capacity is alone able, and alone
bound, to provide.
The same principle extends also to a variety of cases, in which
important public services are to be performed, while yet there is no
individual specially interested in performing them, nor would any
adequate remuneration naturally or spontaneously attend their per-
formance. Take for instance a voyage of geographical or scientific
exploration. It may be said, generally, that anything which it is
desirable should be done for the general interests of mankind or of
future generations, or for the present interests of those members
of the community who require external aid, but which is not of a
nature to remunerate individuals or associations for undertaking it,
is in itself a suitable thing to be undertaken by government.
The preceding heads comprise, to the best of my judgment, the
whole of the exceptions to the practical maxim that the business of
society can be best performed by private and voluntary agency. It
is, however, necessary to add that the intervention of government
cannot always practically stop short at the limit which defines the
cases intrinsically suitable for it. In the particular circumstances of
a given age or nation, there is scarcely anything, really important to
the general interest, which it may not be desirable, or even necessary,
that the government should take upon itself. Even in the best state
which society has yet reached it is lamentable to think how great a
proportion of all the efforts and talents in the world are employed in
merely neutralizing one another. It is the proper end of government
to reduce this wretched waste to the smallest possible amount, by
taking such measures as shall cause the energies now spent by man-
kind in injuring one another, or in protecting themselves against
PROBLEM OF CONTROL IN INDUSTRIAL SOCIETY 45
injury, to be turned to the legitimate employment of the human facul-
ties, that of compelling the powers of nature to be more and more
subservient to physical and moral good.
19. The Authoritative Basis of Laissez Faire^^
There is nothing novel in the assertion that deference to author-
ity is the most persistent and fundamental of the many aspects of
the intellectual attitude, laissez faire. True it is that the expression
carries the idea of an industrial regime going its way, untrammeled
by state interference. In fact its most obvious meaning seems to
be a policy under which the individual shall be legally free to select
his own occupation, choose his own business associates, employ an
industrial technique and organization which is to his own liking, and
buy his materials and labor and market his wares on terms volun-
tarily made. Thus it means freedom for the individual in the im-
mediate conduct of his business and the sale of his wares.
But it does not totally exclude authority. Many advocates of
laissez faire see nothing amiss in governmental grants of public
lands, subsidies, patents, or franchises. Many would permit the state
to levy customs duties intended to check importations, raise prices,
and increase the number of those engaged in protected industries.
All would allow the state to encourage commerce by improving trans-
portation and credit facilities. It is perhaps not an overstatement
to say that the advocate of laissez faire regards as interference, not
all political activity affecting industry, but only such as adversely
affects business interests.
Instances such as the above, however, are only passing phases of
the situation. Penetrating and conditioning industrial activity at
every point there is a tangled web of legal, political and social insti-
tutions. Among the legal institutions are the prohibition of physical
violence in industrial activity, a recognition of private property rights,
machinery for compelling the discharge of obligations voluntarily
assumed, and prescribed forms for partnerships and corporations.
Among the social institutions are a system of intangible and imma-
terial property rights, the manifestations of public and class opinions,
a code of business ethics, and a system of collective action and the
recognition of collective authority in individual industrial establish-
ments. Upon these the advocate of laissez faire of necessity takes an
attitude. Since these institutions change slowly and are conceived
of as indispensable, they have generally been regarded by the busi-
ness man as a part of the unchangeable nature of things. Therefore
^8An editorial (1913).
46 CURRENT ECONOMIC PROBLEMS
laissez faire formally says nothing about them. Yet its very silence
is the best evidence of its unqualified approval of habitual legal and
social institutions and its demand that the individual be hedged about
with conventional authority.
Not only is the province from which authority is excluded a nar-
row one, but even in that province laissez faire is conceived of as a
mere means for securing some desirable social end. Neither theorist
nor layman, in formulating his reasons for supporting this policy,
declares himself in favor of a purely acquisitive system, wherein the
strong shall wax stronger at the expense of the weak. By the older
school, whose aspirations for society were democratic, it was"argued
that the competitive struggle, under laissez faire, resulted in the
greatest good, not only to the highly successful few, but to every
member of the social community. By the newer school the basis of
whose theories is biological, and whose ideal is aristocratic, its justifi-
cation is found in the elimination of the unfit, the perpetuation of the
fit, and the tendency of society towards a higher cultural level. By
some of the latter charity is strongly condemned, not because it strips
the fit of some of the earnings which the industrial struggle has
brought him, but because the survival of dependents tends to lower
the prevailing type of civilization. Into the merits of these theories
this is not the place to go. Here it is enough to note that even its most
extreme advocates do not conceive of laissez faire as a theory of
predation, nor seek to justify it by any benefit, however great, which
it may confer on the individual. On the contrary, over and above
him, a conscious social end is set up, to the realization of which his
activities must tend, and in view of which the policy itself is to be
approved or condemned.
G. THE PROTEST AGAINST INDIVIDUALISM
20, The Tyranny of the Machine^^
BY JOSEPH HARDING UNDERWOOD
The modern "tripods of Hephaestus" — the spinning jenny, the
mule, the loom — instead of serving as allies to human hands, speed-
ily became masters of "hands," The undemocratic idea prevailed —
laissez faire, let me do as I please — "me" being a man with a hun-
dred hands, which speedily became a thousand. The use of men,
women, and children by factory-owners at the beginning of the nine-
teenth century had all the advantages and none of the disadvantages
i®Adapted ^rom The Distribution of Ownership, pp. 52-53 (1907), Pub-
lished by Colu'.nbia University Press, author's copyright.
PROBLEM OF CONTROL IN INDUSTRIAL SOCIETY 47
of slave ownership. Starvation brought the wives and daughters of
the workmen to the factories and, since only their labor and not
their strength had to be bought, there was no waste in wearing them
out. Half -naked women were harnessed to draw carts in the mines
through passages two feet seven inches high ; children of seven
worked twelve to fourteen hours a day in factories. There were
regular traffickers in children of paupers. "In stench, in heated
rooms, amidst the constant whirring of a thousand wheels, little
fingers and little feet were kept in constant action, forced into un-
natural activity by blows from the heavy hands and feet of the merci-
less overlooker and the infliction of bodily pain by instruments of
punishment, invented by the sharpened ingenuity of insatiable selfish-
ness." 20 They were fed the same food that the master gave his pigs.
Irons were riveted to the ankles and chained to the hips of girls and
women to kep them from running away. The suicides, the murdered,
and the tired were buried secretly, No such cruelty was ever wide-
spread under slavery. It would not pay.
21. The Passing of the Frontier
BY THOMAS B. MACAULAY "
Despots plunder their subjects, though history tells them that,
by prematurely exacting the means of profusion, they are in fact
devouring the seed-corn from which the future harvest is to spring.
Why, then, should we suppose that people will be deterred from
procuring immediate relief and enjoyment by the fear of calamities
that may not be fully felt till the times of their grandchildren?
The case of the United States is not in point. In a country where
the necessities of life are cheap and the wages of labor high, where a
man who has no capital but his legs and arms may expect to become
rich by industry and frugality, it is not very decidedly even for the
immediate advantage of the poor to plunder the rich. But in coun-
tries where the great majority live from hand to mouth, and in which
vast masses of wealth have been accumulated by a comparatively
small number, the case is widely different. The immediate want is at
particular seasons imperious, irresistible. In our own time it has
steeled men to the fear of the gallows, and urged them on to the point
of the bayonet. And, if these men had at their command that gal-
lows, and those bayonets which now scarcely restrain them, what is to
be expected ? The better the government, the greater is the inequality
of conditions; and the greater the inequality of conditions, the
20 Gibbins, Industry in England, p. 389.
2iAdapted from the essay on Mill on Government, 1828.
48 CURRENT ECONOMIC PROBLEMS
stronger are the motives which impel the populace to spoliation. As
for America, we appeal to the twentieth century.
BY JAMES BRYCE"
America, in her swift, onward progress, sees, looming on the
horizon, and now no longer distant, a time of mists and shadows,
wherein dangers may be concealed whose form and magnitude she
can scarcely yet conjecture. As she fills up her western regions with
inhabitants, she sees the time approach when all the best land will
have been occupied, and when the land under cultivation will have
been so far exhausted as to yield scantier crops even to more exten-
sive culture. Although transportation may also then have become
cheaper, the price of food will rise ; farms will be less easily obtained
and will need more capital to work them with profit ; the struggle for
existence will become more severe. And while the outlet which the
West now provides for the overflow of the great cities will have
become less available, the cities will have become immensely more
populous; pauperism, now confined to six or seven of the greatest,
will be more widely spread ; wages will probably sink and work will be
less abundant. In fact, the chronic evils and problems of the old
societies and crowded countries, such as we see them in Europe today,
will have reappeared on this new soil.
BY PETER FINLEY DUNNE
"Opportunity," says Mr. Dooley, "knocks at iv'ry man's dure
wanst. On some men's drues it hammers till it breaks down th' dure
an' then it goes in an' wakes him up if he's asleep, an' afterwards it
worrucks f'r him as a nightwatchman. On some men's dures it
knocks an' runs away, an' on th' dures iv some men it knocks an'
whin they come out it hits thim over th' head with an axe. But iv'ry
wan has an opporchunity."
22. The Nev7 Issues ^^
BY WILLIAM GARROTT BROWN
The twentieth century is upon us. Americans are beginning to
find themselves confronted with the questions which have already
long beset older and more crowded countries. We can hardly doubt
22Adapted from The American Commonwealth (ist ed. ; 1888), III, 662.
23Adapted from The New Politics and Other Papers, pp. 6-28. Copyright
by Eugene L. Brown. Published by Houghton, Mifflin & Co., 1914.
PROBLEM OF CONTROL IN INDUSTRIAL SOCIETY 49
that certain new public issues which within the last two or three years
have come very swiftly to the front have come to stay. We are not
yet an old society, or a crowded country. But — the frontier is gone.
We are in the situation of a man who, though still very young, has
nevertheless reached maturity and come into full possession of his
estate ; of an estate vast, but yet of a vastness no longer incalculable,
no longer uncalculated, and which is also appreciably impaired by the
waste and extravagance of his youth.
We face, therefore, the responsibility of maturity, of a more care-
ful development and husbandry of our great demesne. The time of
boundless anticipation is past. W^e have instead a sure sense of
strength, but with it comes also at last the sense that even our
strength, and our capacity for growth, have their limits. There is
as yet no real pinch, no severe pressure or congestion ; far from it.
But the certainty that these things are in the future is at last borne
in upon us by facts and warnings. That is enough to change our
mood. We are taking up, and ought to be taking up, certain of the
problems of "old societies and crowded countries," and the coming
of these new problems has somewhat changed the aspect of certain
others which, even with us, are old.
The new issues all have this much in common : They are all at
bottom economic, and economic in a very strict derivative sense of
the word — all questions of national housekeeping, of the safeguard-
ing, the development, and the distribution of our immense national
inheritance. The rapid and revolutionary development of transporta-
tion has transformed bewilderingly the entire field with which eco-
nomic legislation must deal. It is not merely that we are approach-
ing the problems of older societies. These problems have taken on
for us new aspects, aspects hardly known elsewhere, and a truly
American vastness of range. We can and should profit by a close
study of European experience. But the guidance we can get from
older countries, however valuable, is limited. There are things which
we must work out for ourselves ; for the new industry is much farther
advanced with us, and much more firmly established, than with the
older peoples.
The particular new issue on which we can get the most guidance
from Europe, and which is therefore the simplest of all, is that of
conservation. To call that issue a question would be a misnomer.
The only question should be of ways and means, and concerning these
it will be some time before we exhaust the enlightenment to be got
from European experience. In the matter of the national conserva-
tion of the use of water power, we have in the example of Switzer-
land an admirable object-lesson.
50 CURRENT ECONOMIC PROBLEMS
Comerning this there is hardly a question; but there is an issue;
there is a conflict, a struggle ; and the violence and magjiitude and
difficulty of it are greater than anywhere else in the world. That is
so because nowhere else are private interests so well organized or so
powerful, and nowhere else have they such opportunities to acquire
control of the various means of wealth. There is thus an issue be-
tween the permanent public weal and the selfishness of individuals
and groups. For there has come about a massing of great and little
accumulations, and an organization of capital and industry under a
few heads ; so that the struggle is on behalf of the people against
the combinations. To take an instance, the lumber kings were not
slow to see how rapidly the country was being deforested. They
looked ahead and bought timber lands everywhere. And it can hardly
be questioned that, law and usage remaining what they are, the same
forces which have made for monopoly and against competition in
other things will monopolize the country's water power as well.
The swift and universal rise in prices should serve to awaken us
to the actual state of industry and exchange among us. Our awaken-
ing to the necessity of economy is still but a part of the greater
awakening to the true extent of the changes which have come about
in our industrial life. The field is so vast that only a superficial glance
at the main features of the new order is here possible.
The most striking and important fact — a fact which is in a way
inclusive of the whole matter — is this: Competition, as we have
known it in the past, the kind of competition on whose existence and
continuance our law and usage concerning industry and property are
largely based, is breaking down. Take any one of the dozens of
articles in general consumption, and thorough investigation will very
likely disclose that real and vital competition no longer prevails in its
production or distribution. A combination of manufacturers makes
it, a combination of common carriers fixes the charges of transporting
it to market, and the original combination names the terms upon
which the retail dealers may handle it. If investigations in prices go
far enough I am sure they will also disclose such combinations in the
smaller communities as well. The dependence of the ordinary shop-
keepers on the trusts for supplies is so widespread that the old law
of competition has been in large measure nullified. The consumers,
in fact, seem to be the only industrial group which has so far failed
to combine. It is impossible not to feel that the tendency is so uni-
versal as to mean unmistakably a new industrial order.
What does this change mean for the individual as a part and
member, an industrial unit, of the new order? Clearly, it means,
and it must continue to mean until the system is somewhat modified
PROBLEM OF CONTROL IN INDUSTRLiL SOCIETY 51
in his interests, less independence, a narrower range of opportunity.
There is no reason to believe that it means on the whole less comfort
or a lowered standard of living. The contrary is more probably true.
Neither does the change mean that the man of ability and ambition
cannot rise. He can. A policy of promotions for merit is plainly to
the interest of every great business. That great combinations have
adopted that policy is the principal reason why they are so well served.
But these things do not rid us of the fact that the coming of the new
order has meant a loss of independence, of industrial freedom to the
great mass of individuals. Their chance to rise is but one way — ^by
obedience to the laws of the system to which they belong ; and in the
making of these laws they have no voice. There is real independence
only at the top ; and to reach the top is beyond the hopes of all but
a very few. Clearly the new system is less democratic than the old.
But to get a fuller conception of the change, we must go to the
source of initiative and control in business, to the men who direct
the capital of the country. For the principle of combination has
made it possible for a few great capitalists to get control of the
accumulated savings of hundreds of thousands of people of small
means. A single great banking concern is charged with the direction
of some six billion dollars variously invested, in manufacturing, in
banking, in transportation, in mines, in many other ways. Such
power could go far to corrupt the press. Less power has already
corrupted legislatures ; has suborned executives ; has reached even the
courts.
Here is but the merest glance at the new conditions. But it may,
I think, be sufficient to enable us to formulate the new issues. We
are confronted with adapting the democratic principle to conditions
that did not exist when American democracy arose : that is to say, to
a field no longer unlimited, to opportunities no longer boundless, and
to an industrial order in which competition is no longer the controlling
principle, an industrial order, which is, therefore, no longer demo-
cratic, but increasingly oligarchical. To save itself poHtcally, democ-
racy must therefore extend itself into this field. Plainly, therefore,
laissez faire can no longer be its watchword. That was the watch-
word of the regime of competition. Democracy's task is twofold.
It must secure for the people some kind of effective, ultimate control
over the natural sources of all wealth ; and it must also secure, in an
industrial system, no longer controlled by competition, protection and
opportunity for the individual.
The ancient warfare of democracy and privilege must be begun
all over again, and with new tactics, new strategy. In the presence
of the new issues many of the old issues will be altered. The old
52 CURRENT ECONOMIC PROBLEMS
struggle over the tariff will be less a matter of sectional issues, less
a matter of contrary economic theories, and more a phase of the
great struggle between democracy and privilege. The old constitu-
tional questions, thought forever settled, will reappear in new forms.
The rights and powers of both the states and the nation must be
scrutinized afresh. Before the end we may have to go still farther
back and find for the common law itself, if not new principles, at
any rate, new formulas. For I doubt if we shall end before we have
revised many of what we thought our fundamental conceptions of
property and of human rights.
H. THE REAPPEARANCE OF THE PROBLEM
OF CONTROL
23. The Individualistic Basis of Social ControP*
BY THOMAS HILL GREEN
Freedom is valuable only as a means to an end. That end is the
liberation of the powers of all men equally for contributions to a
common good. No one has a right to do what he will with his own
in such a way as to contravene that end. It is only through the guar-
anty society gives him that he has property at all. This guaranty is
founded on a sense of common interests. Everyone has an interest
in securing to everyone else the free use and enjoyment and disposal
of his possession, because such freedom contributes to that equal
development of the faculties of all which is the highest good for all.
This is the true and only justification of the rights of property. Prop-
erty being only justifiable as a means to the free exercise of the social
capabilities of all, there can be no true right of property of a kind
which debars one class of men from such free exercise altogether.
We condemn slavery no less when it rises out of voluntary agree-
ment on the part of the enslaved person. A contract by which any-
one agreed for a certain consideration to become the slave of another
person we would reckon a void contract. Here, then, is a limitation
upon freedom of contract that we all recognize as rightful. No con-
tract is valid in which human persons are dealt with as commodities,
because such contracts of necessity defeat the end for which alone
society enforces contracts at all.
Are there no other contracts which, less obviously perhaps, but
really, are open to the same objection? Let us consider contracts
2<Adapted from the "Lecture on Liberal Les^islation and Freedom of
Contract." H^orks. IIL 372-86. Edited by R. L. Nettleship, 1880. Published
by Longmans, Green & Co.
PROBLEM OF CONTROL IN INDUSTRIAL SOCIETY 53
affecting labor. Labor, the economist tells us, is a commodity ex-
changeable like other commodities. This is in a certain sense true,
but it is a commodity which attaches in a peculiaT" manner to the
person of man. Hence restrictions may need to be placed on its sale
which would be unnecessary in other cases, to prevent it from being
sold under conditions which make it impossible for the person selling
it ever to become a free contributer to social good in any form. This
is most plainly the case where a man bargains to work under condi-
tions fatal to health. Every injury to the health of the individual is,
so far as it goes, a public injury. It is an impediment to the general
freedom ; so much deduction from our power, as members of society,
to make the best of ourselves. Society, therefore, is plainly in its
right when it limits freedom of contract for the sale of labor, so far
as is done by laws for the sanitation of factories and mines.
It is equally within its right in prohibiting the labor of women
and young persons beyond certain hours. If they work beyond these
hours, the result is demonstrably physical deterioration, which carries
with it a lowering of the moral forces of society. For the sake of the
general freedom of its members to make the best of themselves, which
it is the object of civil society to secure, a prohibition should be put
on all such contracts of service as in a general way yield such a result.
The purchase and hire of unwholesome dwellings are properly for-
bidden on the same principle.
Its application to compulsory education may not be quite so
obvious, but it will appear on a little reflection. Without a command
of certain elementary arts and knowledge, the individual in modern
society is as effectually crippled as by the loss of a limb or a broken
constitution. With a view to securing freedom among its members
it is certainly within the province of the state to prevent children
from growing up in that kind of ignorance which practically ex-
cludes them from a free career in life.
Just as labor, though an exchangeable commodity, differs from
all other commodities, land, too, has its characteristics, which distin-
guish it from ordinary commodities. It is from the land that the
raw material of all wealth is obtained. It is only upon the land that
we can live ; only across the land that we can move from place to
place. The state, therefore, in the interest of that public freedom
which it is its business to maintain, cannot allow the individual to
deal as he likes with his land to the same extent to which it allows
him to deal with other commodities. It is an established principle
that the sale of land should be enforced by law when public con-
venience requires it. The landowner of course gets the full value
of the land which he is compelled to sell, but of no other ordinary
54 CURRENT ECONOMIC PROBLEMS
commodity is the sale thus enforced. This ilkistrates the peculiar
necessity in the public interest of putting some restrictions on a man's
liberty of doing what he will with his own. The question is whether,
in the same interest, further restraint does not need to be imposed on
the liberty of the landowner. Should not the state for public pur-
poses prevent the land from being tied up in a manner which pre-
vents its natural distribution and keeps it in the hands of those who
cannot make the most of it? It is so settled that at present all the
land necessarily goes to the owner's eldest son. The evil effects of
this system are twofold. It almost entirely prevents the sale of agri-
cultural land in small quantities, and thus hinders that mainstay of
social order, a class of small proprietors tilling their own land. It
also keeps large quantities of land in the hands of men who are too
much burdened by debts to improve it. The landlord in such cases
has not the money to improve, the tenant has not the security which
would justify him in improving. On the simple and recognized prin-
ciple that no man's land is his own for purposes incompatible with the
public convenience, we ask that legal sanction should be withheld
from settlements which interfere with the distribution and improve-
ment of land.
To uphold the sanctity of contracts is doubtless a prime business
of government, but it is no less its business to provide against con-
tracts being made, which, from the helplessness of one of the parties
to them, instead of being a security for freedom, becomes an instru-
ment of disguised oppression. Men are not at liberty to buy and sell
when they will, where they will, and as they will. There is no right
to freedom in the sale or purchase of a particular commodity, if the
general result of allowing such freedom is to detract from freedom
in the higher sense, from the general power of men to make the best
of themselves. The danger of legislation, either in the interests of a
particular class or for the promotion of particular religious opinions,
we may fairly assume to be over. The popular jealousy of law is out
of date.
24. Laissez Faire in Practice^^
BY L. T. HOBHOUSE
In the main, the teaching of the school tended to a restricted view
of the function of government. Government had to maintain order,
to restrain men from violence and fraud, to hold them secure in per-
son and property against foreign and domestic enemies, that they
2^Adapted from Liberalism, pp. 81-101. Copyright by Henry Holt & Co.,
1911.
PROBLEM OF CONTROL IN INDUSTRIAL SOCIETY SB
might rely upon reaping where they had sown, and might enjoy the
fruits of their industry.
The factory system early brought matters to a head at one point
by the systematic employment of women and young children under
conditions which outraged the public conscience when they became
known. In the case of children it was admitted that the principle
of free contract could not apply. It felt the child to be exploited by
the employer in his own interest. But this principle admitted of great
extension. If the child was helpless, was the grown-up person, man
or woman, in a much better position? Here was the owner of a mill
employing five hundred hands. Here was an operative possessed of
no alternative means of subsistence seeking employment. Suppose
them to bargain as to terms. If the bargain failed the employer lost
one man. At worst he might have a little difficulty for a day or two
in working a single machine. During the same days the operative
might have nothing to eat, and might see his children going hungry.
Where was the effective liberty in such an arrangement? In the
matter of contract true freedom postulates substantial equality be-
tween the parties. In proportion as one party is in a position of
advantage he is able to dictate the terms. In proportion as the other
party is in a weak position, he must accept unfavorable terms. Hence
the truth of Walker's dictum that economic injuries tend to perpetuate
themselves. For purposes of legislation the state began with the
child, where the case was overwhelming. It went on to include the
young person and the woman. It drew the line at the adult male, and
it is only within our own time that legislation has avowedly under-
taken the task of controlling the conditions of industry. To this it
has been driven by the manifest teachings of experience that liberty
without equality is a name of noble sound and squalid result.
In place of the system of unfettered agreement contemplated
the industrial system which has actually grown up and is in process of
further development rests on conditions prescribed by the state. The
law provides for the safety of the worker and sanitary conditions of
employment. It prescribes the length of the working day for women
and children. In the future it will probably deal freely with the hours
for men. It makes employers liable for injuries suffered by oper-
atives. Within these limits it allows freedom of contract.
The theory of laissez faire assumed that the state would hold the
ring. It would suppress force and fraud, keep property safe, and
aid men in enforcing contracts. In these conditions men should be
absolutely free to compete with each other, so that their best energies
should be called forth. But why, on these conditions, just these, and
56 CURRENT ECONOMIC PROBLEMS
no others? Why should the state insure protection of person and
property ? The time was when the strong man armed kept his goods,
and incidentally his neighbor's goods too, if he could get hold of them.
Why should the state intervene to do for a man that which his
ancestors did for themselves? Why should a man who has been
soundly beaten in physical fight go to a public authority for redress ?
How much more manly to fight his own battle. Was it not a kind of
pauperization to make men secure in person and property, through no
efforts of their own, by the agency of a state machinery operating
over their heads ? Would not a really consistent individualism abolish
this machinery? "But," the advocate of laissez faire may reply, "the
use of force is criminal, and the state must suppress crime." So men
held in the nineteenth century. But there was an earlier time when
they did not take this view, but left it to individuals and their kinsfolk
to revenge their own injuries. Was not this a time of more unre-
strained individual liberty. On what principle then is the line drawn,
so as to specify certain injuries which the state may prohibit and to
mark off others which it must leave untouched?
Individualism as ordinarily understood not only takes the police-
man and the law court for granted. It also takes the rights of prop-
erty for granted. But what is meant by the rights of property ? In
ordinary use the phrase means just that system to which long usage
has accustomed us. This is a system by which a man is free to acquire
by any method of production or exchange, within the limits of the
law, whatever he can of land, consumable goods, or capital ; to dis-
pose of it at his own will and pleasure for his own purposes, to
destroy it if he likes, to give it away or sell it as it suits him, and at
death to bequeath it to whomsoever he will. The state can take a
part of a man's property by taxation. But in all taxation the state is
taking something from a man which is "his," and in so doing is justi-
fied only by necessity. In many ways, in the face of actual conditions,
the individualist has been driven to a change in property rights in
the direction of greater social control. The school of Henry George,
individualists though they be, would purge the social system of the
private ownership of land. This alone, say they, will insure genuine
freedom to all individuals.
Thus individualism, when it grapples with the facts, is driven no
small distance toward state regulation. Once again we have found
that to maintain individual freedom and equality we have to extend
the sphere of social control. We cannot assume any of the rights
of property as axiomatic. We must look at their actual workings and
consider how they affect the life of society.
PROBLEM OF CONTROL IN INDUSTRIAL SOCIETY 57
25. Liberty and Interference-^
BY W. JETHRO BROWN
Broadly speaking, as society grows larger, as the economic
structure becomes more complex, and as the possibilities of collective
human action increase, the more elaborate must be the system of
legal regulation if the liberty of the individual is not to be endangered.
If it were true that the liberty of each individual was in inverse pro-
portion to the amount of state regulation, the savage would be freer
than the modern citizen. Further, the question whether any par-
ticular law involving a restriction upon the individual's desire to do
as he likes is in derogation of his liberty cannot be answered merely
by reference to the fact that a restriction is involved. It is only
through the existence of such restriction that he has any liberty at
all beyond "the desolate freedom of the wild ass."
To determine w^hether a law of the state is really in derogation of
liberty we must consider the law in its relation to the social and in-
dustrial conditions of the times. At one stage in English history the
liberty of the subject came to be specially associated with the idea
of protection from baronial tyranny. In the seventeenth, eighteenth,
and nineteenth centuries it came to be associated with the idea of
protection from the government. In the later nineteenth century the
achievements of industrial progress gave a new direction to the de-
mand for freedom. When the fear of governmental autocracy was
succeeded by the fear of an economic plutocracy, men once again
invoked the state to action. The way was thus prepared for a com-
pleter theory of liberty. The negative aspect of liberty as immunity
from governmental interference has its roots in the positive element
of governmental regulation. That thinkers of our own day, who
would be the first to admit that the regulation of the feudal lord by
government was a phase of liberty, should maintain that the regula-
tion of the modern capitalist by government implies a necessary de-
parture from liberty, must surely be regarded as a curious example
of the limitations of the human intellect.
The relation of state regulation to liberty may be illustrated by four
propositions. In the first place such regulation may impose restric-
tions upon each citizen in the interests of the liberty of all citizens.
The criminal code is an illustration. Men are not less free but more
free because murder and robbery are prohibited. What they lose
of the power of self-determination in one way is more than made up
by increased power of self-determination in other ways. Many laws
for the promotion of public health rest upon the same grounds. The
26Adapted from The Underlying Principles of Modern Legislation, pp.
55-61. Copyright by John Murray, 1914.
58 CURRENT ECONOMIC PROBLEMS
purveyor of microbes may be more hostile to freedom than the
burglar.
In the second place, state regulation may impose restrictions upon
the actions of the few in order to promote the liberty of the many.
Grant Allen has told a story of some Martian citizens who had in-
augurated a Liberty and Property Defense League. A delegate from
London, invited for the purpose of assisting their deliberations, was
amazed to find that the liberty which the Martian society sought to
defend was the liberty of every member of the red-haired caste to
consume in each year a dozen of the black-haired majority. What the
opponents of factory legislation called liberty was the privilege of
the manufacturer to exploit his work people. Today it is no longer
necessary to argue that the factory legislation increased the freedom
of the community. In improving the conditions of labor it improved
the health of the worker ; in controlling the employment of children
it helped to protect the youth of the nation ; in controlling the em-
ployment of women it tended to safeguard the home ; in restricting
the hours of labor it provided new opportunities for culture, recrea-
tion, or indulgence. In a word, restraints were imposed upon the
manufacturer as a means to the promotion of conditions essential to
the free-development of the working population.
In the third place state regulation may impose restrictions on the
many in the interests of the liberty of the few. Some writers go so
far as to declare that the recognition of the claims of minorities is
the true test of liberty. We can admit, without assenting to this
view, that laws protecting unpopular sects, or controlling the action
of subordinate social groups in such a way as to protect the minority
from the majority, ought not to be regarded as necessarily hostile
to liberty.
Finally, the liberty of the individual may be promoted by restric-
tions that the state imposes upon him in his own interests. In a
humble sphere the municipal legislation of our time affords familiar
examples. A by-law prescribes a penalty for boarding a train which
is already full. A would-be passenger, compelled to wait in the rain
until the next car passes, may be tempted to complain that his liberty
is thereby infringed. If, however, he will employ the interval in
profitable reflection he may learn to take a saner view. The by-law
insures that he shall be free from being sat upon in the next car.
More important still it serves to protect him from being exploited in
the interests of a tramway company that would like to run one car
where it ought to run two. We have all heard of the suburban strap-
hangers of New York ; and we do not envy their freedom to pass a not
inconsiderable portion of their lives in clinging to a strap.
PROBLEM OF CONTROL IN INDUSTRIAL SOCIETY 59
A less controversial illustration may be found in the control of
the unemployable. While it may be pleasant to live in idleness, I
incline to the opinion that the stern discipline of the "work-shy,"
though it may restrict his power to do as he likes, is calculated to
make a freer man of him. In these and a multitude of like cases,
we can see exemplified the truth of the paradox that men may be
forced to be free.
A rejection of the legislative policy of Laissez faire is not incon-
sistent with an ideal of liberty, but should rather be considered as a
transition to a more adequate understanding both of the nature of
liberty and of the means of its realization. I shall now indicate
briefly the more important differences involved in this transition.
1. The conflict of law and liberty is seen to be accidental, not
essential. It may arise where the machinery of government has been
captured by a class, or when social and economic conditions have out-
grown the traditional system of state regulation. In either case liberty
presents a positive as well as a negative aspect, although the negative
aspect may at first be more apparent. If old laws have to be re-
pealed, new laws have also to be enacted. Hence, in a truly progres-
sive society, law and liberty grow together.
2. Liberty is catholic. It seeks freedom, not for some men only,
but for all men. The supreme achievement of our time is to be
found in the emphasis now laid upon the freedom that is another's,
as distinct from the freedom that is one's own. While laissez faire
proclaimed an era of freedom for all men, it failed to recognize that
such freedom was impossible under economic conditions that made
for the perpetuation of a proletariat. In the later ideal the state is
charged with the sacred responsibility of insuring conditions that
will enable every citizen to prove his manhood.
3. The liberty that the legislation of our day seeks to promote
is less the power to do as one likes than the power to do as one ought.
This does not mean that the state is justified in prohibiting all con-
duct that is morally wrong — a view which is sometimes urged. But
it does involve a wide departure from laissez faire. It agrees with
laissez faire in defining freedom in terms of self-realization ; but it
implies a distinctive view of the nature of the self to be realized.
Aristotle said, "The state was formed that might might live; but
exists that they may live nobly."
II
THE ANTECEDENTS OF MODERN INDUS-
TRIALISM
If we are properly to understand current economic problems to the end
of formulating a program for dealing with them, we must first get some
impression of the present "system" from which they spring and of which
they are aspects. The "system" is so much a part of our very lives and
activities that we find it hard to think of it as "a" system, and are prone to
view it as a part of the immutable universe itself. When active intellectual
effort does point it out as only one of many systems, we often fail to see
that it is in process of constant change. Clearly to understand — rather than to
know — that it is only one among many possible systems and to see that it is
persistently changing, even as we view it, let us try to catch a glimpse of it in
process of development. In such a task we need neither general statements
of the nature of its growth nor an intensive study of the "facts." Our con'-ern
is not with the past, but with the present ; our interest is not in "events," but
in the process. We want to see a system very unlike ours slowly giving way
to the one with which we are familiar.
To that end as we read the selections below let us keep in mind the
peculiar characteristics of the social "order" with which we are familiar.
Among these its unity and the interdependence of its aspects are paramount.
For example, the influence of the ideals of the mediaeval church upon indus-
trial development suggests many phases of this interdependence. The selec-
tions given below on manorial and gild economy furnish material for a com-
parison of the spirit, values, activities, and institutions of our present system
with others quite unlike it. Additional material for the same purpose is
available in the selections devoted to mediaeval commercial development, pol-
icy, and theory. The readings also show that there is much in common
between the social and industrial life of mediaevalism and the nineteenth
century. The theory of the stewardship of wealth is to be found in modern
sociology as well as in mediaeval theology ; Italy in the fourteenth century
faced many urban problems which are quite modern ; the mediaeval artisan
was familiar with the art of "soldiering" ; few moderns could teach many new
tricks of trade to the mediaeval craftsman ; and there is more than a sugges-
tion of a modern bill of rights in the eighteenth century document.
Quite as important is the evidence furnished by these readings of a move-
ment toward the "modern" system. The very ideals of an unworldly church
were leading toward a material and humanistic culture ; priestly inhibition
of usury, reinforced by superstitious stories of the torment in store for the
money-lender, were increasingly impotent to remove the lure of jingling guineas
promised by commercial ventures; the manor, a miniature world in itself,
was losing its identity, and the gild was breaking down in the face of a
wider and wider organization of industry; the commercial note of pecuniary
profit was becoming more and more dominant ; and the larger society was
substituting the magic of price for personal relation as the means of organiza-
tion. Developing society, at first unlike ours, was coming nearer and nearer
to the system we know. Only the single movement of the industrial revolu-
tion was necessary to make it assume the form with which we are so familiar.
60
ANTECEDENTS OF INDUSTRIALISM 6i
A. PRE-INDUSTRIAL ECONOMY
26. The Manor, a Self-sufficient Economy^
BY WILLIAM J. ASHLEY
Till nearly the end of the fourteenth century England was a
purely agricultural country. Such manufactures as it possessed were
entirely for consumption within the land; and for goods of finer
qualities it was dependent upon importation from abroad.
In the eleventh century, and long afterward, the whole country,
outside the larger ^owns, was divided into manors, in each of which
one person, called the lord, possessed certain important and valuable
rights over all the other inhabitants. Let us picture to ourselves an
eleventh-century manor in middle or southern England. There was
a village street, and along each side of it the houses of the cultivators
of the soil, with little yards around them : as yet there were no scat-
tered farmhouses, such as were to appear later. Stretching away
from the village was the arable land, divided usually into three great
fields sown, one with wheat, one with oats or beans, while one was left
fallow. The fields were subdivided into "furlongs" ; and each fur-
long into acre or half-acre strips, separated, not by hedges, but by
"balks" or unploughed turf ; and these strips were distributed among
the cultivators in such a way that each man's holding was made up of
strips scattered up and down the three fields, and no man held two
adjoining pieces. Each holder was obliged to cultivate his strips in
accordance with the rotation of crops observed by his neighbors.
There were also meadows, inclosed for hay harvest, and divided into
portions by lot, or rotation, or custom, and after harvest thrown
open again for the cattle to pasture upon. In most cases there was
also some permanent pasture or wood, into which the cattle were
turned, either "without stint," or in numbers proportioned to the
extent of each man's holding.
The land was regarded as the property, not of the cultivators,
but of a lord. It was divided into that part cultivated for the imme-
diate benefit of the lord, the demesne or inland, and that held of him
by tenants, the land in villenage, the latter being usually about two-
thirds of the whole. The demesne consisted partly of separate closes,
partly of acres scattered among those of the tenants in the common
fields. Of the land held in villenage, the greater part was held in
whole or half virgates. The virgate was a holding made up of scat-
tered acre or half-acre strips in the three fields, with proportionate
rights to meadow and pasture ; and its extent, varying from sixteen
to forty-eight acres, was usually thirty acres. The holders of such
^Adapted from An Introduction to English Economic History and Theory
(1894), I, 5-49. Published by Longmans, Green & Co.
62 CURRENT ECONOMIC PROBLEMS
virgates formed an estate socially equal among themselves, and all
of them were under the same obligations of service to the lord.
The principal services which the lord exacted of the villein were,
first, a man's labor for two or three days a week throughout the year,
known as week work, or daily works, and second, additional labor
for a few days at spring and autumn ploughing and at harvest. On
such occasions the lord demanded the labor of the whole family, with
the exception of the housewife. Besides these, there were usually
small quarterly payments to be made in money, and miscellaneous
dues in kind, so many hens and eggs, and so many bushels of oats at
different seasons ; as well as miscellaneous services, of which the most
important is carting. During the boon days it was usual for the
lord to feed the laborers.
The fundamental characteristic of the manorial group, regarded
from the economic point of view, was its self-sufficiency, its social
independence. The same families tilled the village fields from father
to son. Each manor had its own law courts for the maintenance of
order. Then as now, every village had its own church ; with this
advantage or disadvantage, that the priest did not belong to a differ-
ent social class from his parishioners. The village included men who
carried on all the occupations and crafts necessary for everyday life.
There was always a water or windmill which the tenants were bound
to use, paying dues which formed a considerable part of the lord's
income. Many villages had their own blacksmith and carpenter,
probably holding land on condition of repairing the ploughs of the
demesne and the villagers.
Thus the inhabitants of an average English village went on, year
in, year out, with the same customary methods of cultivation, living
on what they produced, and scarcely coming in contact with the out-
side world. The very existence of towns, indeed, implied that the
purely agricultural districts produced more than was required for
their own consumption ; and corn and cattle were regularly sent, even
to distant markets. But the other dealings of the villages with the
outside world were few. First, there was the purchase of salt, an
absolute necessity in the mediaeval world, where people lived on
salted meat for five months in the year. Second, iron was continually
needed for the ploughs and other farm implements. Third, when a
fresh disease, the scab, appeared among the sheep, tar became of
great importance as a remedy. Perhaps the only other recurring
need, which the village could not itself supply, was that of millstones.
Such were the chief characteristics of the manorial group as a
whole self-sufficiency and corporate unity. Let us look at the position
of the individual members in the group. Some had risen to the posi-
tion of free tenants, but the great majority had continued to hold by
ANTECEDENTS OF INDUSTRIALISM 63
servile tenure. Of the position of this great majority the charac-
teristic was permanence, with its disadvantages and also with its
advantages.
It is instructive to compare the village as we have seen it with
the village of today. In one respect there might seem to be a close
resemblance. Then, as usually now, the village was made up of one
street, with a row of houses on either side. But the inhabitants of
the village street now are the laborers and artisans with one or more
small shopkeepers. The farmers live in separate homesteads among
the fields they rent, and not in the village street. Then all the culti-
vators of the soil lived side by side. Second, notice the difference as
to the agricultural operations themselves. Now each farmer follows
his own judgment in what he does. But the peasant-farmer of the
period we have been considering was bound to take his share in a
common system of cultivation, in which the time at which everything
should be done and the way in which everything should be done was
regulated by custom. A further difference is seen in the relations of
lord and tenant as to the cultivation. Nowadays either the landlord
does not himself farm any land in the parish, or his management
of it is independent of the cultivation of any other land by tenants.
But then almost all the labor on the demesne was furnished by the
villein tenants, who contributed ploughs, oxen, and men. Compare
finally the classes in the manor, with those in the village today. In a
modern parish there will usually be a squire, some three or four
farmers, and beneath them a comparatively large number of agri-
cultural laborers. But in the mediaeval manor, much the greater
part of the land was cultivated by small holders. Between the lord
of the manor and the villein tenants there was, indeed, a great gulf
fixed. But there was nothing like the social separation of classes of
actual cultivators that exists today.
It may be well to note the nonexistence in the village group of
certain elements which modern abstract economics is apt to take
for granted. Individual liberty, in the sense in which we understand
it, did not exist ; consequently there could be no complete competition.
The payments made by the villeins were not rents in the abstract
economist's sense: for the economist assumes competition. The
chief thought of lord and tenant was, not what the tenant could pos-
sibly afiford, but what was customary. Finally, there was as yet no
capital in the modern sense. Of course there was capital in the sense
in which the word is defined by economists, "wealth appropriated to
reproductive employment," for the villeins had ploughs, harrows,
oxen, horses. But this is one of the most unreal of economic defi-
nitions. As has been well said, by capital we mean more than this ;
we mean a store of wealth that can be directed into new and more
64 CURRENT ECONOMIC PROBLEMS
profitable channels as occasion arises. In that sense the villeins cer-
tainly had no capital.
27. Wage Work and the Handicraft System^
BY CARL BUCHER
When the land owned by a family becomes divided up and no
longer suffices for its maintenance, a part of the rural population
begins to produce for the market. At first the necessary raw material
is gained from their own land or drawn from the communal forests ;
later on, if need be, it also is purchased. All sorts of alHed produc-
tions are added ; and thus there develops an endlessly varied system
of peasant industry on a small scale.
But the evolution may take another course, and an independent
professional class of industrial laborers arises and with them the
industrial system of wagework. Whereas all industrial skill has
hitherto been exercised in close association with property in land and
tillage, the adept house-laborer now frees himself from this associa-
tion, and upon his technical skill founds for himself an existence
that gradually becomes independent of property in land. But he has
only his simple tools for work ; he has no business capital. He there-
fore always exercises his skill upon raw material furnished him by
the producer of the raw material, who is at the same time the con-
sumer of the finished product.
Here two distinct forms of this relationship are possible. In one
case the wageworker is taken temporarily into the house, receives his
board and, if he does not belong to the place, his lodging as well,
together with his daily wage ; and leaves when the needs of his cus-
tomer are satisfied. We may designate this whole industrial phase as
that of itinerancy, and the laborer carrying on work in this manner
as an itinerant. The dressmakers and seamstresses whom our women
are accustomed to take into their houses may serve as an illustration.
On the other hand the wageworker may have his own place of busi-
ness, and the raw material be given out to him. For working it up he
receives a piecework wage. In the country the miller and the baker
working for a wage are examples. We will designate this form of
work home work. It is met with chiefly in industries that demand
permanent means of production, difficult to transport. Both forms
of work are still very common in all parts of the world. The system
can be traced in Babylonian temple records ; it can be followed in
literature from Homer down through ancient and mediaeval times
to the present day. These two forms of wagework have dififerent
origins. Itinerant labor is based upon the exclusive possession of
^Adapted from Industrial Evolution, pp. 162-72. Translated from the third
German edition by S. Morley Wickett. Copyright by Henry Holt & Co., 1900.
ANTECEDENTS OF INDUSTRIALISM 65
aptitude for a special kind of work, home work upon the exclusive
posession of fixed means of production. Upon this basis there arise
all sorts of mixed forms between home work and wagework. The
itinerant laborer is at first an experienced neighbor whose advice is
sought in carrying out an important piece of work, the actual work,
however, still being performed by members of the household. Even
later it is the practice for the members of the customer's family to
give the necessary assistance to the craftsman. In the case of home
work the latter tradesman is at first merely the owner of the busi-
ness plant and technical director of the production, the customer
doing the actual work. This frequently remains true in the country
today with oil-presses, flax-mills, and cider-mills.
From the economic point of view the essential feature of the
wagework system is that there is no business capital. Neither the
raw material nor the finished industrial product is for its producer
ever a means of profit. The character and extent of the production
are still determined in every case by the owner of the soil, who pro-
duces the raw material ; he also superintends the whole process of
production. From the sowing of the seed until the moment the bread
is consumed the product has never been capital, but always a mere
article lor use in course of preparation. No earnings of manage-
ment and interest charges or middleman's profits attach to the finished
product, but only wages for work done.
Under certain social conditions this is a thoroughly economic
method of production. It secures the excellence of the product and
the complete adjustment of supply to demand. But it forces the con-
sumer to run the risk attaching to industrial production, as only those
needs that can be foreseen can find suitable and prompt satisfaction,
while a sudden need must always remain unsatisfied. The system
has also many disadvantages for the wageworker. Among these
are the inconveniences and loss of time suffered in his itinerancy
from place to place ; also the irregularity of employment, which leads,
now to the overwork, now to the complete idleness, of the workman.
In the Middle Ages wagework greatly facilitated the emancipa-
tion of the artisan from serfdom and feudal obligations, as it required
practically no capital to start an independent business. It is a mistake
still common to look upon the class of gild handicraftsmen as a
class of small capitalists. It was in essence rather an industrial
laboring class, distinguished from the laborers of today by the fact
that each worked not for a single employer but for a large number
of consumers. The supplying of the material by the customer is
common to almost all mediaeval handcrafts ; in many instances, in-
deed, it continued for centuries, even after the customer had ceased
()6 CURRENT ECONOMIC PROBLEMS
to produce the raw material himself and must buy it. The furnish-
ing of the raw material by the master is a practice that takes slow
root ; at first it holds only for the poorer customers ; but later for the
wealthy as well. Thus arises handicraft ; but alongside it wagework
maintains itself for a long time.
All the important characteristics of handicraft may be summed
up in the single expression custom production. It is the method of
sale that distinguishes this industrial system from all later ones. The
handicraftsman always works for the consumer of his product,
whether it be that the latter by placing separate orders affords the
occasion for the work, or the two meet at the weekly or yearly mar-
ket. As a rule the region of sale is local. The customer buys at
first hand, the handicraftsman sells to the actual consumer. This
assures a proper adjustment of supply and demand and introduces
an ethical feature into the whole relationship ; the producer in the
presence of the consumer feels responsibility for his work.
With the rise of handicraft a wide cleft appears in the process
of production. Hitherto the owner of the land has conducted the
whole process ; now there are two classes of economic activity, each
of which embraces only a part of the process of production, one pro-
ducing the raw material, the other the manufactured article. Handi-
craft endeavored to bring it about that an article should pass through
all its stages of production in the same workshop. In this way needed
capital is diminished and frequent additions to price avoided.
The direct relationship of the handicraftsman and the consumer
of his products made it necessary that the business remain small.
Whenever any one line of handicraft threatens to become too large,
new handicrafts split off from it and appropriate part of the sphere
of production. This is the mediaeval division of labor, which con-
anually creates new and independent trades.
Handicraft is a phenomenon peculiar to the town. Peoples which,
(ike the Russians, have developed no real town life, know likewise
\o national handicraft. This also explains why, with the formation
of large centralized states and unified commercial territories, handi-
craft was doomed to decline.
28. Ordinances of the Gild Merchant of Southampton^
1. In the first place, there shall be elected from the Gild Mer-
chant, and established, an alderman, a steward, a chaplain, four
skevins, and an usher. And it is to be known that whosoever shall
^Adapted from University of Pennsylvania, Translations and Reprints
from the Original Sources of European History, Vol. II, No. i, "English
Towns and Gilds" (about 1300), pp. 12-17.
ANTECEDENTS OF INDUSTRIALISM 67
be alderman shall receive from each one entering into the Gild four-
pence ; the steward, twopence ; the chaplain, twopence ; and the usher,
one penny. And the Gild shall meet twice a year : that is to say, on
the Sunday next after St. John the Baptist's day, and on the Sunday
next after St. Mary's day.
2. And when the Gild shall be sitting no one of the Gild is to
bring in any stranger, except when required by the alderman or
steward.
3. And when the Gild shall sit, the alderman is to have, each
night, so long as the Gild sits, two gallons of wine and two candles,
and the steward the same ; and the four skevins and the chaplain,
each of them one gallon of wine and one candle, and the usher one
gallon of wine.
4. And when the Gild shall sit, the lepers of La Madeleine shall
have of the alms of the Gild, two sesters of ale, and the sick of God's
House and of St. Julian shall have two sesters of ale. And the
Friar's Minors shall have two sesters of ale and one sester of wine.
And four sesters of ale shall be given to the poor wherever the Gild
shall meet.
5. And when the Gild is sitting, no one who is of the Gild shall
go outside of the town for any business, without the permission of
the steward. And if any one does so, let him be fined two shillings,
and pay them.
6. And when the Gild sits, and any gildsman is outside of the
city so that he does not know when it will happen, he shall have a
gallon of wine, if his servants come to get it.
9. And when a gildsman dies, his eldest son or his next heir shall
have the seat of his father, or of his uncle, if his father was not a
gildsman, and of no other one ; and he shall give nothing for his seat.
No husband can have a seat in the Gild by right of his wife, nor
demand a seat by right of his wife's ancestors.
10. And no one has the right or power to sell or give his seat in
the Gild to any man.
19. And no one in the city of Southampton shall buy anything
to sell again in the same city, unless he is of the Gild Merchant or
of the franchise. And if anyone shall do so and is convicted of it,
all which he has so bought shall be forfeited to the king.
20. And no one shall buy honey, fat, salt herrings, or any kind
of oil, or millstones, or fresh hides, or any kind of fresh skins, unless
he is a gildsman ; nor keep a tavern for wine, nor sell cloth at retail,
except in market or fair days ; nor keep grain in his granary beyond
five quarters, to sell at retail, if he is not a gildsman; and whoever
shall do this and be convicted shall forfeit all to the king.
68 CURRENT ECONOMIC PROBLEMS
21. No one of the Gild ought to be partner or joint dealer in
any of the kinds of merchandise before mentioned with anyone who
is not of the Gild, by any manner of coverture, or art, or contrivance,
or collusion, or in any other manner.
23. And no private man nor stranger shall bargain for or buy
any kind of merchandise coming into the city before a burgess of
the Gild Merchant, so long as the gildsman is present and wishes to
bargain for and buy this merchandise.
24. And anyone who is of the Gild Merchant shall share in all
merchandise which another gildsman shall buy or any other person,
whoever he is, if he comes and demands part and is there where the
merchandise is bought, and also if he gives satisfaction to the seller
and gives security for his part.
63. No one shall go out to meet a ship bringing wine or other
merchandise coming to the town, in order to buy anything, before
the ship be arrived and come to anchor for unloading; and if any
one does so and is convicted, the merchandise which he shall have
bought shall be forfeited to the king.
29. Ordinances of the White Tawyers*
In honor of God, of Our Lady, and of All Saints, and for the
nurture of tranquillity and peace among the good folks the Megu-
cers, called white-tawyers, the folks of the same trade have, by assent
of Richard Lacer, Mayor, and of the Aldermen, ordained the points
under-written.
In the first place, they have ordained that they will find a wax
candle, to burn before Our Lady in the Church of Allhallows, near
London wall.
And if any one of the said trade shall depart this life, and have
not wherewithal to be buried, he shall be buried at the expense of
their common box. And when any one of the said trade shall die,
all those of the said trade shall go to the vigil, and make offering
on the morrow.
Also, that no one of the said trade shall induce the servant of
another to work with him in the said trade, until he has made a proper
fine with his first master, at the discretion of the said overseers, or of
four reputable men of the said trade. And if any one shall do to
the contrary thereof, or receive the serving workman of another to
work with him during his term, without leave of the trade, he is to
incur the said penalty. Also, that no one shall take for working in
the said trade more than they were wont heretofore.
^Adapted from University of Pennsylvania, ibid, (fourteenth century),
PP- 23-25. ,
ANTECEDENTS OF INDUSTRIALISM 69
30. Preamble to the Ordinances of the Gild of the Tailors,
Exeter^
To the worship of God and of our Lady Saint Mary, and of St.
John the Baptist, and of all Saints: These be the Ordinances made
and established of the fraternity of craft of tailors, of the city of
Exeter, by assent and consent of the fraternity of the craft aforesaid
gathered there together, for evermore to endure.
31. Household Industry in America*"'
BY ROLLO MILTON TRYON
The manual training, domestic science, and household arts courses
in our current educational programs are attempting to do what was
done in the eighteenth and part of the nineteenth century in the
homes. The social pressure that operated in placing these subjects
in the schools during the last quarter of the nineteenth century was
largely an expression of the feeling that much valuable training had
been lost through the decay of the household system of manufactur-
ing — a system that taught the girl, by the time she was twenty, to spin,
weave, sew, embroider, knit, darn, crochet, patch, do laundry work
well, prepare wholesome meals, make butter, cheese, and candles, and
perform other duties connected with good housekeeping; a system
that taught the boy to employ the spare moments of his farm life in
the manufacture from wood of such farm implements as plows, har-
rows, sleds, w'agons, carts, shovels, flails, swingling knives, handles
for spades, axes, hoes, and pitchforks, as well as various aids to
domestic comfort, such as brooms, baskets, wooden bowls and bread
troughs, butter paddles, cheese hoops, and other kitchen and table
utensils ; and, finally, a system that engendered such virtues as cheer-
fulness, happiness, frugality, independence, diligence, perseverance,
skill, and self-reliance.
In commenting, in i848, on the domestic habits of New England
women, an elderly lady of Montpelier, Vermont, said that she was
firmly convinced that among the changes and revolutions in domestic
habits and customs in modern times, so far as the welfare of her own
sex was concerned, the change most to be regretted was the one that
led to the disuse of the old-fashioned family spinning-wheel. It was
her opinion that the movement necessary in drawing out and running
^Adapted from University of Pennsylvania, ibid. (1466), p. 26.
* The passages below are all taken from Household Manufacture in the
United States, pp. 8, 9, 202-3, 188-89, 224. Copyright by the University of
Chicago (1917).
70 CURRENT ECONOMIC PROBLEMS
up the thread which required a constant march backward and for-
ward, while the arms were alternatively lifted in the operation, and
also that of turning, brought all the muscles into play, and made just
the exercise necessary for the development of the human system.
The following articles of apparel are typical ones from a large
number mentioned and described as homespun in advertisements of
fugitive slaves and servants in New Jersey from 1707 to 1776:
Homespun olive-colored coat, homespun white shirt, brown-
colored homespun drugget coat, homespun coarse shirt, homespun
striped breeches, brown or black homespun jacket, homespun coat
lined with blue, homespun coat of black and white worsted and wool,
homespun gray coat lined with orange stuff, dark-colored homespun
coat and jacket, homespun gray stockings, suit of dark-gray home-
spun cloth, suit of light-gray homespun drugget cloth, new homespun
blue-striped trousers, dark-brown homespun kersey coat, homespun
worsted knit stockings, gray woolen homespun coat, cinnamon home-
spun kersey coat lined with broad striped homespun, brown home-
spun jacket, olive-colored homespun breeches and jacket, brown
homespun breeches, homespun gown of green woolen yarn, dark-
colored homespun broadcloth jacket, short homespun gown and
petticoat with red, blue, green, and black stripes, homespun black
jacket, white homespun jacket, homespun striped woolen jacket,
homespun coat of woolen and cotton lined, moss-colored homespun
coat lined with brown homespun, homespun blue and white striped
linen jacket and breeches, blue-gray homespun drugget coat, striped
homespun waistcoat and breeches.
The following list of articles comprises the domestic staples which
the Moravian Brethren proposed to contribute to a store which they
opened in 1753 for the benefit of the "family" :
Apron skins, powder horns, glue, shoes, slippers, shoe lasts,
wooden and horn heel pieces, saddle trees, saddles, horse collars,
bridles, halters, saddlebags, girths, pocketbooks, martingales, straps,
stockings, caps, gloves, socks, hats, felt caps and felt slippers, spin-
ning-wheels, reels, boxes, guns, tea caddies, writing desks, deer and
calf skins dressed for breeches, buckwheat groats, oat groats, malt,
millet, dried peaches, dried apples, dried cherries, rusks, gingerbread,
iron bands for chests, nails, plows, axes, hatchets, grubbing hose,
corn hoes, grindstones, whetstones, punk, flint and steel, pipestems,
pipe heads, shirt studs, pewter plates, tea pots, lanterns, tallow can-
dles, soap, starch, hair powder, sealing wax, wafers, tobacco boxes,
buttons, buckles, spoons, bowls, shovels, brooms, baskets, wheat flour,
ANTECEDENTS OF INDUSTRIALISM 71
butter, cheese, handkerchiefs, neckcloths, garters, knee straps, Unen,
white, blue and checked woolens, currant wine, beer, whiskey, tar,
potash, turpentine, pitch, lampblack, sulphur matches, vinegar, flax-
seed, linseed oil, rape seed and oil, nut oil, oil of sassafras, ammonia,
rasped deer's horn, bush tea, medicine chests, brushes, shovels and
tongs, chafing dishes, combs, currycombs, glove leather, leather
breeches, ropes, blank books, soft soap, rakes, knives, drawing-
knives, guitars, violins, tobacco and tobacco pouches, snuff, oil of
turpentine, hemp, flax, buckets, milk pails, tubs, pottery, cotton yarn,
cord, hatchets, oven forks, linen nets, augers, hammers, pinchers,
candlesticks, tinware, chisels, mill saws, homespun, boots, chips,
harness, wheelbarrows, wagons, coffeepots, chains, canoes, boards,
bricks, roofing tiles, lime, preserves and pickles, quills and slate
pencils/
For bedsteads an oak tree that would split well was selected, cut
down, and a log about eight feet long taken from the butt and split
into such pieces as could be readily shaped into posts and rails.
Another log not so long was split into such pieces as, with a slight
dressing, made slats. Holes were bored with a tolerably long auger in
suitable places in the posts for inserting the rails ; two rails were used
for each side and about three for each end, the rails answering for
head and foot boards. Like auger holes were made in the lower side
rails at suitable points for inserting the slats. When properly pre-
pared the bedstead was put together by pressing the rails and slats
in the holes prepared for each, thus making a rough but strong high-
post bedstead, the posts at the top being tightly held together by rods
prepared for the purpose upon which curtains were to be hung.
Thus was created a bedstead.*
B. PRE-INDUSTRIAL COMMERCE
32. A Definition of Commerce^
BY J. DORSEY FORREST
Attempts to study the development of commerce have usually
been unsatisfactory because they have failed to distinguish between
real commercial activity and the mere external mechanism of ships
and roads and travelers. The real history of commerce which will
some time be written will give some account of the production which
^Reichel (editor), Memorials of the Moravian Church, I, 234 f., note.
^Duncan, Old Settlers' Papers, p. 398.
^Adapted from The Development of Western Civilization, p. 194. Copy-
right by the University of Chicago, 1906.
72 CURRENT ECONOMIC PROBLEMS
has fed commerce, as well as a description of the routes, and of
some actual exchanges which indicate that commerce had actually
been going on. Such phenomena of the mechanism of trade are
worthy of note, but only as guiding the student to a deeper study
of the dynamical phenomena of which these are but surface indica-
tions. Real commerce represents a differentiation of function by
which the diverse parts of society come into complex and organic
relation with one another.
33. The Attitude of the Mediaeval Church toward Commerce'"
BY WILLIAM J. ASHLEY
The teaching of the gospel as to worldly goods had been un-
mistakable. It had repeatedly warned men against the pursuit of
wealth, which would alienate them from the service of God and
choke the good seed. It had in one striking instance associated
spiritual perfection with the selling of all that a man had that he
might give it to the poor. It had declared the poor and hungry
blessed, and had prophesied woes to the rich. Instead of anxious
thought for the food and raiment of the morrow, it had taught trust
in God; instead of selfish appropriation of whatever a man could
obtain, a charity which gave freely to all who asked. And in the
members of the earliest Christian church it presented an example
of men who gave up their individual possessions, and had all things
in common. .
We cannot wonder that, with such lessons before them, a salu-
tary reaction from the self-seeking of the pagan world should have
led the early Christian Fathers totally to condemn the pursuit of
gain. It took them further — to the denial to the individual of the
right to do what he liked with his own, even to enjoy in luxury the
wealth he possessed. "What injustice is there in my diligently
preserving my own, so long as I do not invade the property of an-
other?" "Shameless saying!" says S. Ambrose. "My own, sayest
thou? what is it? from what secret places hast thou brought it into
this world? When thou enterest into the light, when thou camest
from thy mother's womb, what wealth didst tliou bring with thee?
That which is taken by thee, beyond what would suffice to thee, is
taken by violence. Is it that God is unjust, in not distributing to
us the means of life equally, so that thou shouldst have abundance
while others are in want? It is the bread of the hungry thou keep-
est, it is the clothing of the naked thou lockest up ; the money thou
buriest is the redemption of the wretched." To seek to enrich one's
self was not, simply, to incur spiritual risk to one's own soul ; it was
'"Adapted from An Introduction to English Economic History and Theory
(1894), I, 126-32. Copyright by Longmans, Green & Co.
ANTECEDENTS OF INDUSTRIALISM 73
in itself unjust, since it aimed at appropriating an unfair share of
what God had intended for the common use of men. If a man pos-
sessed more than he needed, he was bound to give his superfluity to
the poor ; for by natural law he had no personal right to it ; he was
only a steward of God.
If, however, to seek to enrich one's self was sinful, was trade
itself justifiable? This was a question which troubled many con-
sciences during the Middle Ages. On the one hand the benefits
which trade conferred on society could not be altogether overlooked,
nor the fact that with many traders the object was only to obtain
what sufficed for their own maintenance. On the other hand they
saw that trade was usually carried on by men who had enough al-
ready, and whose chief object was their own gain : "If covetousness
is removed," urges Tertullian, "there is no reason for gain, and, if
there is no reason for gain, there is no need of trade," Moreover,
as the trader did not seem himself to add to the value of his wares,
if he gained more for them than he had paid, his gain, said S.
Jerome, must be another's loss ; and in any case, trade was danger-
ous to the soul, since it was scarcely possible for a merchant not
sometimes to act deceitfully. To all these reasons was added yet
another. The thought of the supreme importance of saving the in-
dividual soul, and of communion with God, drove thousands into
the hermit life of the wilderness, or into monasteries; and it led
even such a man as Augustine to say that "business" was in itself
an evil, for "it turns from seeking true rest, which is God."
In the eleventh century began a great moving of the stagnant
waters. The growth of towns, the formation of merchant bodies,
the establishment of markets — even if they did no more than fur-
nish the peasant and the lord of the manor with a market for their
surplus produce — brought men face to face with one another as
buyer and seller in a way they had not been before. Hence economic
questions, especially such as concerned the relations of seller and
buyer, of creditor and debtor, became of the first importance. To
deal with these new questions a new jurisprudence presented itself,
— the jurisprudence based on the revived study of Roman law. The
Roman law, in the finished form in which the codification of Jus-
tinian presented it^ rested on a theory of absolute individual prop-
erty which was entirely alien to the usages of early Teutonic peo-
ples, among whom community of ownership, or at any rate com-
munity in use, was still a prevalent custom ; and it recognized an
unlimited freedom of contract, which may have been suitable to the
active commerce of the Mediterranean, but was sure to be the in-
strument of injustice when appealed to in the midst of more primi-
tive social conditions.
74 CURRENT ECONOMIC PROBLEMS
With these new dangers before them, churchmen began once
more to turn their attention to economic matters, and to meet what
they regarded as the evil tendencies of the Roman law, "The prin-
ciple of the world," by a fresh application of Christian principles.
On two doctrines especially did they insist — that wares should be
sold at a just price, and that the taking of interest was sinful. They
enforced them from the pulpit, in the confessional, in the ecclesias-
tical courts; and by the time that the period begins of legislative
activity on the part of the secular power, these two rules had been
so impressed on the consciences of men that Parliament, municipality,
and gild endeavored of their own motion to secure obedience to
them.
34. The Contribution of the Church to Commerce^^
BY J. DORSE Y FORREST
A necessary prerequisite of commercial development was the
establishment of an efficient agricultural system. In perfecting the
agricultural organization the ecclesiastical domains served as models
to the smaller lay proprietors. The monasteries depended more on
rational organization than on personal power and kept alive the
more efficient methods employed by the Romans in earlier days.
The monasteries usually established themselves on waste lands, for
the prime object of the monks was retirement. After the invasions
they had no difficulty in finding waste lands even in regions which
had been most highly cultivated. Great saints could live holy lives
as hermits ; but when masses of men were gathered together, it
became necessary for the leaders to lay down rules for practical
activity. The poverty from which many of the monks came, the
reverence of the church for the Son of the Carpenter, and the ne-
cessity of labor for a means of subsistence, all combined to give
manual labor a high moral value in the monasteries. Accordingly
monastic rules enjoined the duty of manual labor as a moral disci-
pline.
A second prerequisite of commerce was the division of labor and
the development of the crafts. In time neighboring lords would
give vast domains, with their villeins, to the monasteries in return
for prayers. As the monasteries thus grew wealthy, a revolution
came in the management of their internal affairs. All had to find
a way to divide labor and to make some members of the community
mere laborers. In feudal times this division was well advanced.
For centuries the monks had kept alive many crafts, and the causes
just referred to advanced these both in number and in technique.
^^Adapted from The Development of Western Civilization, pp. 176-7Q,
190-94. Copyright by the University of Chicago, 1906.
ANTECEDENTS OF INDUSTRIALISM 75
In spite of the disorder which had troubled Europe from the
time of the first invasion, there was never a time when commercial
intercourse was entirely wanting. During the period of most com-
plete disorganization the Jews carried on a casual trade in oriental
luxuries and handled about all the money that circulated. United
by faith and common traditions, in constant touch with coreligion-
ists in other countries, they formed an organic body in the midst
of universal dissolution. The very action of the church upon the
lay society contributed to their prosperity. The canons of the
councils in denying to Christians the right to exact usury assured
to the Jews a monopoly of the money business. Through their inti-
mate relations with the Mohammedans, they were able to communi-
cate with the East at a time when no Christian could sail upon the
Mediterranean. The church condoned their offenses against Chris-
tian morality because their services as money-lenders and dealers in
valuables were indispensable. They were found also dispersed
throughout the country, and on the domains plied their trade as
pawnbrokers among the villages and brokers for the lords. Though
the business of the Jews had some importance as a stimulus to
greater demands for luxuries, it can hardly be considered a part of
the commerce of Europe. Such commodities as spices, perfumes,
silks, tapestries, precious stones, and jewelry were of little import"
ance in the social development of Europe.
Preparation for the revival of commerce was made by the
Church. The importance of magic made it desirable to transport
sacred relics from place to place ; and the need of pictorial services
required the transportation of church furnishings from Byzantium
and Italy to the less advanced communities. For the manufacture
of glass and the erection of the earlier buildings artisans themselves
had to be imported from the East and the South. There was also
a constant intercommunication in certain sections through pilgrim-
ages to noted shrines. When special festivals were held at these
shrines, large numbers of pilgrims would be present at the same
time. The provisioning of such a company would occasion consid-
erable trade, and peddlars and traders would naturally join the
pilgrims. Sometimes the monks were themselves traders. Some-
times men would bring their simple manufactures from domains
in the neighborhood. In some instances the important fairs sprang
up at these favorite shrines. But, aside from trade, the pilgrimages
themselves kept up communication between different points. Again
the superstitious awe in which the church was held made it possi-
ble for priests and monks and messengers and pilgrims to travel
from place to place as neither merchants nor soldiers could do. Thus
the commerce of the church and the travel inspired by the church
76 CURRENT ECONOMIC PROBLEMS
served to keep open routes which were closed to ordinary travelers,
and to bring remote regions into communication with each other.
The episcopal cities were also centers of incipient commercial
transactions. Since the bishop did not move from one domain to
another to consume the products of each in turn, as the lay nobles
did, the products of surrounding manors had to be transported to
the residence of the bishop. Thus there was maintained a kind of
industrial concentration that might form the basis for new city life.
In these various ways the churches and monasteries contributed
largely to the commercial development. But they simply prepared
society for a revival of commercial activity by keeping up com-
munication and furnishing inns for travelers.
35. Italian Commerce in the Fourteenth Century^^
BY THOMAS B. MACAULAY
Liberty, partially indeed and transciently, revisited Italy ; and with
liberty came commerce and empire, science and taste, all the com-
forts and all the ornaments of life. The Crusades, from which the
inhabitants of other countries gained nothing but relics and wounds,
brought to the rising commonwealths of the Adriatic and Tyrrhene
seas a large increase of wealth, dominion, and knowledge. The
moral and geographical position of these commonwealths enabled
them to profit alike by the barbarism of the West and the civiliza-
tion of the East. Italian ships covered every sea. Italian factories
rose on every shore. The tables of Italian moneychangers were
set in every city. Manufactures flourished. Banks were established.
The operations of the commercial machine were facilitated by many
useful and beautiful inventions. We doubt whether any country
of Europe, our own excepted, has at the present time reached so
high a point of wealth and civilization as some parts of Italy had
attained four hundred years ago. Historians rarely descend to those
details from which alone the real state of a community can be col-
lected. Hence posterity is too often deceived by the vague hyper-
boles of poets and rhetoricians, who mistake the splendor of a
court for the happiness of a people. Fortunately John Villani has
given an ample and precise account of the state of Florence in
the early part of the fourteenth century. The revenue of the Re-
public amounted to three hundred thousand florins ; a sum which,
allowing for the depreciation of the precious metals, was at least
equivalent to six hundred thousand pounds sterling; a larger sum
than England and Ireland, two centuries ago, yielded annually to
Elizabeth. The manufacture of wool alone employed two hundred
•^Adapted from the essay on Machiavelli (1827).
ANTECEDENTS OF INDUSTRIALISM 77
factories and thirty thousand workmen. The cloth annually pro-
duced sold, at an average, for twelve hundred thousand florins ; a
sum fully equal in exchangeable value to two millions and a half
of our money. Four hundred thousand florins were annually coined.
Eighty banks conducted the commercial operations, not of Florence
only but of all Europe. The transactions of these establishments
were sometimes of a magnitude which may surprise even the con-
temporaries of the Barings and the Rothchilds. Two houses ad-
vanced to Edward the Third of England upward of three hundred
thousand marks, at a time when the mark contained more silver than
fifty shillings of the present day, and when the value of silver was
more than quadruple of what it now is. The city and its environs
contained a hundred and seventy thousand inhabitants.
C. PRE-INDUSTRIAL POLICY
36. Property and Service on the Manor^'
Let us institute a brief comparison between the modern industrial
system and a simple agricultural system, such as existed in Europe
in the Middle Ages and still survives in many respects in those lands
from which the greater part of our industrial labor comes. Such a
comparison will serve the double purpose of showing the dependence
of the problem upon our peculiar organization of industry and of
revealing the difficulties of adjustment to a new situation by a laborer
fresh from such a simple industrial environment.
In such an agricultural system the position of the laborer was
and was not of his own making. It was not in the sense that he was
born into a social class, a family, and a fixed industrial position. It
was in the sense that his living was pretty much what he through his
own efl'orts made it. By birth it became his privilege and obligation
to cultivate a certain plot of ground, to gather his harvest of grain,
to pay a fixed rent in kind to his "lord," and to keep the balance
for himself. This opportunity he could not surrender; from it he
could not be dispossessed. It was for others to dream of fame, of
knew little change. For him no complicated nexus of a price scheme
fortune, of position, of prestige; he was established in a world that
stood between his efforts and his reward. The price at which he
sold his services and the prices at which he purchased goods did not
have to be considered. For him the sun and the rain, rather than
market conditions, his strength and intelligent application, rather than
his bargaining ability, determined the measure of his material wel-
fare. In a very real sense he received all that he produced above the
^^An editorial, 1916.
78 CURRENT ECONOMIC PROBLEMS
fixed rental. Quite appropriately he greeted his neighbor in the
morning with a remark about the all-important subject of the weather.
His modern descendant to be equally appropriate should make market
quotations the basis of his morning's greetings.
Economic insecurity, in the modern sense of the term, did not
attach to the laborer's position. His personal relations with his
"lord," his contact with his "job" rested upon conventions that seem
quite "queer" to us. For when we call the "lord" a "property owner"
we mean something quite different from the current meaning of the
term. He was an owner in the sense that the title was vested in him,
that he had general supervision of the land, and that he received a
"rent." But he possessed only some of the "equities" which make
up the extremely complex institution of "property ownership." He
could not employ whom he pleased to work on his land ; he could not
dictate to the laborers the technique which they should employ ; he
could not raise rents ; and he could not dispossess those who cultivated
his land. Clearly some of the equities of ownership belonged to the
laborer. In like manner the laborer owned some of the equities in
his own labor : when and how he should work was in general left to
him; he enjoyed the bountiful harvest which came from his diligent
efforts. But certain of the equities of his labor were enjoyed by the
lord: on special occasions he had to give of his labor without stint,
he could not insist upon lowering his rent, he could not free himself
from his "job." Because of these peculiar property arrangements
the lord and laborer, the man and his "job," were inseparably linked
in a permanent scheme. No consent of either party, no "contract"
was necessary to bring them together ; custom had accomplished that,
and once for all.
If, under this scheme, the laborer lacked personal freedom he
was immune to insecurity. If there was no resplendent future before
him there was no abyss of misery into which he might fall. Failure
to agree on terms never left him without employment. No radical
change in technique, in volume of business, or in prices, rendered
his store of technical skill a worthless possession, and left him a "man
without a job." Sickness did not threaten irreparable ruin ; for was
he not possessed of property rights of which he could not be stripped ?
Industrial accident had few terrors in a society that used blunt
plows and patient oxen. The seasonal round of work was not in-
jurious to the workman's health and spirits ; for the tyranny of the
almanac is less severe than that of the clock. If the frugality of his
life made consumption quite monotonous, there was at least the com-
pensating advantage of absence of monotony in production. Under
the dictates of agrarian institutions such talents as could be used later
were in little danger of being prematurely wasted. The equities in
ANTECEDENTS OF INDUSTRIALISM 79
property gave even some security for old age as well as assurance that
the premature death or disability of the head of the family would not
rob children of their opportunity. If dangers were still left, they
were finite, personal, and intelligible ; they did not proceed from some
dark, obscure, and undiscovered part of an impersonal and soulless
machine system.
Like all others the system possessed both insecurity and waste.
The former was manifest in the clash of group against group, the
raid of a rival group, and the reiterated appearance of flood, drought,
and fire. The stern reality of these things make famine, nakedness,
and lack of shelter more than vague dreams. But the insecurity was
communal rather than individual ; it had its root in the exigencies
likely to befall production rather than in the vicissitudes of a price
system. The latter was manifest in the monotony of the industrial
and social system. The lack of variety in goods and services, in oc-
cupations and professions, gave little chance for the development of
any but a few of the resources of mind and body latent in the popula-
tion. A narrow caste system, which made opportunity very largely
a matter of birth, failed compleTely in utilizing and conserving the
talents of the masses.
To such a simple environment it was easy for the individual to
adapt his life. His judgment could be depended upon to make the
decisions necessary to his own welfare and that of those dependent
upon him. There was no complicated scheme of prices to cloud and
bewilder his judgment. The industrial relations of laborer and
master were dictated by custom and required no conscious choice.
As a consequence laborers did not live a transitory life, being here
today and there tomorrow. They belonged to permanent communi-
ties and enjoyed a high degree of neighborhood life. Through this
the perplexities which were still left in the simple environment was
minimized by a set of convictions, religious, industrial, political, and
social which prescribed quite rigidly the life which the individual
should lead. They were in reality a collection of conventional form-
ulas, revealing the experience of the community for generations as
to how things should be done. They were quite sufficient for such
ordinary matters as fixing the standard of living, giving moral in-
struction to the young, inculcating in them habits of industry, and
giving them the technical training for the occupations into which
they were expected to enter. With such freedom from a large num-
ber of judgments and rigid community standards to guide such as
had to be made, the individual was not likely to go seriously astray
in adapting his life and activities to his community environment. The
permanent associations with place and group gave a further help in
imparting a sense of futurity and preventing judgments from being
8o CURRENT ECONOMIC PROBLEMS
based upon purely the immediate considerations, as is so likely to
be the case under the pecuniary system. If the tyranny of community
standards placed a discount upon individual initiative and novelty,
if it seriously interfered with the development of culture, it at least
permitted the individual to rationalize his activities in terms of the
system of which he was a part.
37. Solidarity in the Mediaeval Town"
Town and gild ordinances furnish abundant evidence of a spirit
of social solidarity animating industrial legislation which is quite for-
eign to the modern point of view. There was a determined attempt on
the part of the authorities to prevent "regrating," or buying to sell
again at a higher price; "forestalling," or outwitting fellow-dealers
by purchasing goods before they came into open market ; and "en-
grossing," or the modern cornering the market. Gild documents
are replete with statutes the purpose of which was to secure to the
consumer the use of the best raw materials, the exercise of care and
skill on the part of the workman, and full measure. While instances
could be multiplied, the custom in the city of Chester that "a man
or woman making false measure and being arrested, compounded
for it with four shillings" ; the custom in the same town of punish-
ing with the ducking pool the maker of bad ale ; and the statute of
the spurriers of London to the effect that "no one of the trade of
spurriers shall work longer than from the beginning of the day until
curfew rings out of the church of St. Sepulcher," are typical exam-
ples of legislation of this kind. But perhaps, to the modem mind,
the strangest of all the customs was the levying of export duties and
the frequent prohibition of the export of certain articles, usually
foodstuffs. The purpose of such taxes and prohibition is implicit
in the frequently appended clause, "because of the scarcity of the
commodity in the city of late." A careful examination of the evi-
dence shows that it was framed in the interest of producers-consum-
ers by men who were not sufficiently used to the intermediate money
term to separate the two parts of the economic process.
An explanation of the attitude implicit in this legislation is sim-
ple when the conditions of life in the mediaeval town are kept clearly
in mind. These laws were enacted, not because men of the Middle
Ages were less acquisitive than modern men, or were more imbued
with the spirit of Christianity, but because of the peculiar exigen-
cies of mediaeval town life. The mediaeval town, settled by alien
i*An editorial, 191 1.
ANTECEDENTS OF INDUSTRIALISM 8i
merchants, villeins from nearby manors, emancipated or runaway
serfs, and fortune seekers from far and near, began its career with
no sharply drawn class lines and few local traditions. It was the
product of a new industrial movement which threatened to rob the
first and second estates of the social and economic pre-eminence
which they had enjoyed for centuries. The nature and aspirations
of town life were incompatible with the customs of feudalism. There
was an inevitable opposition between the larger industrial entity
which bourgoisie life made necessary and the smaller unit in which
alone the spirit of feudalism could survive. There developed con-
sequently a hostility between the old and the new, and it became
necessary to fight for existence. From such a common struggle a
spirit of solidarity necessarily emerged.
An influence even stronger was the economic dependence of the
town. It will not be denied, I think, that where the conditions of
existence are severe, a strong feeling of common interests grows
up within the group. Such conditions existed in the mediaeval town.
It must be admitted that the transition from the Roman system of
slavery to the mediaeval system of serfdom represented a great eco-
nomic gain. The serf, freed from gang work and thrown on his
own resources, with rents fixed by immutable custom, and with the
assurance of a right to enjoy all the surplus produced above the stip-
ulated rent, held a position that gave promise of efficiency. He was
in a position to produce an agricultural surplus, a necessary antece-
dent to the development of the town. But the real gain in the transi-
tion from slavery to serfdom was potential and not actual. It is
very doubtful whether the serf of the twelfth century was produc-
ing as much as the slave in the palmy days of the empire. To make
this potential surplus actual, the wants of the agricultural laborer
had to be developed. Despite the principle of the indefinite expansi-
bility of wants, this process was slow, depending upon the chance
visits of traveling merchants, the fairs, and the slow development
of the towns. Consequently the precariousness of its food supply
made the threat of starvation a very real one in the town. The
result was necessarily legislation which sought to conserve the food
supply.
It is true that differentiation of occupations characterized the
town almost from the very beginning. Even in the days of the
early gild merchant individual interests were not completely iden-
tical with communal interests. But the techhical methods of the
gildsman were simple and direct, necessitating the use of very little
capital, and causing industry to be carried on on a small scale. The
82 CURRENT ECONOMIC PROBLEMS
relationship of the master workman to the members of his estab-
Hshment was personal. Generally speaking goods were made to
order. The artisan knew the eccentricities of his customers, and was
anxious to humor them. The industrial process was a short time
one, goods were generally consumed in the neighborhood in which
they were produced, and if any flaw in material or defect in work-
manship was discovered, the producer would likely hear of it. Under
such conditions the social ownership of productive goods only gradu-
ally gave way to the ever-enlarging area of individual property rights.
Hence the two processes of production and consumption were prac-
tically identified in the mind of the townsman.
This breadth of viewpoint in domestic relations can best be
understood by its contrast with the townsman's conduct of foreign
or out-of-town trade. The current code of business ethics allowed
inferior materials and poor workmanship to be used in the production
of articles for the foreign market. The interests of the foreigner
were not protected by the customary, or just, price; and if, by hook
or crook, the townsman could put off short weight on the foreigner,
so much the better. In short, here the element of personality was
minimized ; and, for that reason, production, the social means, became
to the artisan an individual end. In this attitude toward foreign
trade is to be found the beginning of the entrepreneur viewpoint. As
the industrial entity increased in size and complexity, as the time
of the productive process was lengthened, and as business relations
became more personal, it is quite natural that the gildman's attitude
toward foreigners should come to be his attitude toward all customers.
Yet the influence of mediaeval thought in promoting the spirit of
solidarity is not to be wholly overlooked. The town was born in an
atmosphere saturated with the spirit of mediaeval Catholicism.
Brotherhood and equality had long been preached by the church.
Vertical, or interclass equality was never realized, either in chiv-
alry or in the church. But many mediaeval institutions presented at
least a fair semblance of horizontal, or intraclass equality. It was
under the influence of ecclesiastical precedents that the towns es-
tablished their new organizations. A study of the characteristic
features of the gilds shows how great was the number of things for
which they were indebted to religious institutions and how few
were the real innovations springing out of the newly created urban
life. Influenced by such habits of thought and freed from the ob-
stacles opposed by an already stratified society, the merchant gild
legislated with the end in view of placing social interests above class
or individual interests. Intellectual conditions and the pressure of
economic and political necessity prevented the formal sacrifice of
social weal to individual acquisition.
ANTECEDENTS OF INDUSTRIALISM 83
38. Articles of the Spurriers of London^^
In the first place — that no one of the trade of Spurriers shall
work longer than from the beginning of day until curfew rang out
at the Church of St. Sepulchre, without Newgate ; by reason that no
man can work so neatly by night as by day. And many persons of
the said trade, who compass how to practice deception in their
work, desire to work by night rather than by day ; and then they
introduce false iron, and iron that has been cracked, for tin ; and
also they put gilt on false copper, and cracked. And further —
many of the said trade are wandering about all day, without work-
ing at all at their trade ; and then when they have become drunk
and frantic, th^^' take to their work, to the annoyance of the sick,
and all their neighborhood, as well by reason of the broils that arise
between them and the strange folk who are dwelling among them.
And then^hey blow up their fires so vigorously, that their forges
begin all at once to blaze to the great peril of themselves and of all
the neighborhood around. And then, too, all the neighbors are
much m dread of the sparks, which so vigorously issue forth in all
directions from the mouths of the chimneys in their forges. By
reason thereof it seepis unto them that working by night should be
put an end to, in order such false work and such perils to avoid :
and, therefore, the Mayor and the Aldermen do will, by the assent
of the good folks of the said trade, and for the common profit, thar
from henceforth such time for working, and such false work made
in the trade, shall be forbidden.
39. Mediaeval Tricks of Trade^^
BY BERTHOLD VON REGENSBURG
The first are ye that work in clothing, silks, or wool or fur,
shoes or gloves or girdles. Men can in nowise dispense with you ;
men must needs have clothing; therefore should ye so serve them
as to do your work truly ; not to steal half the cloth, or to use other
guile, mixing hair with your wool or stretching it out longer, where-
by a man thinketh to have gotten good cloth, yet thou hath stretched
it to be longer than it should be, and maketh a good cloth into
worthless stuff. Nowadays no man can find a good hat for thy
falsehood ; the rain will pour down through the brim into his bosom.
Even such deceit is there in shoes, in furs, in curriers' work ; one
^^Adapted from University of Pennsylvania (1345), op. cit., pp. 21-22.
^'^Adapted from a thirteenth-century sermon, translated in Coulton, A
Mediaeval Garner, pp. 348-54. Published by Constable & Co., London.
84 CURRENT ECONOMIC PROBLEMS
man sells an old skin for a new, and how manifold are thy deceits
no man knoweth so well as thou and thy master the devil.
The second folk are such as work with iron goods. They should
all be true and trustworthy in their office, whether they work by the
day or by the piece. When they labor by the day, they should not
stand all the more idle that they may multiply the days at their work.
If thou laborest by the piece, then thou shouldest not hasten too soon
therefrom, that thou mayest be rid of the work as quickly as possi-
ble, and that the house may fall down in a year or two. Thou
shouldest w^ork at it truly, even as it were thy own. Thou smith,
thou wilt shoe a steed with a shoe that is naught ; and the beast will
go perchance a mile thereon when it is already broken, and the
horse may go lame, or a man be taken prisoner, or lose his life. Thou
art a devil and an apostate.
The third are such as are busied with trade ; we cannot do with-
out them. They bring from one kingdom to another what is good
cheap there, and whatever is good cheap beyond the sea they bring
to this town, and whatever is good cheap here they carry over the
sea. Thou, trader, shouldst trust God that He will find thee a liveli-
hood with true winnings. Yet now thou swearest so loudly how
good thy wares are, and what profit thou givest the buyer thereby ;
more than ten or thirty times takest thou the names of the saints in
vain — God and all His saints, for wares scarce worth five shillings !
That which is worth five shillings thou sellest, maybe, sixpence
higher than if thou hadst not been a blasphemer of our Lord, for
thou swearest loud and boldly: 'T have been already offered far
more for these wares" : and that is a lie. And if thou wilt buy any-
thing from simple folk, thou turnest all thy mind to see how thou
mayest get it from them without money, and weavest many lies be-
fore his face ; and thou biddest thy partner go to the fair also, and
goest then a while away and sayest to thy partner what thou wilt
give the man for his wares, and biddest him come and offer less.
Then the simple country fellow is afifrightened, and will gladly see
thee come back. "Of a truth," thou sayest, "by all the saints, no
man will give thee so much for this as 1 1" Yet another would have
given more.
The fourth are such as sell meat and drink, which no man can
disregard. Wherefore it is all the more needful that they shouldst
be true and honest therein ; for other deceit dealeth only with earth-
ly goods, but this deceit with a man's body. If thou offerest measly
or rotten flesh that thou hast kept so long until it be corrupt, then
art thou guilty perchance of one man's life, perchance of ten. Or
if thou offerest flesh that was unwholesome before the slaughter, or
unripe of age, which thou knowest well and yet givest it for sale,
ANTECEDENTS OF INDUSTRIALISM 85
so that folk eat it into their clean souls which are so dear a treasure
to Ahnighty God, then dost thou corrupt the noble treasure which
God hast buried in every man ; thou art guilty of the blood of these
folk. The same say I of him who selleth fish. So are certain inn-
keepers and cooks in the town, who keep their sodden flesh too
long, whereof a guest eateth and falleth sick thereafter for his life
long. So also do certain others betray folk with corrupt wine or
mouldy beer, unsodden mead, or give false measure, or mix water
with the wine. Certain others, again, bake rotten corn to bread,
whereby a man may lightly eat his own death ; and they salt their
bread which is most unwholesome.
The fifth folk are such as till the earth for wine or corn. They
should live truly toward their lords and toward their fellows, and
among each other ; not plough one over the other's landmark, nor
trespass nor reap beyond the mark, nor feed their cattle to another's
harm, nor betray their fellows to the lord. Ye lords, ye deal some-
times so ill with your poor folk, and can never tax them too high ;
ye would fain ever tax them higher and higher. Thou boor, thou
bringest to the town a load of wood that is all full of crooked billets
beneath ; so sellest thou air for wood ! And the hay thou layest so
cunningly on the wagon that no man can profit thereby ; thou art a
right false deceiver.
The sixth folk are all that deal with medicine, and these must take
great heed against untruth. He who is no good master of that art,
let him in no wise undertake it, or folks' blood will be upon his
head. Take heed, thou doctor, and keep thyself from this as thou
lovest the kingdom of heaven. We have murderers enough without
thee to slay honest folk.
So are some men deceivers and liars like the craftsmen. The
shoemaker sayeth, "See, there are two most excellent soles," and he
hath burned them before the fire. And the baker floods his dough
with yeast, so that thou hath bought mere air for bread. And the
huxter pours sometimes beer or water into his oil ; and the butcher
will sell calves' flesh at times, saying: "It is three weeks old," and
it is scarce a week old.
40. The Control of Industry in the Gild Period^^
BY L. F. SALZMANN
Broadly speaking, the control of industry may be said to be either
external, by parliamentary or municipal legislation, or internal, by
means of craft gilds. These two sections again admit of subdivision
according as their objects are the protection of the consumer, the
i^Adapted from English Industries in the Middle Ages (1913), pp. 200-237.
S6 CURRENT ECONOMIC PROBLEMS
employer, or the workman. Nor can we entirely ignore legislation
for purpose of revenue — subsidies and customs.
If a large number of parliamentary enactments were protective
of the producer, as for instance the prohibition in 1463 of the
import of a vast variety of goods from silk ribbands to dripping-
pans, and from razors to tennis balls, including such incompatibles
as playing-cards and sacring bells, yet still more were they protective
of the consumer. For one thing, of course, a single act prohibiting
certain imports might protect a dozen classes of manufacturers, while
the denunciation of one particular species of fraud would probably
lead ingenious swindlers to invent a succession of others, each
requiring a separate act for its suppression. Sentimental admirers
of the past are likely to imagine that the mediaeval workman loved
a piece of good work for its own sake and never scamped a job.
Nothing could be farther from the truth. The mediaeval craftsman
was not called a man of craft for nothing! He had no more con-
science than a plumber, and his knowledge of ways that are dark
and tricks that are vain was extensive and peculiar. The subtle
craft of the London bakers, who, while making up their customer's
dough, stole a large portion of the dough under their customers' eyes
by means of a little trap-door in the kneading board and a boy sit-
ting under the counter, was exceptional only in its ingenuity. Cloth
was stretched and strained to the utmost and cunningly folded to
hide defects, or a length of bad cloth would be joined on to a length
of superior quality ; inferior leather was faked up to look like the
best, and sold at night to the unwary ; pots and kettles were made of
bad metal which melted when put on the fire, and everything that
could be weighed or measured was sold by false measure.
From the customer's point of view the regulation of prices was
perhaps the most important problem. The price of raw material
was too dependent upon supply and demand to admit of much
regulation. The local authorities, civic and manorial, took constant
measures to prevent the artificial enhancement of what we may call
raw foodstuffs, corn, fish, and meat, the "regrator and forestaller,"
that is to say, the middleman who intercepted supplies before they
reached the market and forced the prices up for his own sole benefit,
being universally regarded as a miscreant. The economists of that
period had not grasped the fact that the cleverness shown in buying
an article cheap and selling the same thing without any further
expenditure of labor, dear, if done on a sufiiciently large scale, justi-
fies the bestowal of the honor of knighthood or a peerage. In the
case of manufactured foodstuffs, such as bread and ale, the price was
automatically fixed by the price of the raw material, and in general
prices of manufactures were regulated by the cost of the materials.
ANTECEDENTS OF INDUSTRIALISM 87
The principle that the craftsman should be content with a reasonable
profit and not turn the casual needs of his neighbors to his own bene-
fit is constantly brought out in local regulations.
The question of prices, which were thus so largely composed of a
varying sum for material, and a fixed sum for workmanship, is
very intimately connected with the question of wages. The mediaeval
economist seems to have accepted the Ruskinian theory that all men
engaged in a particular branch of trade should be paid equal wages.
There were, of course, grades in each profession, as master or fore-
man, workman, and assistant or common laborer, but within each
grade the rate of payment was fixed. Wages were at all times paid
on the two systems of piecework and time, and the hours were, as
a rule, long. For the building trade at Beverley in the fifteenth cen-
tury work began in summer at 4:00 a.m. and continued until 7:00
P.M.; at 6:00 A.M. there was a quarter of an hour's interval for
refreshment, at 8:00, half an hour for breakfast, at 11 :oo an hour
and a half to dine and sleep, and at 3 :oo half an hour for further
refreshment. During the winter months the builders worked from
dawn till dusk, with half an hour for breakfast at 9:00 o'clock, an
hour for dinner at noon, and a quarter of an hour's interval at 3 :oo.
Wages, of course, when paid by the day, varied in winter and sum-
mer. But, against the long hours, we have to set off the comparative
frequency of holidays.
For the protection of the consumer a very thorough system of
search or inspection was established. The search of weights and
measures, provisions, cloth, and tanned leather usually belonged to
the mayor or equivalent borough officer, or in county districts to the
manorial lord, but usually with other manufactures, and very often
in the case of cloth and leather, the mayor deputed the duty of
search to members of the craft gilds elected and sworn for that pur^
pose. They could inspect the wares either in the workshops or
when they were exposed for sale, and seize any badly made articles.
The forfeited goods were either burnt or given to the poor, and the
offending craftsman fined, set in the pillory, or, if an old offender,
banished from the town. T6 facilitate tracing the responsibility for
bad work, weavers, fullers, hatters, metal-workers, tile-makers, and
other craftsmen, including bakers, were ordered to put their private
trademarks on their wares. This process must have been much sim-
plified by the custom so prevalent of segregating or localizing the
trades, so that the goldsmiths dwelt in one quarter, the shoemakers
in another, etc.
As the trades were kept each to its own district, so was the
craftsmen restricted to his own trade. By a law issued in 1364 artif-
icers were obliged to keep to one "mystery" or craft, an exception
88 CURRENT ECONOMIC PROBLEMS
being made in favor of women acting as brewers, bakers, carders,
spinners, and workers of wool and linen and silk — the versatility of
woman, the "eternal amateur," being thus recognized some five cen-
turies and a half before Mr. Chesterton rediscovered it. Later
statutes forbade shoemakers, tanners, and curriers to infringe on
each other's province. The general tendency was to keep trades,
and more especially the allied trades, separate, in order presumably
to avoid the growth of "combines" and monopolies. For this rea-
son fishmongers and fishermen were forbidden to enter into partner-
ship in London, because the dealers, knowing the needs of the city,
would be able to manipulate supplies and keep up prices.
How far the desire to restrict output was at the bottom of regula-
tions forbidding the employment of more than a strictly limited
number of apprentices and journeymen, and how far such prohibi-
tions were inspired by fear of the monopolization of labor by capi-
talists it is difficult to say. Probably the dread of the capitalist was
the chief incentive for such regulations, which are very numerous.
The same principle of fair play between employers led to the ordain-
ing of heavy penalties for taking away another man's servant, or
employing any journeyman who had not fulfilled his engagement
with his previous master, and to the strict prohibition of paying more
than the fixed maximum wages. This last provision was sometimes
got over by the master's wife giving his servant extra gratuities and
gifts. So also the use of the cheap labor of women was as a rule
regarded with disfavor. The fullers of Lincoln were forbidden to
work with any woman who was not the wife or maid of a master,
and the "bracers" or makers of braces, of London, in 1355, laid
down "that no one shall be so daring as to set any woman to work
in his trade, other than his wedded wife or his daughter." Of child
labor we hear very little, one of the few notices being an order on
the children's behalf made, suitably enough, by Richard Whittington,
in 1398, that whereas some "hurlers" (makers of fur caps) send
their apprentices and journeymen and children of tender ago down
to the Thames and other exposed places, amid horrible tempests,
frosts, and snows, to scour caps, to the very great scandal of this
city, this practice is to cease at once.
Too much attention must not be given to the quarrelsome side of
the gilds, for they were essentially friendly societies for mutual
assistance. One of the rules of the London leather-dressers was that
if a member should have more work than he could complete and the
work was in danger of being lost, the other members should help
him. A still more essential feature of the gilds was their grant of
assistance to members who had fallen ill or become impoverished
through no fault of their own. Nor did their benevolence end with
ANTECEDENTS OF INDUSTRIALISM 89
the poor craftsman's death, for they made an allowance to his widow
and celebrated masses for the repose of his soul.
41. Labor on the Southern Plantations^*
Let us consider briefly the nature of the institution of chattel
slavery as it existed upon the southern plantation before the Civil
War. The welfare of the slave, like that of the agricultural laborer
considered above, depended largely upon the nature of "property
rights." Under the plantation system all the equities alike in land and
in laborers, so far as they were individually owned, belonged to the
"master." It was his sole right to determine what work should be
done, when it should be done, to prescribe conditions of employment,
and to supervise the work in every particular. Upon him devolved
the costs incident to the maintenance of the laborers ; to him alone
belonged the whole product. The master's control over the slaves
extended to their children.
This arrangement made the immediate welfare of the slave a
matter of status. It was determined by the requirements of physical
efficiency. Because of the master's pecuniary interest in him, the
slave received, if not a wage, at least nourishing food in sufficient
quantity, clothing at least sufficient for comfort in a warm climate,
and a roof over his head that kept out the rain. Since the state of
the mind has a great influence upon work, rest, recreation, holidays,
and amusements were offered to him. The only occupation in which
he could profitably be used was agriculture. This furnished an out-
of-doors life, conducive to health, and physically, even if not mentally,
stimulating. The seasonal character of the work offered periods of
partial rest. Only rarely could there be a succession of "long days."
The very nature of the crops gave variety from month to month and
prevented the routine monotony of industrial toil. Industrial acci-
dent was at a minimum ; for by reason of long and intimate compan-
ionship the negro had become immune to the mule, the most danger-
ous mechanism upon the plantation.
But the interest of the master in the welfare of the slave was
more than immediate. He exercised over him the right of ownership,
which economically was nothing else than a proprietary interest in
the whole capitalized value of the future services which the slave
might be expected to yield. The master's pecuniary interest in realiz-
ing this future value acted as a powerful incentive in securing the
conservation of the slave's strength and resources. The health of so
valuable a piece of property was guarded by prohibitions against over-
work. Care was taken not to use him in dangerous and unhealthy
i^An editorial (1916).
90 CURRENT ECONOMIC PROBLEMS
employments. It was an established custom in Mississippi to hire
whites to work in the malaria-infected river bottoms, reserving the
slaves for the more salubrious employment of the uplands. If per-
chance the black fell sick, he had the best of medical assistance and
nursing. Generally feelings of humanity, which have their best
chance for expression in a small group society, particularly if per-
sonal relations are of long standing, could be depended upon to secure
provision for the slave's old age.
The same pecuniary interest was a guaranty of the conservation
of the resources of the young. For them security and opportunity,
training and immunity from premature exploitation, did not depend
upon the economic fortunes of the "bread winner." Should he
become partially disabled, totally dependent, or die, their personal
fortunes would not be affected thereby. They were the master's
property and much too valuable to be used up before they could
render services of importance under the plantation system. The same
property interest brought it about that they were taught habits of
industry and honesty, and were given so much of technical training as
they were likely to need later. If they were denied "book learning,"
the system required that they should have such consolations as inhere
in the Christian religion.
Still the system left the larger problems of the conservation of
resources unsolved. It reconciled itself to the use of slave labor for
a single purpose, thus allowing a very small number of the negro's
latent powers to be developed. The owners kept in their own hands
control of technique, thus inhibiting any advance which might come
from the actiyity of the slave's intellect. The use of laborers in gangs
broke effectively the nexus of work and reward, thus furnishing no
proper incentive to an intelligent doing of the day's work. Closely
associated was a failure to develop and utilize the moral values in-
herent in personal responsibility. It is quite unnecessary to mention
the subsidiary waste of the labor of others, of materials and tools of
accumulated wealth, and the exhaustion of the soil, all of which were
necessary compliments of this waste of human resources.
D. PRE-INDUSTRIAL RIGHTS AND DUTIES
42. The Classic Statement of the Organic Nature of Society^^
BY ST. PAUL
For as the body is one, and hath many members, and all the mem-
bers of that one body, being many, are one body : so also is Christ.
For by one Spirit are we all baptized into one body, whether we be
1" From I Cor. 12:12-31.
ANTECEDENTS OF INDUSTRIALISM 91
Jews or Gentiles, whether we be bond or free ; and have been all
made to drink unto one Spirit. For the body is not one member, but
many. If the foot shall say, Because I am not the hand, I am not of
the body ; is it therefore not of the body? And if the ear shall say,
Because I am not the eye, I am not of the body ; is it therefore not of
the body ?
If the whole body were an eye, where were the hearing? If the
whole were hearing, where were the smelling? But now hath God
set the members every one of them in the body, as it hath pleased
him. And if they were all one member, where were the body? But
now they are many members, yet but one body. And the eye cannot
say unto the hand, I have no need of thee : nor again the head to the
feet, I have no need of you.
Nay, much more those members of the body, which seem to be
more feeble, are necessary. And those members of the body which
we think to be less honorable, upon these we bestow more abundant
honor ; and our uncomely parts have more abundant comeliness. For
our comely parts have no need : but God hath tempered the body
together, having given more abundant honor to that part which
lacked : that there should be no schism in the body ; but that the
members should have the same care one for another. And whether
one member suffer, all the members suffer with it ; or one member
be honored, all the members rejoice with it.
Now ye are the body of Christ, and members in particular. And
God hath set some in the church, first apostles, secondarily prophets,
thirdly teachers, after that miracles, then gifts of healing, helps, gov-
ernments, diversities of tongues. Are all apostles? are all prophets?
are all teachers? are all workers of miracles? have all the gifts of
healing? do all speak with tongues? do all interpret? But covet
earnestly the best gifts : and yet show I unto you a more excellent
way.
43. The Gospel of Stewardship-"
BY THOMAS AQUINAS
Exterior goods have the character of things useful to an end.
Hence human goodness in the matter of these goods must consist
in the observation of a certain measure as is done by a man seeking
to have exterior riches in so far as they are necessary to his life
according to his rank and condition. And, therefore, sin consists in
exceeding this measure, and trying to acquire or retain riches beyond
the due limit.
20Adapted from Summa Theologica. Quaest, CXVIII; LXXIX, a^t. i,
vi et viii (1265-1274).
92 CURRENT ECONOMIC PROBLEMS
Covetousness may involve immoderation in two ways : in one way
immediately as to the receiving or keeping of them, when one acquires
or keeps beyond the due amount ; and in this respect it is directly a
sin against one's neighbor, because in exterior riches one cannot have
superabundance without another being in want, since temporal goods
cannot be simultaneously possessed by many. The other way is in
interior affections, in immoderate love, or desire of, or delight in,
riches. In this way it is a sin of man against himself by the disorder-
ing of his affection. It is also a sin against God by the despising of
eternal good for temporal.
The Philosopher says : "It belongs to the magnanimous man to
want nothing or hardly anything." This, however, must be under-
stood in human measure, for it is beyond the condition of man to
have no wants at all. For every man needs first of all the divine
assistance, and secondly also human assistance, for man is naturally
a social animal, not being self-sufficient for the purpose of life.
Magnanimity regards two objects, honor as its matter, and some
good deed in view as its end. Goods of fortune co-operate to both
these objects. For honor is paid to the virtuous, not by the wise
only, but by the multitude. Now the multitude make most account
of the external goods of fortune ; consequently greatest honor is paid
by them to those who have these things. In like manner goods of
fortune serve as instruments to acts of virtue, because by riches there
is opportunity for action. Clearly the goods of fortune contribute to
magnanimity. Virtue is said to be self-sufficient, because it can exist
even without these external goods ; nevertheless, it needs these ex-
ternal goods to have more of a free hand in its working.
Solicitude for temporal things is unlawful if we seek temporal
things as our final goal. Temporal things are subject to man that he
may use them for his necessity, not that he may set up his rest in
them, or be idly solicitous about them.
44. The Bill of Rights^^
And thereupon the said Lords Spiritual and Temporal, and Com-
mons, pursuant to their respective letters and elections, being now
assembled in a full and free representation of this nation, taking into
their most serious consideration the best means of attaining the ends
aforesaid, do in the first place (as their ancestors in like case have
usually done), for the vindicating and asserting their ancient rights
and liberties, declare :
^'A part of the great constitutional document passed by Parliament in
October, 1689, Statutes of the Realm, i W. & MS. 2, c. 2.
ANTECEDENTS OF INDUSTRIALISM 93
1 . That the pretended power of suspending of laws, or the execu-
tion of laws, by regal authority, without consent of Parliament, is
illegal.
2. That the pretended power of dispensing with laws, or the
execution of laws by regal authority, as it hath been assumed and
exercised of late, is illegal.
3. That the commission for erecting the late Court of Commis-
sioners for Ecclesiastical Causes, and all other commissions and
courts of like nature, are illegal and pernicious.
4. That levying money for or to the use of the Crown, by pre-
tense of prerogative, without regard of Parliament, for longer time
or in other manner than the same is or shall be granted, is illegal.
5. That it is the right of the subjects to petition the King, and
all commitments and prosecutions for such petitioning are illegal.
6. That the raising or keeping a standing army within the king-
dom in time of peace, unless it be with consent of Parliament, is
against law.
7. That the subjects which are Protestants may have arms for
their defense suitable to their conditions, and as allowed by law.
8. That election of members of Parliament ought to be free.
. 9. That the freedom of speech, and debates or proceedings in
Parliament, ought not to be impeached or questioned in any court
or place out of Parliament.
10. That excessive bail ought not to be required, nor excessive
fines imposed ; nor cruel and unusual punishments inflicted.
11. That jurors ought to be duly impaneled and returned, and
jurors which pass upon men in trials for high treason ought to be
freeholders.
12. That all grants and promises of fines and forfeitures of par-
ticular persons before conviction are illegal and void.
13. And that for redress of all grievances, and for the amend-
ing, strengthening, and preserving of the laws, Parliament ought to
be held frequently.
45. The Theory of Natural Right
a) The Declaration of Independence ^^
When in the course of hunian events its becomes necessary for
one people to dissolve the political bonds which have connected them
with another, and to assume among the powers of the earth the sepa-
rate and equal station to which the laws of Nature and Nature's God
entitles them, a decent respect to the opinions of mankind requires
that they should declare the causes which impel them to the separation.
22 Passed by the Continental Congress. Popularly dated July 4, 1776.
94
CURRENT ECONOMIC PROBLEMS
We hold these truths to be self-evident, that all men are created
equal ; that they are endowed by their Creator with certain inalienable
rights ; that among these are life, liberty, and the pursuit of happiness.
That to secure these rights, governments are instituted among men,
deriving their just powers from the consent of the governed. That,
whenever any form of government becomes destructive of these ends,
it is the right of the people to alter or to abolish it, and to institute a
new government, laying its foundations on such principles and
organizing its powers in such form as shall seem to them most likely
to effect their safety and happiness.
h) The Rights of Men and of Citizens
23
The representatives of the people of France, formed into a
National Assembly, considering that ignorance, neglect, or contempt
of human rights are the sole causes of public misfortunes and cor-
ruptions of government, have resolved to set forth in a solemn decla-
ration those natural, imprescribable, and inalienable rights (and do)
recognize and declare, in the presence of the Supreme Being, and
with the hope of his blessing and favor, the following sacred rights
of men and of citizens :
I. Men are born and always continue free and equal in respect
to their rights. Civil distinctions therefore can only be founded upon
public utility.
II. The end of all political associations is the preservation of the
natural and imprescribable rights of man, and these rights are liberty,
property, security, and resistance of oppression.
c) The American Bill of Rights
24
I. Congress shall make no law respecting an establishment of
religion, or prohibiting the free exercise thereof; or abridging the
freedom of speech or of the press, or the right of the people peaceably
to assemble and to petition the government for a redress of
grievances.
II. A well-regulated militia being necessary to the security of a
free state, the right of the people to keep and bear arms shall not be
infringed.
III. No soldier shall, in time of peace, be quartered in any house,
without the consent of the owner, nor in time of war but in a manner
to be prescribed by law.
23 Issued by the National Assembly of France, 1789.
2* The first nine amendments to the Constitution of the United States,
proposed by the first Congress on September 25, 1789, and ratified by the
required three-fourths of the states during the next two years.
ANTECEDENTS OP INDUSTklALlSM 95
IV. The right of the people to be secure in their persons, houses,
papers, and effects, against unreasonable searches and seizures, shall
not be violated, and no warrants shall issue but upon probable cause,
supported by oath or affirmation, and particularly describing the place
to be searched, and the persons or things to be seized.
V. No person shall be held to answer for a capital or otherwise
infamous crime, unless on a presentation or indictment of a grand
jury, except in cases arising in the land and naval forces, or in the
militia, when in actual service in time of war or public danger ; nor
shall any person be subject for the same offense to be twice put in
jeopardy of life or limb ; nor shall be compelled in any criminal case
to be a witness against himself; nor be deprived of life, liberty, or
property, without due process of law ; nor shall private property be
taken for public use without just compensation.
VI. In all criminal prosecutions, the accused shall enjoy the
right to a speedy and public trial, by an impartial jury of the State
and district wherein the crime shall have been committed, which
district shall have been previously ascertained by law, and to be in-
formed of the nature and cause of the accusation ; to be confronted
with the witnesses against him ; to have compulsory process for ob-
taining witnesses in his favor, and to have the assistance of counsel
for his defense.
VII. In suits at common law, where the value in controversy shall
exceed twenty dollars, the right of trial by jury shall be preserved,
and no fact tried by a jury shall be otherwise re-examined in any
court of the United States, than according to the rules of the common
law.
VIII. Excessive bail shall not be required, nor excessive fines
imposed, nor cruel and unusual punishments inflicted.
IX. The enumeration in the Constitution of certain rights shall
not be construed to deny or disparage others retained by the people.
d) Some Addenda
XIII. Sec. i.^^ Neither slavery nor involuntary servitude, except
as a punishment for crime whereof the party shall have been duly
convicted, shall exist within the United States, or any place subject
to their jurisdiction.
xiv. Sec. i.-° All persons born or naturalized in the United
States, and subject to the jurisdiction thereof, are citizens of the
United States and of the State wherein they reside. No state shall
25Adopted as part of the Constitution of the United States, December 18,
1865.
'" The Fourteenth Amendment to the Constitution of the United States,
of which the paragraph above is section i. was declared adopted July 21, 1868.
96 CURRENT ECONOMIC PROBLEMS
make or enforce any law which shall abridge the privileges or im-
munities of citizens of the United States ; nor shall any State deprive
any person of life, liberty, or property, without due process of law;
nor deny to any person within its jurisdiction the equal protection
of the laws.
XV. Sec. i.^'' The rights of citizens of the United States to
vote shall not be denied or abridged by the United States or by any
state on account of race, color, or previous condition of servitude.
The right of citizens of the United States to vote shall not be
denied or abridged by the United States or by any state on account
of sex.^*
^■'^Adopted as part of the Constitution of the United States, March 30, 1870.
28 Submitted to the states for ratification by Congress, June 4, 1919.
Ill
THE INDUSTRIAL REVOLUTION
Our historical sketch requires for its completion a study of that later aspect
of social development which we so often and so strangely call the "industrial
revolution." This movement has done far more than shower upon us a series
of "great inventions" or bless mankind with a new technique. Appearing
gradually and working indirectly, as well as directly, it has affected our whole
world of thought, of action, and of institutions; it has modified our economics,
our politics, our ethics, and even our religion ; it has changed in nature, number,
and form our baffling problems; it has written itself large in our culture. In
view of its many-sidedness and the gradual way in which it has effected and is
still effecting its changes, it seems amiss either to call it "industrial" or to
refer to it as a "revolution."
We look in vain for its beginnings. We know that early mediaevalism
could have given us nothing which, even erroneously, could be called an
"industrial revolution." Before it could appear the mediaeval scheme of
values had to be transformed. Desires for earthly things had to be freed
from their unethical taint ; a wholesome respect for the world had to be
built up ; man had to acquire greater reverence for his own powers and
functions; people had to learn to conform to the things of this world if they
would transform it. This change in the attitude toward life and its problems
was intimately associated with several other lines of development. There
appeared a new interest in nature as nature, a new philosophy, a new mathe-
matics, and a new physics. These laid the foundation of the new technique.
Many discoveries of new lands were made, adding tremendous resources
calling for utilization. There was brought to Europe gold alike serviceable
for the furtherance of the new money economy and the more rapid accumula-
tion of capital. Colonial ventures led to an extension of the market and a
great increase in the size of the industrial unit. This necessitated a reorgani-
zation of the "factory" and a more extensive use of the principle of the division
of labor. The last produced a minute specilization which both served to create
an incentive for the invention of new machines and furnished an opportunity
for their use. Together with accumulated capital and the necessary scientific
knowledge this new organization led to the new technique. Even this is not
the whole story; for in England the movement was hastened by conditions
peculiar to the country. The indented coastline, by cheapening transportation
and enlarging the market, must have been a factor of prominence. It has
been suggested, too, that an institution, seemingly as extraneous as primo-
geniture, played its part by forcing into mercantile pursuits those whose veins
contained the adventurous blood of nobility.
The course of the "revolution" has been as comprehensive as its ante-
cedents. The changes in technique are most clearly appreciated. Even here
the tendency toward a "machine process" embracing a large part of the
industrial system is generally overlooked, as is also the seemingly antagon-
istic fact that up to the present the conquest of the older system by the machine
has been partial and incomplete. On the economic side, the increasing im-
portance of capital, the rise of the "factory system," the disappearance of
"domestic industry," the trend toward large-scale production, the separation
of the laborer from the "tools of his trade," and increasing class differentiation
based upon differences in industrial functions are most clearly seen. These
aspects of the movement raise the questions of artificially controlling the ten-
dencies inherent in the development of the machine system, th" <ietenr"nation
97
qS current economic problems
of the size of the industrial entity, the social control of large aggregates of
wealth such as railroads and capitalistic monopolies, the elimination of economic
insecurity which alike attends labor and capital, the equities of the distribution
of wealth, and the urban enigmas of overcrowding, housing, sanitation, vice,
and poverty. They reveal, too, just over the horizon the more ominous ques-
tions of property inheritance, and the reconstruction of industrial society.
The questions reveal but a single aspect of the influence of the indus-
trial revolution. Political, ethical, religious, and social questions have all
been involved in the general transformation of life and values. In many
cases they are inseparably connected with economic problems. For instance,
when the machine took over the work of the home, the latter became a new
institution. One writer insists that the home, and woman as well for all that,
has not yet adapted itself to the new society. We all complain that the
"machine process" has entered our colleges, and that college instruction is
being "standardized" and college graduates "tagged." We all, at least occa-
sionally, complain of the inability of law and religion alike to adjust them-
selves to modern industrialism. Our friends in ethics tell us that the newer
industrial life is effecting startling changes in our standards of social and
individual ethics.
Are we sure that we have reached the end of the "revolution"? Most
likely we are in a second stage of the process where problems are vastly differ-
ent from those met in the first stage which occupied the larger part of the
nineteenth century. Perhaps there will be a third stage unlike the second.
Clearly the end of the new technology is not yet. The technique first intro-
duced has not as yet produced its full complement of social results. Quite
as important, the new technique is being rapidly extended over a wider and
wider area, constantly affecting the fortunes of people less and less adapted
to it. Its extension preserves a frontier where machine culture is constantly
pushing back a civilization founded on a less complex technique. The reac-
tion upon our system is fraught with grave consequences.
A. THE ANTECEDENTS OF THE REVOLUTION
46. English Industry on the Eve of the Revolution^
BY ARNOLD TOYNBEE
I must ask you to transport yourselves in imagination to Eng-
land as it was a century and a quarter ago. Then the farms were
small and the method of cultivation primitive. The old system of
common cultivation was still to be seen at work in a large number
of parishes in the midland counties. Rotation of crops was only
imperfectly understood ; the practice of growing winter roots and
artificial grasses was only slowly spreading. "As for the sheep/*
said an old Norfolk shepherd, speaking of a still more recent period,
"they hadn't such food provided for them as they have now. In
winter there was little to eat except what God Almighty sent for
them, and when the snow was deep on the ground they ate the ling
or died off." The cotton industry, which now supports more than
half a million of persons, was then oppressed by Parliament as a
^ Adapted from "Industry and Democracy," Lectures on the Industrial
"ievolution (i88i), pp. 179-88.
THE INDUSTRIAL REVOLUTION 99
jjossible rival to older industries, and was too insignificant to be
mentioned more than once, and then incidentally, by Adam Smith.
The iron industry, with which the material greatness of England
has during the present century been so conspicuously associated, was
gradually dying out. Much of the ore was still smelted by charcoal
in small furnaces blown by leather bellows worked by oxen. Not
cotton and iron, but wool was considered, in those days, the great
pillar of national prosperity. There were few people who doubted
but that the ruin of England would follow the decay of this cher-
ished industry. It was only philosophers like Bishop Berkeley, who,
going very deep into matters, ventured to ask whether other coun-
tries had not flourished without the woolen trade.
To show you the external conditions of industrial life in the
middle of the last century,* I cannot, I think, do better than give a
short description of the way in which wool was manufactured in
the neighborhood of Leeds. The business was in the hands of
small master-manufacturers who lived, not in the town, but in home-
steads in the fields, and rented little pasture-farms. Every master
worked with his own hands, and nearly all the processes through
which the wool was put — the spinning, the weaving, and the dyeing
— were carried on in his own house. Few owned more than three
or four looms, or employed more than eight or ten people — men,
women and children. This method of carrying on the trade was
called the domestic system. "What I mean," said a .witness, "by the
domestic system is the little clothiers living in villages or detached
places, with all their comforts, carrying on business with their own
capital ; every one must have some capital, more or less, to carry
on his trade, and they are in some degree little merchants as well
as manufacturers, in Yorkshire." A spinning-wheel was to be found
in every cottage and farmhouse in the kingdom, a loom in every
village.
The mention of this fact brings me to another point in the eco-
nomic history of this period — the extremely narrow circle in which
trade moved. In many districts the farmers and laborers used few
things which were not the work of their own hands, or which had
not been manufactured a few miles from their homes. The poet
Wordsworth's account of the farmers' families in Westmoreland,
who grew on their own land the corn with which they were fed,
spun in rheir own homes the wool with which they were clothed, and
supplied the rest of their wants by the sale of yarn in the neighbor-
ing market town, was not so inapplicable to other parts of England
as we might at first imagine. If the inland trade was thus circum-
scribed, we shall not be surprised to find that our foreign trade was,
compared with its present dimensions, on a tiny scale.
100 CURRENT ECONOMIC PROBLEMS
Though there were periods of keen distress, there was no such
thing as long-continued widespread depression of trade. Overpro-
duction was impossible when the producer lived next door to the
consumer, and knew his wants as well as the country shoemaker
of today knows the number of pairs of boots that are wanted in his
village. And when foreign trade was so insignificant, wars and
rumors of wars could exercise but little influence over the general
circle of commerce.
The expense of carriage was enormous — it cost forty shillings
to send a ton of coal from Manchester to Liverpool — and it was as
slow as it was expensive. Adam Smith tells us that it took a broad-
wheeled wagon, drawn by eight horses, and attended by two men,
three weeks to carry four tons of goods from London to Edinburgh.
The roads — even the main roads — were often impassable. A famous
traveler describes how the high road between Preston and Wigam
had, even in summer, ruts four feet deep, floating with mud ; and
in many parts of the country the principal means of communication
were tracks used by pack horses. Was it not natural that, shut up
within such narrow confines, unstimulated by wide markets and
varied intercourse, manufactures advanced but slowly and inven-
tions were rare? Man's life moved on from generation to genera-
tion in a quiet course which would seem to us a dull, unvarying
routine.
The majority of employers were small masters — manufacturers
like those already described, who, in ideas and habits of life, were
little removed from the workmen, out of whose ranks they had
risen, and to whose ranks they might return once more. There were,
of course, even then capitalist employers, but on a small scale ; nor
was their attitude to their workmen very different from that of the
little masters in the same trade. Few of the small masters of whom
I have spoken did not work with their own hands; and it was the
common thing for them to teach their apprentices the trade. Both
the apprentices, for whose moral education he was responsible, and
the journeymen were lodged and boarded in the master's house.
Between men living in such close and continuous relations the bonds
were naturally very intimate. Nor were these bonds loosened when
the journeyman married and lived in his own house. The master
knew all his affairs, his particular wants, his peculiarities, his re-
sources, the number of his children, as well as he did before. If the
weaver was sick, the master lent him money ; if trade was slack he
kept him on at a loss. "Masters and men," said an employer, "were
in general so joined together in sentiment, and, if I may be permit-
ted to use the term, in love to each other, that they did not wish to
be separated if they could help it." The workmen corroborated
THE INDUSTRIAL REVOLUTION loi
the assertion. "It seldom happens," said a weaver, "that the small
clothiers change their men except in case of sickness and death."
It was not uncommon for a workman to be employed by the same
master for forty years ; and the migration of laborers in search of
work was small compared with what goes on in the present day. A
workman would live and die on the spot where he was born, and
the same family would remain for generations working for the
same employers in the same village. Under such conditions the mas-
ter busies himself with the welfare of the workman, and the educa-
tion of his children ; the workman eagerly promotes the interests of
the master, and watches over the fortunes of the house. They are
not two families but one.
There is yet one other characteristic of industry in those days
which remains for us to scrutinize. This is the network of restric-
tions and regulations in which it was entangled and which exercised
an important influence over both its inner and its outer life. Most
conspicuous were the combination laws — laws which made it illegal
for laborers to combine to raise wages, or to strike. "We have no
Acts of Parliament," says Adam Smith, "against combining to lower
the price of work, but many against combining to raise it." In
another passage he describes a strike as generally ending, "in noth-
ing but the punishment or ruin of the ringleaders." Not only was
combination to raise wages illegal, but emigration from parish to
parish in search of work was rendered almost impossible by the
law. These laws, which cruelly hindered the workman in his efforts
to secure a livelihood, were bad ; but there were other laws directly
affecting the position of the workman as a citizen which were worse.
I select one example. The law of master and servant made breach
of contract on the part of an employer a civil offense, on the part of
the laborer a crime.
Except as a member of a mob, the laborer had not a shred of
political influence. The power of making laws was concentrated
in the hands of the landowners, the great merchant princes, and a
small knot of capitalist-manufacturers who wielded that power in
the interests of their class, rather than for the good of the people.
Nor is the famous assertion of the great economist that, whenever
Parliament attempted to regulate differences between masters and
their workmen, its counsellors were always the masters, unsupported
by facts. It receives lively illustration from the pen of a pamph-
leteer of the period, who remarks with an air of great naturalness
and simplicity that "the gentlemen and magistrates ought to aid and
encourage the clothier in the reduction of the price of labor, as far
as is consistent, with the laws of humanity, but necessary for the
preservation of foreign trade." The position of the workman was
I02 CURRENT ECONOMIC PROBLEMS
a transitional one. He halted Half-way between the position of the
serf and the position of the citizen ; he was treated with kindness
by those who injured him; he was protected, oppressed, dependent.
47. Geographical Discovery and the Revolution^
BY WILLIAM CUNNINGHAM
In the latter part of the eighteenth century there was a burst
of inventive genius in Great Britain. Many improvements were
rapidly introduced, and the useful arts, as practised from time im-
memorial, were revolutionized in a few years. This was no mere
accident, but was at least partly due to the fact that the conditions
of economic life had become more favorable to such change than
they had ever been before. The age of geographical discovery had
paved the way for the age of invention; England had succeeded in
surpassing each of the rivals who during a century and a half had
striven with her for the commercial supremacy of the world ; her
predominance afforded the English inventors of the eighteenth cen-
tury unexampled opportunities for turning their talents to account.
Holland was no longer the carrier of the world; her manufac-
tures had declined in importance. In France over-centralization
destroyed the initiative of the people and injured all branches of
industry and agriculture. English shipping had increased, and dis-
tant markets for national wares had been opened. The East Indies
were willing to accept unlimited supplies of cotton cloth ; and the
continent of Europe and the colonies of America were largely de-
pendent on Great Britain for woolen goods ; manufacturing could
be conducted on a larger and larger scale without immediate risk of
glutting the widespread demand by overproduction. So long as
commerce had been organized as an intercivic affair, or on the old
regulated lines of exclusive privilege in limited markets, there could
not have been any such stimulus to the invention and introduction of
machinery as the world-wide markets naturally afforded.
But more than this : the mines of the New World and the suc-
cessful commerce with the East had given England the material
means for the formation of large amounts of capital, which were
now available for employment. There had been much admirable
ingenuity among seventeenth century engineers and mechanics, but
they were hampered by want of capital ; their projects could not be
carried out. In the eighteenth century London had become the
monetary center of the world, and it was no longer impossible to
venture on the long and costly experiments that were often needed
2 Adapted from An Essay on Western Civilisation in Its Economic
Aspects, II, 225-28. Published by Cambridge University Press, 1900.
THE INDUSTRIAL REVOLUTION 103
to render some mechanical improvement a financial success. We are
not detracting from the genius of Watt or Ark\\^ight if we say that
they seized and made the most of opportunities, such as no other
men had ever had before. Had they lived under the conditions
which were in vogue in preceding centuries, both as to demand for
goods and the supply of capital, these great inventors could only
have enjoyed the meager distinction which future generations accord
to men who were in advance of their times.
The great geographical discoveries were the result of long-con-
tinued and conscious effort, directed to a clearly understood aim ;
great expeditions had to be organized to sail on unknown seas and
establish friendly relations with distant potentates. Explorers were
forced to wait on courtly patronage and royal initiative; but me-
chanical invention has run a different course. The coincidence of
the two phenomena, a world-wide demand and a large supply of
capital, enabled humble and unknown men to push on step by step ;
political prestige and elaborate organization were not so essential
as in schemes for colonization ; mechanical skill and personal inge-
nuity had at last obtained their chance. The new industrial era,
which the age of invention brought in its train, has offered a free
field and given the greatest rewards to individual enterprise. It is
commonly said that the physical advantage of England in the pos-
session of enormous supplies of coal and iron side by side, have
enabled her to outdistance her rivals, not only in commerce but in
industry ; still, the proximity and quantity of coal and iron do not
in themselves account for her success completely ; in the case of
such inventions as Arkwright's they do not account for it at all.
The favorable conditions which English manufacturers enjoyed, in
the eighteenth century, and the reliance on individual enterprise
which had been traditional in Great Britain, were not unimportant
factors in rendering this island the workshop of the world.
B. THE NATURE AND SCOPE OF THE RESOLUTION
48. Technology and the Revolution^
The industrial revolution was no sudden transformation of the
structure of industry and the organization of social life. It is an
unfortunate emphasis upon the "great inventions" and their imme-
diate consequences which has caused us to lose sight of the broad
scope and varied content of the movement. This emphasis has
too frequently conveyed the impression that the sudden appearance
upon the scene of industrial action of several very wonderful ma-
chines, born of the inventive genius of the great men of old, wrought
3 An editorial (1915).
I04 CURRENT ECONOMIC PROBLEMS
a great change, substituting an entirely new and more efficient sys-
tem for the archaic one which had done service before. This view
commits the double error of regarding the movement as industrial
and as a revolution.
It was not industrial ; for its antecedents cannot, any more than
its consequences, be pent up in any narrow causal formula to which
the term industrial can be properly applied. An attempt to find its
beginning forces one into excursions into fields as complex as human
life itself. Certainly the common-sense scheme of social values, the
estimates placed by people upon their institutions, th&ir aspirations,
and their instruments cannot be excluded from the catalogue of ante-
cedents. The change in such a scheme was one of the most potent
of the factors leading to this great movement. Clearly the mediaeval
scheme of values would have inhibited the invention of the steam
engine. It would not even have permitted the consideration of the
problem the partial answer to which the steam engine became. For
such a society the high values were in things of the "other world."
To it nature was not a thing worth conquering ; if it had been, man
was impotent to effect the conquest. Improvement in industrial
technique demanded placing a higher value upon life in this wor'd,
upon the material means toward its fulness, and upon man's depen-
dence upon nature's bounty and laws. It demanded, too, that the
individual develop confidence in the soundness of his worldly desires
and in his capacity to do things worth while. When an adequate
account of this great movement is written, one of its most important
chapters will trace the development of this new scheme of values.
But, passing over the larger social aspects of the subject, even
industrially the movement was hardly a revolution. This is evi-
denced by a study of the transition from the craft to the machine
regime. Under the former, population had been adjusted to the
available supply of natural resources ; and the existing technique
had adapted itself to both. In fact so harmoniously did the three
fit together that the craft technique was just adequate to supply the
customary wants of a slowly increasing population by making use
of the whole, of the available natural resources. In view of its ade-
quacy, this technique, almost perfect, was in little danger of being
replaced.
However, the gradual revelation of the natural resources of the
New World, or the "economic discovery of America," created an
acute technical problem, whose solution promised alike individual
fortune and social prosperity. Its significance lies in the fact that
it disturbed the happy harmony between population, technique, and
natural resources. Resources were all of a sudden tremendously
the\industrial revolution 105
increased. Being potential wealth, they promised fortune to him who
could turn them into finished commodities. The craft technique,
however, was incapable of handling so large an order. At best, it
could but leave large quantities of resources untouched. Yet the
almost infinite expansibility of human wants, particularly in view
of the inability of population mechanically to assume a given size,
demanded that the largest possible quantity of raw material be con-
verted into usable goods. Consequently the problem of finding a
new and adequate technique became one of increasing social impor-
tance during the seventeenth and eighteenth centuries. In terms of
an instinctive and semiconscious struggle to solve this problem much
of the intellectual history of these centuries becomes intelligible.
Properly speaking, the problem included two closely related prob-
lems, that of technique proper, and that of industrial organization.
The first of these presented grave difficulties. The craft technique
could, of course, suggest, and parts of it could even be taken over.
But, for all that, its development was complete ; its primary basis
was individual skill ; and certainly in view of its present high develop-
ment, it was impossible to establish a more adequate technique by
a further development of human dexterity. Furthermore, the devel-
opment of skill pointed to delicacy, quality, refinement. Since these
were not what was wanted, the new technique had to start from new
beginnings. Its demands were cruder than those made upon the
older system. Its problem was to find a means of handling immense
quantities of raw material in the rough, and of turning out large
quantities of crude products. It involved, too, handling these masses
rapidly, which necessitated finding a source of power other fhan
human labor. The first requirement imposed the necessity of the
exact handling of materials ; the second involved devising a scheme
for throwing the burden of the work upon nature. The first imposed
an understanding of the laws of quantity; this made necessary the
development of mathematics, and rendered it a basic science of the
new technique. The second rendered imperative a study of the
phenomena of expansion, heat, motion, etc. ; this necessitated the
further development of the science of physics, or natural philosophy,
and prescribed it as antecedent to technique. How diligently and
successfully these preliminary studies were made, the histories of
mathematics and of physics in the seventeenth and eighteenth cen-
turies abundantly attest. It is significant that chemistry and biology,
which were not needed for the new technique which found expres-
sion in the industrial revolution, did not receive their significant
development until later. How closely developments in physics and
mathematics were related to the general social movement is evidenced
by the expression of rationalism and empiricism in the philosophy
io6 CURRENT ECONOMIC PROBLEMS
of these centuries, culminating in the naturaHstic philosophy of the
later eighteenth century. It is of note, too, that many of the philos-
ophers of the period were deeply interested in mathematics, several
making notable contributions to the subject. These sciences had to
do the basic work, before significant technical development could
occur. Technology had to bide its time.
For a time the development of industrial organization distanced
that of pure technique. Gradually England built up a foreign trade
for its finished commodities. This was greatly increased by the
over-seas demand. In proper economic order the larger market led
to an increase in the size of the industrial establishment, and the
latter, to a thorough reorganization. The object of this was to sub-
divide tasks, and thus to reap the advantage of increased individual
efficiency due to a more minute specialization of labor. The expected
advantage of a decrease in costs was realized. Further it has an
ulterior, and perhaps more permanent, effect in supplying the last
condition necessary to the appearance of the new technique. Spe-
cialization is nothing else than the breaking up of a production
operation into its elements : it is a differentiation of productive acts,
the isolation of a unit of the process. It tends to make the work of
the laborer the monotonous repetition of a single routine act. The
task, consequently, assumes just the form in which it can better be
done by some mechanical contrivance, that repeats the single neces-
sary motion, than by a laborer. It was in just this way that factory
reorganization constantly threw off new isolated tasks and visualized
the need of the machine. How important this is as a necessary
antecedent of the machine is indicated by the use of the term "indus-
trial revolution" as synonymous with factory reorganization by a
recent writer, who contends that the machine was not the cause, but
the result, of the industrial revolution.
The very introduction of the machine led to a tendency toward
the extension of its use. Four aspects of this tendency are note-
worthy. First, the introduction of machines in industrial establish-
ments is followed by a lack of harmony between the machine work
and the auxiliary craft work in the establishment. Secondly, there
is a like incompatibility between the machine operations carried on
in an industrial establishment and the craft operations which are
antecedent or subsequent to it in the industrial process. Friction in
such cases leads to an extension of the machine system to comple-
mentary activities within or without the factory. Thirdly, complete
harmony, as Marx has pointed out, requires the application of the
machine method to the making of machines. Fourthly, the application
of machinery to transportation demands, for anything more than its
TEE INDUSTRIAL REVOLUTION 107
most meager use, a thoroughgoing locaHzation of industry and a great
enlargement of the market for particular commodities.
In these subsequent developments industrial organization and
the machine technique have evidenced a constant interdependence.
An enlargement of the market increases the size of the factory ; this
leads to a further specialization in industrial acts ; in this certain
parts of the larger process are isolated and are taken over by ma-
chines ; this leads to a decrease in costs and to a lower price for the
goods ; and this leads to an enlargement of the market and to a
repetition of the cycle. One point as well as another marks the
beginning of this endless round ; logically there is no absolute cause
and no absolute effect. But we must remember that as the cycle
tends again and again to run its course, its convolutions become
narrower ; for even such a magical sequence is itself subject to the
law of diminishing returns. Just as, if we attempt to find the begin-
ning of the industrial revolution, we get lost in a complicated past;
so, if we look for its end, we lose ourselves in industrial change
whose completion is not as yet.
Great as the change in technique has been, the conquest of the
machine has by no means been complete. To call the present system
the machine system is to overlook the great fields which the machine
has failed to subdue. In practically all agriculture the larger part
of production is still under the control of the craft ; some agrarian
work the machine has hardly touched. Professional and clerical
work, as well as a large part of commercial work, knows as yet little
of the machine. In country towns and small cities the crafts still
survive. Even in the larger industrial centers the small establishment
and handwork loom much larger in total than at first would appear.
Even in the largest and best organized industrial establishments large
oases, as it were, of the older system are left. It is perhaps true
that the influence of the machine reaches far beyond the physical fact,
and that it exercises an overlordship over the habits and lives of all.
But this overlordship is partial and incomplete. The lives and habits
of the great majority are still more immediately affected by the older
craft which directly affects their work than by the influence of the
newer and more brilliant technique.
49. The Comprehensiveness of the Revolution^
BY J. H. CLAPHAM
No region of Europe remained altogether unaffected by that long
series of economic developments which has changed the face and
^Adapted from chap, xxiii. "Economic Change,^.' in A Cambridge Modern
History, X, 727-29. Copyright by the Cambridge University Press and the
Macmillan Co., 1907.
io8 CURRENT ECONOMIC PROBLEMS
profoundly affected the structure of modern society. It was no
mere industrial revolution ; its story is not a list of inventions or a
biography of inventors. Nor is it simply the story of capital and
capitalistic production. Side by side with mechanical invention, the
rising power of capital, the extension of economic freedom, and the
expansion of international trade went an astonishing growth in poj)-
ulation and a partial introduction of the methods and results of exact
science into economic affairs. The distinctive mark of economic
history during this period is to be found, not in any change or group
of changes, but rather in the coincidence of many types of change
and the rapidity with which some of these types developed. Every-
where there was movement, but the causes of the movement were
infinitely varied.
The whole eighteenth century had been an age of steady indus-
trial development and of great commercial activity. Intercourse
among the nations was more frequent and more free than ever be-
fore. The more or less scientific and comparative study of natural
resources was now no new thing. Imitation of superior foreign
methods in agriculture, commerce, and the arts, was keenly pur-
sued. There was an accelerating accumulation of capital. Banking,
the necessary prerequisite to investment and the organ of highly
developed commerce, had made conspicuous progress.
Trade was cutting its own channels, wherever government would
permit. In the more advanced countries it had refused, long before
the middle of the eighteenth century, to confine itself to fairs and
markets, after the mediaeval fashion. It had become an everyday
matter, had ceased to be a thing of times and seasons.
A widespread care for the improvement of internal means of
communication, combined with an ever-growing international trade,
had quickened the pulse of economic life. In Holland, Italy, and
even bankrupt France, the work went on. In Great Britain the task
of improving river navigation, reconstructing roads, and cutting
navigable canals was in full swing in the seventies. Because of
excess of tolls elsewhere, Britain alone was able to make full use of
the work of the road and canal builders.
England exemplified the close connection which must always
exist between improvement in the means of transport, the concen-
tration of population, and a progressive agriculture. Where the
cultivator works only to supply his own needs he rarely escapes from
the crushing compulsion of traditional methods. The demand of
the town and roads are essential if there is to be a rapid movement on
the land. In England the growth of London, to which most of the
new roads led, furnished a main driving force. Decline in com-
THE INDUSTRIAL REVOLUTION
109
mon field husbandry was associated in Great Britain with free and
rational methods and with spontaneous agricultural progress.
The similar series of revolutionary inventions toward the close
of the century fell upon prepared soil. In all the western nations
there existed some mining and manufacturing on a large scale, and
many trades in which the handworkers were to a considerable ex-
tent dependent on the capitalist employer. Large and small indus-
trial enter])rises were everywhere encouraged by the governments.
The progress in organization along industrial lines was due mainly
to the fact that industrial establishments w^orked for export and so
were brought under the influence of a commercial system already
organized on capitalistic lines.
A right instinct has selected the invention of spinning machin-
ery and the perfection of the steam engine as the chief industrial
events of the later eighteenth century. The first led to the reor-
ganization of what had long been the greatest group of industries ;
the second furnished motive power for both new and old mechanical
processes. But they were only the most important links in a long
chain of improvements which freer industry, increasing skill and
capital, expanding commerce, and a more scientific handling of
technical problems, introduced into various branches of manufac-
ture. In almost all branches of industry England evolved and ap-
plied fresh methods of production. Of great significance for the
general progress of manufacturing was the increased production of
raw iron. Of even greater significance was the establishment, dur-
ing the first forty years of the nineteenth century, of mechanical en-
gineering as the organized capitalistic industry, upon which all other
industries were beginning to depend.
The cotton trade occupies an unique position in the general move-
ment. It was young ; in the eighteenth century its various parts had
been but imperfectly organized ; and, consequently, it was adapt-
able. The wool-working trades on the contrary were old, highly
organized, and in certain districts most conservative. It is in no
way surprising therefore that machinery and steam were more slowly
introduced in them than in the cotton trade. Wool and flax and
cotton spinning on the wheel died as the machine gained ground.
Cotton, an exotic, had never been spun extensively outside the
actual manufacturing districts. As a result the work passed much
more quickly than that of spinning wool into the mills.
In fact few trades remained untouched by the general advance
in technique and the movement toward a more capitalistic organi-
zation. To the steady improvement of manufacturing processes
were added the new and expensive motor power, better and more
complex machines, and the new knowledge of the natural sciences.
no CURRENT ECONOMIC PROBLEMS
Trades ancillary to those of spinning and weaving, such as calico-
printing, bleaching, and dyeing, were refashioned. Machinery and
chemistry began to influence the ancient and conservative crafts of
tanning and leather-working. In pottery-making, in printing, in
brewing, in glass-making, and in a score of other industries, methods
were revised and the scale of operations for the individual firm ex-
tended. The power-driven machine took hold even of simple crafts
like carpentry and shoemaking. In coal-mining the combined effects
of the new power, the new needs, and the new knowledge were
conspicuous. It was in the mines that steam had first been used
for pumping. Yet all these things were but small beginnings com-
pared with the developments of the later nineteenth century.
The system of transportation consequent upon the changes men-
tioned was not developed until well in the nineteenth century. Turn-
pikes tended to become more numerous and to be better laid and
better graded. Work on harbors and estuaries and docks was un-
dertaken concurrently with that on roads. Canals were constructed.
The Napoleonic wars witnessed the beginnings, the peace the utili-
zation of steam transport both on land and sea. It was in the year
of Waterloo that a steamer first made the passage from London to
Glasgow. Yet progress was slow. In fact the second quarter of
the nineteenth century was not really an age of steam navigation.
On land a more real and rapid revolution occurred ; but it remained
incomplete in the early forties. The railway found the reform of
the old means of transport still unfinished. The electric telegraph,
'which was joined with the railway to create the modern market, had
hardly passed the experimental stage ; and the shortsighted critics
who could treat the railway as a mere nuisance or a novel luxury
had but recendy been silenced.
C. THE NEW INDUSTRIALISM
50. The Function of CapitaP
BY J. DORSEY FORREST
Before the revolution capital had little significance except in
agriculture and commerce. Such simple tools and machines as were
used in manufacturing were the property of the workmen them-
selves, and consequently had no such social importance as modern
capital has. Except for the introduction of the great mechanical
devices and the application of steam power, capital could never have
assumed the tremendous importance which it has attained. The
^Adapted from The Development of Western Civilisation, pp. 331-38.
Copyright by the University of Chicago, 1906.
THE INDUSTRIAL REVOLUTION in
function of capital, then, is the same in kind as it was before the
beginning of machine industry, but the quantitative difference is so
great as to constitute "capitaHsm" a virtually new phenomenon.
The immensity of modern industrial undertakings necessitates
the employment of the surplus wealth of the entire community. No
small company of men can furnish the requisite amount of capital.
It is demanded in such gigantic quantities that it cannot be supplied
by the managers of industry, nor even by those more conspicuous
capitalists who manipulate stocks and shape policies. These very
wealthy men may own a large share of the whole; well-to-do people
who take no active part in business management also own a large
share ; while the better class of artisans likewise supply hundreds
of millions of capital, especially of that floating portion which is
supplied through the banks for the payment of their own wages and
the purchase of materials. Modern capitalistic production is essen-
tially co-operative.
The wide ownership of the means of production is an indication
of the social character of production. Practically all of the available
wealth of society is now directed to productive uses. If a completely
socialistic scheme could be carried out, it would be necessary, unless
society should confiscate all private property now held, to obtain
the capital from those who are now furnishing it. If public bonds
should be given to the present capitalists, it is difficult to see how
the new system would differ materially from the present one. In
short, there has been developed, along with this great industrial sys-
tem, a banking and credit system through which all wealth not re-
served for consumption may be made available for production. Be-
fore the industrial revolution, banking was of very minor import-
ance. At present the enormous banking interests of all civilized
countries and the equally important credit arrangements by which
capital may easily be turned into the industries which need it, make
possible the employment of the resources of the whole society in the
production of the goods desired by society.
The individual is compelled to serve society in caring for his own
interests by turning back into the productive processes much of the
profit derived from invested capital or managerial ability. The in-
^comes of the wealthy are largely turned back to productive purposes,
making possible the enlargement of plants, the employment of more
laborers, the increase of production, the cheapening of prices. In
many directions the consuming capacity of the individual, rich or
poor, is limited. Extravagant consumption is possible to a certain
extent, and is, perhaps, a growing evil. But the total waste of the
rich is probably a small item which, if saved and distributed through-
out the whole society, would be of little consequence. The chief
112 CURRENT ECONOMIC PROBLEMS
use which the wealthy capitaHst can make of the income of his capital
is to add it to his capital and employ it in the production of still larger
quantities of the goods of common consumption. The evil of the
possession of great wealth lies rather in the unworthy social prestige
and opportunity for corrupt use which its possession gives to the
rich than in the greater amount of goods which the rich consume.
The evils connected with capitalism should not blind us to the real
efficiency of our present social system in harmonizing individual and
social interests by controlling all surplus wealth in the interests of
society.
51. The Factory System"
BY CARL BUCHER
The factory system organizes the whole process of production ;
it unites various kinds of workers, by mutual relations of control
and subjection, into a compact and well-disciplined body, brings them
together in a special business establishment, provides them with an
extensive and complex outfit of the machinery of production, and
thereby immensely increases their productive powers. Just as in an
army corps ready for battle, troops of varied training and accoutre-
ment, — infantry, cavalry, and artillery regiments, pioneers, engineers,
ammunition columns, and commissariat — are welded into one, so
under the factory system groups of workers of varied skill and equip-
ment are united and enabled to accomplish the most difficult tasks of
production.
The secret of the factory's strength for production thus lies in
the effective utilization of labor. To accomplish this, it takes a peculiar
road, which at first appears circuitous. It divides as far as possible
all the work necessary to a process of production into its simplest
elements, separates the difficult from the easy, the mechanical from
the intellectual, the skilled from the rude. It thus arrives at a system
of successive functions, and is enabled to employ simultaneously and
successively human powers of the most varied kind — trained and
untrained men, women and children, workers with the hand and
head, workers possessing technical, artistic, and commercial skill.
The restriction of each individual to a small section of the process
effects a mighty increase in the volume of work turned out. A hun-
dred workmen in a factory accomplish more than a hundred inde-
pendent master craftsmen, although each of the latter understands
the whole process, while none of the former understands more than
a small part of it.
6 Adapted from Industrial Evolution, pp. 173-76, translated by S. Morley
Wickett. Copyright by Henry Holt & Co., 1900.
THE INDUSTRIAL REVOLUTION
113
The machine is not the essential feature of the factory, although
the subdivision of work just described has, by breaking up labor
into simple movements, multiplie.d the application of machinery. Its
application attained its present importance only when men succeeded
in securing a motive power that would work unintermittently, uni-
formly and ubiquitously, namely, steam. An example will illustrate.
In 1787 the canton of Zurich had 34,000 male and female hand-spin-
ners producing cotton yarn. After the introduction of English spin-
ning machines a few factories, employing one-third the former num-
ber of workers, produced an even greater quantity of thread. What
is the explanation? The machine? But was not the former spin-
ning-wheel a machine? Certainly it was, and a very ingenious one.
Machine was thus ousted by machine. Or better, the entire spinning
process had been decomposed into its simplest elements, and per-
fectly new operations had arisen for which even immature powers
could in part be utilized.
In the subdivision of work originate these further peculiarities
of factory production — the necessity of manufacturing on a large
scale, the requirement of a large capital, and the economic depend-
ence of the workman.
Finally, its large fixed capital assures to factory work greater
steadiness in production than was possible under other systems. The
manufacturer must go on producing, because he fears loss of interest
and shrinkage in the value of his fixed capital, and because he can-
not afford to lose his trained body of workmen.
52. The Machine Process^
BY THORSTEIN VEBLEN
In its bearing on modern life and modern business, the "machine
process" means something more comprehensive and less external
than a mere aggregation of mechanical appliances. The civil engineer,
the mechanical engineer, the mining expert, the industrial chemist —
the work of all these falls within the limits of the modern machine
process. The scope of the process is larger than the machine. Many
agencies which are not to be classed as mechanical appliances have
been drawn into the process, and have become integral factors in it.
Wherever manual dexterity, the rule of thumb, and the fortuitous
conjectures of the seasons have been supplanted by a reasoned pro-
cedure on the basis of a systematic knowledge of the forces em-
ployed, there the mechanical industry is to be found, even in the
absence of intricate mechanical contrivances. It is a question of the
'' Adapted from The Theory of Business Enterprise, pp. 5-19. Copyright
by Charles Scribner's Sons, 1904.
114 CURRENT ECONOMIC PROBLEMS
character of the process rather than a question of the contrivances
employed. Chemistry, agricultural, and animal industries, as carried
on by modern methods and in due touch with the market, are to be
included in the modern complex of mechanical industry.
Not one of the processes carried on by the use of a given outfit
of appliances is independent of other processes going on elsewhere.
Each draws upon and presupposes the proper working of many other
processes of a similar mechanical character. Each of the processes
in the mechanical industries follows some and precedes other proc-
esses in an endless sequence, into which each fits and to the require-
ments of which each must adapt its own working. The whole concert
of industrial operations is to be taken as a machine process, made
up of interlocking detail processes, rather than as a multiplicity of
mechanical appliances each doing its particular work in severalty.
The whole makes a more or less delicately balanced complex of sub-
processes.
Looked at in this way the industrial process shows two well-
marked general characteristics : (a) the running maintenance of
interstitial adjustments between the several sub-processes or branches
of industry ; and (h) an unremitting requirement of quantitative pre-
cision, accuracy in point of time and sequence, in the proper inclusion
or exclusion of forces affecting the outcome, in the magnitude of the
various physical characteristics, weight, size, density, etc., of the
materials handled as well as the materials used. This requirement of
mechanical accuracy and nice adaptation to specific uses has led to a
gradual enforcement of uniformity, to a reduction to staple grades
and staple character in the materials handled, and to a thorough
standardizing of tools and units of measurement. Standard physical
measurements are the essence of the machine regime.
Standardization has outrun urgent industrial needs and has pene-
trated every corner of the mechanical industries. Modern communi-
ties show an unprecedented uniformity in legally adopted weights and
measures. As a matter of course tools and the various structural
materials used are made of standard sizes, shapes, and gauges. The
adjustment and adaptation of part to part and of process to process
has passed out of the category of craftsmanlike skill into the category
of mechanical standardization. Modern industry has little use for,
and can make little use of, what does not conform to the standard.
This latter calls for too much of craftsmanlike skill, reflection, and
individual elaboration, and is therefore not available for economic
use in the processes. Irregularity is itself a fault in any item, for
it brings delay, and a delay at any point means a more or less far-
reaching and intolerable retardation of the comprehensive industrial
process at large.
THE INDUSTRIAL REVOLUTION 115
The materials and moving forces of industry are undergoing a
like reduction to staple kinds, styles, grades, and gauges. The like
is true of finished products. As regards the mass of civilized man-
kind, the idiosyncrasies of the individual consumers are required
to conform to the uniform gradations imposed upon consumable goods
by the comprehensive mechanical processes of industry. Because of
this it follows that the demand for goods settles upon certain defined
lines of production which handle certain materials of definite grade,
in certain, somewhat invariable, forms and proportions. Standardiza-
tion means economy at nearly all points of the process of supplying
goods, and at the same time it means certainty and expedition at
nearly all points in the business operations involved in meeting cur-
rent wants. It also reduces the interdependence of business to more
definite terms. Machine production also leads to a standardization
of services.
By virtue of this concatenation of processes the modern industrial
system at large bears the character of a comprehensive, balanced me-
chanical process. To an efficient w^orking of this industrial process
at large, the various constituent sub-processes must work in due
coordination throughout the whole. Any degree of maladjustment in
some degree hinders its working. Similarly, any detailed process or
industrial plant will do its work to full advantage only when due
adjustment is had between its work and the work done by the rest.
The more fully a given industry has taken on the character of a
mechanical process, the more urgent is the need of maintaining proper
working arrangements with other industries.
53."^ 'The New Domestic System^
BY HERBERT J. DAVENPORT
So long as industry held its place in the home — down, that is, to
the close of the handicraft era — even the palace and the castle re-
tained their share of industrial activity. Under the supervision of
the lady-mistress, the spinning maiden and the weavers w^ere at
their tasks. In truth each great dame was a lady in the strict and
early sense of the word, a bread-dispenser, the mistress of an ex-
tended and active and intricately organized domestic activity — a
serious and absorbing and difficult function for which the training
was arduous and in which, in the actual doing, the tests of efficiency
were manifest and severe.
But now% with the complete establishment of the typically mod-
ern organization of industry, have arrived fundamental changes in
^Adapted from an unpublished address entitled "The Economics of
Feminism," 1914.
ii6 CURRENT ECONOMIC PROBLEMS
the organization of the home — changes to which no adequate read-
justments have as yet been devised. The flax and the hemp are no
longer there for preparation. The spinning has migrated to the
factory. The weaving is done by the great machines. The cutting
and the making of garments have departed. The butter is churned
at the creamery. More and more the bakeries are furnishing us with
our bread. Gas and electricity leave no room for candle-making, or
even for the filling and the care of lamps. The jam, the pickles, and
the preserves, we buy of the grocer. There are no more festoons of
dried apples in the attic. The smoking of the ham and the bacon the
packer does for us, along with the killing and the cleansing. There
is no longer any leaching of ashes or boiling of soap to be done in
the backyard. The steam laundry cleans and irons for us, and fades
out and wears out for us, the garment which the factory has provided
for ready use. The electric sweeper cleans our floors, the while that
the day laborer runs it, and the dry-cleaner and the pantatorium care
for our suits and our gowns. The mother no longer teaches her
children at the knee, sending them instead to the tax-paid employee
of the schools. ^
Yet somehow, with all its occupations gone, the home still retains
its exterior seeming and organization ; and somehow also is so busy
a place that, if it conform at all to the standard and ideal of American
life, it requires an ever-larger array of housemaids and nurse girls.
Still our women folk grow worn and tired with its burdens, and, if
the housemaid fails, even desperate. Ill health, dyspepsia, and
nervous breakdown are increasingly feminine phenomena. Along
with it all, a strange accompaniment, there are fewer and fewer chil-
dren to be reared as the time of the mother ought to be more. Race
suicide confronts our modern societies.
It is evident that the machine industry and the cheapened processes
of production have taken away from women in large part their
fundamental economic functions. Things have grown too cheap to
be done by the old domestic time-consuming methods. As mere mat-
ters of dollars and cents production can take place in the home only
at a cost greater than the purchase price on the market. There is no
place for the home wGman in the industrial activities of the present
society.
But something quite other has been the meaning of the new in-
dustrial processes for the life and the labor of men. The new ma-
chinery has served to provide them with tools by which vastly to
enlarge the field of their effort, and to multiply their accomplishment
in every single field. No matter what the deficiencies in the organ-
ization of all this new power, men have not grown idle or sluggish.
They have not forfeited their functions, their jurisdiction, their
aspirations, or their accomplishment.
THE INDUSTRIAL REVOLUTION 117
But the history of the race does not indicate that to men exclu-
sively belongs the duty or the privilege of labor, or that the present
economic status of women is an adequate certification of progress
in civilization. If women should not work, why should men? If
self-respecting man must work, by what title is it now honorific to
women to be idle? We have arrived at an unfortunate reversal of
an earlier institution. In early society, an almost crushing amount
of labor fell upon the female ; under modern conditions among the
fully civilized classes an unduly excessive share devolves upon the
male.
The explanation of the existing situation is chiefly in modern
technology. The fault is in the failure of society to work out those
readjustments by which a significant share in the world's work shall
be preserved for women, either within the home or outside of it.
When the home is losing its economic utility, it can be available for
those men alone who, being able to afford the luxury, are disposed
to pay the attendant price. The increasing expensiveness of the home
under modern conditions, its restriction of function to mere consump-
tion and spending, explains the progressive swerving of men away
from it, and the derivative and increasing horde of homeless and
childless women outside.
Women breadwinners within the home our present American life
doubtless has. But of these it holds true, as of the women of the
factory, the shop, or the street, that, although belonging by sheer
necessity to our American life, they yet have no place in that society
which America holds as its ideal. They are our unfortunates among
w^omen, in that they have not found each her man, and attached him
to her to work for her, to shelter her from all productive effort, and
to support her. For it is the grievous fact that the American ideal
of reputable living denies to women the role of economic producer
and commiserates the girl who does not marry into a life of pecuniary
ease ; prescribes as a duty upon any self-respecting man that he
neither offer nor enter marriage if his wife need be more than deco-
ratively active ; and, if he fail of this, insults her with pity and him
with contempt.
It is in the cause of motherhood that we make our protest against
the typical home of the American ideal. The economic dependence
of women cannot be defended by the test of children; they are in
inverse ratio to the room for them. The poor alone can afford to be
prolific.
But not all housebound women would confess themselves to be
idle. Think how absorbing and complicated the keeping of the home
has become : its meticulous refinement, its ornate entertainments, its
keeping busy — absorbed in the empty competition of modern house-
furniture and bric-a-brac for dusting, its curtains for cleaning, its
ii8 CURRENT ECONOMIC PROBLEMS
rugs for beating. Busy indeed these women will be — but busy in
keeping, in the collection of work-compelling plunder, in the main-
tenance of exhibition rooms, and in the general annihilation of com-
fort. The two hours' labor that should suffice for all rational dailv
needs, were there only something else to do, is devoted to the prepa-
ration of mayonnaise dressings or to the concoction of snow puddings,
or to other certification of useless skill. Dishwashing, instead of com-
ing thrice a week, comes three times a day. The laundry work piles
up to the proportions of a nightmare. The one child, wearied by over-
dressing and spoiled by fussing care, pines for the forbidden joys of
dirt and bare feet. Acquiescing in all this futility, the housewife find",
enough her mere labors of supervision.
Meanwhile, the man whose business it is to pay the bills is busy
enough in the process — too busy, indeed, in making the income to
have either the time or the taste for the spending of it. But no pity
is due to this tired captain of industry, or this busy moiler in trade
or finance for the burden he carries. He may, no doubt, appear to
be a mere pack-animal in the service of his family — a weary though
willing slave to their folly — a man solely occupied in canceling the
bills they are busy in contracting. But he is aiming at his own glory.
To the women, as helpless victims of the competition of display, the
function of spending has been delegated. Institutionally the wife is
a mere agent in the process. Not only must she, to the degree that
her lord is wealthy or is aping the possessors of wealth avoid whatever
remnant of useful activity is open to her, lest the suspicion of need
should attach to shame him ; but also, by waste and lavish outlay,
must she place upon exhibit and in continuous view the wealth and
achievements of her master. In this process of certifying the fact of
his financial prowess by seeming to spend upon herself, she seems
to afford both motive and excuse for gaining the wealth. Such glory
as belongs to her part is in being the wife of such a one, and in the
delusion that he is making the money for her spending, rather than
that she is spending it for his glory. The personal relation easily
obscures the larger meanings of the institutional fact.
D. THE WORLD OF LABOR
54. Why Labor Resists Machines^
BY EDWIN CANNAN
When we work directly for ourselves we welcome with joy meth-
ods and appliances which reduce the labor of obtaining any particular
^Adapted from The Influence of War on Commercial Policy (in "Re-
organization of Industry Series," III), pp. 37-38. Published by the Council
of Ruskin College, London, 1917.
THE INDUSTRIAL REVOLUTION 119
article, even if we want little or no more of the article than we have
been getting. Just now we all garden for ourselves and know how
nice it is to get a more effective tool or to learn of some method which
saves labor in digging and hoeing. We do not regret the lost labor.
Nor do we make reservations in favor of skilled labor: we cheer-
fully scrap our laboriously acquired talents if they are rendered un-
necessary by the discovery of new methods or implements. The
situation is obviously the same whenever a number of people co-oper-
ate consciously. There is no reason to suppose that a purely com-
munistic society would have the slightest objection to adopting labor-
saving methods or appliances : the labor saved would be regarded as
a pure gain, since, if little or no more of the article produced by it is
required, it can be applied in other directions, with the result of an
increased total of desirable results, or it could be simply abandoned
in favor of greater leisure.
But when we co-operate unconsciously by way of selling our own
products and buying those of other people with the proceeds, changes
in the direction of labor-saving generally have an unpleasant side. It
may happen, of course, that the demand for the article is' so elastic
that when its production is made twice as easy and the price falls to
one-half of what it was, a double quantity will be sold. In that case
no inconvenience will be felt : there will be no reduction of employ-
ment in producing the article. People are apt to think that this should
always be so, but in fact, of course, the demand for most things is
not and cannot be so elastic. It is much more usual for the demand
to be such that an increase of production proportionate to the reduc-
tion of labor will cause such a fall of price that there will be less
available for the remuneration of labor, so that if all the previous
workers insist on continuing, their position will be worsened ; the
same number can only be employed if they submit to reduced earn-
ings, otherwise some must be excluded, which of course involves
hardship, or at the very least inconvenience, varying in degree chiefly
with the suddenness of the change. There is, of course, nothing ex-
ceptional or anomalous in this. In the case of an individual produc-
ing things for himself, a transfer of labor from one kind of produc-
tion to another can be effected without inconvenience of hardship by
the exercise of the sovereign power wielded by his brain. In the
case of a communistic society transfers of labor from one occupation
to another would be effected similarly without hardship to the persons
concerned by simple decree of the labor ministry or whatever depart-
ment of government was intrusted with the distribution of individuals
between employments. But in society as we have it, people ar^ at-
tracted into employments and deterred from joining them, kept in
I20 CURRENT ECONOMIC PROBLEMS
them and driven out of them, by the different and changing compara-
tive advantages which they offer as means of earning a Hving. Recog-
nition of this hardship is of course the most substantial cause of the
sympathy which is widely felt with those who resist labor-saving
methods and appliances.
55. Labor's Willing Slaves^"
BY EDWIN ARNOLD
Look at common modern existence as we see it, and note to what
rich elaboration and large degrees of comfort it has come. I invite
you briefly to contemplate the material side of an artisan's existence
in your own Birmingham. Let alone the greatness of being an Eng-
lishman, and the supreme safety and liberty of his daily life, what
king of old records ever fared so royally? What magician of fairy
tales ever owned so many slaves to bring him treasures and pleasures
at a wish ? Observe his dinner-board. Without being luxurious, the
whole globe has played him serving-man to spread it. Russia gave the
hemp, orW^ndia, or South Carolina the cotton, for that cloth which
his wife lays upon it. The Eastern islands placed there those con-
diments and spices which were once the secret relishes of the wealthy.
Australian downs sent him frozen mutton or canned beef, the prairies
of America meal for his biscuit and pudding; and if he will eat fruit,
the orchards of Tasmania and the palm woods of the West Indies
proffer delicious gifts, while the orange groves of Florida and of the
Hesperides cheapen for his use those "golden apples" which dragons
used to guard. His coffee comes from where the jeweled humming-
birds hang in the bowers of Brazil, or purple butterflies flutter amid
the Javan mangroves. Great clipper ships, racing by night and day
under clouds of canvas, convey to him his tea from China or Assam,
or from the green Singhalese hills. The sugar which sweetens it was
crushed from canes that waved by the Nile or the Orinoco ; and the
plating of the spoon with which he stirs it was dug for him from
Mexican or Nevadan mines. The currants in his dumpling are a
tribute from classic Greece, and his tinned salmon or kippered her-
ring are taken from the seas and rivers of Canada or Norway. He
may partake, if he will, of rice that ripened under the hot skies of
Patna or Rangoon ; of cocoa, that "food of the gods," plucked under
the burning blue of the equator. For his rasher of bacon, the hog
express runs daily with 10,000 grunting victims into Chicago ; Dutch
or Brittany hens have laid him his eggs, and Danish cows grazed the
daisies of Elsinore to produce his cheese and butter. If he drinks
^"Adapted from an address delivered at the Birmingham and Midland
Institute, October 10, 1893.
THE INDUSTRIAL REVOLUTION 121
beer, it is odds that Belgium and Bavaria have contributed to it the
barley and the hops ; and v^^hen he has finished eating, it will be the
Mississippi flats or the gardens of the Antilles that fill for him his
pipe with the comforting tobacco. He has fared, I say, at home as
no Heliogabalus or Lucullus ever fared ; and then, for a trifle, his
daily newspaper puts at his command information from the whole
globe, the freshness and fulness of which make the newsbearers of
Augustus Caesar, thronging hourly into Rome, ridiculous. At work,
machinery of wonderful invention redeems his toil from servitude,
and elevates it to an art. Is he fond of reading? There are free
libraries open to him, full of intellectual and imaginative wealth. Is
he artistic? Galleries rich with beautiful paintings and statues are
prepared for him. Has he children ? They can be educated for next
to nothing. Would he communicate with absent friends? His mes-
sengers pass in the Queen's livery, bearing his letters everywhere by
sea and land ; or in hour of urgency the Ariel of electricity will flash
for him a message to the ends of the Kingdom at the price of a quart
of small-beer. Steam shall carry him wherever he would go for a
halfpenny a mile ; and when he is ill the charitable institutions he
has too often forgotten in health render him such succor as sick god-
desses never got from Aesculapius, nor Ulysses at the white hands of
Queen Helen. Does he encounter accident? For him as for all
others the benignant science of our time, with the hypodermic syringe
or a waft of chloroform, has abolished agony; while for dignity of
citizenship, he may help, when election time comes, by his vote to
sustain or to shake down the noblest empire ever built by genius or
valor. Let fancy fill up the imperfect picture with those thousand
helps and adornments that civilization has brought even to lowly
lives ; and does it not seem stupid and ungrateful to say, as some
go about saying, that such an existence, even if it were transitory, is
not for itself distinctly worth possessing?
56. The Wage Slaves^ ^
BY ALLAN L. BENSON
Poverty did not go out when steam and electricity came in. On
the contrary, the fear of want became intensified. Nobody who has
not capital can live unless he can get a job. In the days that preceded
the steam engine, nobody had to look for a job. The shoemaker
could make shoes for his neighbors. The weaver could weave cloth.
Each could work at his trade without anybody's permission, because
the tools of his trade were few and inexpensive. Now neither of
1 'Adapted from The Truth about Socialism, pp. 6-7. Copyright by the
author, 191 1.
122 CURRENT ECONOMIC PROBLEMS
them can work at his trade, because the tools of his trade have become
numerous and expensive. The tools of the shoemaker's trade are in
the great factory that covers, perhaps, a dozen acres. The tools of the
weaver's trade are in another enormous factory. Neither the shoe-
maker nor the weaver can ever hope to own the tools of his trade.
Nor, with the little handtools of the past centuries, can either of them
compete with the modern factories. The shoe trust, with steam,
electricity, and machinery, can make a pair of shoes at a price that
no shoemaker, working by hand, could touch.
Thus the handworkers have been driven to knock at the doors
of the factories that rich men own and ask for work. If the rich
men can see a profit in letting the poor men work, the poor men are
permitted to work. If the rich men cannot see a profit in letting
the poor men work, then the poor men may not work. Though there
be the greatest need for shoes, if those in need have no money, the
rich men lock up their factories and wave the workers away. The
workers may starve, if they like. Their wives and children may
starve. The workers may become tramps, criminals, or maniacs ;
their wives and their children may be driven into the street — but the
rich men who closed their factories because they could see no profit
in keeping them open — these rich men take no part of the responsi-
bility. They talk about "the laws of trade," go to their clubs and have
a little smoke, and, perhaps, the next week give a few dollars to
"worthy charity" and forget all about the workers.
E. NATIONAL EXPRESSIONS OF INDUSTRIALISM
57. Individualism and American Efficiency^-
BY ARTHUR SHADWELL
The United States is new, partly developed, and untrammeled by
traditions. It is not a homogeneous country, but a medley of peoples,
nations, languages, creeds, and climates, having in daily life little in
common but the mail, the currency, and the tariff. The British
Empire itself hardly comprises a more heterogeneous racial assort-
ment ; it has the white man, the black, the red, the yellow, and the
hybrid ; the yellow includes most kinds of Asiatic and the white,
every kind of European. Soil and climate are no less varied than the
population ; and though laws and social conditions exhibit more
homogeneity, yet they exhibit large and numerous discrepancies.
Still the United States is a nation, and the people possess some dis-
tinctive national qualities, well worth considering.
i^Adapted from Industrial Efficiency, I, 1-47. Published by Longmans,
Green & Co., 1900.
THE INDUSTRIAL REVOLUTION 123
In general they are alert, inventive, ingenious, and adventurous
beyond all other people, but hurried, careless, and unthorough. The
merits of this temperament are more immediately obvious than its
defects. The roar and bustle of industrial life in America, the ex-
citement, the abundance of novelty, the enormous scale of operations,
the boundless adventure, the playing with millions — all these impress
the mind and draw attention from the defects which they foster and
conceal. An English workman who had lived for years in the heart
of it, where the smoke is thickest, the roar of machinery loudest, and
the sound of millions most common, summed it up better than anyone
I have met. "This is an adventurous country," he said ; "they think
nothing of millions; but it's all hurry-skurry work. Let her go!
Give her hell ! That's the word."
The recklessness is magnificent, and I suppose that at present it
is business ; but that is because the country is not yet filled up. There
seem to be boundless possibilities within the reach of every man, and
being generally intelligent, alert, and ambitious they hurry to realize
them. If a man fails today in one direction, no matter; he can try
again tomorrow in another.
The Yankee of old, as presented in literature, was an astute but
deliberate person, saying very incisive things in a slow, drawling way,
quick of mind, but slow of movement, not to be hurried, and much
given to "whittling," which is not a very feverish and purposeful oc-
cupation. Does anyone whittle now ? The present spirit arose with
the development of the railway system, which opened up the coun-
try, poured in the population, brought the natural wealth to the
market, and produced the millionaire. Since then industrial activity
has gone with a rush. There was money to start industries and money
to be made out of them. There were power and raw materials in the
ground ; there was labor, skilled or unskilled, coming along all the
time. There was nothing to hinder ; no enemies to watch, no army
to keep up, perfect security and tranquillity. A great industrial ex-
pansion was inevitable ; it could not help coming and bringing with it
boundless possibilities of wealth. The millionaire multiphed, swelled
to double, treble, tenfold his former bulk, and set such a glorious,
shining, dazzling example that no man could behold it unmoved. In
the United States there is "equality of opportunity," and all men
with millionairedom in their souls — a numerous body — felt that even
if they could not reach that height they might get near to it. So the
scramble for money became the occupation of a large part of the
people. Hence the commercial hurry-scurry.
Trouble-saving, rather than time-saving, is characteristic of the
Americans. It is the former, not the latter, that has an intimate re-
lation to the distinctive qualities of their industrial success. The line
124 CURRENT ECONOMIC PROBLEMS
in which they are supreme is the invention of labor-saving machinery.
They possess an inexhaustible fertility in devising ingenious con-
trivances for replacing toil. One explanation of this is the necessity
of minimizing labor because of its high cost. No doubt that is a
great stimulus, but there is more than that. There is a positive dis-
like of processes involving physical exertion. Perhaps it is charge-
able to mental activity and eventually traceable to climate. At any
rate it exhibits the paradoxical combination of love of hurry and
dislike of bodily exertion.
These qualities have a weak side. They are fatal to thorough-
ness and finish unless these can be attained by mechanical means,
which is very rarely the case. For first-class work some plodding
is required. It is surely remarkable that so little first-class work
of any kind is produced in the United States, with all its wealth,
population, intelligence, and educational keenness. All the recent
discoveries of importance, from bacteria to radium, have come from
Europe. The number who go into the profession is large, and they
produce a great deal of a certain quality, but nothing really first class.
They never carry anything to its legitimate development, to the point
of being a masterpiece. What is wrong is an attitude of mind that
has never gotten beyond adolescence.
There is danger that slovenliness may become a national habit.
"Slovenliness is something more than a violation of good taste ; it is
indifference to the best way of doing things ; it is a kind of easy-
going morality in matters of method." "Let it go at that" seems to
be written all over the face of the land. You see it in the slovenliness
of their language ; in their affectation of slovenliness as a smart thing.
You see it in wretchedly laid railway tracks, in swaying telegraph
poles, in sliding embankments, in broken-down vehicles with rickety
wheels too slight for their work, in harness tied up with a string, in
scamped and hurried work everywhere. There seems to be a dis-
dain of thorough workmanship and detail in finish.
The same national feeling is conspicuous in the factory and work-
shop. You may see machinery racketing itself to pieces and spoiling
the material in the attempt to run faster than it can ; you see waste
of fuel and steam, machinery clogged and spoiling for want of care
and cleanliness, the place in a mess and the stuff turned out in a
rough, badly finished state. When you see this over and over again,
you begin to understand why the United States, with all its natural
advantages, requires a prohibitive duty on foreign manufactures
which it ought to produce better itself.
The Americans are a highly emulative people, and anxious to
beat not only their competitors but themselves. "Beat our own
record" is one of the mottoes. A different trait is embodied in another
THE INDUSTRIAL REVOLUTION 125
motto — "Don't grumble, boost." One method of boosting in America
deserves particular attention, that of advertisement. In this Ameri-
cans lead the world so successively that no competitor is in the run-
ning. Its development is assisted by the very curious trait of
toleration of shams. Like the toleration of unfinished work with
which it is connected, the toleration of shams is pervasive. It is
illustrated in daily life by the pretense of a single class in railway
traveling, by the use of such euphemisms as "help" for servant and
"charity" for pauperism. Almost an affection for shams is shown in
the encouragement given to every kind of imposture. America is
the land above all others where everything that appeals to credulity
and ignorance flourishes. It is there that new religions arise. It is
there that the medical quackeries, the patent foods, the beautifiers,
and all that gallery flourish most. I attribute this vogue to the bound-
less faith of Americans in their own country as the pioneer of civiliza-
tion and enlightenment, to the wide diffusion of superficial education,
and to the general contempt for the experience of mankind at large.
They have no reverence for what is old and proved outside their
own borders. The mass of people believe that there is nothing to
learn from other countries and that all things are possible in their
own land. This feeling amounts to a superstition. In Europe, Ger-
many, for instance, laws are made to be kept, and to that end they
are very carefully made. In the United States the general contempt
for law is astonishing. I am inclined to think that it is the most
salient feature of American civilization. Laws thought to be op-
pressive are not obeyed ; they are evaded or defied. I know no coun-
try in which laws that interfere with liberty of the individual are so
common. They seem to be intended, not for the protection of the
public and the maintenance of order, but for the promotion of
morality. Of course, they cannot possibly be enforced.
The position of woman in America is peculiar, resting upon the
accidental fact that there she is in a minority. The law of supply
and demand gives her an effective advantage which the theory of
equality enables her to utilize. In Europe, women are subordinated ;
in America, they are dominant. In the former they take orders ; in
the latter they give them. In the former the man is the boss ; in the
latter, the woman. The ideal wife, I suppose, is at once a helpmeet
and a stimulus. In Europe the former predominates ; in America,
the latter. Each exercises a powerful influence on national life. In
the former one of the largest elements of national strength is the
domestic character of the women. In the latter the feminine stimulus
is a great incentive to that strenuous application and restless enter-
prise which stand out so strongly. Both characters have their weak
points ; the helpmeet is likely to be blunted to a drudge, the stimulus to
126 CURRENT ECONOMIC PROBLEMS
be sharpened to a goad. Of the two the latter is the greater evil. The
spoiling of women, though it makes the men work, is not good for the
women ; it fosters an exacting disposition, extravagance, love of
amusement, and a distaste for domestic duties which threatens na-
tional vitality, and it reacts on the men, who console themselves else-
where for exactions submitted to at home.
But, as for America, there is, after all, a spirit in the air which is
not all due to climate — the spirit of endeavor, of expansion, of belief
in a great destiny in which every individual shares. It is an inspiring
atmosphere.
58. German Socialized Efficiency^^
BY SAMUEL P. ORTH
Is Germany a model for our democracy ? What price is she pay-
ing for her well-advertised efficiency? How is her paternalism
affecting humannature ?
The lure is a socialized Germany. The state owns railroads, canals,
river transportation, harbors, telegraphs, and telephones. Banks, in-
surance, pawnshops, are conducted by the state. Municipalities are
landlords of vast estates : they are capitalists owning street car lines,
gas plants, electric light plants, theatres, markets, warehouses. The
cities conduct hospitals for the sick, shelters for the homeless, soup-
houses for the hungry, asylums for the weak and unfortunate, nur-
series for the babies, homes for the aged, and cemeteries for the dead.
Add to this vast and complex system of state education, a system
of training that aims at livelihood. Nothing like the perfection, the
drill, and the earnest, unsmiling efficiency of these elementary and
trade schools exists anywhere else in the world. In 1907, there were
9,000,000 children in the elementary schools, taught by 1 50,000 teach-
ers, nearly all masters, as the "school ma'am" does not flourish in th'^
Kaiser's realm. Every one of these pupils is headed for a bread-and-
butter niche in this land of super-orderliness. More than 300,000
persons are employed by the state in some form of educational work,
training the youth into adeptness, in all sorts of schools.
The army, as well as the school, brings home to every German
family the fact that the state is watchful — and jealous. It demands
that the two full years of every young man be "socialized"; and the
peasant woman and the artisan's wife must contribute her toil to
the toll that the vast system of state discipline demands.
Even the Church, that form of organized social effort which is
everywhere first to break away from the regimen of the state, re-
isAdapted from an article in The World's Work, XXVI, 315-21. Copy-
right, 1912.
THE INDUSTRIAL REVOLUTION 127
mains "established." So I might continue through almost every
activity — the vast system of state railroads, mines, shipyards — and
include even art and music.
This socialized Germany is also an industrialized Germany.
Everyone knows how cleverly advertised are German goods. But it
is always well to remember that this race of traders and manufac-
turers has somehow, in one generation, come from a race of solid
scholars, patient artisans, and frugal peasants. The old Germany
has disappeared ; the Germany of the spectacles, the shabby coat, and
the book ; the Germany of Heidelberg and Weimar. A new order has
taken its place. As you ride in the great express, from Cologne to
Berlin, you never are out of sight of clusters of tall, smoking chim-
neys. Symbolic of the new Germany are the Deutsche Bank, the
trade of Hamburg, and the steel works of Essen.
How has it been possible to make this transformation? To create
out of a slow, plodding, peasant-artisan people an industrialized
population, out of a race of scholars a race of manufacturers ; to fill a
land no larger than one-half of Texas with 65,000,000 people who
are breeding at the rate of nearly a million a year, and to engage the
state in doing all sorts of things for these thriving families? It is
the political miracle of the century, and its socialized efificiency is the
talk of the hour. How has it been accomplished?
The Kaiser has adapted, line for line and point for point, the
pattern of mediaeval feudalism to the exigencies of modern indus-
trialism. So, to begin with, the Kaiser has an obedient people, in
whom the feudal notion of caste is second nature. Everyone has
his place, and shall keep it. Such shifting as now is tolerated is due
to wealth and to the kind of ambition which luxury always awakens.
You cannot have superimposed classes without obedience. The
average German is docile and wants to be told what to do.
The government has its eager hands in every pocket, its anxious
fingers on every pulse. From the cradle to the grave, the state
watches the individual,commands him and, in a way, cares for him ;
always seeing to it that he has a place in the national economy and
that he keeps it.
To an outsider, of course, the inner workings of the mind and
heart are hidden. But the outer aspect of the German state is per-
fectly patent. It is mechanism — there can be no doubt about it —
the mechanism of the solar system. It is a land where every mem-
ber of society has an ordained orbit and moves in it around the cen-
tral sun, the state, which radiates a mystic gravitation into every
activity — almost every thought — of every man, woman, and child.
Here you see the most varied activities held to the ideals of
efficiency through a perfected feudalism. So that all Carl and John
128 CURRENT ECONOMIC PROBLEMS
need to do is to obey ; then they are taught the rudiments of learn-
ing and. a trade, are insured against the most disturbing episodes of
life, assured also of some leisure, considerable amusement, and a
decent burial. And that is life !
Of all invented contrivances this German machine is the most
amazing, this vast enginery of state with the patents of Hohenzol-
lern, Bismarck and Company on every part, that has reduced the life
of a great people to complacent routine and merged the rough eccen-
tricities of all into a uniformity of effort a^d ambition.
It is true that John and Carl can live their ordered lives in routine
and contentment, rounding out year after year of plodding toil, pay-
ing their dues to the various funds and their taxes to the government,
rearing their families, and intrusting them to the same over-care.
But what sort of creatures does it make of John and Carl^ and of
their children, and their childrens' children?
There is no exact way, not even a German way, of measuring
originality, individual initiative, and independence. But this also
is certain : patience, obedience, minute training, do not foster daring
and versatility. John and Carl settle down, literally settle down, to
an uneventful life, looking forward to no change, taking no risks,
seeking no alternatives. Once a butcher, always a butcher. This
makes Germany depressing to a restless American who is always
willing to "go it alone" and to get "a run for his money."
Some years ago, Mr. Ludwig Max Goldberger gave his country-
men the cheering news that Americans need not be feared, because
"all that they have done, we can imitate." This is an actual policy.
I have been told by American manufacturers that they have found
their machines so exactly copied in German shops that only the ab-
sence of the patent dates and of the name of the makers told them
that the machines were not made in the American shops. Already
this land of drill and obedience is becoming an empire of conscious
imitators.
There are on the German horizon ominous portents. First I
should place the moral and psychological effects of luxury. Few
nations can stand the sapping suction of plenty. The effect of the
profligacy that is everywhere apparent in the New Germany will be
particularly swift and fatal in a people who for generations have
been frugal and plain.
On top of this wealth is an imperial debt that has risen from
$490,000,000 in 1901 to $1,345,000,000 in 1912; this without reckon-
ing the provincial and municipal debt which is four times larger
THE INDUSTRIAL REVOLUTION 129
than the imperial. The burden of taxation- in 1912 was $70 per
average family.
On top of this burden of debts sits the militarist, 1911-12, taking
622,520 young men out of the fields and factories for the standing
army. This year 130,000 more are to be called out; and a new and
unheard-of war program is proposed to this patient and obedient
people. One must admire alike the audacity of the proposal, the
patriotism of the voter, and the magnificent discipline that has
wrought such submissiveness.
The red omen is the most conspicuous. Socialism is skilfully
combining the revolt against this imperial, personal government,
and the desire of the workmen for a greater share of the wealth of
the land.
If a revolt succeeds, what will happen to this centralized bureau-
cracy ? What will become of the system of state aid and municipal
socialism ? For without an efficient bureaucracy you cannot have an
effective paternalism ; and without centralized administration you
cannot run railroads, theaters, and pawnshops.
It is the one point usually overlooked by the enthusiasts. They
paint glowing pictures of socialized Germany, but they fail to look
under the surface. Germany's system is built upon discipline ; hard,
military, iron discipline, that grips every baby in its vise and forces
every man into his place ; a benevolent tyranny, no doubt, but never-
theless a tyranny ; an efficient feudalism, but none the less a feud-
alism of self-conscious caste and fixed tradition.
No doubt the time has come when we must modify our system
of extreme individualism by some system of social co-operation.
How far shall we proceed in this path of socialized efficiency ? Are
we willing to pay the German price? Could we do it even if we
wished to? Only a few peoples are fitted for such rigor. I believe
that America would be a poor place for a Hohenzollern efficiency
test. The carefully trained American barber would quite suddenly
take it into his head to be a sailor or a constable, and "all the king's
horses and all the king's men" couldn't hold him to his economic
predestination.
When all has been said, I cannot escape the conviction that the
real significance even of Germany is not in what the state has done
for the workman but what the German workman has succeeded in
doing for himself, in spite of the state.
This brings us back to the first postulate of Anglo-Saxon indi-
vidualism : the basis of social co-operation is ?elf-help.
I30 CURRENT ECONOMIC PROBLEMS
F. THE EXTENSION OF INDUSTRIALISM
59. The Competitive Victory of Western Culture^*
BY JAMES BRYCE
What is it that the traveler sees today in India, in Africa, in the
two Americas, in Australia, in the isles of the Pacific? He sees the
smaller, weaker, and more backward races changing or vanishing
under the impact of civilized man; their languages disappearing;
their religious beliefs withering; their tribal organizations dissol-
ving ; their customs fading slowly away.
From the bleeding of others with immigrants streaming in, a
hybrid race is growing up in which the stronger and more civilized
element seems fated to predominate. In other cases people too
large and powerful to lose their individuality are nevertheless begin-
ning to be so affected by European influences as to find themselves
passing into a new circle of ideas and a new set of institutions.
Change is everywhere, and the process of change is so rapid that
the past will soon be forgotten. It is a past the like of which can
never recur.
There is one other aspect of the present age of the world that
has a profound and novel meaning for the historian. The world is
becoming one in an altogether new sense. More than four centuries
ago the discovery of America marked the first step in the process
by which the European races have now gained dominion over nearly
the whole of the earth. The last great step was the partition of
Africa a little more than twenty years ago.
Now almost every part of the earth's surface, except the terri-
tories of China and Japan, is either owned or controlled by five or
six European races. Eight Great Powers sway the political destinies
of the globe and there are only two other countries that can be
thought of as likely to enter after a while into the rank of the Great
Powers. Similarly a few European tongues have overspread all the
continents except Asia, and there it seems probable that those Euro-
pean tongues will before long be learned and used by the educated
classes in such wise as to bring those classes into touch with Euro-
pean ideas. It is likely that by 2000 A.D. more than nine-tenths
of the human race will be speaking less than twenty languages.
Already there are practically only four great religions in the
world. Within a century the minor religions may be gone; and
possibly only three great faiths will remain. Those things which
are already strong are growing stronger; those already weak are
growing weaker and are ready to vanish away. Thus, as the earth
1* Adapted from address delivered before the International Congress of
Historical Studies, London, May, 1913.
THE INDUSTRIAL REVOLUTION 131
has been narrowed through the new forces science has placed at
her disposal, and as the larger human groups absorb and assimilate
the smaller, the movements of politics, of economics, and of thought
in each of its regions become more closely interwoven with those
of every other. Finance, even more than politics, has now made
the world one community, and finance is more closely interwoven
with politics than ever before.
World history is tending to become one history, the history no
longer of many different races of mankind occasionally affecting
one another's fortunes, but the history of mankind as a whole, the
fortunes of each branch henceforth bound up with those of the
others.
60. The Economic Conflict of Western and Primitive Culture
BY FRIEDA S. MILLER
Not once, since the Turks captured Constantinople, has European
civilization been threatened by an external force. Yet, since that
time, and by its own volition, it has been in constant contact with
non-European peoples in their own countries. Clearly the West was
not summoned by China to establish an open-door policy, and the
American Indians invited no discovery.
The motive to European expansion may afford some clue to its
possible effect. Religious persecution, political differences, scientific
curiosity, all these have played their part ; but the persistent aim has
always been economic gain. The lure of the guinea alike led Spain
to America, Portugal around the African cape, England to India
and South Africa, and Russia across the snows to the walls of China.
Pecuniary profit has been the lodestar that has led the West to the
East. This motive is the open sesame to an understanding of the
business of the Occident in the Orient. It means, above all, that
the "new" countries, possessed of their tremendous resources, which
can be unlocked only by the white man's magic key of the machine
process, are to be used for the white man's profit. In its extreme
form, before civilization softened the formalities, it meant for the
natives slavery and transportation to distant lands. But such prac-
tices have been succeeded by a strict legal and moral code which
regulates the contact of white man and native. The white man may
content himself that his ritual has proved itself in the Western world,
and even flatter himself that it is the best he has to offer the native.
His long personal use should enable him to guarantee its efficacy.
Now what the white man wants first of all is land. This he sets
about obtaining legally. He proffers the native beads or a knife in
exchange for his title. When the native chief accepts, as he is likely
132 CURRENT ECONOMIC PROBLEMS
to do, by this act which marks an exercise of his own free will and
judgment, he has contracted away the lands of his tribe. No one
has been injured ; since the act was voluntary, the agreement extended
to both parties, and compensation in full was rendered. The parties,
therefore, being legally bound, must be held to the performance of
their obligations under the law of contracts.
Having gained control of the soil, which may mean railroad and
mining concessions in China, gold mines in South Africa, or sugar
plantations in Hawaii, and having thus in his hands the possibilities
of pecuniary gain, the white man's next problem is to find means of
developing this potential wealth. Again the conventions of the
Western world are required to prove their efficacy. Either dignity
of labor or freedom of contract can be made to fit the case. On the
one hand there is work in railroad building, mining, herding cattle,
or what not, that requires the doing. On the other hand there are
hordes of able-bodied natives who are not productively employed.
Proper consideration for the dignity of toil, therefore, leaves the
white man no alternative but to devise a system for securing the
labor of the savage. A head tax may be levied which must be paid
in money. Or a tax may be placed on the native which he can dis-
charge in work. More easily, again using the magic wand of con-
tract, the savage may be gotten in debt; and surely he must be held
responsible for obligations voluntarily assumed. The result is the
permanent establishment of the wages system.
The nature and consequences of such overlordship can be easily
appreciated. Economically the native is regarded as a convenient
instrument for causing success to attend the white man's venture.
The noneconomic effects are also interesting and far-reaching. The
coming of the white man not only makes a wage slave of the native,
but demoralizes him socially and spiritually. Tribal life is broken up
when sufficient lands for hunting or communal agriculture are no
longer available. With it comes the end of the power of chiefs and
priests, the latter still further undermined by the assiduous efforts
of Chrfstian missionaries to convince the "heathen" of the wickedness
of their leaders. Moreover, the native's observation of the white
man's mode of life, with its impunity from tribal taboos and dis-
regard of tribal sanctions, destroys their validity for him. Finally
the whole primitive system of control under which he has lived
suffers shipwreck.^'
1° Compare the plaint of the natives in Rhodesia, as voiced by Sir Richard
Martin, in his official report. "The natives practically said, 'Our country is
gone and our cattle; we have nothing to live for. Our women are deserting
us ; the white man does as he likes with them. We are the slaves of the
white man ; we are nobody and have no rights or laws of any kind' " (Hobson,
Imperialism; A Study, 281, note).
THE INDUSTRIAL REVOLUTION 133
All this but makes the native a more pliant instrument, since he
cannot reconstruct a new system of values to fit the new situation.
He does not understand the white man's object, or see to what place
this foreign system assigns him. His mental attitude is quite external
to the real nature of the system which is closing in about him.
Therefore he has not the recourse against it possessed by the wage-
workers of Western countries, who, whatever their weakness, still
sense the drift of events that is involving them. This inferior posi-
tion is made permanent and definite by the fact that most of the
native races which Western civilization has encountered cannot be
assimilated. It is not the purpose of Europeans, even were it possible,
to educate primitive races to a point where they could reap the profit
of the development which their countries are undergoing.
But the results of such a policy, naturally enough, are not limited
to the countries aflFected. To assure the pecuniary success which is
the object of colonial expansion, trade is necessary. Ha colony is
cut oflF from communication with the Western World, rapid pecuniary
gains cannot be made. The settlers must supply their own needs,
thus establishing a self-sufficient economic system. But it is only
as a part of a much larger industrial entity that the potential re-
sources of the colony may be most advantageously utilized. A dis-
position of the surplus abroad gives vast differential gains. The
promoters, therefore, will strive to make the colony a part of the
existing industrial ^system. In course of time the industrial aris-
tocracy will live under a social system and possess a civilization like
that of the Western World. The natives, too, will live under such a
system, but as a permanent proletariat. Thus the West with its cul-
ture is reaching out to grasp lands held by primitive peoples, and to
reduce its complex and different scheme of life to its own system of
values.
But the process must inevitably react upon the structure of
Western society. The spirit of colonial life must influence the
mother-country. Colonial pecuniary interests must find their part
in Western politics. The easier life of the tropics must have its
telling effect on character, and hence affect the morals of the home
people. The sense of empire, too, exercises a peculiar psychological
influence which cannot be analyzed. It, also, threatens the home
wageworker with competition of cheap foreign labor. Such are
the results of the competition of Western and primitive culture,
when the contest is fought on the territory of the latter, and the
weapons are all of Western fashioning.
134 CURRENT ECONOMIC PROBLEMS
61. Industrial Penetration^®
BY HENRI HAUSER
What Strikes us in the evolution of German industry is the actual
greatness of the phenomenon. There is something impressive in the
spectacle of this people which forty years ago scarcely counted at
all in economic geography, and yet had become on the eve of the
war one of the gerat forces of the world. With her ninety to one
thousand millions of foreign commerce Germany stood in the second
rank of mercantile nations after England.
The evolution of Germany has borne a startling and almost
catastrophic character. From the complex of agricultural states,
which constituted the Zollverein in 1870, the industrial empire has
sprung up in a few years by a sort of historical "right-about-face,"
without any of that slow and secular preparation which marked the
rise of the English power.
This has had serious consequences for the character and distribu-
tion of the population of Germany. The two most notable results
have been the disappearance of the rural population and the abrupt
cessation of emigration. It is repeatedly stated that the Germans
were forced into a policy of expansion and conquest by the increase
of their population. A pitiless Malthusian law had compelled them
to find for themselves "a place in the sun." There can be no idea
more false than this of Germany as an overpopulated country. It is
true that the excess of births over deaths in Germany has been
800,000 a year. But this increase is far from excessive, for every
year 700,000 slave laborers come in to work on the great estates of
the East, not to mention the Italian, Croatian, and Polish labor em-
ployed in towns, mines, and works. As for German emigration it is
no longer more than a memory.
Out of 67,000,000 Germans scarcely 17,000,000 live on agricul-
ture. Every year an enormous number of peasants quit the land and
rush into colossal factories. Germany has definitely passed from
the type of the agricultural state to that of the industrial state, from
the Agrarstaat to the Indiistriestaat. The equilibrium between the
land and the workshop has been upset.
The industrial state has very imperious needs and requirements
which are not shared by the agricultural state ; the agricultural state
lives on itself and for itself and can live within its own limits. The
industrial state is a "tentacular" state.
To begin with, it has need of supplies of food. It is calculated
that more than one-third of the German people depend for their
^^ Adapted from Economic Germany, a lecture given on April 10, 1915-
Printed by Thomas Nelson and Sons, 1915.
THE INDUSTRIAL REVOLUTION 135
maintenance on foreign harvests and foreign cattle — a dangerous
position, since it compels Germany to secure for herself at all times
not only free passage over her land frontiers, but, above all, freedom
of communication by sea. We know what it costs Germany today
to be cut off from receiving the wheat of Russia, America, and
Argentine.
The industrial state is in pressing need of both capital and raw
material. Germany, when she entered the lists, was regarded as
rich in coal and iron. She has remained rich in coal, but by working
her iron mines intensely she can no longer extract from them the
amount of ore required for her metallurgical works. Krupp is more
and more dependent upon Sweden, Spain, North Africa, and France.
The spinning and weaving factories of Saxony are dependent on
Texas and Louisiana. Raw cotton bulks larger than any other
article imported into Germany. Two-thirds of the raw cotton con-
sumed by the world is produced in the United States.
Customers are necessary to Germany even more than capital. In
spite of their power of increase, in spite of their rapid advance in
wealth, in spite of their appetite for enjoyment, the German people
cannot by themselves alone absorb the enormous output of the Ger-
man factories. They are turning more and more to the outside world
and are becoming an exporting nation.
All causes, then, combine to make Germany a tentacular state
spreading out in every direction all over the world. The general staff
of the industrial world needs a "world-policy" to find interest for
its capital and to pay the wages of its workmen. The proletariat has
need of it to give him a full day's work and save him from starvation.
Thus we see the industrial state condemned to world-policy. Its
first business is to find means to develop its policy of exports. The
first means adopted is the system of bounties. As German industry
is working less for the home market than for foreign markets it is
logical to sell cheap and sometimes to sell at a loss. Thanks to the
system by which the chief economic forces are grouped in cartels,
the process is easy enough. Next to the system of bounties comes
that of treaties of commerce, which favor the importation of provi-
sions and of laborers.
To meet the want of iron Germany had to find new supplies of
ore — peaceful conquest to begin with. The application of the
Thomas process in 1878 converted the Briey Basin into the most
important iron field at present being worked in the world. With
the iron of Lorraine and Normandy and the coal of Westphalia,
Germany would be mistress of the world. To make sure of this
supremacy it was of importance to remove all competition and to
establish German industry in the very heart of the country of her
136 CURRENT ECONOMIC PROBLEMS
rivals. German manufacturers acquired control over French works
producing chemicals and electricity. The Badisce Sodafabric, under
a French name, provided the madder dye for the red trousers of the
French army. Similar conquests were won at Seville, Granada,
Buenos Aires, Montevideo, Mendoza, Santiago, and Valparaiso, by
the General Electric Company of Germany. Like concessions were
won in Turkey, Russia, and Italy.
To back up this policy of economic conquest the prestige and the
strength of the empire must be put at the service of the manufac-
turers, to make the state the instrument of German expansion — this
is the meaning of what the Germans have well named the policy of
"business and power" (Handels und Machtpolitik). The fusion of
Weltpolitik and business policy was peculiarly dangerous to the peace
of the world. If imperialism, if the tentacular state, puts its strength
at the disposal of manufacturing interests, the temptation is strong
and constant to use this strength to break down any resistance which
stands in the way of a triumph of these interests. "Be my customer
or I kill you" seems to be the motto of this industrial system con-
tinually evolving in its diabolical circle ; always producing more to
sell more in order to meet the necessities of a production always
growing more intensive.
Russia is for Germany both a reservoir of labor and a market.
France is for Germany a bank and a purveyor of minerals. What a
temptation to dig deep into the jealously guarded stocking and fill
both hands ! As for England, the direct competitor of Germany in
all the markets of the world and manufacturing the same goods, she
is the enemy to be crushed. Has she not acquired the habit, and has
she not taught it to France, of refusing to lend money to poor states
except in return for good orders? What is to become of Essen, and
all that immense industrial city of which Westphalia consists, if
Roumanians, Greeks, Serbians order their guns and their ironclads,
their rails, or their locomotives at Glasgow or Le Creusot? Ger-
many thought war preferable to this economic loss, and the velvet
glove gave place to the mailed gauntlet. Little by little the idea of
war as necessary, of war as almost a thing to wish for, laid hold
on the industrial classes. The overrapid industrialization of Ger-
many has led by a mechanical and fatal process, to the war. If any
doubt were felt on the part played by economic causes in this war, it
would be enough to look at the picture of German victory as imagined
by the Germans. It is an industrial victory, a forced marriage be-
tween German coal and foreign iron, the reduction of nations into
vassals who are to play the part of perpetual customers of the Ger-
man workshops.
TEE INDUSTRIAL REVOLUTION 137
62. Concessions and the War"
BY ALVIN JOHNSON
Let us look somewhat closely upon the structure of capital as an
economic force. We shall find that it embraces two elements differ-
ing widely in character. The one, which we may denominate capital
proper, is characterized by cautious calculation, but a preference for
sure, if small, gains to dazzling winnings. The other, which we may
call speculative enterprise, is characterized by a readiness to take
risks, a thirst for brilliant gains.
Capital thrives best in a settled order of society, where the risks
of loss are at a minimum. It accepts favors from government, to be
sure, but politics is no part of its game ; peace and freedom from
disturbing innovations are its great desiderata. Speculative enter-
prise, on the other hand, thrives best in the midst of disorder. Its
favorite field of operations is the fringe of change, economic or
political. It delights in the realm where laws ought to be, but have
not yet made their appearance. To control the course of legal evolu-
tion, to retard or divert it, are its favorite devices for prolonging the
period of rich gains. Politics, therefore, is an essential part of the
game of speculative enterprise.
At the outset of the modern era, speculative enterprise quite
overshadowed capital proper. Colonial trade, government contracts,
domestic monopolies were the chief sources of middle-class fortunes.
But with the progress of industry, slow, plodding capital has been
able steadily to encroach upon the field of enterprise. In our own
society the promoter of railways and public utilities, the exploiter of
public lands, the trust organizer, are as prominent relatively as in any
modern nation. Quantatively, however, their interests are greatly
inferior to those of the trader, manufacturer, banker, small investor,
and the farmer, to whom a 10 per cent return is a golden dream and
a 20 per cent one a temptation of the Evil One.
In the new country of vast natural resources there is sufficient
scope for both speculative enterprise and capital proper. The United
States has been such a country. There was easy money enough for
all men of shrewdness and resolution possessed of the necessary
initial stake — public forests to be leveled, railways to be built or
wrecked, trusts to be organized, cities to be provided with public
utilities. But, in view of our changing attitude, this easy money
appears to be in danger of being locked up. Already we are beginning
to hear murmurs that, in view of the popular hostility to wealth,
it will be necessary for American capital to look for foreign invest-
ments. Not foreign investments in England, France, and Germany,
1^ Adapted from "The War — By an Economist," Unpopular Review. II,
420-28. Copyright, 1914.
138 CURRENT ECONOMIC PROBLEMS
where government is efficient and capital proper prevails, but foreign
investments in the undeveloped countries, in a Land of the Morning,
"east of Suez."
The progress of modern industrial society, with its parallel devel-
opment of the art of government, tends to the exclusion of specula-
tive capital, and its concentration in the tropical and subtropical
belts. In the older societies this process has been in operation for a
considerable time. For generations British citizens have been taught
to look to Asia, Africa, and America for sudden wealth. Although
Germany had a slower start, the efficiency of government has rec-
ommended new countries to those looking for brilliant gains. In a
generation much of our speculative capital will be employed in
colonial exploitation.
Capital, it is often said, knows no such thing as patriotism. This
may be true of the cautious, colorless capital of industry and finance.
But an immense patriotism is avowed by J. J. Hill, by the DuPonts, by
the Guggenheims. Most intense of all is the patriotism of the capi-
talist whose interest lies in the twilight zone of the barbaric belt.
Purer expressions of concern for America's future than those now
issuing from the lips of concessionaries in Mexico you never hear.
We are all moved by the grandiose African dream of Cecil Rhodes :
"all red" — i.e., British — a British heart within every black skin from
the Cape to Cairo. The case is typical of the capitalist speculator
abroad. By interest the concessionary capitalist is a patriot. He
needs his country in his business. But this is no impeachment of his
patriotism. His type is reckless and therefore idealistic. His private
interests become submerged in his imperialistic ambition. Patriot-
ism has always burned more brightly in border provinces than in
the heart of the national territory. It is natural, then, that patriotism
should be still more intense in those extensions of the national
domain represented by permanent investments abroad.
Now patriotism compounded with financial interests usually pro-
duces detestation for the corresponding alien compound. Speculators
in South America and the Orient meet their rivals from other
nations and hate them heartily. Those speculators are the nerve-
ends of modern industrial nationalism, and they are specialized to
the work of carrying sensations of hate. For the present we have
few nerves of this kind. They have conveyed to us only a vague
impression of the uneasiness felt by England and France over the
German advance in the colonial field. German speculators, thwarted
in their designs by the English and French, have contributed to the
popular feeling that Germany must fight for what she gets.
The capitalist speculator, even at home, enjoys a power over the
popular imagination and a political influence quite incommensurate
THE INDUSTRIAL REVOLUTION 139
with the extent of his interests. When the seat of his operations is
a foreign territory, whence flow back reports of his great achieve-
ments — achievements that cost us nothing, and that bring home for-
tunes to be taxed and spent among us — his social and poHtical influ-
ence attains even more exaggerated proportions. This is the more
significant since his relations with government are concentrated upon
the most sensitive of government organs, the foreign office.
When diplomatic questions concerning the non-industrial belt
arise, and most diplomatic questions concern this belt, the voice of
the concessionaries is heard in the council of state. The voice is
the most convincing because of the patriotism that colors its expres-
sion of interest. More important, the ordinary conduct of exploita-
tive business in an undeveloped state keeps the concessionary in con-
stant relation with the consular and diplomatic officers established
there. In a sense such officers are the concessionary's agents, yet
their communications to the home office are the material out of which
diplomatic situations are created.
• It is accordingly idle to suppose that exploitative capital in for-
eign investments weighs in foreign policy only as an equal amount of
capital at home. In view of the conditions mentioned, a small in-
vestment may prove a great menace to the peace of nations. For
years Germany, Russia, England, and France have been brought to
the belief that something very vital turns upon the control of the
Land of the Morning. Indeed, the whole civilized world has been
seduced into accepting this belief. Yes, something very vital for ex-
ploitative capital. Out of such delusions spring wars.
It is the interest of exploitative capital that makes the Morning
Land, Mexico, China, and Africa rotten stones in the arch of civiliza-
tion. But for exploitative capital, these regions might remain back-
ward, socially and politically : this would not greatly concern any
industrial nation, except so far as it responded to a missionary im-
pulse. The backward states, however, afford possibilities of sudden
wealth ; and, since this is the case, they must attract exploiters, who
must seek and obtain the backing of their home governments, with
resultant international rivalry, hostility, war.
In a short time there will be one new element in the situation,
new, at any rate, to us. In a generation our strong men of specula-
tive finance will be established in the undeveloped countries ; conces-
sions will figure conspicuously among the items of our national
wealth. The foreign contingent of our capital will join in the battle
for exploitative advantages. And who shall say that our country
may not be a protagonist of the next great war? One-half of i per
cent of our capital just failed of forcing us to subjugate Mexico.
140 CURRENT ECONOMIC PROBLEMS
If we could confidently predict the industrialization of the back-
ward countries, we should be able to foresee an end of this one most
fruitful of all sources of international strife. But China will not
be industrialized for a generation at least; and many generations
must elapse before the tropics are concession-proof. Accordingly
the one hope for universal peace would appear to lie in the possibility
of divorcing, in the popular consciousness, the concessionary interest
from the national interest.
The concession and the closed trade are the fault lines in the
crust of civilization. Solve the problem of the concession and the
closed trade, the earth hunger will have lost its strongest stimulus,
and peace, when restored, may abide throughout the world.
IV
THE PECUNIARY BASIS OF ECONOMIC
ORGANIZATION
"The industrial system in which we live is without order, plan, and sys-
tem; its name is Chaos," asserts our socialist friend. In a lecture on "The
Relation of Political Economy to Natural Theology," an English divine says
in substance: "The almost perfect way in which, without conscious inter-
vention, our multifarious industrial activities are co-ordinated into a system
that satisfies our needs bears evidence of the mysterious way in which God
moves 'his wonders to perform.'" These antagonistic opinions raise some
of the most pertinent questions connected with the organization of society.
Is our economic world one of order? Can industrial organization maintain
itself without authoritative interference? Is the "automatic" organization of
society the most economical? Can it be supplemented, controlled, or super-
ceded? Does it serve, or can it be made to serve, the requisite ethical
ends? In this division attention is given only to the more immediate aspects
of these general problems. A consideration of the factors of a developing
society which complicates them must be reserved to the next division.
The first question can be given a definite affirmative answer : our system
is possessed of order. The nicety with which men and "jobs," capital and
opportunities for investment, and supply of and demand for goods are brought
together attests this. An examination reveals in our scheme of prices an
adrnirable mechanism for preserving this organization. Rising prices attract
capital, labor, or goods; falling prices repel them. Back of this we find an
active organizing agency in pecuniary competition. Further examination shows
that our system is admirably adapted to manipulation through price changes.
Labor, capital, and goods are mobile; the industrial technique is plastic; and
our scheme of values has translated itself very largely into pecuniary terms.
We have also devised several special contrivances which tend to eliminate
personal factors and make easier the exercise of the motivating power of
price. Of these the corporation is typical. It reduces economic judgments to
the cold calculus of dollars. It has split up business opportunities into bits
small enough to fit the pocketbook of the most insignificant investor; it has
distributed the risks of industry in accordance with the whims of difiFerent
classes of capitalists; and it has served to place capital under the control of
the pecuniarily ablest managements. It has, perchance, more than once freed
the pecuniarily unfit from the burden of his possessions.
The second question can definitely be answered in the negative. The
system cannot maintain itself without authoritative interference. The state
must preserve, "law and order," maintain the integrity of basic institutions,
provide an efficient monetary system, keep free the channels of trade, and act
as arbiter in industrial disputes. The various trades must have their bodies of
developing custom. The constraints of social usage must give at least a
modicum of order to the wants of consumers. Yet the important role of
authority in industrial organization is often lost sight of and competition itself
is denounced as "ruthless." This judgment springs from a confusion of
competition and laissez faire; of the process of organization and the funda-
mental in.stitutions which condition it. The "plane" of competition can be
authoritatively determined, even though competition be left "free." Accord-
ingly the ethical character of the result depends, not on the fact of competition,
but on "the rules of the game."
141
142 CURRENT ECONOMIC PROBLEMS
The third question cannot, at least at this stage of our study, be answered
definitely. More than one industrial activity has been pronounced uneconomical
and its personnel parasites. It requires little eflfort to think of many trades
or vocations which for a time have enabled their devotees to reap without
sowing. Such methods of acquiring "easy money" necessarily involve "eco-
nomic waste," and should be forbidden. Frequently "middlemen" and "specu-
lators" are consigned to this class of unproductive and unprofitable servants.
Analysis shows that both perform very necessary functions in the organization
of the market. But this does not dispose of the question of economy in or-
ganization. It may well be that there are too many "middle-men" ; that there
is a waste of our limited social resources at this point. And it is doubtless
true that speculation frequently degenerates into gambling. If so, two prob-
lems are presented : Can the waste of resources in mercantile pursuits be
checked without interfering with efficiency in service? Can speculation be
stripped of gambling without interfering with the performance of its organiz-
ing functions? Almost as often the economy of the system as a whole is
called into question. Our attention is directed to the "wastes of competition" ;
and it is urged that these wastes can be eliminated either by a policy of "regu-
lated monopoly" or by "the socialization of industry." A consideration of
these delicate problems of economic organization will have to be postponed
until later in our study.
The fourth question involves several questions which cannot be answered
in a single statement. The evidence seems to be against society's being able
arbitrarily to fix prices that are greatly at variance with "natural" prices. The
wholesale prescription of a scheme of prices is a very complex question; it
practically involves a socialization of industry; economists generally would
pronounce against it. However, it seems evident that prices can be indirectly
changed by means of controlling demand or supply. This indirect attempt to
interfere with prices is characteristic of monopoly, of trades-unionism, and of
such proposals as, say, a minimum wage coupled with a control of immigra-
tion. It will reappear in connection with each of these problems. Finally,
as we have already seen, society can exercise an influence over the institu-
tional situation within which price-fixing occurs.
The fifth question we must pass by. We cannot pronounce an ethical
judgment upon the organization of the present system until we have had a
chance to study both the problems referred to in this section and many others.
It may perchance be that even then we will hesitate to pronounce a judgment.
A. PRICE AS AN ORGANIZING FORCE
63. The Social Order^
BY EDWIN CANNAN
Some would have us believe that at present there is in society
no organization at all. They use hard words, such as "scramble for
wealth," "suicidal competition," "exploitation," "profit-hunting," and
say that the present state of things is "chaotic." Now, whatever our
present state may be, however unsatisfactory it is, it is certainly not
chaotic. If it were really chaotic, everyone who goes to his daily
work tomorrow must be a fool, since he would be just as likely to
get his daily bread if he stayed at home. The very fact that we all
know as well as we do that certain results will almost inevitably fol-
^Adapted from Wealth: A Brief Explanation of the Causes of Economic
Welfare, pp. 72-75. Copyright by P. S. King & Co., 1914.
PECUNIARY BASIS OF ECONOMIC ORGANIZATION 143
low upon a certain course of action shows that we are not Hving in
chaos. Our system may be a bad system, but it is a system of some
sort; it is not chaos. If a man holds a book too close to his nose
he cannot read it, and so it is with the world of industry. If we look
at it from too close a standpoint we can only see a blur.
Let us imagine a committee of the Economics Section of the
Association for the Advancement of Science of the planet Saturn
reporting on what they had been able to see of affairs on our planet
through a gigantic telescope big enough for them to see human beings
moving on its face. Would they be able to report that poor Mundus
seemed quite chaotic? Would they report that everyone was
scrambling for himself to the disadvantage of everyone else in such
a way that the general good seemed entirely neglected ? Would they
say that all the land in the most convenient situation was lying idle,
that nobody had a roof over his head, and that everyone was running
about aimlessly or sitting idle in imminent danger of starvation?
They might report something of the kind if they could carry on con-
versations with certain people here and if they believed all they were
told, but certainly not if they judged by their own observation.
They would be more likely to report that they had seen a very
orderly people co-operating on the whole with a wonderful absence
of friction — that they had seen them come out of their homes in the
morning in successive batches and wend their way by all sorts of
means of locomotion to innumerable different kinds of work, all of
which seemed somehow to fit into each other so that as a whole the
vast population seemed to get fed, and clothed, and sheltered. They
would not, of course, vouch for the perfection of the arrangements.
They would see that there were occasional irregularities and hitches.
They might see now and then too many vehicles in one street, too
many passengers trying to travel by one train or tramcar. They
might even see along the country roads the melancholy spectacle of
men tramping in both directions in search of the same kind of work.
They might be able to see that some had too much — more than they
seemed to know how to dispose of without hurting themselves and
others — while some evidently had too little for healthy and happy
existence. But in spite of these defects they would report, I think,
that on the whole the machinery, whatever its exact nature, seemed to
do its work fairly effectively.
If we can imagine them able to go back five hundred or a thou-
sand years, we can feel tolerably sure that they would report still
more favorably, since they would then see the enormous improve-
ment which had taken place and would discover no appearance of any
change which would suggest that the existing system is not the out-
come of an orderly development of the institutions of the past.
144 CURRENT ECONOMIC PROBLEMS
I insist so strongly on the fact that our existing machinery does
work, not with any idea of contending that all is for the best in the
best of all possible worlds, but because to understand economics it is
necessary to begin by considering, not the defects in the machinery,
6ut the main principles involved in its construction and working.
We are likely to begin with the defects because it is they which strike
our eye and excite our sympathy. Seven per cent of unemployed are
much more likely to make us start thinking than 93 per cent who are
in employment. The emaciated corpse of a single person starved to
death naturally makes more impression on our minds than the com-
fortable bodies of a hundred thousand sufficiently fed citizens. But
if we want to understand the reason why work and food do not quite
"go round," we should begin by endeavoring to discover what, after
all, certainly does not explain itself — why they go as far round as
they do.
64. Competition and Industrial Co-operation^
BY RICHARD WHATELY
"Bees," said Cicero, "do not congregate for the purpose of con-
structing a honeycomb ; but, being by nature gregarious animals, com-
bine their labors in making the comb. And man, even more so, is
formed by nature for society, and, subsequently, as a member of
society, promotes the common good in conjunction with his fellow-
creatures." Most useful to society, and much to be honored, are
those who possess the rare moral and intellectual endowment of an
enlightened public spirit ; but, if none did service to the public except
in proportion as they possessed this, society, I fear, would fare but
ill. As it is, many of the most important objects are accomplished
by the joint agency of those who never think of them, nor have any
idea of acting in concert; and that with a certainty, completeness,
and regularity which probably the most diligent benevolence, under
the guidance of the greatest human wisdom, could never have
obtained.
For instance, let anyone propose to himself the problem of sup-
plying with daily provisions of all kinds a city containing above a
million of inhabitants. Let him imagine himself intrusted with the
office of furnishing to this enormous host their daily rations. Any
considerable failure in the supply, even for a single day, might pro-
duce the most frightful distress. Some of the articles consumed
admit of being reserved ; but many, including most articles of animal
food, and many of vegetable, are of the most perishable nature. A
redundancy of supply would produce great waste.
^Adapted irom Introductory Lectures on Political Economy (aded. ; 1832)
pp. 90-98.
PECUNIARY BASIS OF ECONOMIC ORGANIZATION 145
Moreover, in a district of such vast extent, it is essential that the
supplies should be so distributed among the different quarters as to
be brought almost to the doors of the inhabitants. Moreover, whereas
the supply of provisions for an army is comparatively uniform in
kind, here the greatest possible variety is required, suitable to the
wants of various classes of consumers. Again, this immense popula-
tion is extremely fluctuating in numbers ; and the increase or diminu-
tion depends upon causes which cannot be distinctly foreseen.
Lastly, and above all, the daily supplies of each article must be
so nicely adjusted to the stock from which it is drawn — to the scanty,
or more or less abundant harvest, or other source of supply — to the
interval which is to elapse before a fresh stock be furnished, and
to the probable abundance of the new supply, that as little distress as
possible may be undergone ; that upon the one hand the population
may not unnecessarily be put upon short allowance, and that on the
other hand they may be preserved from the more dreadful risk of
famine, which would ensue from their continuing a free consumption
when the store was insufficient to hold out.
Now let anyone consider this problem in all its bearings, reflect-
ing upon the enormous and fluctuating number of persons to be fed ;
the immense quantity and the variety of the provisions to be fur-
nished; the importance of a convenient distribution of them, and the
necessity of husbanding them discreetly ; and then let him reflect upon
the anxious toil which such a task would impose on a board of the
most experienced and intelligent commissaries ; who after all would
be able to discharge their office but very inadequately.
Yet this object is accomplished far better than it could be by any
effort of human wisdom, through the agency of men, who think each
of nothing beyond his immediate interest — and combine unconsciously
to employ the wisest means for effecting an object, the vastness of
which it would bewilder them even to contemplate.
Early and long familiarity is apt to generate a stupid indifference
to many objects, which, if new to us, would excite great admiration ;
and many are inclined to hold cheap a stranger who expresses won-
der at what seems to us very natural and simple, merely because we
have been used to it. A New Zealander who was brought to Eng-
land was struck with especial wonder, in his visit to London, at the
mystery of how such an immense population could be fed, as he saw
neither cattle nor crops. Many Londoners, who laughed at the. sav-
age's admiration, would probably have been found never to have
thought of the mechanism which is here at work.
It is really wonderful to consider with what ease and regularity
this important end is accomplished, day after day, and year after
year, through the sagacity and vigilance of private interest operating
146 CURRENT ECONOMIC PROBLEMS
on the numerous class of wholesale and retail dealers. Each of these
watches attentively the demands of his neighborhood, or of the mar-
ket he frequents, for such commodities as he deals in. The appre-
hension, on the one hand, of not realizing all the profit he might,
and, on the other, of having his goods left on his hands, either by
his laying in too large a stock, or by his rivals' underselling him —
these, acting like antagonistic muscles, regulate the extent of his
dealings, and the prices at which he buys and sells. An abundant
supply causes him to lower his price, and thus enables the public to
enjoy that abundance; while he is guided only by the apprehension
of being undersold ; and, on the other hand, an actual or apprehended
scarcity causes him to demand a higher price.
For doing this, corn-dealers in particular are often exposed to
odium, as if they were the cause of the scarcity ; while in reality they
are performing the important service of husbanding the supply in
proportion to its deficiency. But the dealers deserve neither censure
for the scarcity which they are ignorantly supposed to produce, nor
credit for the important public service which they in reality perform.
They are merely occupied in gaining a fair livelihood. In the pursuit
of this object, without any comprehensive wisdom, or any need of it,
they co-operate, unknowingly, in conducting a system which, we may
safely say, no human wisdom directed to that end could have con-
ducted so well.
B. THE ORGANIZATION OF PRICES
65. The Nature of the Price-System^
Every one of us is dependent, not only for the fulness of life, but
for existence itself, upon maintaining a connection with the industrial
system. Doubtless we may still hypothecate an isolated individual,
thanks to the gifts of nature about him, sufficient unto himself for all
the means of an empty and precarious existence. We may perhaps
visualize communities with economic arrangements far simpler than
ours, communities in which men take directly from soil, forest, and
stream the materials upon which their welfare depends. In such
communities the formulas of well-being run in terms of health,
strength, and exertion ; of the soil, the sun, and the rain. But under
industrialism the simplicity is gone and the old formulas will not do.
Under its ritual a man performs a highly specialized productive act
or service, not for himself primarily, but for a multitude of others.
Likewise the objects and services essential to his numerous desires
comes to him from a vast and complex industrial system, which uses
3An editorial (1917) ■
PECUNIARY BASIS OF ECONOMIC ORGANIZATION 147
all sorts of men and equipment and ramifies unto the utmost corners
of the earth. A connection of the individual with this great world-
machine is necessary to his very life.
This making of a living by many men for many men has usually
been called the division of labor. Its maintenance requires the con-
tinuous organization into a single coherent whole of a wide variety of
services, materials, and forces. If every member of society is to
have a part in this, if each is to give and to get, if the potential re-
sources are properly to be used, if the products are to correspond to
the demands for them, the task of organization becomes a delicate
one. Everywhere there must be careful measurement, nice adjust-
ment, careful fitting. This delicate articulation of parts has been
made possible by the rise of the institution of pecuniary calculation,
which assigns to the satisfaction of each desire, to the use of each
raw material, to each service, to each good, its definite price. Its pre-
cision makes possible the maintenance of a highly exact and articulate
organization of unlike and diverse elements in an undustrial order.
The prices of all things in the economic world about us con-
stitute a definite scheme, an ordered system, not a mere aggregation
of unrelated items. Were they isolated units, one might deal with
them as he wished, changing some and leaving the others undis-
turbed ; but because of their intimate connection an abrupt disturb-
ance of one sends lines of influence radiating in all directions. To
visualize the system one must first picture the vast and interlocking
technique of industry of which this system is but the pecuniary
counterpart. Beginning with the single article, it is evident that its
price must be approximately identical with the sum of the prices of
the goods and services which have gone into it. If it is itself a raw
material of a more finished good, it is obvious that the price of the
latter is made up by an addition to its price of the prices of its other
constituent elements. Thus if the line of production be observed
from the most elementary of raw materials to the most advanced of
finished products it is apparent that the series of prices paralleling
these processes will be highly articulate. If raw materials were con-
sistently used in the production of separate goods, each productive
process would have its complement in a price-series, but the various
price-series would be independent one of another.
But even a cursory view of the technical system shows that these
price-series tend to gather themselves into an organic system. A raw
material, for example, is likely to be used in the production of a
hundred separate products ; yet, despite its varied uses, its units
must command a single price. A finished product uses, not one, but
many elementary materials. Each of these is produced, not from
one, but from many still more elementary materials. In one direction
148 CURRENT ECONOMIC PROBLEMS
the line stretches fanlike back to the most elementary of raw mater-
ials, in the other to a numerous array of the most finished of finished
products. The same material may enter a productive sequence at
very different stages ; it may enter different sequences at stages more
or less removed from the ultimate products. The same goods may
be used either as a finished product or as a raw material. There are
many cases in which products which emerge far along the productive
sequence are used in the initial stages of their own production. In
view of these qualifications the straight lines of the productive
sequences of the preceding paragraph are lost in a wilderness of
interesting line^, adorned here and there with circles and other morp
complex figures. In terms of a graph, if the movements of goods
in the productive system are represented by lines, the totality of tech-
nical relationships can best be represented by means of a vast and
tangled network. The same figure will represent, at least for the
moment, the interrelations and ramifications which constitute the
price-system.
Even this complicated device, however, fails to represent the
system adequately, for it transcends the current limitations of the
technical system. Within it appear prices which represent goods
which have not as yet been brought to any market and some of
which have only a hypothetical existence. Prices there are, too,
which are the pecuniary symbols of goods which long ago passed
beyond human control. Thus the price-system, which in its concrete
detail has but a momentary existence, embraces prices of past and
future as well as present goods. In view of this a graphic illustration
is impossible ; it is an attempt to represent in two dimensions a thing
which transcends dimensions.
Of this system one of the most important characteristics is the
temporary character of its concrete reality. The momentary scheme
sums up the constraints upon economic activity existing in a com-
plicated economic order, including even many running back into the
far distant past and others stretching away into the future. The
detailed scheme passes, the system remains intact. Everywhere
within the scheme changes in prices are occuring which tend to give
a new reality to the whole.
At one extreme, for any one of a number of reasons which the
reader can easily supply, the demand for finished products changes.
Immediately their prices undergo change, and straightway there
appears a lack of harmony between them and the prices of the goods
out of which they are made. This leaves someone in possession of
an unexpected profit or an uninvited deficit, affecting his judgments
and actions and leading eventually to new prices for some or all of
the elements of the finished goods and to a renewal of harmony.
PECUNIARY BASIS OF ECONOMIC ORGANIZATION 149
This induced agreement in turn leads to a lack of correspondence be-
tween the prices of these elements and their constituents. Again, in
like manner, and for the same reason, the same event is achieved. In
this way the disturbance works its way down to the prices of the
primary elements of production and in this way harmony tends to
be established throughout the whole structure. At the other extreme,
for reasons good and sufficient, the supplies of the primary elements
of production may be changed, entailing changes in their prices,
lack of harmony between them and the prices of the goods into which
they enter, and eventually to a re-establishment of harmony through-
out the whole structure by a similar process. Again, a disturbance
may appear anywhere within the price-scheme, sending out its in-
fluences of discord and harmony in all directions.
The price-system is thus in constant subjection to two sets of
forces. The first is the tendency toward disarrangement entailed
by the constant appearance of price-disturbing elements at many
points. The second is the tendency toward renewed coherence at-
tending the attempts of those affected to appropriate surpluses and
to escape deficits. Since both tendencies are ever operative, the
system as a whole may be said to be at any moment in a state of
arrested harmony. Thus the perfect coherence of the scheme is
always threatening but never arrives.
The persistence of a scheme of prices is all the more fitful be-
cause the pecuniary unit of value, necessary to the coherence of the
scheme, is itself a capricious standard of measurement. It is subject
to constant change of value; this change may within a short period
of time be quite radical. Such changes must obviously be followed
by changes in the whole "level of prices," changes which require time.
These are all the more disturbing because prices of goods and serv-
ices respond with quite different degrees of readiness to changes in
the value of the pecuniary unit.
Within the price-system not all values are in the same degree
responsive to these constant disturbances. Because the scheme is
never in complete harmony the disturbing influences effect their
greatest changes near the points where they first enter the system.
As they take their tortuous ways through the maze of interlocked
prices, their force is gradually spent. Moreover, some prices can
more easily withstand disturbance than others. The prices of goods
and services limited in quantity and confined to a few uses may easily
give way before an upward or downward pressure easily resisted by
the prices of staple goods and of services in universal demand. The
former, standing alone, must succumb to the shock ; the latter, sim-
ilarly impinged upon, are protected by the sheer weight of the mass
to which they belong, the units of which must enjoy like prices. But,
150 CURRENT ECONOMIC PROBLEMS
even apart from their relative quantities, the prices of some goods
are much more fickle than others. Thus even in our competitive
system custom, fixes the price of many articles, and the established
price is not lightly set aside. Other prices are consciously hedged
about with various devices which keep them more or less from the
vicissitudes of change. Monopoly, to cite a single example, con-
sists of devices of this kind. When the wave of disturbance strikes
a price protected in this way it is likely to pass by and spend itself
upon others offering less resistance. As with other elements of dis-
turbance, the waves of price-change take always the lines of least
resistance.
Within this scheme of prices which takes its origin from far-off
and mysterious sources, which is always in process of being remade,
and which is composed of items differing widely in their ability to
weather disturbance, the members of all the pecuniary groups which
make up society are forced to order their lives. It is a succession of
links binding them, one by one, to an industrial system apart from
which their lives and activities would be alike meaningless and im-
possible.
66. The Constraints of the Price-System*
BY WALTON H. HAMILTON
To the individual the price-system manifests itself most inti-
mately in the immediate prices by which his wonted activities are
hedged about. These include, on the one hand, the prices of his
personal services and of the uses of his property, and, on the other,
the prices of the goods and services which his plane of living or the
requirements of his business demand. So far as the price-system
affects his thought and conduct it is through its influence upon these
immediate prices. It may be insisted that this influence, at least for
the large number whose primary concern is with the immaterial
satisfactions of life, is negligible, for the things of the spirit cannot
be purchased. But, as life is organized, the means to the attainment
of these things is frequently pecuniary, and they cannot be enjoyed
unless material goods keep life within the body. Accordingly there
are no cases of absolute indifference to pecuniary income. At the
other extreme it is said that the desire or money is in itself the real
incentive to all economic activity. The habitual example is the
business man who amasses wealth for which he has no need. With
him, however, dollars are not the motive, they are mere counters
indicative of the success which he has won in the business game.
Their importance lies rather in furnishing a common denominator of
♦Adapted from "The Price-System and Social Policy," Journal of Political
Economy, XXVI, 41-51. Copyright by the University of Chicago, 1918.
PECUNIARY BASIS OF ECONOMIC ORGANIZATION 151
enjoyment, activity, and opportunity, a means by which human
motives can be reduced to intelligible and measurable terms. It is
reasonable that motives which can thus be reduced to precise state-
ment and compared are of more weight than those whose promises
are vague and distant.
So long as men are unlike creatures, so long will they respond
in varied ways to the complex of motives which a pecuniary for-
mula holds. There is, for example, the man who insists that, because
the price-system is not of his making, it is not to his liking. He
would dispense with it if he could ; but he finds that impossible, so
he grudgingly puts up with just so much of it as he must. He must
conform to the extent of earning a living or accepting an income
from property, the ownership of which he does not disavow. Under
modern conditions the "living" is likely to include means for the at-
tainment of other ends than mere existence. H his income is from
property, its size is the measure of his freedom from pecuniary
thraldom.. If he pleases, he may, at least for a time, disregard this
limit and live in defiance of the mandates of the price-system. But
if he persists, his property flits to another who is readier to obey
the \d^s under which he lives. A protestant is shorn of his economic
power, and with it lapses his active concern with most of the things
of this world. The class which defies is small and its members hold
a very precarious lease upon economic life.
A second group consists of those who continue to thrive seem-
ingly in defiance of the injunction to make money. But wilful
disregard is here merely a mask that hides a careful prudence. If
one is protected by a monopoly, if he has invented an inviting trade-
mark, if he is heir to a large amount of "good will," if in any one
of a number of ways he has intrenched his income against the vicis-
situdes of price changes, he has a reasonable degree of immunity.
He may engage in doubtful experiments in welfare work, surrender
hours of toil to the leisure of his workers, make contributions to
charity, or engage in other practices which are at variance with the
dictates of the economic man within him. But if it is to endure,
such freedom has to be carefully conserved; it is possible only within
the limits of the prices about him.
It is therefore within the capacious confines of the class which
obeys quite regularly the demands of the price-system that most
of the members of society are to be found. In common they find
their incomes smaller than they like; in common they would free
them from the caprice which they serve. Each must steer his way-
ward course with one eye upon the prices of the goods which he
buys and the other upon his income from services or goods sold.
152 CURRENT ECONOMIC PROBLEMS
By all means the first must be kept down ; by all means the second
must be exalted. In view of the uncertainty of the future, to fail
to claim a pecuniary advantage today is to disregard the dictates of
wisdom. It may result in a failure to secure a bigger one tomorrow,
or it may render that morrow insecure.
The commands, prohibitions, and restrictions which the price-
system lays upon individual conduct are immediate and real, im-
posing restraint both upon the spending of income and the making
of it. In the first case one goes to market and exchanges income for
means to the pleasures, activities, and attainments which he regards
as most worth while. If he has no income, obviously he gets no
goods. Since existence depends upon the wherewithal to be fed and
clothed, his right to live becomes a matter of public or private grace.
If his income is small he can gain the means to a limited range of
desired activities ; as its size increases he is allowed both more goods
and greater discretion in choice. If he desires a new pair of shoes,
a ticket to the opera, a picture for the study, a trip to California, a
new automobile, an apartment at the Ritz-Carlton, or a public library
to herald his name, the matter has to be referred to the dictates of
the price-system. As prices go their capricious ways respondfig to
the vicissitude of change, he is forced to change his purchase, his
activities, and even his personal habits. They may compel him to
eat rice when his taste inclines to potatoes ; they may require him
to have his shoes mended when he prefers a new pair ; they may for
the season force him upon the highway in an old car, the shabbiness
of which is beyond dispute. A prohibitive price of domestic labor
may compel him to renounce his home and take his meals at a restaur-
ant. To accommodate himself once and for all to a scheme of prices
which drives him in many directions is not the whole of submission.
Their unexpected and arbitrary changes force from him an ever new
allegiance and a constant reshaping of his actions.
Great as is its authority over the spending of income, the com-
pulsion of the price-system is even greater in the making of it.
Perhaps a careful calculus which makes purchasers attend upon a
detailed comparison of the values and the costs of what they buy
may be a source of added enjoyments. Yet, as wants and goods be-
come standardized, this importance shrinks, and to the great mass of
men and women it appears mere penny economy. The desire of
many men for more goods, more opportunities, more means of at-
tainment, are much more likely to take the form of desires for larger
incomes. It is therefore over money-making that the price-system
exercises its strongest tyranny, and for this reason it is necessary
to study quite particularly this influence.
PECUNIARY BASIS OF ECONOMIC ORGANIZATION 153
Let us begin with the group charged with the management of
independent business ventures. To them success or failure is written
in the balance sheet. They find their activities hemmed in between
the prices of the goods and services which they buy and those of the
articles which they sell. By grace of high prices or low costs the
business adventurer derives from his concern a surplus ; by dint of
low prices or high costs he has a deficit thrust upon him. Unless a
surplus appears, at least for its owner, the enterprise ceases to be.
If it is small, his position is precarious ; as it increases, there appears
room for discretion, for personal judgment, for individual whim.
If one would increase output, manufacture a new product, introduce
a new technique, change the organization of labor, place his goods
in new markets, build a new plant, or engage in a gigantic advertising
venture, experts familiar with the matters in question are consulted
They are asked, however, not for decision, but for advice. Their
opinions are pertinent to, rather than sufficient for, judgment. They
have to be translated into terms of dollars and cents, and final choice
is reserved to those who know far more of the mysteries of the
pecuniary calculus than of the intricacies of the productive process.
If restraint came only from immediate prices the enterpriser might
break them down and find economic freedom for himself. But the
costs of many goods which he uses are but local manifestations of
prices of goods used in the production of a thousand products. Over
selling prices his control seems somewhat greater, but here there are
also many restraints. If he has competitors, he dare not go much
higher than they lest he be left without a market. If he has none,
the double possibility of substitutes and of potential competition
makes high prices less inviting. If his good be other than a prime
necessity, there is a chance of his market being swept away by the
preference of the consumer for the satisfaction of some want other
than that to which his product ministers. If he sells to other pro-
ducers the upper limit of price is quite a rigid one. Hemmed in thus
he may seek to escape by increasing the amount of his sales. But
price-lowering or extensive advertising, essential to this result, are
alike expensive. They can succeed only within definite limits, for
he has to compete against the allurements of other sellers. At best
only the exceptional concern can expect an extraordinary share of
the trade.
To this fitful tyranny of the price-system over the enterpriser
many conditions peculiar to the industrial system contribute. The
wide variety of the goods offered on the market presents to the
consumer an endless choice. The result is that an increasing part of
the industrial system is engaged in producing goods which satisfy
154 CURRENT ECONOMIC PROBLEMS
a capricious demand. Since establishments are built and stocked
with equipment to turn out a predetermined volume of goods at the
lowest cost per unit, costs do not decrease in proportion to diminished
sales. While it is important to keep sales uniformly large, in few
cases is this possible, for the fixed establishment is sadly at variance
with the rhythm of activity in the business system. When trade is
at a low ebb, small sales, attended by meager receipts, demand the
utmost attention to the dictates of price. When the flood time of the
cycle is on, there is no surcease, for the manager sees the double
danger lurking in rapidly rising costs and in the inevitable depression
whose seed prosperity is sowing.
An even more immediate incentive to obedience proceeds from
the corporate character of business organization. The impersonal
nature of the corporation, the theoretical separation of ownership
and management, and the extreme liquidity of securities combine
to make responsible managers particularly sensitive to immediate
price-motives. The securities are usually owned by the members of
a body more numerous than the management, living broadcast
throughout the country. Few of them have any personal knowledge
of the concern, its organization, its personnel, its technical processes,
or the living and working conditions of its laborers. The summary
of the economic, social, and moral condition of the business is usually
presented to them in the double form of the value of securities and
the rate of dividends. If, by grace of management, a generous
dividend is forthcoming, inquisitive owners are not likely to probe
far into the how and why, and those in control are assured a gen-
erous extension of power. If it fails, those who have purchased in
securities merely impersonal pecuniary incomes are not likely to
tolerate excuses about managerial concern for social good. Their
interest in charity is too personal and too precious to be delegated
to men who draw salaries for posing as business celestials. If by
some mischance a management is elected which proves incurably
altruistic, the stock market offers an easy egress to the analytically
minded who do not wish to mix uplift with investments. If, as is
more probable, particular stockholders object on moral grounds to
the policy of the management, they may transfer their ownership
to industries more to their liking. The change will soothe the
individual conscience without interfering with the practices of the
concerns involved. If managers succeed beyond their expectations,
their very success evokes the law of capitalization and leads to an
increase in the value of the investments upon which in future they
are expected to pay dividends. Thus success, instead of bringing
relief, merely renews the slavery. Because well-connected businesses
PECUNIARY BASIS OF ECONOMIC ORGANIZATION 155
pay dividends regularly, the management is constantly under the
temptation to subordinate to the amenities of the present projects
which promise much in future to themselves, to the concern, and
to the community. The constant opportunities of managers to specu-
late in the stocks of their own concerns do not diminish this temp-
tation.
The response of enterprisers to the immediate pressure of prices
involves more than the temporary well-being of the enterprises they
manage. If the ultimate interests of the managers, the business
ventures themselves, the laborers they employ, and the communities
they supply are in accord with the demands of immediate money-
making, they are likely to be served. If the lack of harmony is
inconsiderable, the more immediate may be sacrificed to the less
immediate value, provided business management and ownership are
relatively stable. If they are out of harmony, the less immediate
interests of group and community are likely to be sacrificed. No
matter how promising a change in working conditions, no matter
what the possibility of a proposed law, if it threatens serious inter-
ference with immediate gain it is damned. Impinged upon by con-
ditions which they cannot control, business men have no alternative
but to attempt to increase current dividends by similarly impinging
upon prices not strong enough to resist their impact. To each the
flood time of the cycle represents normal conditions ; each can be
depended upon to favor policies promising wider markets, further
exploitation of natural resources, and an acceleration in the rate of
industrial expansion. These are the essential demands of the group
as they have found expression in social development. It is significant
that they arise, not in the desires of business men, but in the insti-
tutions to which they must conform, that their end is not to advance
consciously appreciated group-interests but to conserve and increase
current incomes.
An extended argument seems unnecessary to show the response
of professional and laboring men to similar demands for immediate
income. If with the former it seems somewhat less whole-hearted,
it is because the lurking traditions of the craft period and the better-
formulated codes of professional ethics more rigidly confine the
motive. But the establishment of bounds rather determines the
nature than takes away the intensity of competition. Only where
incomes are fixed and personal efifort and direct pecuniary reward
are divorced do we find a profound disregard to immediate pecuniary
values. Professional men and laborers alike have a perishable com-
modity to sell and are compelled to sell it in an irregular and capri-
cious market. The skilled laborer shares with the professional man
156 CURRENT ECONOMIC PROBLEMS
the further disadvantage of having to dispose of a highly spe'cialized
product. The nature of service and the character of the market beget
a careful regard for current values. To the laborer especially income
is a regular flow ; his outgo has usually been arranged in strict con-
formity with that fact. Many times provision can be made for a
bare month ahead ; in no inconsiderable number of cases the span of
economic calculation runs from Saturday night to Saturday night.
The failure of an appearance of the pay envelope leaves him without
the means of support and may threaten his future security. The op-
portunity of his children for development, for health, even for life
itself, depend upon uninterrupted income. We may therefore ex-
pect the laborer and in lesser degree the professional man to take
much conscious thought about current income.
It is apparent, therefore, that the class which lives under the
continued and fitful sway of the price-system contains the great
mass of mankind. To realize their ideals, to carry through their
schemes, to thrive economically, even to continue to exist, they must
be responsive to the dictates of money-making. It matters not how
unselfish the individual, how unmercenary his motives, how great his
concern for literature, philosophy, or philanthropy, he must live in
a pecuniary society ; he must attain his ends by selling and purchasing
goods and services. Before he can write poetry, establish schools
to teach art, or send forth missionaries to make converts to the aboli-
tion of the price-system, he must obey its commands. His aspirations
may all be spiritual, he may rebel at the existence of the institution,
but in the end no choice is left save obedience. This is not because
he is money-mad, nor because money motivates his activities, but
because he lives in a society so organized that pecuniary income is a
definite and exact summary of his varied and complex assortment of
motives. The constraint to subordinate welfare to wealth proceeds
neither from an instinct nor a morbid desire, but from the nature of
the social organization.
C. PECUNIARY COMPETITION
67. Economic Activity as a Struggle for Existence'*
BY ARTHUR FAIRBANKS
The conditions of struggle are all but universal in society. Even
writers who regard society as an organism point out a degree of
competition between different functions and organs in the animal
organism, and profess no surprise that with the less rigid structure
ot society, this competition becomes a far more important phase of
all activity.
^ Adapted from Introduction to Sociology, pp. 239-54. Published by
Charles Scribner's Sons. 1896.
PECUNIARY BASIS OF ECONOMIC ORGANIZATION 157
It needs no second glance to satisfy one that the economic activ-
ity of society may fittingly be called a struggle. Follow some indus-
trial product from the factory up to the time when it is consumed.
The manufacturer of cotton goods chooses between competing places
for his factory; the makers of his machinery are struggling with
each other to produce most economically engines, looms, etc., that
are best adapted to his work ; raw products he buys from sellers
competing in the open market ; labor he hires from among men
who bid against each other for his work ; transportation companies
compete with one another in cheaply transferring his goods to mar-
ket; and, in the market, seller is struggling with seller for the priv-
ilege of a sale with profit ; buyer and seller bargain together to agree
on a price. The present century has seen barrier after barrier swept
away, till the whole world enters more or less freely into the one
struggle ; family and social distinctions are being obliterated in the
industrial world ; customs and laws in restraint of trade have been
set aside.
The result of this sudden expansion of the industrial struggle
is to force more clearly on thinkers the fact that civilization moves,
not away from struggle, but to new forms of struggle. And the
efforts to deal with the many difficulties which have arisen from this
sudden change make it clear that it is not by seeking to prevent
struggle, but by modifying its forms, that progress will be made.
Laborers who suflfered in an unequal struggle have won their rights
by combining and entering the struggle as a larger unit. Groups
of co-operative buyers have united to do away with the petty compe-
tition of the retail store, by elevating competition to a more reason-
able plane. Nor are the greatest monopolies of the day altogether
free from the higher forms of pressure in the economic struggle,
uncontrolled as they may seem for a time.
The change in the form of the struggle modifies the competing
units. More in evidence just now is the struggle between groups
determined by class lines than groups determined by territorial lines.
With the passing of the dominance of individualism, the struggle,
apparently, is between larger groups. The truth is that a simple
struggle is being succeeded by a complex struggle between different
kinds of units. The individual is freed from numerous restrictions
that used to hamper him, but the competition in which he engages
is limited in a new way. Not only does increasing differentiation
effectively limit the number with whom he competes, but much of the
burden of the struggle is shifted from the shoulders of the isolated
individual to the group of which he is a member. Group competes
with group, and the individual competes only with the other members
of the group. The town removes many phases of the struggle for
158 CURRENT ECONOMIC PROBLEMS
existence from each individual, the state removes many others ; but
within each poHtical unit other ends call out the energy of the in-
dividual citizen. The manufacturer, in competing with other manu-
facturing groups, removes from his workmen much of the stress of
economic struggle, but, within definite lines, the workman has only
the more bitter a battle to fight.
But no group organization has or can eliminate personal competi-
tion between the members of a group. The actual outcome of the
social process in which the fit tend to survive and multiply depends
largely upon the organization of a given society. With the removal
of rigid barriers there has developed a more or less definite appara-
tus for weeding out the unfit, and advancing those who are fit for
better things. In the contest for industrial position, the laborer who
can most economically perform a given task is the only one to whom
an employer can afford to give the task. Each industrial crisis con-
stitutes a severe test for everyone in the industrial world ; the less
fit are thrown out of their place in the industrial world, wherever
it may be. The so-called "out-of-work" class simply consists of
those whose work cannot be utilized. During periods of industrial
expansion, the man of wisdom, skill, and vigor expects advance-
ment, because new positions are being created for which these are
the only recommendation. Always, everywhere, this contest for
individual position is going on.
68. Competition and Organization^
BY CHARLES H. COOLEY
It seems to me that the fundamental point always touched upon
in questions of competition is the meaning of competition in rela-
tion to organization. What is the meaning of competition in this
regard? I take it to be simply an organizing process. The world
is full of various agents. These agents in one way or another are
continually getting displaced in the social structure, by the death of
individuals, the decay of groups and systems, etc. Some method
must be found of constantly building up the organization. If there
is any other method of doing this than competition in the broad
sense I do not know what it is. There must be some means of com-
paring and selecting the agents and adapting them to their work.
Competition is not merely a cause of organization; it is also an
effect. As everywhere else in the interdependent social system, we
find all influences interacting, each a cause of change in the other.
Organization is a cause in that it furnishes motives and standards
^Adapted from an article in the American Journal of Sociology, XIII
(1907), 655-58.
PECUNIARY BASIS OF ECONOMIC ORGANIZATION 159
and methods of competition. These things are determined by cus-
tom, by law, by pubHc opinion, by the inherited ideas of men.
Taking these points for granted, we come to the question, What
is the matter with existing competition? I should say the matter is
simply that existing competition shares in the prevailing disintegra-
tion of social structures. We are all familiar with this disintegra-
tion. It is chiefly, though not entirely, economic in its origin. The
result is that the standards, the methods of competition, today, are
very far from being what the most enlightened human nature would
desire to have them. They are what is sometimes called "individual-
istic" in the bad sense of the word.
Perhaps I can best indicate this by taking an example. Let us
suppose that there is a ship sailing on the seas, properly manned
with officers and crew. Here is an organization. It may not be
apparent at first that competition is going on in this little society ;
but it is. If a mate does well, he may very likely get appointed cap-
tain on the next cruise, or his wages may be raised. Or again the
ship may be competing with another ship across the ocean and vari-
ous advantages may accrue if it succeeds. Here is a well-ordered com-
petition in which merit succeeds. That is to say, the test of success is
something for the good of society, namely, the welfare of the ship
and of commerce. But suppose that the ship quite unexpectedly in
the dark runs upon an iceberg. The captain and the crew are
thrown into the water. The society immediately and entirely dis-
appears. The individuals are all struggling in the water, and a new
kind of competition takes place. From the good of the ship and
society, it falls back on the animal instinct for self-preservation.
Man becomes a mere brute under these circumstances. The customs
and modes of thought that keep society on a proper level are de-
stroyed.
Something analogous to this is widely prevalent in present society.
To pass on to the question as to how competition may become
better : It is by building up the social organization through competi-
tion itself and raising the level of that competition by the ordinary
methods of human endeavor.
69. The Ethics of Competition
a) The Beneficence of Competition''
BY CHARLES KINGSLEY
Sweet competition ! Heavenly maid ! — Now-a-days hymned alike
by penny-a-liners and philosophers as the ground of all society —
'■ From "Cheap Clothes and Nasty," in Alton Lake (1850), pp. Ixviii-lxix.
i6o CURRENT ECONOMIC PROBLEMS
the only real preserver of the earth! Why not of Heaven, too?
Perhaps there is competition among the angels, and Gabriel and
Raphael have won their ranks by doing the maximum of worship
on the minimum of grace? We shall know some day. In the mean-
time, "these are thy works, thou parent of all good !" Man eating
man, eaten by man, in every variety of degree and method! Why
does not some enthusiastic political economist write an epic on "The
Consecration of Cannibalism" ?
h) The Selfishness of Competition^
BY S. J. CHAPMAN
I must reiterate, in order that there may be no mistake, that
modern analytical economics neither assumes nor advocates selfish-
ness. But without relegating sentiment to Saturn, we may hold
that the affections do not directly enter into most business transac-
tions. "Oh 'tis love, 'tis love, that makes the world go round,"
asserted the duchess in Alice in Wonderland. "Somebody whis-
pered," said Alice, "that it's done by everybody minding his own
business." However, among the impulses which are the motive
power of business activities, the affections may play a large part
indirectly. A man may work his best to make as much as possible
in the interests of his family or friends, or even for philanthropic
purposes. Finally it must not be imagined that, in the absence of
altruistic motives, a man who works his hardest for success must
be sordid. The passion of great business leaders is commonly quite
other than that of the miser. Because money provides the counters
which measure commercial triumphs, we are apt to go astray in
our analysis. They who play cards for cowries are not mastered
by a passion for cowries.
cJThe Utility of Competition^
To sell an equity in a business which does not satisfy one's morals
seems a relic of antiquated individualisiji, yet any one of us would
do it. We object to renting property for saloon purposes, to owning
stock in patent-medicine concerns, to enjoying dividends made pos-
sible by child labor, overwork of employes, or forcing the incidence
of industrial risk upon them. Regarding the issue as one of personal
morality, we wash our hands by selling our holdings to others whose
8 From Outlines of Political Economy, pp. 17-18. Copyright by Longmans,
Green & Co., 191 1.
" From "The Price-System and Social Policy," Journal of Political
Economy, XXVI, 48, note (,1018).
PECUNIARY BASIS OF ECONOMIC ORGANIZATION i6i
particular scruples do not apply to the objectionable practices. Yet
such sales merely salve individual conscience ; they contribute nothing
to an elimination of the objectionable practices. In fact the invest-
ment market has been organized in such a way as to permit an easy
gravitation of equities in property toward those whose consciences
are best fitted for their ownership. One endowed with a gift of narra-
tive might write a satirical story about a group of very virtuous in-
dividuals, each of whom happened to be left with a minority interest
in a concern that engaged in practices which he disapproved. Each
would set about ridding himself of his investment. Such a redistribu-
tion of equities would be effected that each would come into pos-
session of a property whose uses met his scruples. Thus the con-
sciences of all would be freed from their burdens and the objection-
able practices would be left intact.
»
70. The Plane of Competition'"
BY HENRY C. ADAMS
What is meant by saying that unguarded competition tends to
lower the moral sense of a business community? Wherever the
personal element of a service comes prominently into view, and the
character of the agent rather than the quality of goods is forced
into prominence, probity has its market value and honesty may be
the best policy. But in the commercial world as at present organ-
ized, where the producer and the consumer seldom come into per-
sonal contact, the moral arrangements followed in the process of
production are not permitted a moment's thought. All that is con-
sidered by the purchaser is the quality and the price of the goods.
Those that are cheap he will buy, those that are dear he will reject ;
and in this manner he encourages those methods of production that
lead to cheapness.
There are of course exceptions to this rule. But these exceptions
do not vitiate it. There must be substantial uniformity in the methods
of all producers who continue in competition with each other. Each
man in the business must adopt those rules of management which
lead to low prices, or he will be compelled to quit the business. And
if this cheapness, the essential requisite of business success, be the
result of harsh and inhuman measures, or if it lead to misrepresenta-
tion and dishonesty on the part of salesmen or manufacturers, the
inevitable result must be that harshness and inhumanity will become
the essential condition of success, and business men will be obliged
to live a dual existence.
1° Adapted from The Relation ^f the State to Industrial Activity (1887),
PP- 39-47-
i62 CURRENT ECONOMIC PROBLEMS
The fact upon which we insist at this point is that an isolated
man is powerless to stem the tide of prevalent custom, and that in
many lines of business those men whose moral sensibilities are the
most blunted exercise an influence in determining prevalent cus-
tom altogether out of proportion to their importance as industrial
agents. Suppose that of ten manufacturers nine have a keen appre-
ciation of the evils that flow from protracted labor on the part of
women and children ; and, were it in their power, would gladly pro-
duce cottons without destroying family life, and without setting in
motion those forces that must ultimately result in race-deterioration.
But the tenth man has no such apprehensions. The claims of family
life, the rights of childhood, and the maintenance of social well-be-
ing, are but words to him. He measures success wholly by the rate
of profit. If now the state stand as an unconcerned spectator, the
nine men will be forced to conform to the methods adopted by the
one. Their goods come into competition with his goods, and we
who purchase do not inquire under what conditions they were man-
ufactured. In this manner it is that men of the lowest character
have it in their power to give the moral tone to the entire business
community. One of the most common complaints of business men
is that they are obliged to conform to rules of conduct which they
despise. It is a necessary result of a competitive society that the
plane of business morals is lower than the moral character of a great
majority of men who compose it.
But what, it may be asked, can the state do in the premises?
The state has done much and can do more. That code of enact-
ments known as "factory legislation" is addressed to just this evil
of competitive society, and it only remains for us to formulate for
this code an economic defense. The general rule laid down for the
guidance of state interference in industries was that society should
be secured in the benefits while secured against the evils of competi-
tive action. When the large body of competitors agree respecting
some given method of procedure, but are powerless to follow it
because a few men engaged in the same line of business refuse to
conform to the proposed regulations, it becomes the province of the
state to incorporate the wish of the majority in some practical law.
In this manner there is established a legal plane of competition
higher than that which could be maintained in the absence of legal
enactment. This is no curtailment of competitive action, but a de-
termination of the manner in which it shall take place. If the law
says that no child shall be employed in factories, the plane of com-
petition is raised to the grade of adult labor. If married women
are refused employment, the nature of competition is again changed,
PECUNIARY BASIS OF ECONOMIC ORGANIZATION 163
but competition is not restricted. As the result of such legislation
some of the evils of the present system would disappear, while all
the benefits of individual action would yet be conserved to society.
This, then, is one defense of interference on the part of the state.
It lies within its proper functions to determine the character of
such competitive action as shall take place. There must be con-
formity of action between competitors, and the only question is
whether the best or the worst men shall set the fashion. One can-
not be neutral with regard to this question. No vote at all is a
negative vote ; and a vote in the negative is as positive in its results
as one in the affirmative. Should the state insist on following the
rule of non-interference, society cannot hope to adjust its productive
processes to the best possible form of organization.
We have all of us, doubtless, heard the claim that the state is a
moral agency ; that it is imposed with moral duties. For a number
of years after this phrase came to my notice, it presented to my
mind no distinct meaning. It seemed to me to cover the philan-
thropic purpose of shallow intellects, and to be most frequently
used by men who knew not the way of guile nor anything else for
certain. But properly understood this phrase contains a deep truth
of social philosophy. It does not mean that the law is a schoolmaster
coercing men to be good, nor that it is the depository of a social
ideal to be admired ; but, on the contrary, it means that the law is an
agency for the realization of the higher ideals of men by guarding
them from that competition which would otherwise force them to a
lower plane of action, or else force them out of business. In per-
forming such a duty the state performs a moral function, for it reg-
ulates competition to the demands of the social conscience. Under
the individual may be made to coincide, in some degree, with the
fundamental interests of society, and thus, by disregarding the dogma
the guiding influence of such a thought the immediate interests of
of laissez faire, the fundamental purpose of those formulating the
doctrine is in part realized.
D. PRICE-FIXING BY AUTHORITY
71. The Statute of Laborers^!
Edward to the Reverend Father in Christ, William, Archbishop
of Canterbury, Primate of all England, greeting. Because a great
part of the people, and especially of workmen and servants, have
lately died in the pestilence, many seeing the necessities of masters
^1 Adapted from Statutes of the Realm (about 1349), pp. 307-8.
1 64 CURRENT ECONOMIC PROBLEMS
and great scarcity of servants, will not serve unless they may re-
ceive excessive wages, and others prefering to beg in idleness rather
than by labor to get their living; we, considering the grievous in-
commodities which of the lack especially of ploughmen and such
laborers may hereafter come, have upon deliberation with the pre-
lates and the nobles and learned men assisting us, with their unani-
mous counsel ordained :
That every man and woman of our realm of England, of what
condition he be, free or bond, able in body, and within the age of
sixty years, not living in merchandising, nor exercising any craft,
nor having his own whereof he may live, nor land of his own
about whose tillage he may occupy himself, and not serving any
other; if he be required to serve in suitable service, his estate con-
sidered, he shall be required to serve him which shall so require him ;
and take only the wages, livery, meed, or salary which were accus-
tomed to be given in the places where he oweth to serve, the twen-
tieth year of our reign of England. Provided always that the lords
be preferred before others so in their service to be retained ; so that,
nevertheless the said lords shall retain no more than necessary for
them. And if any man or woman being so required to serve will not
do the same, and that be proved, he shall immediately be taken to
the next goal, there to remain under straight keeping, till he find
surety to serve.
If any reaper, mower, other workman or servant, retained in
any man's service, do depart from the said service without reason-
able cause or license, before the term agreed, he shall have pain of
imprisonment; and no one, under the same penalty, shall presume
to receive or retain such a one.
No one, moreover, shall pay or promise to pay to anyone more
wages than was accustomed ; nor shall anyone in any other manner
demand or receive them, upon pain of doubling of that which shall
have been so paid to him who thereof shall feel himself aggrieved;
and if none such shall sue, then the same shall be applied to any
one of the people that will sue. And if lords presume in any point
to come against this present ordinance, then suit shall be made
against them. And if any one before this present ordinance has
covenanted with any so to serve for more wages, he shall not be
bound to pay more than was wont ; nor, under the same penalty, shall
he presume to pay more.
Also, saddlers, skinners, white tawyers, cordwainers, tailors,
smiths, carpenters, masons, tilers, shipwrights, carters, and all other
artificers and workmen, shall not take for their labor and workman-
PECUNIARY BASIS OF ECONOMIC ORGANIZATION 165
ship above the same that was wont to be paid to such persons the
said twentieth year.
Also, that butchers, fishmongers, innkeepers, brewers, bakerS,
poulterers, and all other sellers of all manner of victuals be bound to
sell the same victuals for a reasonable price, having respect to the
price that such victuals are sold at in the places adjoining, so that
the said sellers shall have moderate gains ; and if any sell the said
victuals in any other manner, and thereof be convicted, he shall pay
the double of the same that he so received to the party injured.
And because that many strong beggars, as long as they may live
by begging, do refuse to labor, giving themselves to idleness and
vice, and sometimes to theft and other abominations ; none upon the
said plan of imprisonment shall, under the color of pity or alms, give
anything to such, so that thereby they may be compelled to labor for
their necessary living.
72. The Futility of Price-Fixing^^
BY JOHN WITHERSPOON
If you make a law that I shall be obliged to sell my grain, my
cattle, or any commodity, at a certain price, you not only do what
is unjust and impolitic, but with all respect be it said, you speak non-
sense ; for I do not sell them at all : you take them from me. You
are both buyer and seller and I am the sufferer only.
I cannot help observing that laws of this kind have an inherent
weakness in themselves ; they are not only unjust and unwise, but for
the most part impracticable. They are an attempt to apply authority
to that which is not its proper object, and to extend it beyond its
natural bounds ; in both which we shall be sure to fail. The produc-
tion of commodities must be the effect of industry, inclination, hope,
and interest. .The first of these is very imperfectly reached by au-
thority, and the other three cannot be reached by it at all. Accord-
ingly we found in this country, and every other society which ever
tried such measures found, that they produced an efifect directly
contrary to what was expected from them. Instead of producing
moderation and plenty, they uniformly produced dearness and
scarcity. It is worth while to observe that some of our legislatures
saw so far into the matter as to perceive that they could not regulate
the price of commodities, without regulating the price of the industry
that produced them. Therefore they regulated the price of day
laborers. This, however, though but one species of industry, was
found to be wholly out of their power.
12 Adapted from "An Essay on Money," in The Works of the Rev. John
Witherspoon (2d ed. ; 1802) , IV, 224-26.
1 66 CURRENT ECONOMIC PROBLEMS
There are some instances mentioned at the time when these
measures went into vogue, which superficial reasoners supposed to
be examples of regulating laws attended with good effects. These
were the regulation of the prices of chairs, hackney-coaches, and
ticket-porters in cities, public ferries, and some others. But this was
quite mistaking the nature of the thing. These instances have not
the least connection with laws regulating prices in voluntary com-
merce. In all these cases the persons who are employed solicit the
privilege, obtain a license, and come under voluntary engagements
to ask no higher price ; so that there is as complete a free contract as
in buying and selling in open shops. I am so fully convinced of the
truth and justice of the above principles that I think, were it proper
at this time, I could show that even in the most enlightened nations
of Europe there are still some laws subsisting which work in direct
opposition to the intention of the makers. Of this kind in general
are the laws against forestalling and regrating. They are now in-
deed most of them asleep ; but so far as they are executed, they have
the most powerful tendency to prevent, instead of promoting full
and reasonable markets. As an example of our own skill in this
branch a law was passed in Pennsylvania in time of the war pre-
cisely upon this principle. It ordained that in all imported articles
there should be but one step between the importer and consumer, and
that therefore none of those who bought from the ship should be
allowed to sell again. The makers of it considered that every hand
through which a commodity passed must have a profit upon it, which
would therefore greatly augment the cost to the consumer at last.
But could anything in the world be more absurd? How could a
family at one hundred miles distance from the seaboard be supplied
with what they wanted? In opposition to this principle it may be
safely affirmed that the more merchants the cheaper goods, and that
no carriage is so cheap, nor any distribution so equal or so plentiful
as that which is made by those who have an interest in it and expect
a profit from it.
73. The Problem of Controlling Prices^^
BY J. MAURICE CLARK
The subject of price levels and their movements is a particularly
fruitful field for economic fallacies, because it is so easy to think of
the problem in terms of prices alone, whereas the fundamental facts
are the volume of production of commodities and the sharing of
^3 Adapted from "Prices and Price Control," in Clark, Hamilton, and
Moulton, Readings in the Economics of War, pp. 439-41. Copyright by the
University of Chicago, 1918.
PECUNIARY BASIS OF ECONOMIC ORGANIZATION 167
these commodities among the people. Prices are only an instrument
in bringing this about. A shortage of production cannot be turned
into prosperity for producers in general by freedom to raise prices,
and, on the other hand, the consumer cannot be saved the eflfects
of a shortage by keeping prices down. A revolution in prices does
mean increasing the cost of the war. It also makes necessary a
general raising of wages, and this means friction, strikes, and stop-
page of work.
It is becoming the fashion to say that in controlling prices the
government is "repealing the law of demand and supply" — this state-
ment being most often made by persons who would have some trouble
in stating accurately just what the law is. It is true that prices are
fixed at different levels from those which would have resulted in leav-
ing supply and demand uncontrolled by anything save the prices that
free bargaining would fix, but it is not true that prices can be fixed
without any reference to the necessity of making demand and supply
equal. If prices are to be kept down, it can only be by furnishing
some other method than that furnished by high prices for stimulating
supply and for appropriating the shortage. The attempts of govern-
ments to influence prices act within limits, and these limits are set
by their 'ability to stimulate production and cut down consumption in
other ways than by raising prices. In time of war patriotism has
great power for both purposes. The Food Administration has en-
listed both producers and consumers as members. However, the con-
trol of the consumer can be made more drastic and certain by work-
ing through the producer, and our typical policy seems to be to put
the producer on rations, so to speak, and let him satisfy his customers
as best he may. If his prices are kept down, he will have to face an
excess of demand over supply, and he must handle it as best he can.
There are almost as many kinds of price-fixing as there are com-
modities. The mere letting of government contracts controls prices,
and the concentrated buying for our Allies controls them more power-
fully. There is control by agreement, as in the case of metal, con-
trol by legislation, as in the case of wheat, control by executive order,
as in the case of coal, control by arbitration, as in the case of milk,
and there is control of prices through control of profits, as in the case
of meat-packers, flour-millers, and dealers in general. There are
guaranteed minimum prices to stimulate production, and maximum
prices to protect consumers. Control of profits takes as its standard
a margin of so much per barrel for flour, a percentage return on capi-
tal or on sales for meat-packers, or the pre-war level for dealers in
many essential commodities. Each of these policies is diflferent from
the others in its possible eflFects. If one price is fixed, it must be high
1 68 CURRENT ECONOMIC PROBLEMS
enough to pay the marginal producer, and thus yield high prices to
those who have advantage of one sort or another. But in the case of
coal the favored producers are forced to share their gains with the
consumer, even though this means selling better coal at a lower price
in the same market. Similarly, dealers in foodstuffs who had bought
at low prices have been forced to sell cheaper than their competitors
who had bought the same commodity at a different time and at a
higher price. This policy is possible because the demand is strong
enough to take the whole supply at the higher prices — so that the
consumers who get lower prices are favored, as they would not be in
an open market, by being presented with a share of "producer's sur-
plus."
Many knotty questions are raised. What is a farmer's investment
in his land, and what is a fair return on it? If the land is taken at
the present market value, should the farmer get 5 per cent on that
value, if the farming class has for years bought land at prices as high
as thirty times the worth of the net income from it? This seems
obviously fair to many people, but it would lead to an endless spiral
of rising prices. If a piece of land yields $1,000 and is worth $30,000,
its owner could demand an increase in prices that would net him
$1,500. After he has got this increase his land would sell for $45,000,
or for a price that would net him $2,250, after which the price
of his land would rise again, and so on. Other problems arise in
calculating investment and profits and in standardizing products. The
rules on these matters which the war has given are but faint fore-
shadowings of what would be necessary if price control were to be
general and permanent. In taking the producer's books as they stand
there is injustice, because accounting practice differs from one pro-
ducer to another, and a uniform accounting system must be prescribed
if this sort of unfairness is to be prevented.
In general the control of prices in war differs radically from the
price control of peace times, particularly in America, and methods
have been used which would seem like intolerable rough-and-ready
makeshifts to one trained in the circumspect procedure of the courts
and commissions. For one thing war-time control of temporary com-
petitive gains due to shortage does not attempt to cut margins of
profit nearly so fine as peace-time control of the more permanent and
relatively safe gains due to a natural monopoly. The willingness of
producers to co-operate has possibly enabled the government to get
results by methods that could not be used permanently. But on the
other hand it is also possible that something of the freedom and "get-
there" quality of war-time regulation may remain to color the policies
of the future. The ultimate outcome will doubtless be determined,
PECUNIARY BASIS OF ECONOMIC ORGANIZATION 169
as the war policy has been, by experimenting and by meeting the prob-
lems of the future as they arise.
E. THE FUNCTION OF THE MIDDLEMEN
74. A Condemnation of Forestallers^*
Especially be it commanded on the part of our lord the king, that
no forestaller be suffered to dwell in any town — a man who is openly
an oppressor of the poor, and the public enemy of the whole com-
munity and country ; a man who, seeking his own evil gain, oppressing
the poor and deceiving the rich, goes to meet corn, fish, herrings, or
other articles for sale as they are being brought by land or water, car-
ries them off, and contrives that they should be sold at a dearer rate.
He deceives merchant strangers bringing merchandise by offering to
sell their wares for them, and telling them that they might be dearer
sold than the merchants expected ; and so by craft and subtlety he
deceives his town and his country. He that is convict thereof, the
first time shall be amerced and lose the things so bought, and that
according to the custom and ordinance of the town ; he that is convict
the second time shall have judgment of the pillory ; at the third time
he shall be imprisoned and make fine ; the fourth time he shall abjure
the town. And this judgment shall be given upon all manner of fore-
stallers, and likewise upon those that have given them counsel, help,
or favor.
75. If Forestallers Had Their Deserts'"'
BY GEORGE WASHINGTON
It gives me great pleasure to find that there is likely to be a
coalition of the Whigs in your State, and that the Assembly of it
are so well disposed to second your endeavors in bringing those mur-
derers of our cause, the monopolizers, forestallers, and engrossers, to
condign punishment. It is much to be lamented that each State long
ere this has not hunted them down as the pests of society, and the
greatest enemies we have to the happiness of America. I would to
God, that one of the most atrocious in each State was hung in gibbets
upon a gallows five times as high as the one prepared by Haman. No
punishment, in my opinion, is too great for the mar; who can build his
greatness upon the country's ruin.
i^Adapted from Statutes of the Realm (about 1269), I, 202.
15 From a letter to Joseph Reed, dated December 12, 1778, in The Writings
of George Washington, VII, 282. Edited by Worthington Chauncey Ford.
170 CURRENT ECONOMIC PROBLEMS
76. The Function of the Middleman^'
BY HARTLEY WITHERS
Anything that has been grown or made usually has to go a long
way and pass through many hands before it comes into the possession
of the man who finally eats it or wears it or otherwise consumes it.
Every pair of hands through which it passes takes toll of it, that is
to say, adds something to the price that the final consumer pays, or
takes something off the profit that goes to the shareholders in the
producing company, or off the wages that can be paid to the workers
who made it.
Most of these intermediaries are necessary. It is easy to talk of
doing away with the middleman, but when he is done away with he
usually comes to life again in another form or under another name.
The most clearly necessary intermediary is the transporter. There
is also at least one merchant, a broker or two, and the shopkeeper
who finally makes the retail sale to the consumer. Furthermore,
there is another chain of people who are just as essential as the
transporters — namely, the bankers, financiers, and bill-brokers, who
find the credit and provide the currency to finance the movement of
the stuff from place to place, and see to the consequent transfers of
cash or credit.
Now we begin to see the reason for the difference, so startling at
first sight, between, for example, the coal that is sold at the pit-
mouth for los. to I2S. a ton, and costs us in London anything up to
30.y. It occurs at once to all amateur economists that it would be an
enormous saving if we could do away with all these middlemen and
divide their gains between the producer, his workers, and the con-
sumer. Why should not the consumer buy his coal at the pit-mouth ?
So he could if he were there to arrange for its carriage, and, further,
if he were prepared to buy a good round mouth-filling amount, not
homeopathic doses of a ton or two at a time. Also he would only
buy on the alluring cheap terms one sees quoted in the papers if
he contracted to take large quantities at regularly recurring intervals,
so that the colliery company could be sure of disposing of its output.
Further, he would have to pay for the carriage of the coal, and by
the time he had done so he would find that there was a very big hole
in the saving he thought he was going to effect by dealing direct with
the producer.
As the ordinary cohsumer could not possibly buy on the scale
required unless he had a large amount of capital to sink in coal and
i^Adapted from Poverty and Waste, pp. 115-18. Published by E. P. Button
& Co., 1914.
PECUNIARY BASIS OF ECONOMIC ORGANIZATION 171
a large area of space in which to store it, and as he would also have
to run the risk of its deterioration before he could use it, he would at
once have brought home to him three services which are performed
for him by middlemen, and would have to be performed by him or
somebody, as soon as he did away with the middleman. These ser-
vices are: (i) wholesale purchase and retail selling — the fact that
the merchant is prepared to take away the coal in big blocks and store
it and sell it piecemeal to suit our convenience; (2) the provision of
capital to bridge the gap in time between purchase and sale; (3) the
taking of the risks of deterioration in quality if the coal is not sold
fast enough, and of a spell of warm weather which may knock a
shilling or two off the price before it is sold.
These services would have to be paid for even if we reorganized
society on a socialistic basis.
77. Middlemen in the Produce Trade"
BY EDWIN G. NOURSE
It is quite the fashion to impute to "middlemen" sole responsi-
bility for the increases in prices which have recently occurred, and
which together constitute what is usually referred to as ""the high
cost of living." In the words of the Massachusetts Commission on
the Cost of Living : "A long line of commission men, produce mer-
chants, jobbers, hucksters, retailers, and what-nots, simply passing
goods from hand to hand like a bucket brigade at a fire, is not only
inefficient and wasteful, but very costly. In these days a hydrant and
a line of hose are wanted."
This is undoubtedly a vivid statement of the case, but like most
figures of speech, leaves something to be desired in the way of ac-
curate analysis. It is certainly not more than a half-truth to speak
of middlemen as "simply passing goods from hand to hand." The
middleman performs four distinct functions, whose value to both
producers and consumers should not be overlooked.
In the first place, the middleman provides a market. He organ-
izes the demand for all the various sorts of produce and brings it
into effective touch with the producer, who is commonly in no posi-
tion to find it for himself. The latter's farm or orchard is located
with reference to advantages for production, and therefore far away
from the markets in which he must sell his product. His abilities
are too specialized in the direction of agricultural proficiency to give
him the necessary commercial expertness. The time of harvesting the
little time to devote to the intricate details of marketing his product.
" lOiS.
172 CURRENT ECONOMIC PROBLEMS
crop is generally the busiest season of the year, leaving the grower
Finally, there are comparatively few producers who have a sufficient
volume of goods to enable them to ship in carload units, and yet they
must move in such quantities, if they are to get to market at all.
A kindred function is that of "equalization." Supplies, on the
one hand, are more or less unreliable, fluctuating in quantity and
quality according to the caprice of weather, pests, floods, and human
nature ; and demand, on the other hand, is no less arbitrary, spas-
modic, and wayward. But if some central agency gathers these sup-
plies together, classifies them into lots of appropriate size, and directs
them into channels where demand is at the moment most keen, all
parties are benefited. A large part of consumers' wants cannot be
put in the form of definite orders some time ahead and only a small
portion of supplies can be definitely promised in advance. Accord-
ingly a clearing-house is needed, where current supplies can be offset
against the day's demand.
This consideration looks over into the second division, namely,
the middleman's service to the consumer. To only a small extent
is the modern consumer able to connect himself directly with sources
of supply. He possesses neither the facilities nor the knowledge.
His elaborate market basket is filled from all over the world, from
places he wots not of, and yet is replenished daily from stocks which
have been brought within his daily reach. Commercial agencies of
supply are scouring the world for better goods and constantly seek-
ing better means of bringing them to the place of use and keeping
them in the best condition until the time of use.
Alongside of these commercial activities of the produce dealer is
a third class of service which may be called "technical" — the actual
handling of the goods, storage, repacking and regrading, culling,
sorting, and fitting to meet needs or whims of the buying public. It
is the oft-repeated comment of the dealers that most people buy, not
according to reason, but according to their prejudices ; not to get
nourishment, or flavor, or real excellence, but to please the eye. The
extra labor and material thus necessarily piles up extra costs.
Storage is partly a technical service, but it is charged for on a
time basis and so comes also under the head of financing services.
This fourth class of the middleman's services is of great importance
and yet is entirely overlooked by those who regard him as engaged
in merely passing goods from hand to hand. When the householder
buys his apples or potatoes only as he needs them, and pays for them
only at the end of the month, after they have been consumed, he
should not forget that someone has financed that portion of his
living expenses. But the dealer goes farther back and finances the
PECUNIARY BASIS OF ECONOMIC ORGANIZATION 173
transportation and perhaps the growing of the crop. This service
doubly benefits the producer, because without it producers would be
crippled, supplies curtailed, and prices advanced. This is not to say
that producers may not in time arrange to finance their own opera-
tions, but so long as the middleman is called upon to do it, he is
undoubtedly performing a service, which should not be overlooked
when we are balancing his account with the public.
F. SPECULATION
78. The Gamble of Life^«
BY JOHN W. GATES
Life if a gamble. Everything is a gamble. When the farmer
plants hio corn he is gambling. He bets that the weather conditions
will enable him to raise a good crop. Sometimes he loses, sometimes
he wins. Every man who goes into business gambles. Of course the
element of judgment enters in, but the element of chance cannot be
ruled out. Whenever a man starts on a railroad journey, it's a
gamble whether he ever reaches his destination. All life is a gamble,
you see.
79. The Twilight Zone^»
BY HARRY J. HOWLAND
The Stock exchange provides facilities which are used for three
kinds of transactions — investment, speculation, and gambling. If
the transactions on the floor belonged wholly to the first class, the
exchange would be unqualifiedly good. If they belonged wholly to
the last class, it would be unqualifiedly bad. It is the middle term of
this trio which falls on debatable ground. Investment needs no de-
fense ; no defense will save gambling from condemnation. But specu-
lation is in a very different case from either. Speculation is a dog
with a bad name. It is possible to gibbet it along with gambling and
loose living.
But is the verdict just? Is speculation an unsocial practice? Is
the speculator, like the gambler, an enemy of society, a drone in the
hive, contributing nothing to the general welfare? It is a convincing
answer to this question that we seek.
The three processes which go on upon the floor of the stock
exchange — investment, speculation, and gambling — are often inex-
tricably m.ixed. It is often practically impossible to assign any par-
ticular operation without question to one of these three classes.
" Quoted in Current Literature, LXI (1910?), 266.
lOAdapted from "Speculation and Gambling," in the Independent, LXXVI,
15-17. Copyright, 1913.
174 CURRENT ECONOMIC PROBLEMS
Investment, for instance, is sometimes semi-speculative in char-
acter. Here is a man who has saved a thousand dollars and wishes
to lay it aside against a future need. There are many ways in v/hich
he may invest it on the stock exchange. He may buy government
bonds with it. But in this case there is no chance that his principal
will be increased to any degree when he comes to sell his bonds.
This is pure investment.
Or he may purchase a stock which, while it pays a good rate of
dividend with regularity, is subject to fluctuations in price. Here he
has a paying investment with the possibility of an increase in prin-
cipal when he sells out. The stock may turn out, not only a good
investment, but a good speculation.
Or he may buy a stock which at present is paying no dividend at
all, but which is selling at an extraordinarily low price. The value
of the stock is all potential. The element of investment is totally
absent from such a purchase. So investment and speculation are
inextricably mixed in all kinds of operations on the stock exchange.
In some, investment predominates; in some, speculation. In many
the mixture is of nearly equal parts.
Again, the line between speculation and gambling on the stock
exchange is hazy and indistinct. There the twilight zone is broad
and clouded. This is not because any of the operations on the ex-
change are in form or in essence gambling operations, as betting on
a horse race or playing poker. The truth is that stock exchange specu-
lation is not gambling, but it leads to many of the same evils to which
gambling leads. This statement opens up highly debatable ground,
Probably the most common view is that stock speculation might more
properly be called stock gambling, that speculating on the price
fluctuations of stocks is no different from gambling on the fall of
cards or the gyrations of the roulette ball. But there are two essential
differences, while at the same time there is one essential likeness.
Speculation differs from gambling in process. In a gambling
transaction if one party wins, the other party must lose. In specula-
tive transactions it is no more necessary for one party to lose if the
other party wins than it is in speculative purchase of land or potatoes
or eggs. The transactions of the stock exchange are sales and pur-
chases, bona fide, actual, complete. In each transaction each party
to it gives what he wants less for what he wants more. The judgment
of either or both may be bad. But it is no less a real bargain, in
which each side gets value received for what he gives. Gambling, on
the contrary, does not involve an exchange of values. It is a con-
tribution of values to a central fund, the ultimate ownership of the
fund to be determined by chance. True, in gambling each contributor
PECUNIARY BASIS OF ECONOMIC ORGANIZATION 175
receives a chance of receiving all the contributions ; but he also runs
a risk of losing his whole contribution. Thus the speculator receives
a value in return for his stake, while the gambler does not. For the
former it may not be the value that he thinks he is getting, and the
value actually received may decline. But that is true of everybody
who buys a commodity with a view to its increase in value, from
raspberries to skyscrapers. The fact that a man's judgment as to
future values may prove unsound does not throw him into the class
of gamblers.
Nor does the fact that speculation on the stock exchange is largely
carried on through tradings on margins and short-selling make it
gambling. Both processes are common under other names through-
out the commercial world. Trading on margin is buying stock, and
making only a small cash payment at the time of purchase. It diflfers
in no essential particular from buying furniture on the instalment
plan, from buying land on mortgage, and from buying books by sub-
scription. It merely involves the use of personal credit backed by
security.
Short-selling is selling securities which one does not possess at
the moment in the expectation and belief that they will go down in
price. This action is no more gambling than that of an automobile
manufacturer in contracting to sell an automobile before he has in
his possession any of the materials out of which it is to be made is
gambling.
Speculation and gambling, again, differ widely in the service
which they render to the community. Gambling renders none. The
gambler is a drone in an economic hive, a parasite in the industrial
organism. Speculation renders a real, a valuable, and indeed an
indispensable service. Th*e stock exchange brings the investor and
the enterprise together. It directs capital into channels of invest-
ment which the owners of the capital would never have been able
to find for themselves. The speculator performs an important func-
tion for the investor by forecasting the future. Speculation is the
struggle of intelligence, armed with a knowledge of the ascertainable
conditions, against the blind workings of chance.
The essential likeness between gambling and speculation lies in
the fact that both are attractive to those who have no business to
indulge in them. Men will gamble who cannot afford to gamble, who
have no skill at the game they seek to play. So, too, men will enter
into speculation lacking adequate resources, adequate knowledge, and
adequate judgment. For just as gambling is attractive because it holds
out glittering hopes of making money without labor, so speculation
176 CURRENT ECONOMIC PROBLEMS
is attractive because the prizes for the successful are out of all pro-
portion to the effort expended or to the stake put up.
The main evil which accompanies speculation lies in this par-
ticipation in it of the unfit. It is not speculation in itself that is an
evil, but the improper and unwise use of the speculative faculties by
the ignorant and the unskilled, the insufficiently provided, the weak
in judgment.
20
80. The Ethics of Speculation
What is speculation? How does it differ from legitimate busi-
ness ? A miller knows in the fall that next summer he will need a
million bushels of wheat. He studies the wheat conditions through-
out the world, forms the best judgment he can as to the probable
supply and demand, and the prospective market price, then sends
out an agent to contract with the farmers to give him next summer
the wheat he will need at the price he is willing to pay. This is a
legitimate business transaction, advantageous to both miller and
farmer. The fact that the miller may miscalculate, and as a result
make an unexpected profit or suffer an unexpected loss does not make
the transaction a speculation.
A broker, who has no mill and has no use for any wheat, makes a
similar calculation ; he sends out his agent, buys in the fall of the
farmers at an agreed price to be paid on delivery the next summer,
expecting to sell the wheat in turn to the millers. This may be a
legitimate business transaction. It is advantageous to farmer and
miller. And in modern complicated business the service of the broker
is often indispensable.
A speculator makes a somewhat similar investigation of probable
demand and supply. He knows what the average crop for the last
five years has been. He knows that there is an increasing demand
for wheat as a food product all over the world. He gets together
some cash and more credit, and plans to buy up the whole wheat
supply in the United States ; if necessary, the whole wheat supply of
America. If he can succeed in doing this, he will have a monopoly,
and can indefinitely increase the price. This is not quite so impos-
sible as it may seem at first sight. He does not have to buy all the
wheat; if he owns most of it, he can trust the owners of the rest not
greatly to undersell him, and thus can largely determine the market
price. He does not have to maintain the highest price for any great
length of time; he has only to keep up his price until the date at
which he has agreed to sell, and can often sell part before that time
20Adapted from an editorial in the Outlook, XCII, 14-16. Copyright, 1909.
PECUNIARY BASIS OF ECONOMIC ORGANIZATION 177
at a price sufficient to guard himself against loss. He does not have
to pay cash for his wheat. He has only to contract to pay at a future
day, and meantime, to raise money enough, called a margin, to save
from loss the man of whom he is buying it, in case the price declines
below the amount which he has agreed to pay for it.
But the speculator is not alone. Others are associated with him
in his endeavor to obtain control cf the wheat in the United States.
There are also speculators who believe that this attempt will fail ;
and who are leagued together to make it fail. The former, in the
jargon of the market, are called bulls ; the latter are called bears.
The bears agree to sell wheat on the first of T^Iay at a fixed price;
the bulls agree to buy the wheat at that price. The bulls attempt to
make the market price on the first of May as high as possible ; the
bears attempt to make it as low as possible. But the bears have no
wheat to sell and do not expect to have any ; and the bulls do not
want any wheat and do not expect to buy any.
What actually happens is this : Mr. Bear agrees to sell, and Mr.
Bull agres to buy, a thousand bushels of wheat on the first of May
at one dollar per bushel. But on the first of May the market price
of wheat is $1.10 a bushel. Mr. Bear, therefore, would have to spend
$1,100 to buy the thousand bushels of wheat which he had agreed to
sell to Mr. Bull for $1,000. Instead of doing so, he pays Mr. Bull
$100. If, on the other hand, the price of wheat has fallen to ninety
cents per bushel, Mr. Bear can buy for $900 the wheat for which Mr.
Bull has agreed to pay him $1,000, In that case Mr. Bull pays Mr.
Bear $100.
No wheat is actually bought and sold ; no wheat passes from one
to the other. Under guise of the contract to buy and sell, these two
men, Mr. Bull and Mr. Bear, have simply made a bet as to the price
of wheat on the first of May. The amount of the bet to be paid
depends upon the difference between the actual market price on the
first of May and the stipulated dollar a bushel.
If the reader asks, How can a bet between two dealers affect the
price of wheat? The answer is. It cannot. But w^hen hundreds of
men are excitedly offering to buy wheat and other hundreds to sell
wheat, and these offers to buy and sell include millions of bushels
that have no existence, and the bets upon the price of wheat reach
millions of dollars, the result is to create an artificial demand and an
equally artificial supply, which determine the market price of such
wheat as is stored in the warehouses.
The transaction is of no benefit to anyone except the successful
gambler. It does not benefit the farmers ; for they are interested in
having a steady price for their wheat, not a fluctuating price, which
178 CURRENT ECONOMIC PROBLEMS
promises a great gain today and a serious loss tomorrow, and com-
pels them to study the gambler's market if they would get a benetit
of the prices, a study for which they have neither the time nor the
facility. It does not benefit the millers, who might judge what the
prices of next season's wheat will be, if it were dependent on supply
and demand as regulated by natural causes, but cannot judge if it is
made dependent on the tricks and chances of a great gambling opera-
tion.
Gambling with breadstuffs is a great deal worse than gambling
with cards or dice ; the gambling carried on on the produce exchange,
than that carried on in the gambling hells of New York City or in the
Casino at Monte Carlo. Private gambling injures only the gamblers
and those immediately connected with them, and it demoralizes the
few hundreds of occasional onlookers. The private gambler gets the
money of his fellow-gambler for nothing, and, if the game is honestly
played, gives his fellow-gamblers in return a chance to get his own
money for nothing. But the public gamblers play their game with
the property of their wholly innocent fellow-citizens. They gamble
with the wheat fields of the farmer, the flour barrels of the miller, the
bread loaves of the baker and the housekeeper. There is not a reader
of these lines in America but may have suffered some injury from
the gamblers in the Chicago wheat market ; and the whole country
looks on at the gigantic game, and hundreds of thousands of fascinated
spectators are demoralized by the spectacle. These gamblers are not
robbers, for they are not taking our property by violence, but they
are taking it without our consent and without giving us any return
for it.
81, Hedging on the Wheat Market^^
BY ALBERT C. STEPHENS
A Glasgow miller, in February, desires to purchase 100,000 bush-
els of California wheat to grind into flour. The price has been tend-
ing upward. He purchases this wheat, engages freight room, and
arranges to have it shipped to Glasgow. The price and freight will
make the wheat cost him in Glasgow about $1.07 per bushel. But
the wheat will not arrive until September or October, five months
away. By that time, following the Atlantic coast harvests, and with
the then probable renewal of arrivals of Russian and Indian wheat,
the Glasgow price might or might not be lower than $1.07. In order
to insure himself against loss, the Glasgow miller sells 100,000 bush-
els of wheat for October delivery at New York, The California
2iAdapted from "Futures in the Wheat Market," Quarterly Journal of
Economics, II, 47-51. Copyright, 1887.
PECUNIARY BASIS OF ECONOMIC ORGANIZATION 179
wheat arrives at Glasgow, but the price of wheat the world over has
declined, and the miller finds that it has cost him two or three cents
a bushel more than the then ruling price. Under strictly old-fash-
ioned methods, had he not sold 100,000 bushels of wheat at New
York, he would find himself at a decided disadvantage in competi-
tion with millers who had not anticipated their wants as he had.
But he is not so placed. When he found the market a few cents
lower, he cabled an order to New York to buy 100,000 bushels for
October delivery. At the maturity of his New York speculative con-
tracts, he finds a profit about equal to the loss on his California
transaction. Thus, owing to his protective future contract, he stands
no loss, despite the drop in the price of wheat. Had he found a
profit on his California wheat when it arrived — that is, had the price
advanced after the grain left San Francisco — he would have covered
his New York sale at a corresponding loss, thus leaving him situated
as before. In this way, English millers and importers of wheat, buy-
ing in the United States, Russia, or elsewhere, habitually protect such
purchases from fluctuations in prices, while in transit, by selling
futures against them at New York or Chicago, and later by covering
their contracts. When we consider the aggregate of wheat purchases
made in this country, and remember that all of these sales are in
time covered by corresponding purchases of wheat, and that in all
cases these speculative sales and purchases call for the actual delivery
of grain, we may gain some conception of the reasons why future
sales make so large a total.
But these insuring or protecting sales and purchases are by no
means confined to foreigners, who "buy throughout the world and
ship to Europe. One may also find ample illustration at home. A
New York merchant buys 100,000 bushels of hard wheat at Duluth,
and orders it shipped by vessel to Buffalo, to go thence to New York
by canal. He does this, not because he wants the wheat for his own
use, but because he believes that, in view of known or apparent market
conditions, he will be able to sell the grain in New York at a profit.
With a more primitive view, he would ship this grain, wait until it
arrived, look for a purchaser, and, finding one, sell the wheat for the
price current on the day of arrival — say, three weeks after he bought
it. If at a profit, well and good; but if the price had declined, he
would sustain a heavy loss, owing to the size of the shipment. But,
nowadays, the New York merchant sells 100,000 bushels of spring
wheat, September delivery, at Chicago, at the date of his Duluth pur-
chase in August. When the wheat reaches Buffalo, the price has
advanced, and the millers there want part of his consignment. He
sells them 25,000 bushels, and buys 25,000 bushels of spring wheat at
i8o CURRENT ECONOMIC PROBLEMS
Chicago, September delivery, to make good the original quantity pur-
chased. By this time he has also sold at New York 100,000 bushels,
September delivery, to an exporter, and bought 100,000 bushels more
at Chicago, relying on the 75,000 bushels on its way and his ability to
get 25,000 bushels more, before it is demanded, to keep his engage-
ment. When the 75,000 bushels hard wheat reach New York, the
price has declined fractionally ; and the owner is enabled, in conse-
quence, to purchase 25,000 bushels at a slightly better price, relatively,
than he paid in Duluth, selling 25,000 coincidentally at Chicago for
September delivery. He lost on his Duluth purchase and on the
25,000 and 100,000 bushel purchases at Chicago, and on the 2^,000
bushel purchase at New York. But he made rather more than corre-
sponding gains through his sale, spot delivery, of 25,000 bushels at
Buffalo, including profits on his sales of 225,000 bushels for Sep-
tember delivery at Chicago and New York, so that he gains on sales of
250,000 bushels, and loses on the purchases of 250,000 bushels. The
transaction, as a whole, is not very profitable ; but millers at home and
abroad get wheat at the lowest market price on the dates of purchase,
and the merchant whose sagacity, energy, and foresight led him to
make a purchase, even when price conditions were unfavorable, is
able to protect himself from excessive loss, without depressing the
price to the original holder, and without having an incentive unduly
to advance the price to the consumer.
82. The Ups and Downs of Securities'^
BY FRANCIS W. HIRST
In the first place the value of a security depends mainly upon a
quality which a bale of cotton or a ton of coal does not possess. It
is either actually or potentially interest-bearing. This quality is visi-
ble in a bond with coupons attached. A bond like that bought by
subscribers to a Prussian state loan will have attached to it quarterly
or half-yearly coupons, which can be cashed in almost any great cen-
ter of finance. If the government promises to redeem the bond at
the end of a definite period at par, at its maturity the bond will be
worth par. In the meantime it will rise and fall according to the
conditions, first of German credit, secondly of the international rate
of interest. But these tendencies may be wholly or in part counter-
acted by antagonistic movements of an international character, tor
instance, a great war which destroys a vast amount of capital and
absorbs vast quantities of savings. But the Prussian bond is not
22Adapted from The Stock Exchange, pp. 199-210. Copyright by Henry
Holt & Co. and Williams & Norgate, 191 1.
PECUNIARY BASIS OF ECONOMIC ORGANIZATION i8i
likely to fluctuate much, and the limits of its fluctuations will be the
more restricted the more nearly it approaches its maturity. Thus
the value of a security depends mainly upon ( i ) the rate of interest,
(2) the safety of the principal, and (3) the likelihood of the prmci-
pal or the rate of interest either rising or falling. These are the main
causes of a rise or fall in securities.
But the business of the stock exchange operators is to endeavor
to forecast and discount in advance the natural fluctuations of m-
trinsic value. In the old days before the telegraph, fortunes were
made by getting early information, or spreading false information
of victories and defeats, which would enhance or depress the price
of stocks. The first Rothschild laid the foundations of his immense
fortune by getting early news of important events. Nowadays the
principle is still the same, but the art of anticipation has been made
much more doubtful and complicated. Telegraphs and telephones
are open to all. What everybody reads in his morning paper is of
no particular use to anybody in a speculative sense. Besides, many
foreign governments keep large funds in London and Paris for the
express purpose of supporting the market. Hence in the market
for government bonds, big movements are rare.
When we come to the prices of railroad and industrial stocks the
causes of movement are much more difficult to detect, and the possi-
bilities of making large profits by inside knowledge is much greater.
The newspapers may be the conscious or unconscious tools of the
manipulators. In new countries the banks are likely to be a working
part of the speculative machinery. Thus in the United States those
who use great fortunes in finance frequently have a controlling in-
.terest in a bank. What is called a "community of interest" may be
established which will control important railroads and huge indus-
trial corporations, as well as a number of banks and trust companies.
The various ways in which such a community may manipulate a sus-
ceptible market like Wall Street might be made the subject of a long
and fascinating volume.
Suppose that a powerful group wishes to create the appearance
of a general trade depression in the United States. To do so is not
at all impossible. The controlled railways may announce and even
partially carry out a policy of reduced orders for rails, equipment,
and repairs. They may ostentatiously proclaim an addition to the
number of idle cars. Well-disciplined combinations of steel and
textile mills may declare a curtailment of production. Banks may
suddenly become ultra-conservative ; the open accounts and credits
of small speculative customers may be closed. In this way a general
feeling of despondency can be created. Stocks will fall, partly in
i82 CURRENT ECONOMIC PROBLEMS
consequence of the action of the banks, causing a compulsory liquida-
tion of speculative accounts, partly through the voluntary action
of speculators who think that trade, earnings, profits, and dividends
are likely to decline. Thus a bear market is created. The syndicate
can now employ huge funds to advantage in profitable purchases of
those stocks and shares which fall most and are most responsive to
ups and downs. Such a policy of course represents great difficulties
and dangers. It must be carried out very cautiously and very secretly,
and very honorably as between the members. If it is too successful
it may create a slump, or a panic, in which the community of interests
may itself be seriously involved. For these and other reasons Ameri-
can operators and manipulators do not frequently enter upon a con-
certed plan for colossal bear operations. Such a scheme is unpopular.
It oflfends public sentiment. A long bearish movement, accompanied
by unemployment, reduced earnings, and economies in expenditure,
produce all manner of unpleasant consequences, economic, social, and
political. In fact big men often boast that they never operate upon the
short side, never play for a fall.
Such a movement as that sketched above is comparatively rare,
cautious, and temporary. Wall Street has of course to wait upon
circumstances. Sometimes it is caught by the circumstances. But
it must always try to adjust itself to economic and political condi-
tions. A political assassination, a war, a movement against the trusts,
unfavorable decisions in the courts, an unexpected downfall of the
favorite political party, a catastrophe like the San Francisco earth-
quake — such events as these may produce an irresistible flood of
liquidation against which the strongest combination of bankers and
corporation men will struggle in vain. In a general scramble pro-
duced by some unexpected event there is more likely to be a general
loss than a general profit. For in the history of speculation the un-
expected event is usually a calamity.
Real prosperity is built up gradually. The stock exchange an-
ticipates and exaggerates it, until the speculative fabric has been
reared so high above the real foundation that a crash is seen to be
inevitable. Generally speaking, because of superior knowledge, the
insiders are able to unload at high levels, just as they have been able
to load at low levels. So, by speculating in stocks of a national size
and significance, the outside public loses more than it gains. It begins
to buy when they are dear, and it begins to sell when they are cheap.
For purposes of scientific analysis we may rest the theory of
stock exchange quotations upon a distinction between prices and
values. Prices are temporary ; values are intrinsic ; they move slowly.
The price represents the momentary market value of a stock or bond.
PECUNIARY BASIS OF ECONOMIC ORGANIZATION 1S3
The value is the real worth, a thing undefinable and impossible to
ascertain. If the real value were ascertainable and available to the
public then price and value would be identical, and in the case of gilt-
edge securities, the two are as nearly as possible identical. But in-
trinsic values themselves change like everything else in the world.
They depend mainly upon (i) the rate of interest, (2) the margin of
surplus earning power or revenue.
Both stocks and bonds are also affected in their intrinsic value
by the money market and the relationship of the supply of capital
seeking investment to the demand for capital by new flotations. The
intrinsic value of common stock depends also upon the actual effi-
ciency of the corporation, the condition of its plant, the skill of its
management, and the contentment, intelligence, and industry of its
whole staff.
Of course all these changeful elements of intrinsic value enter
into prices. But as prices sometimes fluctuate violently, it is obvious
that they must also be affected by other causes. These may be
summed up under two heads: (i) False rumors, which have got
about either by design or through the carelessness or mistakes of
newsmongers ; and (2) Rigs, pools, combinations, and other technical
devices, by which the market is either flooded with, or made bare of,
a particular stock or group of stocks.
83. The Functions of Exchanges"
BY CHARLES A. CONANT
The fundamental function of the exchanges is to give mobility
to capital. Without them the stocks and bonds of the share com-
pany could not be placed to advantage. No one would know what
their value was on a given day, because the transactions in them
would be private and unrecorded. The opportunities for fraud would
be multiplied a hundred fold. The mobility for capital afforded by
the corporation would be meager and inadequate if the holder of its
bonds and shares did not know that at any moment he could take
them to the exchanges and sell them. The publicity prevailing in
stock-exchange quotations gives the holder of a security not only the
direct benefit of publicity, but the opinion of the most competent
financiers of Europe and America. If they were dealing with him
privately, they might withhold the information. But the quoted price
stands as a guide to even the most ignorant holder of securities.
The second benefit is in affording a test of the utility to the com-
munity of the enterprises which solicit the support of investors. The
23Adapted from Wall Street and the Country, pp. 88-116. Copyright by
the author, 1904.
i84 CURRENT ECONOMIC PROBLEMS
judgment of experts is there expressed, through the medium of price,
on the utiHty of the object dealt in. If an unprofitable railroad is
built in the wilderness of Manitoba, the investor does not have to
hunt up information on the freight and passengers carried : he has
only to look at the quotations on the New York State Exchange to
know at once the judgment of experts on it as a commercial venture.
If the investor finds that the stocks of cotton mills are declining, he
makes up his mind that there are no further demands for cotton mills.
If stocks are exceptionally high, he knows that the public demands
more cotton mills, and that an investment in them will prove profita-
ble. All this information is put before the investor in a single table of
figures. It would be practically unattainable in any other form. Thus
there is afforded to capital throughout the world an almost unfailing
index of the course in which new production should be directed.
Suppose for a moment that the stock markets of the world were
closed, that it was no longer possible to learn what concerns were
paying dividends, what their stocks were worth, how industrial estab-
lishments were faring. How would the average man determine how
new capital should be invested. He would have no guide except the
most isolated facts gathered here and there at great expense and
trouble. A great misdirection of capital and energy would result.
The stock market is the great governor of values — the guide which
points the finger to where capital is needed and where it is not needed.
The very sensitiveness of the stock market is one of its safe-
guards. Again and again it is declared in the market reports that
certain events have been discounted. As a consequence when the
event actually happens, it results in no such great disturbance to
values as was expected. Is it not better that this discounting of future
possibilities should occur? Is it desirable that capital and produc-
tion should march blindly to the edge of a precipice and then leap off,
instead of descending a gradual decline? This discounting of the
market enables the man who holds a given security to convert it into
money without being ruined. It enables the prudent man to hold on
to his securities and even to buy those of the frightened and more
excited.
Another important influence of the stock exchange is that which
it exerts upon the money market. The possession by any country
of a large mass of salable securities affords a powerful guarantee
against the effects of a severe money panic. If in New York there
arises a svidden pressure for money, the banks call in loans and begin
to husband their cash. If they hold large quantities of securities
salable on the London or Paris or Berlin market, a cable order will
effect the sale of these in an hour, and the gold proceeds will soon be
PECUNIARY BASIS OF ECONOMIC ORGANIZATION 185
available. These securities prevent sudden contraction and expan-
sion in the rate of loans. This influence of the stock market has
much the effect of a buffer upon the impact of two solid bodies.
Crises are prevented when they can be prevented, and when they
cannot they are anticipated, and their force is broken. Securities
are in many cases better than money. If a large shipment of money
has to be made from New York to London, it is much more economical
to ship securities of the same amount than to ship kegs of gold. Credit
is forwarded by cable and the securities follow by mail. All markets
are thus brought into touch with each other, and respond to a fluctua-
tion of a fraction of one per cent, but without the confusion and crash
which would ensue if every sudden pressure for money was felt upon
a market naked of such securities.
There is another important consideration in this influence of the
stock market upon modern society, which will perhaps gather up and
bring into a clearer light some of the other points which have been
made. The stock market, by bringing all values to a level in a com-
mon and public market, determines the direction of production in the
only way in which it can be safely determined under the modern
industrial system of production in anticipation of demand. It does
so by offering the highest price for money and for the earnings of
money at the point where they are most needed. It is only through
the money market and the stock exchange together that any real clue
is afforded of the need for capital, either territorially or in different
industries. Capital is attracted to securities that are selling high
because the industries they represent are earning well. Consequently
there results a closer adjustment of production to consumption, of the
world's work to the world's need, than would be possible under any
other system.
G. THE CORPORATION
84. The Nature of the Business Corporation-*
BY HARRISON S. SMALLEY
Superficially considered, a corporation is an association of persons
for the accomplishment of certain purposes. While non-commercial
motives lead to the organization of corporations, most of them are
formed with money-making ends in view. These last are called busi-
ness corporations. Persons become members by acquiring one or
more shares of stock, on which account they are called shareholders.
A share of stock represents an interest in the business ; hence
2*Adapted from a textbook entitled The Corporation Problem, privately
published in 1912.
i86 CURRENT ECONOMIC PROBLEMS
a stockholder is an entrepreneur. All the shares of stock represent
all the interests in the business ; and thus if there are i,ooo shares of
stock outstanding, one who owns lOO shares has a one-tenth interest
in the business. A nominal value, called the "par value," is assigned
by the corporation to its stock. In most cases the par value of a
share is $ioo, though many companies have chosen other sums. The
total par value of all the stock does not necessarily equal the value
of the corporation's property.
All net earnings, treated as profits, are distributed among the
stockholders pro rata, and are called dividends.
The price of a share of stock depends largely upon the rate of
dividends customarily paid on it. If 6 or 7 per cent per annum is
paid, the price will be about par ; if 20 per cent can be paid each year,
the price will be far above par. But numerous other factors, for in-
stance, the general credit and standing of the company, the apparent
future prospects of industries of that type, the condition of the money
market, the general business situation, all share in determining the
price of the stock.
In addition to a right to dividends, the shareholder is entitled to
other privileges and advantages. If the business is closed out, he
has a right to his proportionate share of the net assets. During its
life he has a voice in the management of the enterprise. In addition
to electing the directors, the stockholders have a right to decide such
questions of exceptional character as the issue of stocks and bonds,
the amendment of the corporate charter, the dissolution of the busi-
ness, etc. Aside from these few extraordinary matters, the stock-
holders are without power, for the affairs of the company are in the
hands of the directors, who, once elected, may manage the business
as they see fit. All that the stockholders can do if not satisfied is to
wait until the next annual meeting and then replace the directors with
others.
In stockholders' meetings each stockholder has one vote for each
share of stock held by him. In voting for directors he has as many
votes per share as there are directors to be elected. Thus, if five
directors are to be elected and he holds one hundred shares, he has
five hundred votes. These he can distribute in any way he sees fit.
He can cast all for one candidate, one hundred for each of five, or
otherwise. This is called cumulative voting. He is priviliged to vote
by proxy.
In a majority of corporations, most of the stockholders take no
active part. The control of the corporation is highly autocratic rather
than democratic in character. Many corporations have thousands of
members. Yet almost always it is dominated by less than a dozen
PECUNIARY BASIS OF ECONOMIC ORGANIZATION 187
men, who may own only a minority of its stock. Few persons attend
the annual meeting of the stockholders. Parties particularly inter-
ested collect proxies of absent members. Thus it is relatively easy
for a management to perpetuate its control and to carry out its
policies.
In many corporations the stock is of two classes, common and
preferred. The leading difference is that dividends at a certain fixed
rate must be paid on the preferred, before any can be declared on the
common ; but usually there are also other differences. If the business
is closed up, the preferred stockholders usually have a prior claim.
Not infrequently there is a difference in voting rights. In some
cases preferred stockholders cannot vote unless their dividends are in
arrears. In other cases the preferred stockholders are entitled to
elect a certain number of directors, and the common stockholders the
rest.
Cumulative preferred stock is stock upon w^iich, in addition to
current dividends, all arrears of dividends must be paid before any
dividends can be declared on the common.
A corporation usually puts out bonds. The bond does not repre-
sent an investment in the business ; it simply evidences a debt owed
by the corporation to an outsider. A bond is, in effect, a formal
promissory note, a promise to repay money with interest at a certain
per cent. The bondholder is not an entrepreneur, but simply a capi-
talist. In consequence he has no vote in corporate affairs. Bonds
are almost invariably secured by a mortgage upon a part or all of the
corporate property. All the stocks and bonds of a corporation are
known as its securities, and the sum of the par values of all the securi-
ties is called the "capitalization" of the corporation.
If a corporation is unable to pay interest on its bonds, or is other-
wise insolvent, the proper court will, on application, appoint a re-
ceiver, who, as a temporary officer of the court, takes charge of the
corporate property and business. In these days it is deemed inex-
pedient to terminate an established enterprise, except in rare cases,
and the receiver continues the business and attempts to build it up.
While the receiver is thus engaged, the security holders form one
or more "reorganization committees," to put the corporation on a
sounder basis. They must raise money to pay off back debts. Gen-
erally they must scale down the capitalization, so that the earning
power wall cover the bond interest and also a fair rate of dividends.
This means that existing security holders must allow a portion of
their securities to be cancelled, and the struggle to see how much
each class of security holders will sacrifice is often long and bitter.
Preferred stockholders suffer more than boldholders, and common
1 88 CURRENT ECONOMIC PROBLEMS
stockholders more than preferred. Sometimes the stockholders are
wholly "frozen out."
A corporation can be formed only with the consent of the gov-
ernment, and upon such conditions as the government may prescribe.
The instrument, granted by the state, and specifying the terms and
conditions upon which the corporation may engage in the business for
which it is organized, is called the charter. In this country the leg-
islative branch of the government has always exercised the function
of creating corporations. According to "general laws," now uni-
versally in force, any group of persons, not less in number than a
fixed minimum, can become a body corporate under the conditions
laid down in the law.
A few striking facts will show that in the eyes of the law the
corporation is an entity distinct from the stockholders, having a legal
status and legal rights and liabilities of its own. First, the corporate
property belongs to the corporation itself, not to the members ; a
change in membership does not disturb the title. Second, a corpora-
tion's contract is not the undertaking of its members. Third, the
transfer of shares by the members has no effect upon the life of the
corporation.
Lawyers and judges have regarded the corporation as an artificial
person. The trouble resulting from that concept has been evident in
connection with the penal laws concerning corporations. We have
attempted to punish the corporation for violations of law, when it is
evident that in every offense the real actors are human beings. To
inflict a fine on a corporation is to lay a burden on the whole body of
stockholders. In reality a few men committed the offense. Such a
method of corporate punishment is, therefore, as unjust as it is
ineffectual. Consequently there has arisen the saying "guilt is per-
sonal," and we are now beginning to attack the responsible individuals
themselves.
The true view of the corporation would seem to be that it is an
imaginary entity which serves the association of persons as a con-
venient instrument through which they may conduct their business.
85. Corporate Distribution of Risk and ControP^
BY W. H. LYON
The corporation makes possible a parceling-out of the incidents
of ownership in many combinations, an allotment of management,
risks, and income in varying proportions. The line of apportionment
becomes very flexible.
^^Adapted from Capitalisation: A Book of Corporation Finance, pp. 6-16.
Copyright by the author. Published by Houghton, Mififlin & Co., 1912.
PECUNIARY BASIS OF ECONOMIC ORGANIZATION 189
The corporate form marks the line of division of management
into administration and control. Shareholders possess control, but
through directors delegate administration to officers. Varying rights
given special classes of stock make a widely varying apportionment
of income, control, and risk. Common stockholders accept a maxi-
mum of risk in expectation of a maximum of income. They may
share the incident of control equally or in varying proportions with
other classes of stock. If two classes of stock enjoy exactly equal
rights, except that one has preference as to income, they do not divide
control, but risks, and the combination of control plus risk in one as
compared with the combination of control plus risk in the other
makes the ownership represented by one class entirely different from
the ownership represented by the other.
We may speak of these divisions and combinations of income,
control, and risk, creating different kinds of ownership, as horizontal
divisions. But there is another division of ownership, that repre-
sented by the number of shares of stock or the number of bonds.
It makes a division into amount of ownership rather than kind, into
quantity rather than quality, a perpendicular division.
Now these two kinds of division of ownership accomplish two
very different results. The perpendicular division of amounts of
ownership makes possible the fitting of every man's pocketbook or
financial ability. The horizontal division into kinds of ownership
results in an even more difficult fitting, that of his type or state of
mind. For one man may be more or less willing to take a chance
than another. The same man may be more willing at one time than
another. He may be unwilling to take any risk without having some
control.
A corporation's stock regularly carries the largest share of pres-
ent control and also regularly the largest share of risk. The stock
may itself divide into two or more classes having obviously diver-
gent interests, with the result that each class will exercise for differ-
ent purposes the amount of control it possesses. If there is common
stock and preferred stock with a limited dividend, the common share-
holders may throw their influence in favor of a more hazardous
conduct of the enterprise with an expectation of greater profit
accruing to them. Since the preferred stockholders get only lim-
ited dividends, they will throw their influence in favor of a safer
conduct of the business. Interests of both classes of stockholders
might coincide. If the corporation should not earn enough to pay
full dividends on preferred stock, the preferred stockholders might
desire the more hazardous conduct of the business. If the amount
of preferred and common were the same, and each had the same
I go CURRENT ECONOMIC PROBLEMS
voting power, each class would enjoy control equally. In practice
this might not lead to a dead-lock in policy, for one shareholder own-
ing a large amount of common and a small amount of preferred
might vote his preferred in favor of his common. If the amount of
common were twice as great as the amount of preferred, and a share
of each class had the same voting rights, the quality of control
would in a way differ just as truly as if the amounts of each class
were equal but a greater voting power were given the common
than the preferred. In either case the common shareholder in a
clash of interests would be more likely to have the corporation's
policy incline to his advantage.
A corporation having only one class of stock, and no other secu-
rities^, offers the simplest type. Such a security carries all the con-
trol, all the income, and all the risk. It effects only a vertical divis-
ion of ownership. This form is proper if a satisfactory division
of income, management, and risk cannot be made. A mining com-
pany especially cannot well divide the peculiar hazards of the enter-
prise. Since any class of mining securities must retain so much
risk, investors will not sacrifice anything of income or control. So
it follows that nearly all mining corporations, including oil com-
panies, have only one class of stock and no other securities. Coal-
mining companies have issued bonds to some extent, but this busi-
ness rests upon a more assured basis than mining for metals. Man-
ufacturing companies frequently issue no securities but their com-
mon stock. This is probably due to the fact that they are engaged
in established kinds of business and follow the precedents set by
the older partnerships. So far our financial ingenuity has directed
itself for the most part to the comparatively new forms of business,
railroads and other public-service corporations. With the coming
of the big industrial concerns more complex forms of financing ap-
pear, and will probably make their way generally into industrial
corporations. Though a holding company may have only common
stock, that fact does not necessarily imply simplicity, for the sub-
sidiary companies may have complex capitalizations.
86. The Management of the Corporation^^
BY WESLEY C. MITCHELL
The classical economist assumed that there stood at the head of
the typical business enterprise a capitalist-employer, who provided a
large part of the capital invested, assumed the pecuniary risk, per-
formed the work of superintendence, and pocketed the profits. Many
^GAdapted from Business Cycles, pp. 32-34. Copyright by the author,
1913. Published by the University of California Press.
PECUNIARY BASIS OF ECONOMIC ORGANIZATION 191
enterprises of this versatile type remain today ; but the extraordinary
growth in size and influence of the joint-stock company has given
greater prominence to another form of business management.
The large corporation, dominant in business today, is owned by
a miscellaneous and shifting body of stockholders. The funds re-
quired for fixed investment are provided in some measure by these
owners, but in larger part by bondholders, who may or may not own
shares as well as bonds. The work of management is usually dis-
associated from ownership and risk. The stockholders delegate the
supervision of the corporation's affairs to the directors and they turn
over the task of administration to a set of general officers. The
latter are commonly paid fixed salaries.
In such an organization it is difficult to find anyone who corre-
sponds closely to the capitalist-employer. Neither the typical stock-
holder, who votes by proxy, nor the typical director, who gives his
attention to routine affairs, fills the bill. The general officers, re-
munerated largely by salaries, and practicing among themselves an
elaborate division of labor, have no such discretion and carry no
such risk as the capitalist-employer. The latter has, in fine, been
replaced by a "management," which includes several active directors
and high officials, and often certain financial advisers, legal counsel,
and large stockholders who are neither directors nor officials. It
is this group which decides what shall be done with the corporation's
property.
In other cases, however, a single enterpriser dominates the cor-
poration, and wields full authority. The stockholders elect his can-
didates, the directors defer to his judgment, the officials act as his
agents. His position may be firmly intrenched by an ownership of
a majority of the voting shares, or may rest upon personal influence
over the owners of voting shares. In the "one-man" corporations
the theoretical division of authority and function becomes a legal
fiction. Practically the dominant head corresponds to the old cap-
italist-employer, except for the fact that he furnishes a far smaller
proportion of the capital, carries a far smaller proportion of the
pecuniary risk, and performs a far smaller proportion of the detailed
labor of superintendence. These limitations do not restrict, but on
the contrary enhance, his power, because they mean that the indi-
vidual who "owns the control" can determine the use of a mass of
property and labor vastly gceater than his own means would permit.
While the corporate form of organization has made a theoretical
division of the leadership of business enterprises among several
parties at interest, it has also been possible to practice a centraliza-
tion of power. The great captains of finance and industry wield an
192 CURRENT ECONOMIC PROBLEMS
authority swollen by the capital which their prestige attracts from
thousands of investors, and often augmented still further by working
alliances among themselves. Among the enterprises of the whole
country, this small coterie exercises an influence out of proportion
not only to their numbers but also to their wealth. The men at the
head of smaller enterprises, though legally free, find their field of
initiative limited by the operations of these magnates.
In large corporations the few individuals in control have an op-
portunity to make money for themselves at the expense of the en-
terprise itself, or at the expense of the other parties at interest. By
giving lucrative contracts to construction or repair companies in
which they are interested, by utilizing their advance information of
the corporation's affairs for speculation in the price of its shares,
by rigging its accounts for the same purpose, by making loans or
granting rebates to other companies in which they are interested,
it is possible for an inner ring to make profits out of wrecking the
corporation. There are certainly instances enough to invalidate the
easy assumption that every business enterprise is managed to make
money for the whole body of its owners.
87. The Function of the Corporation-^
BY J. B. CANNING
The function of the modern business corporation, as a form of
business organization, is to increase the productivity of invested
capital and to facilitate and stimulate saving. The peculiar ability
of the corporation to perform this function is due to its unique com-
bination of legal rights and privileges which allow : ( i ) indefinitely
minute division of its certificates of ownership (stocks) and of its
certificates of indebtedness (bonds) ; (2) limitation of liability of
its members (stockholders) ; (3) the distribution of the risks of in-
dustry, by means of issues of different classes of stocks and of bonds,
among its members and creditors; (4) the delegation by its mem-
bers of the power to direct and administer its business policy to its
responsible agents, the directors and officers ; and (5) an easy means
for transferring ownership of its securities from one investor to
another. None of these rights, by itself, is peculiar to the corpora-
tion. Partnership with limited liability and joint-stock companies
possess them in part, but no other forrn possesses quite so advan-
tageous a combination of them.
To a saver investing his accumulations of capital to secure an in-
come, the value of a nominal income of given amount, rate of flow,
"1915.
PECUNIARY BASIS OF ECONOMIC ORGANIZATION 193
and time of accrual, becomes greater as the possibility of loss is min-
imized or limited and as the probability of gain is increased. In
general, the greatest loss possible to an investor in the stock of a
corporation is limited to the sum paid for the issued, and fully paid,
stock. For, unlike the condition found in the ordinary partnership,
all of whose members are agents of the firm and each of whom is,
therefore, unlimitedly liable for any and all obligations incurred in
the course of the firm's business by any other member, the corpora-
tion is, itself, a legal person and its stockholders are not its agents
nor are they bound to it by any legal obligation other than that of
paying for the stock its full subscription value. To a stockholder,
therefore, the ability and integrity of other stockholders is a matter
of no concern save as they possess the right to vote for directors and,
indirectly, for officers, both of whom are agents of the corporation.
Since the latter are agents of the corporation and not of the stock-
holders, they cannot incur obligations for which the stockholders are
liable.
The fact that a corporation may, and many do, issue bonds in
convenient denominations, amply secured, as to their so-called prin-
cipal, by tangible wealth and, as to their income, by net earnings con-
siderably above the amount required, makes it possible for the small
investor with little knowledge of the company's probable total earn-
ing capacity to invest his savings in what is, humanly speaking, a
certain income. The same corporation may issue another class of
security, preferred stock, which generally has a first claim upon
assets and upon income after the claims of the bondholders are dis-
charged. Upon these stocks a definite income ; usually larger than
that paid the bondholders, is promised — an income that may be, and
often is, secured by net earnings considerably in excess of the amount
necessary for the purpose. Purchase of this stock enables the in-
vestor who^as a more intimate knowledge of the company's affairs
and prospects to secure a larger income without necessarily incur-
ring greater risk. The ability of the corporation to issue still an-
other class of security, common stock, which has a residual claim
upon assets and upon income after all claims of the holders of bonds
and of preferred stocks have been met, allows still another class of
investors who have the most in,timate knowledge of the company's
affairs, and who are most willing to incur risks, to secure an income
objectively less certain but with no maximum limit other than the
earning capacity of the company. The ability of the corporation
thus to issue any number of classes of securities, each with a dif-
ferent rank as to priority of claims upon assets and upon income,
194 CURRENT ECONOMIC PROBLEMS
allows for any relative distribution of risks and of rewards that
promises to please the investing public best.
In addition to the limitation of liability, which, in general, limits
possible loss to the amount paid for an issued and fully paid stock,
and in addition to the possibility of selecting from a given corpora-
tion's securities one carrying little appreciable risk, the investor has
another, and very important, means of reducing the risk of large
loss, viz., he may distribute his investment among the securities of
several corporations engaged in different kinds of enterprise and
located in different parts of a country or in different countries. Since
stocks may be issued in denominations as small as desired, and since
a stock certificate represents an undivided interest in income and
assets, it must be obvious that the total loss of an investment dis-
tributed widely over the field of industry and apportioned judiciously
among the existing industries and corporations can scarcely occur
short of a catastrophe involving the general collapse of economic ac-
tivities. Furthermore, the simple and direct means of transferring
ownership of corporation securities makes it easy for an investor, if
he loses faith in a concern in whose securities he has invested, or if
he learns of some other concern that promises better returns, to
transfer his funds to another enterprise. Incidentally this ease of
liquidation makes corporation securities highly acceptable as col-
lateral for loans. Since the minimizing of risk increases the value
of a prospective income, all these attributes of the corporation op-
erate to offer the investor a larger reward for saving and, in conse-
quence, tend to increase the amounts saved.
The attributes of the corporation above discussed are econom-
ically advantageous whether the scale of industry be large or small,
but in the field of large-scale industry the corporation possesses a
superiority of another sort. We have said that the investor may
distribute his investment over a wide range; the converse of this
statement is also true, viz., a new enterprise, however great, may
draw funds in small amounts from a great number of investors.
This makes it possible to gather together the smallest accumula-
tions as fast as they are made and to put them to immediate use in
those new enterprises that promise the greatest gains no matter how
great those new enterprises may be. This result is usually accom-
plished through the agency of savings banks, trust companies, in-
surance companies, and other financial middlemen, who either advise
the individual in his choice of securities or else make the investment
in their own names from funds loaned them at interest by the saving
public. As a consequence of this aptitude of the corporation for
PECUNIARY BASIS OFIeCONOMIC ORGANIZATION 195
accumulating large amounts from small savings, managerial ability,
mechanical labor, and machine processes may be so co-ordinated as
to enhance to the greatest possible degree the productivity of the
capital saved.
The advantages of the corporation are readily seen, then, to be
both interacting and cumulative. The productivity of capital is in-
creased by the choice and co-ordination of productive factors ren-
dered possible by large-scale industry. Accumulated capital is put to
immediate usa where it is most productive. The value of the in-
creased income is enhanced by the limitation and distribution of
risks. All these work together to stimulate and to accelerate in-
vestment.
H. THE ORGANIZATION OF TRADES
88. Competition and Association-*
BY HENRY CLAY
What effect has the pressure of competition on the relations of
the firms and individuals that make up the business community? We
can usually trace the effect of any continuous pressure in the structure
of a body; we can do so in this case in the structure of economic
society. Competition gives rise to a series of conflicting interests
and a series of common interests among competing firms. The con-
flicting interests lead them to stand alone, the common interests lead
them to associate. Thus, according as we look at it from the point
of view of the conflicting or the common interests, we shall see society
as an assembly of competing or an assembly of associated units.
First the conflicting interests. The different trades compete, for-
ward for society's income, backward for the agencies of production
and the service of the transport, power, and implement industries.
What one has, another cannot have. Districts and countries compete
for custom — for the market, as we say — and for raw materials and
other requisites of production. In each trade at each stage, the dif-
ferent firms compete, each anxious to get as big a share of the whole
trade as possible, each anxious to get its materials and the means
of production specialized to its business as cheaply as possible. The
individuals of society compete with one another in two capacities ;
they compete as consumers and they compete as producers. As con-
sumers they could all probably do with more than they get ; they
would all certainly prefer to pay the lowest price for their goods at
which they could get them if they were the only consumers for them.
28 From Economics: An Introduction for the General Reader, pp. 119-22.
Copyright by Macmillan and Co., 1916; by the Macmillan Co., 1918.
196 CURRENT ECONOMIC PROBLEMS
Similarly they compete as producers ; each has some labor to sell, or
else the use of some land or capital. The price each can get depends
upon the price that other people will accept for their labor, land, and
capital. Thus everywhere we find the conflicting interests which we
commonly associate with the word "competition," and, because this
conflict of interests is so obvious, we are inclined to forget or ignore
the correlative community of interests which the conflict creates.
How does competition create a community of interests? It does
so by its influence upon prices. Competition to sell tends to force
prices down, competition to buy tends to force prices up. The mere
existence of an alternative seller is a check on the power of any
seller to exact the price he would like; the mere existence of an
alternative buyer is a check on the power of any buyer to buy as
cheap as he would like. The worker's income depends upon selling
labor at a high price and buying commodities and services at a low
price; it is the competition of other workers that keeps down the
price that he can get for his labor, the competition of other con-
sumers that keeps up the price of other commodities and services.
Similarly with landowner and capitalist ; it is the competition of other
landowners and capitalists that hampers their efforts to get a higher
price for the use of their land or capital. So with industries ; the
competition of other industries is the check on the prices they can
charge ; at the same time it is the check on their power to beat down
the other trades, the workers, the capitalists, the landowners, from
whom they buy materials and aids to production. Inside any one in-
dustry it is the competition of other firms which hampers each firm
in its efforts to sell its products dear and buy its labor and its mater-
ials cheap. The members of each economic group or class therefore
have a common interest in extinguishing or restricting competition
within the group or class.
Thus we get the common interests of all the traders in one dis-
trict as against the traders of another district. Free traders and
protectionists agree as to the desirability of getting as much trade
for their country as possible, they dififer only to the means. As all
the citizens of a country have a common interest in that country's
prosperity, so have all the members of a town or industrial district
in that town or district. So too we get "the interest of the trade."
All the persons connected with the cotton industry have a common
interest in inducing the public to prefer cotton to woolen shirts.
Within the boundaries of their trade they may quarrel among them-
selves as to the disposal of the price of the shirts, but they are united
in their hostility to wool or linen. They all, from the humblest oper-
PECUNIARY BASIS OF ECONOMIC ORGANIZATION 197
ative to the biggest manufacturer, stand to gain by a growth in the
demand for cotton goods.
Within each trade, again, while there is conflict between the dif-
ferent firms at every stage, the stages have each a common interest
which will somehow serve as a basis for common action. Manufac-
turers all agree that retailers get more than their fair share of the
profits of an industry, and they will all act together to prevent their
exaction. The retailers, on the other hand, will form retailers de-
fense leagues to protect themselves against the exactions of the manu-
facturers. All the firms at each stage of a manufacturing process
from the preceding stage and in selling their work as dear as possible
have a common interest in getting as cheap as possible what they take
to the succeeding stage. To come to individual firms, while employer
and employed do not always constitute a happy family, they have
some interest in common. The employer wants as big a share of the
trade as possible, and his employees stand to gain if he succeeds.
They may get no bigger wages than they would get if the firm were
unsuccessful, but they gain something in regularity and security of
employment. When we come back to the final agents of production
— land, labor, and capital — while landowners compete with one
another, laborers with one another, and capitalists with one another,
no one who is interested in politics is likely to forget that there is a
"landed interest," a "capitalistic interest," and a "labor interest."
Thus ever)'body in our present economic society stands in two
relations to the other members of the society, in a relation of con-
flicting and in a relation of common interest. Both these relations
spring from the same cause — the prevalence of what, for want of a
better word, we call "competition." Competition tends to force us
to struggle, fight, conflict with our neighbors ; the desire to relieve
ourselves from the pressure of competition compels us to combine,
associate, co-operate with our neighbors. We associate with our
competitors in one economic group, in order to compete more ef-
fectively with other groups.
89. The Relations Between Trades'^
BY JOHN A. HOBSON
Let US consider the nature of the bonds of harmony and of repul-
sion among trades.
I. The closest relations of common interest will evidently exist
between trades which draw upon some single source of supply of
raw materials or productive power.
20Adapted from The Industrial System, pp. 28-31. Copyright by Long-
mans, Green and Co., 1910.
198 CURRENT ECONOMIC PROBLEMS
All trades whose chief material is wool or leather, or timber or
steel, pulling at some common supply, must look closely after one
another. Anything which increases or reduces the common supply
affects them all alike, so that there is community of interest. Any-
thing which gives one of them a better pull upon the supply than
the others affects these latter injuriously, so far as there is diversity
of interest. The same evidently holds where a number of local manu-
facturers are dependent for coal or other source of power upon the
same supply. Dependence upon some subsidiary material or other
trade accessory will set up a similar relation, important or trivial,
according to the part played by such material in the respective trades.
2. Trades that are complementary or subsidiary to one another
in some direct way are, as we have seen, in the closest harmony. The
coal and iron trades are the largest, most obvious instance, but every
art of production throws a number of trades into similar dependency
on one another. Whenever a number of materials must be put to-
gether to make a commodity, such direct unity of interest is estab-
lished among the trades that handle each material. Such are the
relations between the fruit-growing and the sugar-refining trades,
between the wine-growing and the bottle-making trades, between the
various trades which go to feed, with materials, the building trades.
3. Where two sorts of material or two sets of processes are
alternatives for production, a keen antagonism exists between them.
Here we first come across the relation known as substitution, which
plays so important a part in industrial progress.
Bedsteads are made from wood or steel, so are many other articles
of furniture or fittings ; sugar may be made from cane or beet ; cotton,
linen, wool are alternatives for many kinds of dress or other fabrics ;
electricity, gas, oil, steam are competing against one another as
sources of industrial, locomotive, or domestic energy. Just here we
are not concerned with the choice between different sorts of goods
which satisfy the same want, but with the choice exercised by pro-
ducers between different materials and processes which can be sub-
stituted for one another on some business process. The choice
exercised by the consumer has generally some influence in the selec-
tion of material or method of production, as, for instance, in deter-
mining the alternative use of wood, vulcanite, or amber, in making
pipestems.
But as the law of substitution opens up, we get glimpses of a
wider, more general sympathy and opposition among trades. The
productive energy of man, directly operative through labor, in-
directly through capital, is within certain limits free to choose among
PEUCNIARY BASIS OF ECONOMIC ORGANIZATION 199
all the various channels of industry. They are all open to him as
alternative occupations. So there is a more universal sympathy and
opposition between all trades than any yet named. All causes af-
fecting the volume, fluidity, and efficiency of the capital and labor in
a community will affect all trades in common. In proportion as labor
and capital are free to enter several trades, and even to transfer
themselves from one occupation to another, they must be regarded
as forming a common fund of industrial energy which pulsates
through the whole framework of industry, as the blood courses
through the various veins. Though the flow of labor and of capital
is far from free and is impeded by many economic barriers, there is
enough fluidity to give a real unity to the terms "labor market" and
"market for loanable capital." Capital and labor can flow into var-
ious channels of production with sufficient freedom to make every
trade sensitive to the expansion and contraction, the prosperity and
depression of every other trade.
But trades are connected, not only through common interests in
processes of production, but through changes in methods of con-
sumption. The "standard of comfort" of diff"erent classes is con-
stantly changing. Every rise or fall of wages alters the proportion
of working-class incomes spent on different commodities, and so
distinctly stimulates or depresses groups of trades. The great change
from rural to city life has revolutionized the expenditure of large
masses of our population. New articles of consumption or the
cheapening of old articles, which brings them in reach of poorer
classes, create or stimulate new tastes which not merely absorb new
increments of income but displace older articles of consumption.
Taste, fashion and caprice constantly exert a larger influence on the
expenditure of larger sections of the public. Every article of a man's
consumption is in a sense competing with every other article for a
larger share of his expenditure.
Any change in standards of consumption brings other changes
by reason of aflinity. The rapid spread of the taste for cycling
which followed the invention of the safety bicycle, besides its direct
competitive effect upon the use of riding horses and the carriage
trade, had a large number of clearly traced subsidiary effects, reduc-
ing the sale of cheap pianos and jewelry, damaging the book trade,
altering the nature of the clothing trades, and reviving the country
inns. You cannot touch the consumer at any point in his expenditure
without altering in countless seen and unseen ways his whole standard
of valuations and, through alterations of this standard, affecting the
entire series of industrial processes which support it.
200 CURRENT ECONOMIC PROBLEMS
Thus the growth of harmonious and conflicting desires of con-
sumers weaves the closest and most intricate network of relations
among all the various productive processes of the industrial world.
The closer we examine any section of the industrial system, the more
numerous and complex become the relations between the businesses,
the trades, and the groups of trades contained in it. The ramifica-
tions come to resemble those which the microscope displays in the
section of a leaf or a bit of animal fiber.
As we recognize the fineness of these relations, we come un-
consciously to shift the metaphors we use, and to regard industry less
as a stream or a machine and more as a living organism with some-
thing like a common flow of blood, a common system of nerves, and
an organic co-ordination of parts resting upon a complexity of busi-
ness cells. None of these metaphors is strictly applicable: industry
is neither river, machine, nor organism, but there are many points
in which the last term gives the most correct impression. If we
could follow out far enough the ties between businesses and trades
and trade groups in what we call the industrial world, we should find
a sort of common connective tissue running throughout, thinner and
coarser in some parts, stouter and finer in others, but binding the
whole set of industrial operations so closely together that any touch
bestowed at any point may be communicated to the most distant parts.
90. The "Planlessness" of Production^"
BY WESLEY C. MITCHELL
With technical experts to guide the making of goods, business
experts to guide the making of money, lenders to review all plans
requiring large investments, and government to care for the public
welfare, it may seem that the money economy provides a staff and
a procedure adequate to the task of directing economic activity, vast
and difficult though that task may be. This impression is strength-
ened by observing that each class of business leaders is spurred to
efficiency and deterred from recklessness by danger of pecuniary
loss. The engineer who blunders is discharged, the enterpriser who
blunders goes into bankruptcy, the lender who blunders loses his
money. Thus the guides who misdirect the industrial army are
always being eliminated. On the other hand, those who succeed are
constantly being promoted to posts of wider power.
With this powerful stimulus of industrial efficiency, the money
economy unites an opportunity for co-operation on a grand scale.
30 Adapted from Business Cycles, pp. 37-40. Copyright by the author,
1913. Published by the University of California Press.
PECUNIARY BASIS OF ECONOMIC ORGANIZATION 201
By paying money prices, the lenders can enlist the aid of laborers
who contribute work of all kinds, of expert advisers who contribute
special knowledge, of landlords who contribute the uses of their
property, and of investors who contribute the uses of their funds.
And all these classes can be made to work in disciplined order toward
the execution of a single plan.
The union between encouragement of individual efficiency and
opportunity for wide co-operation is the great merit of the money
economy. It provides a basis for what is unquestionably the best
system for directing economic activity which men have yet practiced.
Nevertheless, the system has serious limitations.
1. The money economy provides for effective co-ordination of
effort within each business enterprise, but not for effective co-ordi-
nation of effort among independent enterprise.
The two schemes differ in almost all respects. Co-ordination
within the enterprise is the result of careful planning by experts ;
co-ordination among independent enterprises cannot be said to be
planned at all ; rather is it the unplanned result of natural selection
in a struggle for business survival. Co-ordination within an enter-
prise has a definite end — the making of profits ; co-ordination among
independent enterprises has no definite end, aside from the con-
flicting aims of the several units. Co-ordination within an enter-
prise is maintained by a single authority possessed of power to carry
its plans into effect ; co-ordination among independent enterprises
depends upon many different authorities contending with each other,
and without power to enforce a common program except so far as
one can persuade or coerce others. As a result of these conditions
co-ordination within an enterprise is characterized by economy of
effort; co-ordination among independent enterprises by waste.
In detail, then, economic activity is planned and directed with
skill ; but in the large there is neither general plan nor general direc-
tion. The charge that "capitalistic production is planless" therefore
contains both an important element of truth and a large element of
error. Civilized nations have not yet developed sufficient intelligence
to make systematic plans for the sustenance of their populations ;
they continue to rely upon the badly co-ordinated efforts of private
initiative. Marked progress has been made, however, in the skill
with which the latter efforts are directed.
2. But the managerial skill of business enterprises is devoted
to money-making. If the test of efficiency in the direction of
economic activity be that of determining what needs are most im-
portant for the common welfare and then satisfying them in the
202 CURRENT ECONOMIC PROBLEMS
most economical manner, the present system is subject to a furthei
criticism. For, in nations where a few have incomes sufficient to
gratify trifling whims and where many cannot buy things necessary
to maintain their own efficiency, it can hardly be argued that the
goods which pay best are most needed. It is no fault of business
leaders that they take prospective profits as their guide. They are
compelled to do so ; for the men who mix too much philanthropy
with business soon cease to be leaders. But a system of economic
organization which forces men to accept so artificial an aim as
pecuniary profit cannot guide their efforts with certainty toward
their own ideals of public welfare.
3. Even from the point of view of business, prospective profit
is an uncertain flickering light. Profits depend upon two variables,
on margins between selling and buying prices, and on the volume of
trade. These are related to each other in unstable fashion and each
subject of perturbations from a multitude of unpredictable causes.
That the system of prices has its own order is clear; but is it not
less clear that the order fails to afford certainty of business success.
Men of long experience and proved sagacity often find their calcula-
tions upset by conjunctures which they could not anticipate. Thus
the money economy confuses the guidance of economic activity by
interjecting a large element of chance into every business venture.
4. The hazards to be assumed grow greater with the extent of
the market and with the time that elapses between the initiation and
the fruition of an enterprise. But the progress of industrial tech-
nique is steadily widening markets, and requiring heavier invest-
ments of capital for future production. Hence the share in eco-
nomic leadership that falls to lenders, that of receiving the various
chances offered them for investment, presents increasing difficulties.
And a large proportion of these investors, particularly the lenders
on long time, lack the capacity and the training for the successful
performance of such work.
These defects in the system of guiding economic activity and
the bewildering complexity of the task itself allow the processes of
economic life to fall into those recurrent disorders which constitute
crises and depressions.
V
PROBLEMS OF THE BUSINESS CYCLE
Under the simple conditions assumed in the last division, the problem
of the organization of industrial life was found to present many bewildering
aspects. But placed in a developing society it becomes doubly bewildering.
None of the economic and ethical questions which were noted have disappeared
and the new setting adds its own quota of problems.
The disturbing elements in the larger situation are closely associated with
those regularly recurring phenomena which are usually called "crises" and
"depressions." It was once held that these played havoc with "economic
gear and cogs," throwing the "industrial machine" "out of joint," or leaving
it "half stalled." Such conditions were looked upon as abnormal ; they were
thought to create problems of a mechanical character ; they called for the
services of the industrial mechanism. But, the damage once repaired, the
"industrial machine" could run its prosperous course until another catastrophe
threw "the monkey-wrench into the machine."
Recent analysis, however, has shown that the matter is not so simple as
all this. Two closely related lines of movement converge to produce these
disturbances. The first is the development of the industrial system. This
involves change in technique, in organization, in markets, and in the demand
for goods. The instruments of production are largely specialized; labor is
mobile only within fixed limits ; and only newly accumulated capital is pos-
sessed of this characteristic. Capital values are based upon the earnings
anticipated in view of the known and predictable, not the novel, elements in
the situation. Particular productive goods are turned out with an expecta-
tion that they will be used in the production of particular consumptive goods.
The system as a whole has far too much of rigidity successfully and im-
mediately to adapt itself to those radical changes. Yet so delicate is the
system that anything which affects a particular industry is certain to have
an appreciable effect upon the whole.
The second is "the rhythm of business activity," or the economic cycle.
A depression, characterized by conservatism in business and financial activity,
gradually leads to an improvement in conditions; as business expands a
spirit of optimism arises, and stimulates further expansion ; the latter reacts
upon the feeling of optimism and causes it to assume a tone of overconfidence,
which leads to "flush times" and feverish activity ; sooner or later business
overshoots the mark, losses occur, and perhaps a crisis, contraction is neces-
sary, and a depression again appears. The cycle is a closed one; it has no
logical beginning and no consummation. From lean to fat to lean years it ever
runs its varied round.
But the situation is further complicated by the different behavior of dif-
ferent industries and industrial agents during the cycle. If the price scheme
were such that values as a whole could be quickly readjusted to meet new
conditions, much trouble might be avoided. But such is not the case. Sheer
necessity alone must be depended upon to establish the lower price level. But
businesses occupy different strategic positions ; the baker and the manufac-
turer of steel rails are likely to be affected in different ways by price-making
forces at different stages of the cycle. The man with fixed salary and the
employee whose contract runs in terms of a few months or weeks are on a
203
204 CURRENT ECONOMIC PROBLEMS
different footing. The result is that all values do not go up or go down to-
gether. The output of various industries, similarly, do not increase or de-
crease together. Yet all of these industries are involved in a delicate system
that calls for nice adjustments.
It is these movements which are responsible for the facts that no two
cycles — or crises — are alike; that the cycle varies greatly in length, in sweep,
and in intensity, and that a myriad of dissimilar theories have been put for-
ward to account for them, few of which contain no germ of truth.
Its spectacular character has singled out the crises for particular atten-
tion almost to the exclusion of the more important "flush times" and depres-
sions. It is not surprising that antecedent business and industrial conditions
are often overlooked, and crises are explained in terms of monetary
standards and banking systems. Undoubtedly ouf banking laws in the past
have made our crises unusually severe. The elasticity of credit and note-
issue secured by the recent currency act should do much to relieve financial
stringency when a crises arises. It should also do something to prevent its
occurrence. But those who expect it to cause the industrial process to pur-
sue a more even course are likely to be disappointed.
The violence of the ebb and flow of business activity increases tremend-
ously the difficulty of properly organizing society through price. It also
reveals grave breaks in the organization. Capital is insecure and funded
wealth may disappear overnight. The cycle is associated with a rhythm of
overemployment, non-employment, and underemployment. The capitalists and
laborers whose products satisfy marginal wants are put in a very precarious
economic position. The crisis destroys wealth, specialized talent, and organi-
zation, all of which must be replaced.
The economic cycle involves the whole industrial system. No simple
devise will arrest the violence of its rhythm. It can be reached only by a
complex of many complementary measures. // we are to control the cycle —
we must learn to control the introduction of new technique; the demand for
goods must be steadied; we must develop an art of predicting business con-
ditions ; a means must be found for co-ordinating recently accumulated cap-
ital and opportunities for investment; a higher sense of responsibility in mak-
ing loans must be developed by the bankers ; a feeling of responsibility must
be engendered in the promoter ; and means must be devised for checking
the speculative mania.
In time, as our very rapid industrial development slows up, the sweep
of the economic cycle may be expected to be less extreme. Then perhaps
we shall hear complaints about a prosaic age that has no speculative prizes
to dangle before the eyes of investors to tempt them to take chances with
unknown opportunities. Then, perhaps, men will point to the "golden age"
of the past, when unexploited opportunities were on all sides. They may
go so far as to conclude that our violent fluctuations in business were a small
price to pay for our rapid industrial development.
A. THE DELICATE MECHANISM OF INDUSTRY
91. The Delicate Organization of Industry^
BY THORSTEIN VEBLEN
Under the old order, when those in whose hands lay the discretion
in economic affairs looked to a livelihood as the end of their en-
deavors, the welfare of the community was regulated "by the skill,
dexterity, and judgment with which its labor was generally applied."
^Adapted from The Theory of Business Enterprise, pp. 179-82. Copy-
right by Charles Scribner's Sons, 1910.
PROBLEMS OF THE BUSINESS CYCLE 205
What would mar this common welfare was the occasional disastrous
act of God in the way of unpropitious seasons and the like, or the act
of man in the way of war and untoward governmental exactions.
Price variations, except as conditioned by these intrusive agencies,
had commonly neither a wide nor a profound effect upon the even
course of the community's welfare.
Until the machine industry came forward, commerce, with its
handmaid, banking, was the only branch of economic activity that
was in any sensible degree organized in a close and comprehensive
system of business relations. "Business" would then mean commerce
and little else. This was the only field in which man habitually took
account of his own economic circumstances in terms of price rather
than in terms of livelihood. Price disturbances, even when they were
of considerable magnitude, seem to have had grave consequences only
in commerce, and to have passed without being transmitted much
beyond the commercial houses and the fringe of occupations sub-
sidiary to commercial business.
Crises, depressions, hard times, brisk times, periods of specu-
lative desire, "eras of prosperity," are primarily phenomena of busi-
ness. They are in their origin and primary incidence phenomena of
price disturbance, either of decline or advance. It is only secondarily,
through the mediation of business traffic, that these matters involve
the industrial process or the livelihood of the community. They
affect industry because industry is managed on a business footing,
in terms of price and for the sake of profits. So long as business
enterprise habitually ran its course within commercial traffic proper,
apart from the industrial process as such, so long these recurring
periods of depression and exaltation began and ended within the do-
main of commerce. The greatest field for business profit is now
afforded, not by commercial traffic in the stricter sense, but by the
industries engaged in producing goods and services for the market.
The close-knit, far-reaching articulation of the industrial processes in
a balanced system, in which the interstitial adjustments are made and
kept in terms of price, enable price disturbances to be transmitted
throughout the industrial community with such celerity and effect
that a wave of depression or exaltation passes over the whole com-
munity and touches every class employed in industry within a few
weeks. Somewhat in the same measure as the several modem in-
dustrial peoples are bound together by the business ties of the world-
market do these peoples also share in common any wave of prosperity
or depression which may initially fall upon any one member of the
business community of nations.
2o6 CURRENT ECONOMIC PROBLEMS
92. The Spirit of Business Enterprise^
BY WESLEY C. MITCHELL
Money economy has attained its fullest development in our own
day under the influence of machine production. Its essential feature
is that economic activity takes the form of making and spending
money incomes. Instead of producing the goods their families re-
quire, men "make money," and with their money incomes buy for
their own use goods made by unknown hands. The economic com-
fort or misery of the modern family, accordingly, depends not upon
its efficiency in making useful goods and its skill in husbanding sup-
plies, but upon its ability to command an adequate money income
and upon its pecuniary thrift. Even in years when crops are short
and mills are idle, the family with money need not go cold or
hungry. But the family without money leads a wretched life even
in years of abundance. Always the elaborate co-operative process
by which a nation's myriad workers provide for the meeting of each
other's needs is brought into precarious dependence upon the factors
which determine the prospects of making money.
For purposes of making money men have gradually developed
the modern business enterprise — an organization which seeks to
realize pecuniary profits upon an investment of capital by a series
of contracts for the purchase and sale of goods in terms of money.
Business enterprises of the full-fledged type have come to occupy
almost the whole field in finance, wholesale trade, railway and
marine transportation. They dominate mining, lumbering and
manufacturing. In retail trade they play an important role, and in
agriculture they have secured a foothold. But, despite this wide
extension of business aims and methods, there still remain broad
differences of degree between the enterprises typical of the several
fields of effort. In size, in complexity of organization, in dependence
on the money market, in singleness of business aim, the typical farm
and the small retail store are not comparable with the typical cor-
porate enterprises of transportation, mining and finance.
This uneven development of business organization in different
fields is highly important. For it is within the circles of full-fledged
business enterprise that the alterations of prosperity and depres-
sion appear most clearly. Branches of trade which are not organized
elaborately are much less susceptible both to the stimulus of pros-
perity and to the inhibition of depression. In country districts, for
example, the pace of activity is subject to seasonal but not to
2 Adapted from Business Cycles, pp. 21-26. Copyright by the author, 1913.
Published by the University of California Press.
PROBLEMS OF THE BUSINESS CYCLE 207
cyclical changes such as occur in factory towns. The farmers are
never thrown out of work except by bad weather, and they are
never overrushed except by seed-time and harvest. In other words,
the scope and intensity of prosperity and depression appear to de-
pend upon the extent and the perfection of business organization.
No less important is the thoroughgoing interdependence of
business enterprises. As a plant concerned with the handling of
commodities, the typical enterprise is one cog in a great machine.
Our industries are carried on by sets of nominally independent
plants which pass on goods to each other. For example, one series
embraces wheat-growers, grain-carrying railways, elevators, flour
mills, wholesale dealers in provisions, bakeries, and retail distribut-
ing agencies. Each set of members in such a series is dependent
upon the preceding set for its chief supplies and upon the succeeding
set for its chief vent. Further, no industrial series is self-sufficing.
Each set of enterprises in our example, from the farms to the retail
agencies, is industrially dependent on other industrial series which
equip it with buildings, machines, fuel, office supplies, etc. A peculiar
mutual dependence exists between the whole mass of industries and
the railways. Coal-mining and the steel trade also touch practically
every industrial establishment. Since the transfers of goods are
maintained by contracts of purchase and sale, each enterprise is af-
fected by the fortunes of its customers, its competitors, and the
purveyors of its supplies. Financial interdependence is also in part
but another aspect of the industrial and commercial bonds. Compli-
cated relationships of debtor anjd creditor arise from the purchase
and sale of goods on credit, and make the disaster of one enterprise
a menace to many.
A business enterprise may participate in the work of providing
the nation with useful goods or it may not. For there are divers
ways of making money which are positively detrimental to future
welfare. But it is more important that even the enterprises which
are making useful goods do so only so far as the operation is ex-
pected to serve the primary business end of making profits. Any
other attitude is impracticable under the system of money economy.
For the man who allowed his humanitarian interests to control his
business policy would soon be forced out of business. From the
business standpoint the useful goods produced are merely by-
products of the process of earning dividends. A clear appreciation
of this fact is necessary to an understanding of the relations between
industry, commerce, and business. For the well-being of the com-
munity, efficient industry and commerce are vastly more important
2o8 CURRENT ECONOMIC PROBLEMS
than successful money-making. A panic which did not interrupt
the making and distributing of wares desired by the community
would be no great disaster. But the whip-hand belongs to business.
In practice, industry and commerce are thoroughly subordinated
to it. The ebb and flow of contemporary economic activity is pri-
marily concerned with the phenomena of business traffic — that is,
of money-making.
Business prosperity depends upon the factors which control
present and prospective profits, together with present and prospec-
tive ability to meet financial obligations. Profits are made by con-
nected series of purchases and sales. Accordingly the margin be-
tween the prices at which goods can be bought and sold are the
fundamental condition of business prosperity. Just as the ever-
recurring changes within the system of prices affect business pros-
perity and through it national welfare, so do changes in national
welfare and business prosperity react upon prices. A period of
business expansion causes an interminable series of readjustments
in the prices of various goods. These readjustments in turn alter
the pecuniary prospects of the business enterprises which buy or
sell the commodities affected, and thereby start new changes in
business prosperity. With the latter changes the process begins
anew. Prices once more undergo an uneven readjustment, pros-
pects of profit become brighter or darker, business prosperity waxes
or wanes, prices feel the reflex influence of the new business situ-
ation — and so on without end.
93. The Interdependence of Prices^
BY WESLEY C. MITCHELL
The prices ruling at any given time for an infinite variety of
commodities, services, and rights which are being bought and sold
constitute a system.
The prices which retail merchants charge for consumers' com-
modities afford the best starting-point for a survey of this system.
These prices are loosely connected with each other ; for an advance
in the price of any commodity usually creates an increased demand
for other commodities which can be used as substitutes, and thus
favors an advance in the price of the substitutes. They are, how-
ever, more closely related to the prices for the same goods which
shopkeepers pay to wholesale merchants, and the latter to manu-
facturers. There is, of course, wide diversity between the number
3 Adapted from Business Cycles, pp. 27-32. Copyright by the author, 1913.
Published by the University of California Press.
PROBLEMS OF THE BUSINESS CYCLE 209
of members and in the margins between the successive prices in the
series. These margins are usually wider in retail than in wholesale
trade ; wider on perishable goods than on durable stables : wider
when the manufacturer sells directly to the consumer than when
merchants intervene ; wider when a monopolist can fix prices in his
own favor, etc. But these diversions are themselves prices in the
series for each kind of commodities form a tolerable business basis
for making profits out of the process of supplying the community
with goods.
The business men engaged in squeezing money profits out of
these price-margins are seldom able to keep the whole difference
between buying and selling prices. From retailers to manufacturers
they require various commodities, services, and rights for the effi-
cient control of their operations. For such producers' goods they
have to pay out prices which eat into the profit-margins of the goods
in which they deal. The most important classes of producers' goods
are raw materials, buildings and machinery, labor, loans, leases,
transportation, insurance, and advertising. It is difficult in many
of these cases to connect directly the prices which figure as costs
with the margins upon which particular commodities change hands.
For the cost prices are usually paid for the pecuniary advantage of
the enterprise as a whole, and the accruing benefits extend to many
transactions and cover a long time. The like is true of manufac-
turers.
With the exception of labor, producers' goods are provided, like
consumers' goods, by business enterprises operating on the basis
of margins between buying and selling prices. Hence the price
of a given goods is related not only to the prices of the consumers'
goods in the production of which it is used, but also to the prices of
the various other producers' goods employed in its own manufac-
ture. Thus the prices of producers' goods form the beginnings of
new series of relationships which run backward with countless
ramifications and never reach definite stopping-points. Even the
prices of raw materials in the hands of the ultimate producers are
related intimately to the prices of the labor, current supplies, ma-
chinery, buildings, land, loans, etc., which the farmers, miners, etc.,
employ.
The price of labor may seem to bring the series to a definite stop
at least at one point. For in most cases the laborer does not have
a business attitude toward the production of his own energy. But
the price which the laborer can command is connected with the
prices of the consumers' goods which established habit has made
2IO CURRENT ECONOMIC PROBLEMS
into a standard of living. At this point, therefore, analysis of the
interrelations between prices brings us, not to a full stop, but back
to our starting-point, the prices of consumers' goods.
We must also take account of the prices of business enterprises
themselves. Occasionally established business enterprises are sold
outright. But the most important transactions of this class are
stock-exchange dealings. That the prices of whole business enter-
prises or of shares in them are intimately related to the prices which
have been discussed is clear ; for these prices depend primarily upon
present and prospective profits, and the latter upon price-margins
and the volume of business transacted.
There remains for consideration the prices paid for heteroge-
neous personal services. These include domestic service, medical
attendance, instruction, many forms of amusement, etc. The
furnishing of such services contrasts with business traffic in con-
sumers' goods, loans, transportation, etc. For systematic organiza-
tion has not been developed to so high a point, business motives do
not have such unrestricted scope, and the wares are not standardized
in equal measure. Moreover, the prices people are willing to pay
are based rather on personal needs and income than on calculated
chances of profit. The prices of these services therefore form the
most loosely organized and irregular division of the system of prices.
This classification of prices assists in seeing the relations which
bind all prices together and make them a system. Many price rela-
tions are already sufficiently clear, but several lines of relationship
should be indicated more definitely.
1. On the side of demand almost every good has its possible
substitutes. Through the continual shifting of demand changes in
the price of one commodity are often communicated to the prices
of its substitutes, from the latter to the prices of their substitutes,
and so on. An initial change, however, usually becomes smaller as
it spreads out in widening circles.
2. Similarily, on the side of supply, almost every good has genetic
relationships with other goods, made of the same materials, or sup-
plied by the same set of enterprisers. Particularly important are the
genetic relationships based upon the use of the same producers' goods
in many lines of trade. Floating capital, transportation, labor, ma-
chinery, etc., enter into the cost of most commodities. Accordingly
a changed price established for one of these common producers' goods
in any important use may extend to a great divsr&icy of other uses,
and produce further price disturbances.
3. Closely connected with this genetic relationship through com-
mon producers' goods is the relationship through business competi-
PROBLEMS OF THE BUSINESS CYCLE 211
tion, both actual and potential. In so far as effective competition *
exists, a state of price-margins which makes any one trade more or
less profitable than other trades in the same market cannot long
maintain itself.
4. Present prices are affected by prices of the recent past and
the anticipated prices of the near future. Indeed, present prices are
largely determined by past bargains, with established time contracts.
Thus the price system has no definable limits in time. No analysis
can get back to the ultimate term in the endless series of bargains
which helped to make the prices of the present.
5. Nor has the series of prices any logical beginning or end.
At whatever point analysis may start to follow the interlocking links,
to that point analysis will come if it proceeds far enough. The system
of prices is an endless chain.
Prices then form a highly complex system of many parts con-
nected with each other in diverse ways, a system infinitely flexible
in detail, yet stable in the essential balance of its interrelations, a sys-
tem like a living organism in its ability to recover from the serious
disorders into which it periodically falls.
The most significant thing about it is the function it performs
in the economic life of nations. It serves as a social mechanism for
carrying on the processes of providing goods. For prices are the
means which make possible the elaborate exchanges, and the conse-
quent specialization which characterizes the modern world. They are
the source from which family income is derived, and the means by
which goods are obtained for family consumption ; for both income
and most of living — the two jaws of the vise in which the modern
family is squeezed — are aggregates of prices. Prices also render pos-
sible the rational direction of economic activity by accounting, for
accounting is based upon the principle of representing all the hetero-
geneous commodities, services, and rights with which a business
enterprise is concerned in terms of money price. Most important of
all, the margins between different prices within the system hold out
that hope of pecuniary profit which is the motive power that drives
our business world.
94. The Sensitive Mechanism of Credit*
BY HAROLD G. MOULTON
It has become almost a trite saying that credit is the very life-
blood of commerce and that without its wonderful assistance the
* Adapted from an article with the foregoing caption in a volume as yet
unpublished, 1915.
212 CURRENT ECONOMIC PROBLEMS
enormous business of the modern world would be quite impossible.
It is a commonplace, also, that the credit structure is a very uncer-
tain mechanism, one that periodically expands to a breaking-point
and involves hundreds of businesses in financial ruin, and indirectly
demoralizes the commerce of an entire country. The precise manner
in which this credit structure is built up, however, with its intricate
and complicated interrelations, is not usually clearly understood. It
is the purpose of the following analysis to trace these intricate rela-
tions, and show the complicated interdependences in the fabric of
commercial credit.
Commerce relates to the movement of goods from the hands of
those who perform the first operation in production to their final
resting-place with the ultimate consumers. Commercial credit con-
nects itself, therefore, with the various purchases and sales that
are made in the slow process of marketing commodities. The nature
and place of credit in the marketing process may perhaps best be
made clear by assuming first a society that does business on a cash
basis only.
To illustrate the process let us begin with some raw materials
in the form of iron ore and coal which are to be manufactured into
farm machinery for sale to farmers. These raw materials normally
pass through the hands of the following classes of business men :
(i) the manufacturer of machinery; (2) the wholesale dealer; (3)
the retail merchant from whom they are purchased by the farmer.
In the absence of credit the producer of raw materials would have
to possess enough capital to defray the cost of producing these ma-
terials. He would sell them for cash to the manufacturer, who pays
for them with ready money. In turn, the manufacturer, after having
converted the materials into finished machines, sells them in a new
form to the wholesale dealer, who pays for them out of funds accumu-
lated for the purpose. The wholesaler next passes them on to the
retailer for cash ; and the retailer disposes of them to the farmer for
cash. In each case cash accumulated and in hand ready for payment
is the significant feature. We have thus far, however, but half com-
pleted the commercial circle.
The farmer does not purchase the machinery as an end in itself.
With it he produces crops for sale. He sells his annual produce to a
local dealer for cash ; the local dealer sells these products to the com-
mission merchant for cash ; the commission merchant passes them on
for cash to a retail store ; and the storekeeper sells them for cash
to his customers, who happen to be, let us assume, the laborers in
the mines of iron and coal who were the original producers of the
PROBLEMS OF THE BUSINESS CYCLE 213
raw materials that went to the making of farm machinery. Thus
we have the complete round of production.
In the foregoing analysis we have assumed each sale to be for
cash ; no one waits for his payments, and all keep the slate clear as
they go. With such a method there is little danger of a general break-
down. If a purchaser has not the cash with which to pay for goods,
he is refused the sale. Hence the seller is never dependent upon the
future solvency of his purchaser.' Sales may be restricted by a slack-
ening of the industrial process ; but there are never maturing obliga-
tions to meet, and there is never a chain of failures each due to the
previous one. Let us now introduce credit into the system as out-
lined above.
It is evident that the farmer who buys the farm machinery is
the ultimate demandcr of the raw materials purchased by the manu-
facturer, and of course of the finished machines handled by the
wholesaler and retailer respectively. In final analysis the farmer's
cash pays for the labor of the workers in the mines of iron and coal.
Or, traveling around the circuit in the opposite direction, it is the
laborer's cash that really pays for crops of the farmer that have
been produced by the farm machinery. Without credit, however, it is
impossible for the precise cash paid by the farmer to the retailer to
be used by the latter in paying the wholesaler and so on up to the
producer of the raw materials. In introducing credit into this system
it will be necessary to assume for the moment a situation that does
not represent the actual state of affairs. The corrective will be given
in the paragraph following.
Let us assume that the producer of raw materials possess enough
to produce $10,000 worth of raw materials, paying his laborers in
advance. Now let us assume he sells these materials to the manu-
facturer on twelve months' time, that is, he agrees to wait twelve
months for his pay. The manufacturer in ttie course of three months
converts these raw materials into finished machinery and sells the
machines on nine months' time to the wholesaler. In a month the
wholesaler disposes of the machinery, letting the retailer have eight
months in which to pay. In another month the retailer sells the
machines to a farmer, agreeing to wait seven months. Four months
later the farmer sells his crops on three months' time to a local dealer,
who sells them in a month to a commission merchant on two months'
time ; the commission merchant in turn selling on one month's time
to a retail store ; and the retailer disposes of them within a month
to the laborers who work in the mines for cash received by them for
producing raw materials. Cash would thus be paid to the retailer
214 CURRENT ECONOMIC PROBLEMS
of farm produce just twelve months from the date of the first sale
of the raw materials ; and if this cash should be passed on promptly
through the hands of the commission merchant, local dealer, farmer,
retailer, wholesaler and manufacturer to the original producer, it
can liquidate all the obligations as per schedule.
In actual practice, however, twelve months would be a long time
for the producer to wait for his payment. Similarly the periods of
nine, eight and seven months would be too long for the others to
wait; for further production would be more or less halted mean-
while. In practice, therefore, credit extensions are for much shorter
periods, usually from one to four months, whether it be the pro-
ducer of raw materials, the manufacturer, or the middlemen. How
is this made possible ?
The manufacturer, for instance, may give his note to the pro-
ducer for three months, and pay as soon as he sells to the whole-
saler. The question now is, where does the wholesaler get the funds
with which to pay ; does he not have to wait until the retailer has
disposed of the goods ? This is where the banks come to the assist-
ance of commerce. The wholesaler sells to the retailer on time, but
instead of delaying his payment to the manufacturer, he procures a
loan from his bank, giving as security therefor the notes received
from the retailer. With this loan the wholesaler may pay the manu-
facturer at once. The loan from the bank is repaid when the retailer
settles with the wholesaler. The bank therefore undertakes the wait-
ing instead of the dealer.
In the foregoing illustration it was the wholesaler who procured
the loan from the bank. It may in fact, however, be any one or
several in the chain of buyers and sellers. The manufacturer, for
instance, instead of asking the wholesaler to pay cash could accept
a promissory note,- and then sell this note to a bank for cash, that
is, have it discounted. (3r the retailer might borrow from a bank
and pay cash to the wholesaler. Similarly, on the other side of the
circle, the commission merchant may pay cash to the local dealer,
borrowing from a bank for the purpose; and the retailer of the
foodstuffs may sell to his customers on credit, and borrow from a
bank while waiting for his returns. It is quite immaterial which
party procures the assistance of the banks ; though in practice it
usually becomes the custom for only certain ones in the chain to do
so. In this country it is usually the manufacturers and the commis-
sion merchants who pay cash.
The commercial structure which we have thus outlined is seen
to be very closely interrelated ; and it is because of this interde-
PROBLEMS OF THE BUSINESS CYCLE 215
pendence of factors that a "credit breakdown" has such far-reaching
consequences. The credit circle cannot be disrupted at any point
without more or less seriously disrupting the entire system. Sup-
pose, for instance, that a long drouth or heavy rains ruin the agri-
cultural produce and render it impossible for the future to pay the
retailer as promised. This affects the retailer's ability to pay the
wholesaler, and in turn the wholesaler's ability to pay the manu-
facturer, or his bank, and so on around the entire circle. Or sup-
pose a strikejn the manufacturing establishment should prevent the
manufacturer from filling his selling orders. It becomes impossible
for him to pay the producer on time ; and the latter in turn becomes
unable to meet his obligations as they become due. The halting of
the manufacturing process may compel the producer to restrict his
output of raw materials, and hence discharge laborers. This affects
the sales of the retailer of the farm produce, and hence his ability
to pay the commission merchant, and so on around the circle. Numer-
ous other examples of this sort might obviously be given.
Whenever there is a break in the delicate structure at any point,
there is always an attempt to stop the gap by calling upon the banks
for assistance. Whoever finds himself unable to pay on time rushes
to his banker for a loan. Indeed if there is but a well-grounded fear
that difficulties are likely to come, dealers often go at once to the
banks for loans in anticipation of trouble to come. Without going
into an analysis of the responsibility thus placed upon the banking
institutions, it should be emphasized that the success with which a
community may pass through a period of disrupted credit operations
depends upon the ability of the banks to expand their own credit
sufficiently to tide the commercial world over the emergency.
B. THE ECONOMIC CYCLE
95. The Sensitiveness of Industrial Society^
BY LEON C. MARSHALL
Our pecuniarily organized, interdependent society is naturally
enough a sensitive society, sensitive both to demand and to shock.
Almost any organization of society would be sensitive in some
degree to demand. In a socialistic society, for example, it is to be
expected that desires and demands would change from time to time
and that the industrial structure would be altered to meet the situa-
^ From Readings in Industrial Society: A Study in the Structure and
Functioning of Modern Economic Organization, pp. 415-16. Copyright by the
University of Chicago, 1918.
2i6 CURRENT ECONOMIC PROBLEMS
tion. How quickly the structure would be altered is another matter.
It is not probable that it would be altered as quickly as in our present
society. In a society organized on the gain basis bribes (sometimes of
tremendous size) are continually awaiting the early comers in any
readjustment, and punishments (sometimes of tremendous size) are
continually awaiting the laggards. Indeed, desire for gain even causes
us to stimulate new demands.
Any interdependent society will be sensitive to shock — this by
hypothesis. If the society is interdependent, one section cannot be
indifferent to the events occurring in another section. Of course dif-
ferent societies would be sensitive to shock in varying degrees. In
general terms an interdependent society organized on a pecuniary
basis is probably more sensitive to shock than would be a socialistic
society. The gain structure transmits the shock at a speed compara-
ble to the speed involved in the reactions of the nervous system. Even
more, in our society the shock may very well grow in the process of
transmission. The failure of a small business unit may very well
cause the failure of a large one, and this of one still larger, and so on
more or less indefinitely. It is probable that the shock could be more
readily confined to a relatively small territory in a small socialistic
community than is the case today.
In all of this there is, or should be, no implication of judgment
being passed. There are many respects in which it is fortunate and
many respects in which it is unfortunate that our society is exceed-
ingly sensitive both to demand and to shock. For our present purpose
the essential need is to see that our society is sensitive and to realize
that if we desire to retain the gains of society, organized in such a
way as to bring about this sensitiveness, we must be alert to cope
with the disadvantages.
96. The Rhythm of Business Activity^
BY WESLEY C. MITCHELL
With whatever phase of the business cycle analysis begins, it must
take for granted the conditions brought about by the preceding phase,
postponing explanation of these assumptions until it has worked
around the cycle and come again to its starting-point.
A revival of activity, then, starts with a legacy from depression :
a level of prices low in comparison with the prices of prosperity,
drastic reductions in the costs of doing business, narrow margins of
^Adapted from Business Cycles, pp. 571-79. Copyright by the author, 1913.
Published by the University of California Press.
PROBLEMS OF THE BUSINESS CYCLE 217
profit, liberal bank reserves, a constructive policy in capitalizing busi-
ness enterprises and in granting credits, moderate stocks of goods,
and cautious buying.
Such conditions are accompanied by an expansion in the physical
volume of trade. Though slow at first, this expansion is cumulative.
In time an increase in the amount of business which grows more rapid
as it proceeds will turn dullness into activity. Left to itself this
transformation is effected by slow degrees ; but it is often hastened
by some propitious event, such as exceptionally profitable harvests, or
heavy purchases of supplies by the government.
A partial revival of industry soon spreads to all parts of the busi-
ness field. For the active enterprises must buy materials and current
supplies from other enterprises, the latter from still others, etc. Mean-
while all enterprises which become busier employ more labor, use
more borrowed money, and make higher profits. There results an
increase in family incomes and an expansion of consumers' demands,
which likewise spreads out in ever-widening circles. Shopkeepers
pass on larger orders to wholesale merchants, manufacturers, im-
porters, and producers of raw materials. All these enterprises in-
crease the sums they pay to employees, lenders, and proprietors. In
time the expansion of orders reaches back to the enterprises from
which the initial impetus was received, and then the whole compli-
cated series of reactions begins afresh at a higher pitch of intensity.
All this while the revival of activity is instilling a feeling of optimism
among business men.
The cumulative expansion of the physical volume of trade stops
the fall in prices and starts a rise. For, when enterprises have in
sight as much business as they can handle with existing facilities,
they stand out for higher prices on additional orders. This policy
prevails because additional orders can be executed only by breaking
in new hands, starting new machinery, or buying new equipment.
The expectation of its coming hastens the advance. Buyers are
anxious to secure large supplies while the quotations continue low,
and the first signs of an upward trend bring out a rush of orders.
The rise of prices spreads rapidly ; for every advance puts pressure
on someone to recoup himself by advancing the prices of what he
has to sell. The resulting changes in price are far from even : retail
prices lag behind wholesale, and the price of finished products behind
the price of their raw materials. Among the last-mentioned the prices
of mineral products reflect changed business conditions more regu-
larly than do the prices of forest and farm products. Wages rise
more promptly, but in less degree than wholesale prices ; interest
rates on long loans always move sluggishly in the earlier stages of
2i8 CURRENT ECONOMIC PROBLEMS
revival, while the prices of stocks both precede and exceed commodity
prices on the rise.
In a great majority of enterprises larger profits result from these
divergent fluctuations coupled with the greater physical volume of
sales. For while the prices of raw materials and of bank loans often
rise faster than selling prices, the prices of labor lag far behind, and
the prices making up supplementary costs are mainly stereotyped by
old agreements.
The increase of profits, under the spell of optimism, leads to a
marked expansion of investments. The heavy orders for machinery,
the large contracts for new construction, etc., which result, swell still
further the physical volume of business, and render yet stronger the
forces which are driving prices upward.
Indeed, the salient characteristic of this phase of the business
cycle is the cumulative working of the various processes which are
converting a revival of trade into intense prosperity. Not only does
every increase in the volume of trade cause other increases, every
convert to optimism make new converts, and every advance in price
furnish an incentive for new advances ; but the growth of trade also
helps to spread optimism and to raise prices, while optimism and ris-
ing prices support each other. Finally the changes going forward
swell profits and encourage investments, while high profits and heavy
investments react by augmenting trade, justifying optimism, and rais-
ing prices.
While the processes just sketched work cumulatively for a time
to enhance prosperity, they also cause a slow accumulation of stresses
within the balanced system of business — stresses which ultimately
undermine the conditions upon which prosperity rests.
Among these is the gradual increase in the cost of doing business.
The decline in supplementary costs per unit ceases when enterprises
have secured all the business they can handle with their standard
equipment, and a slow increase in these costs begins when the expira-
tion of old contracts makes necessary renewals at higher rates. Mean-
while prime costs rise at a relatively rapid rate. The price of labor
rises both because of an advance in nominal wages and because of
higher rates for overtime. More serious is a decline in the efficiency
of labor, because of the employment of undesirables, and because
crews cannot be driven at top speed when jobs are more numerous
than men. The prices of raw material rise faster on the average than
the selling prices of products. Finally numerous small wastes creep
up when managers are hurried by the press of orders.
A second stress is the accumulating tension of investment and
money markets. The supply of funds available at the old rates fails
PROBLEMS OF THE BUSINESS CYCLE 219
to keep pace with the swelling demand. It becomes difficult to
negotiate new issues of securities except on onerous terms, and men
of affairs complain of the "scarcity of capital." Nor does the supply
of bank loans, limited by reserves, grow fast enough to keep up with
the demand. Active trade keeps such an amount of money in circu-
lation that the cash left in the banks increases rather slowly. On
the other hand, the demand for loans grows, not only with the physical
volume of trade, but also with the rise of prices, and with the desire
of men of affairs to use their own funds for controlling as many
businesses as possible.
Tension in the bond and money markets is unfavorable to the
continuance of prosperity, not only because high rates of interest
reduce the prospective margins of profit, but also because they check
the expansion of the volume of trade out of which prosperity de-
velops. Many projected ventures are relinquished because borrowers
conclude that interest would absorb too much of their profits.
The group producing industrial equipment suffers especially. In
the earlier stages of prosperity this group enjoys exceptional activity.
But when the market for bonds becomes stringent and the cost of
construction high, business enterprises defer the execution of plans
for extending old or erecting new plants. As a result contracts for
this kind of work become less numerous as the climax of prosperity
approaches. Then the steel mills, foundries, machine factories, lum-
ber mills, construction companies, etc., find their orders for future
delivery falling off.
The larger the structure of prosperity, the more severe become
these internal stresses. The only effective means of preventing dis-
aster while continuing to build is to raise selling prices time after time
high enough to offset the encroachment of costs upon profits, and to
keep investors willing to contract for fresh industrial equipment.
But it is impossible to keep selling prices rising for an indefinite
time. In default of other checks, the inadequacy of cash reserves
would ultimately compel the banks to refuse a further expansion of
loans on any terms. But before this stage has been reached, the rise
of prices is stopped by the consequences of its own inevitable inequali-
ties. These become more glaring the higher the general level is
forced ; after a time they threaten serious reductions of profits to
certain business enterprises, and the troubles of these victims dissolve
that confidence in the security of credits with which the whole tower-
ing structure of prosperity has been cemented.
In certain lines in which selling prices are stereotyped by law,
by contracts for long terms, by custom, or by business policy, selling
prices cannot be raised to prevent a reduction of profits. In other
220 CURRENT ECONOMIC PROBLEMS
lines prices are always subject to the incalculable chances of the
harvests. In some lines the recent construction of new equipment
has increased the capacity for production faster than the demand
for the wares has expanded under the repressing influence of high
prices. The unwillingness of investors to let fresh contracts threatens
loss not only to the contracting firms but to the enterprises from which
they buy materials. Finally the success of some enterprises in raising
prices fast enough to defend their profits aggravates the difficulties of
the men who are in trouble.
As prosperity approaches its height, then, a sharp contrast de-
velops between the business prospects of different enterprises. Many
are making more money than at any previous stage in the business
cycle. But an important minority faces the prospect of declining
profits. The more intense prosperity becomes, the larger grows this
threatened group. In time these conditions bred by prosperity will
force radical readjustment.
Such a decline of profits threatens consequences worse than the
failure to realize expected dividends. For it arouses doubt about
the future of outstanding credits. Business credit is based primarily
upon the capitalized value of present and prospective profits, and the
volume of credits outstanding at the zenith of prosperity is adjusted
to the great expectations which prevail when affairs are optimistic.
The rise of interest rates has already narrowed the margins of se-
curity behind credits by reducing the capitalized value of given profits.
When profits begin to waver, creditors begin to fear lest the shrinkage
in the market rating of business enterprises which owe them money
will leave no adequate security for repayment. Hence they refuse
renewals of old loans to enterprises which cannot stave off a decline
in profits, and press for settlement of outstanding accounts.
Thus prosperity ultimately brings on conditions which start a
liquidation of the huge credits which it has piled up. And in the
course of this liquidation prosperity merges into crisis. Once begun
the process of liquidation extends rapidly, partly because most enter-
prises called upon to settle put similar pressure on their own debtors,
and partly because news presently leaks out and other creditors take
alarm.
While this financial readjustment is under way, the problem of
making profits is subordinated to the more vital problem of main-
taining solvency. Business managers nurse their financial resources
rather than push their sales. In consequence the volume of new
orders falls off rapidly. The prospect of profits is dimmed. Expan-
sion gives place to contraction. Discount rates rise higher than
usual, securities and commodities fall in price, and working forces are
PROBLEMS OF THE BUSINESS CYCLE 221
reduced. But there is no epidemic of bankruptcy, no run upon banks,
and no spasmodic interruption of ordinary business processes.
Crises, however, may degenerate into panics. When the process
of liquidation reaches a weak Hnk in the chain of interlocking credits
and the bankruptcy of some conspicuous enterprise spreads unreason-
ing alarm, the banks are suddenly forced to meet a double strain — a
sharp increase in the demand for loans and in the demand for repay-
ment of deposits. If the banks meet both demands, the alarm quickly
subsides. But if many solvent business men are refused accommo-
dation at any price, and depositors are refused payment in full, the
alarm turns into a panic. A restriction of payments by banks gives
rise to a premium upon currency, to hoarding of cash, and to the use
of various unlawful substitutes for money. Interest rates may go
to three or four times their usual figures, causing forced suspensions
and bankruptcies. There follow appeals to the government for
extraordinary aid, frantic efforts to import gold, the issue of clearing-
house loan certificates, and an increase in bank-note circulation as
rapidly as the existing system permits. Collections fall into arrears,
workmen are discharged, stocks fall to extremely low levels, com-
modity prices are disorganized by sacrifice sales, and the volume of
business is violently contracted.
There follows a period during which depression spreads over the
whole field of business and grows more severe. Consumers' demand
declines in consequence of wholesale discharge of wage-earners. With
it falls the business demand for raw materials, current supplies, and
equipment. Still more severe is the shrinkage in the investors' de-
mand for construction work of all kinds. The contraction in the
physical volume of business which results from these shrinkages in
demand is cumulative, since every reduction of employment causes a
reduction in consumers' demand, thereby starting again the whole
series of reactions at a high pitch of intensity.
With this contraction goes a fall in prices. For when current
orders are insufficient to employ the existing equipment, competition
for business becomes keener. This decline spreads through the regu-
lar commercial channels which connect one enterprise with another,
and is cumulative, since every reduction in price facilitates reductions
in other prices, and the latter reductions react to cause fresh reduc-
tions at the starting-point.
The fall in prices is characterized by certain regularly recurring
differences in degree. Wholesale prices fall faster than retail, and
the prices of raw materials faster than those of manufactured pro-
ducts. The prices of raw mineral products follow a more regular
course than those of forest or farm products. Wages and interest
222 CURRENT ECONOMIC PROBLEMS
on long-time loans decline in less degree than commodity prices. The
only important group of prices to rise is high-grade bonds.
The contraction in the volume of trade and the fall in prices reduce
the margin of present and prospective profits, spread discouragement,
and check enterprise. But they also set in motion certain processes
of readjustment by which the depression is overcome.
The prime costs of doing business are reduced by the fall in the
prices of raw material and of bank loans, by the marked increases in
the efficiency of labor which comes when employment is scarce, and
by closer economy by managers. Supplementary costs are reduced
by reduction of rentals and refunding of loans, by writing down de-
preciated properties, and by admitting that a recapitalization has been
effected on the basis of lower profits.
While costs are being reduced, the demand for goods begins slowly
to expand. Accumulated stocks left over from prosperity are ex-
hausted, and current consumption requires current production. Cloth-
ing, furniture and machinery are discarded and replaced. New tastes
appear among consumers and new methods among producers, giving
rise to demand for novel products. Most important of all, the invest-
ment demand for industrial equipment revives. Capitalists become
less timid as the crisis recedes into the past, the low rates of interest
on long-time bonds encourages borrowing, and contracts can be let
on most favorable conditions.
Once these forces have set the physical volume of trade to ex-
panding, the increase proves cumulative. Business prospects become
gradually brighter. Everything awaits a revival of activity which
will begin when some fortunate circumstance gives a fillip to demand,
or, in the absence of such an event, when the slow growth of the vol-
ume of business has filled order books and paved the way for a new
rise in prices. Such is the stage of the business cycle with which the
analysis begins, and, having accounted for its own beginning, the
analysis ends.
C. THE COURSE OF A CRISIS
97. The Irrepressible Crisis^
BY W. H. LOUGH, JR.
We may make a list of twelve factors to be considered in sizing
up the present situation. They are arranged approximately in inverse
order to their immediate influence.
^Adapted from an article in Moody's Magazine, III, 586-92. Copyright,
April, 1907. This article was outlined in February, 1907, and barely missed
getting into the March number of Moody's, in which editorial mention of it
was made. Its statements as to financial weakness were, at least in part,
verified by the extreme declines in security values during the month of March.
PROBLEMS OF THE BUSINESS CYCLE 223
1. The state of the pubHc mind.
2. Production and volume of credit in extractive industries.
3. Production and volume of credit in manufacturing industries.
4. Production and volume of credit in transportation industries.
5. Output of mortgages and bonds.
6. Output of credit currency.
7. Output of loans and discounts.
8. Output of book credits.
9. Trend of general prices.
10. Treasury and bank reserves of cash.
11. Output of gold.
12. Tendency of foreign exchange.
If we could get complete and accurate information about each
one of these twelve factors we could come to some definite and prac-
tically certain conclusion as to the business future. Suppose we try
to sum up briefly the data available at present about each of the factors
named.
1. It is obvious that neither over-confidence nor speculative
mania is or has been especially strong. On the coutrary, intelligent
opinion is notably conservative. Retrenchment, not headlong expan-
sion, is the order of the day. Land booms have been reported from
various parts of the country, but apparently they have not been
attended with the excitement that has existed in such cases at other
times.
2. The extractive industries, agriculture and mining, have made
new records in volume of production in the year just passed without
interfering with prices to any marked extent. The yields of corn and
winter wheat were greater than ever before. Other crops were, on
the whole, extraordinary, and 1906 came as the climax of several
previous years of large agricultural output. The prospects for 1907
are favorable.
3. Manufacturing industries, as is well known, have made great
strides in the last three years. To take two examples which happen
to be at hand, we find new buildings contracted for in 1906 worth
$750,000,000, and we find an output of 25,000,000 tons of pig iron
in 1906, against 23,000,000 tons in 1905, the best previous year. The
pig iron was used largely for structural steel and railroad equipment.
A falling off in the demand for these two products would undoubtedly
affect a great amount of outstanding securities, and short-time credit.
In the opinion of excellent judges, a decline in the demand is already
at hand, and will in all probability become more evident as the year
progresses. As to other lines of manufacturing we may say, in gen-
eral, that production is large and increasing, but apparently not yet
excessive.
224 CURRENT ECONOMIC PROBLEMS
4. New railroad trackage built in 1906 reached a total of over
6,000 miles ; but this new mileage is nothing compared to that con-
templated for the next few years. The Northwestern railroads are
especially active, and in that region the "era of competitive railroad
building," predicted by E. H. Harriman, is at hand. What the effects
will be on the large volume of new railroad stocks remains to be seen.
Within the last two months railroad managers have begun to move
a little more slowly in extending and improving their lines. Never-
theless railroad rebuilding and enlargement is still progressing on a
great scale, for transportation facilities are plainly inadequate.
5. In considering long time debts, we should note first the strik-
ing unpopularity of bonds with the investing public. The reluctance
of investors to put their money into mortgages and bonds is, of course,
a natural result of high prices and big semi-speculative profits, which
make bond returns look small.
6. In the amount of credit currency issued by the government
we find, of course, no important change in the last few years. The
volume of bank notes outstanding, however, has steadily increased
from $172,000,000, in 1894, to about $585,000,000 now. The fact
that the increase has been brought about by more liberal laws and
by the lowered price of government bonds, rather than by business
demands, naturally leads us to suspect its stability.
7. The present status of bank loans and discounts is best indi-
cated by the following totals of this item for all national banks : 1896,
$1,873,000,000; 1900, $2,710,000,000; 1906, $4,300,000,000. These
are most surprising figures in view of the comparatively slight in-
crease in population and real capital during the same period. They
grow more astonishing still when we think of the great increase
in other banking business during the last ten years. The rate of in-
crease would be almost beyond belief if the figures were not thor-
oughly trustworthy.
8. Under the term "book credits" I mean to include all the great
body of accommodation extended by merchants to individual custom-
ers and by wholesalers to retail firms. Of course it is impossible to
compute its amount. All we can say is that, beyond question, it must
exceed in volume anything that this country has ever previously
known. If a wave of credit restriction should set in, a great many
individuals and firms would be compelled to shorten sail in a hurry.
9. The trend of general prices in the last few years is too well
known to call for much discussion. Dun's index numbers for a few
years past are as follows: 1897, 75.5; 1898, 79.9; 1899, 80.4; 1900,
95.3; 1901,95.7; 1902, 101.6; 1903, 100.4; 1904, loo.i; 1905, 100.3;
PROBLEMS OF THE BUSINESS CYCLE 225
1906, 105.2. These prices are the inevitable result of the output of
gold and of credit during this period.
10. The total gold coin and certificates in circulation in the
United States was, in 1896, $497,000,000; in 1900, $811,000,000; in
1906, $1,263,000,000. The total national bank reserves of lawful
money, in September, 1896, was $343,000,000; in 1900, $520,000,000;
in 1906, $626,000,000. The ratio of cash on hand to deposits at
corresponding periods of the last few years has been : 1896, 19.1% ;
1900, 15.9%; 1901, 147%; 1902, 13.2%; 1903, 14.3%; 1904, 15%;
1905, 14%; 1906, 12.7%. Looking over the banking field, we see
a general downward tendency in the proportion of cash reserves to
the credit piled up on the reserves. Unless the downward tendency
be reversed, according to all experience, the result will be disastrous.
It is in order, then, to see what the prospect is of relieving the situa-
tion by large additions of cash.
11. The Annual gold production of the world has increased from
$202,000,000, in 1896, to over $400,000,000, in 1906, and the outlook
is for a still greater production next year. But, sooner or later, the
rising tide of prices is certain to cut off the less profitable production
and lead to a restriction of output.
12. We turn, as a last source of temporary relief, to the other
commercial nations in the hope that from them the United States
may draw additional supplies of gold. The principal foreign banks
of the world are estimated to hold about $4,000,000,000 specie, in-
cluding both gold and silver. The whole commercial world seems
deluged with prosperity. No nation and no bank has too much gold.
On the contrary, every one is reaching eagerly for more on which
to base an enlarged issue of credit. American banks will seek in
vain in foreign markets for sufficient additions to their cash reserves.
The experience of the last hundred years indicates that the forces
now at work are driving us straight toward a crisis — and I mean
by crisis not a Wall Street flurry, such as we have lately seen, which
may come at any time from purely local influences, but a general,
temporary breakdown of industry. With credit everywhere ex-
panded to the danger point, we are in a position from which only
two means of escape are possible. One is a large and rapid increase
in our gold reserves, which is out of the question. The other is a
progressive restriction of credit, necessarily gathering momentum
as it proceeds, which is another name for crisis. Just when or how
the wave of credit withdrawals will start no one can tell. A big
failure or a rash bit of legislation, or any one of a hundred incidents,
which under normal conditions would do little harm, might set it
going.
226 CURRENT ECONOMIC PROBLEMS
So long as the decisive incident does not occur — and, of course,
it may not come very soon, possibly not for two or three years —
prices keep on rising and credit keeps piling up. For that reason the
longer it is delayed the harder jolt it is likely to give.
98. The Arrested Crisis of 1907«
BY EDWIN R. A. SELIGMAN
The crisis of 1907 is on the whole not comparable in magnitude
to that of 1857 or that of 1873. The reasons for this may be classified
under five heads.
In the first place, the very magnitude of the country's resources
has been a favorable factor. The unparalleled prosperity of the last
decade has made possible the accumulation of vast reserves, not only
by great corporations, but also by average business men. This re-
serve has acted as a buffer to the shock of reaction and has softened
the impact through a speedy restoration of confidence in the excellence
of the country's assets and in the real solvency of business.
Secondly, the crops have been large and valuable. It must be
remembered that, notwithstanding all recent developments, this coun-
try is still primarily agricultural and that upon our great crops de-
pends in large measure the effective demand which sets and keeps
in motion the wheels of business activity. By a fortunate coincidence
the crisis was attended by a phenomenon which in ordinary times
would have spelled prosperity, and which helped to bring back normal
conditions.
In the third place, the overcapitalization of values was somewhat
less conspicuous than hitherto in transportation. Some former crises
have been brought on primarily by the speculative building of rail-
roads. During the past five years the annual increment of construc-
tion has been only four or five thousand miles. The consequence has
been that with the rapid upbuilding of the country the railways have
grown up to their capitalization. For some time there has been
scarcely any overcapitalization. A striking proof of the absence of any
real discrepancy between normal values and capitalization of earn-
ing capacity is afforded by the congestion of traffic a year or two ago.
Fourthly, the crisis was preceded by a period of gradual liquida-
tion. General prices of commodities, with a few notable exceptions,
like that of copper, were indeed high until well-nigh the outbreak
of the panic. But the price of securities had for some time under-
gone a marked shrinkage. This was caused chiefly by the rise in
^Adapted from "The Crisis of 1907 in the Light of History," in The
Currency Problem and the Financial Situation, pp. xx-xxv. Copyright by the
Columbia University Press, 1908.
PROBLEMS OF THE BUSINESS CYCLE 227
the rate of interest. In fact the one phenomenon is really the other;
for where earnings remain unchanged, the capitalization of the earn-
ings depends upon the rate of interest.
The rise in the interest rate was due in part to the increase in
the gold output ; for an increase in the supply of standard money
raises not only the price level of all commodities, but the price of
the use of capital, which we call the general rate of interest. In part
the increase was due to the relatively smaller amount of capital availa-
ble for investment. The fund of free capital has been diminishing
for the last few years. Hundreds of millions were destroyed by the
Boer and Japanese wars ; hundreds of millions more disappeared
through the destruction of San Francisco and Valparaiso ; and count-
less millions in addition have been utilized to finance the more or less
dubious schemes which have sprung up in all countries during the
years of prosperity. Despite the lack of general overcapitalization,
the discounting of the future was not ample, and the capital was
invested more rapidly than the immediate returns would warrant.
The replacement fund, in other words, was neither quite large enough
nor quite active enough ; and with the gradual exhaustion of the
available free capital, interest rates necessarily rose and security
values as a consequence fell.
The period of liquidation was thus a fortunate event. By check-
ing the movement of exaltation, and preventing the level of prices
from being so extreme, it kept the reaction from being so great.
Where the crest of the wave is lower, the shock of the break is less.
Had the ascent of prices and values gone on unhindered, the con-
vulsion would have been far more severe.
The fifth and final cause of the lesser magnitude of the crisis is
the development of trusts. As against the undoubted perils associated
with the newer type of business organization, we must put at least one
countervailing advantage. The modern trust is likely to exert an
undeniably steadying influence on prices. Precisely because of the
immense interests at stake, and the danger of a reaction, the ably
managed trust tends toward conservatism. As compared with the
action of a horde of small competitors under similar conditions, it is
likely during a period of prosperity to refrain from marking up
prices to the top notch, and to make a more adequate provision for the
contingencies of the market. With this is likely to be associated a
greater provision, which succeeds in a more correct adjustment of
present investment to future needs. The drift of business in its
newer form is thus toward a relative checking of the discrepancy
between estimated and actual earnings, or, in other words, toward a
retardation in the process of overcapitalization. The influence of
228 CURRENT ECONOMIC PROBLEMS
trusts in moderating crises and in minimizing depressions will doubt-
less become more apparent with each ensuing decade.
99. The Course of the Panic of 1907^
BY RALPH SCOTT HARRIS
In July, 1907, it was felt in every circle that business trembled
on the edge of an abyss. A continued money stringency forced Sec-
retary Cortelyou in August to make deposits in banks and accept as
security state, municipal and railway bonds. Beginning in September
there was a tone of ill-concealed fright among the most hopeful.
Only the financial papers attempted to coax themselves back into the
old confidence. During the second week in October call loans in
New York ranged from 2^ to 6 per cent; time loans from 6 to 7
per cent; commercial paper from 7 to 7^ per cent. In these two
weeks there were twice as many failures as in the same period of
1906. There were five times as many manufacturing failures in
September, 1907, as in September, 1906.
A series ^f bank failures precipitated the spectacular part of the
crisis. The first intimation of upheaval was the failure of the stock
exchange firm of which Otto C. Heinze was the head. The suspen-
sion was due to a failure to comer the copper market. There was a
well-defined suspicion that F. Augustus Heinze, president of the
Mercantile National Bank, was interested in his brother's ventures,
and that the bank was being "used" in this connection. He and his
supposed allies fell into public distrust. Seven banks and a trust
company with capital of $21,000,000 and deposits of $71,000,000
were dominated by these interests. Believing them able to weather
the storm, the clearing-house association agreed to help them out if
Heinze and his associates were eliminated. This was done. A few
days later, however, the National Bank of Commerce refused to clear
any longer for the Knickerbocker Trust Company, whose president
was thought to be allied with the suspected interests. The result was
a run on the Knickerbocker Trust Company, which, after paying
out $8,000,000 in three hours, closed its doors. Runs followed on
the Lincoln Trust Company and on the Trust Company of North
America. Following several conspicuous commercial failures, other
banks in New York closed for safety's sake.
Meanwhile the money scramble began. Banks were forced to
try to call in loans in order that they might be prepared for the
^Adapted from Practical Banking, pp. 250-57. Copyright by the author.
Published by Houghton, Mifflin & Co., 1915.
PROBLEMS OF THE BUSINESS CYCLE 229
demand of banks and individual depositors. The Secretary of the
Treasury deposited $35,000,000 in national banks in New York in
four days.
Stock exchange prices collapsed. A syndicate, headed by the
late J. P. Morgan, stated that it would stand under the market, and
placed $25,000,000 on call at 10 per cent ; later $10,000,000 was made
available at 50 per cent, the high price being fixed to discourage
speculation. Soon the banks began to restrict cash payments ; clear-
ing-house loan certificates were issued. The demand for cash started
a premium on currency the next week which continued the rest of the
year. It offered an incentive for withdrawal of deposits. Large
failures occurred as the result of the money stringency. On Novem-
ber 9 arrived the first large shipment of more than $100,000,000 in
gold, imported to relieve the money stringency. The banks had
already increased their circulating notes at this time.
But in the meantime the panic had seized the interior. Banks in
most of the cities, over 25,000, suspended cash payments. The clear-
ing-house stood guaranty on certificates. It is estimated that over
$500,000,000 of substitute paper was issued. The country banks,
having no clearing-house affiliations, suffered most. Many failures
occurred among them.
Shipments of money to the west were made from New York.
These varied from $4,400,000 for the week ending October 19, to
$22,600,000 for the week ending November 16. In the week ending
January 4 the tide turned and $5,500,000 was shipped to New York.
The New York banks supplied the country with $125,000,000 between
the beginning of the panic and the first of 1908. Still the reserves
of the clearing-house banks were not seriously depleted, the im-
portation of gold and the federal deposits having almost offset the
loss of cash.
Domestic exchange was paralyzed, New York drafts selling from
sixty cents discount to ten dollars premium in different parts of the
country. As for foreign exchange, the ordinary rules applying were
suspended. Drafts on London were bought when the export point
had been passed, the reason prompting buyers being their ability to
sell gold at a premium.
Common stocks fell, as did preferred stocks and bonds, although
not to so low a point. By the first of the year securities took a
brighter outlook on life. To sustain the stock market, the national
banks increased loans and discounts some $63,000,000 between the
last of August and the first of December. This was in addition to
the syndicate pool of $35,000,000 previously mentioned.
230 CURRENT ECONOMIC PROBLEMS
Perhaps the panic could have been localized had New York bank-
ers been able to meet all demands without restriction. But restric-
tion inspired country banks with a zeal to provide for any disaster.
Hoarding followed. In December most country banks had higher
reserves than at the beginning of the panic. The question which
each country banker asked himself was, Can I afford to be less
cautious than other bankers when I know the psychology of "panics"
and "runs"?
Failures drop thick and fast when the panic is past. The finan-
cial battlefield is gory with the slain and, what is more, the trampled.
Failures after the depression sets in are larger and more important.
From 3,645 failures in the last three months of 1907, bankruptcies
increased to 4,909 in the first quarter in 1908.
100. The Order of Events in a Crisis^"
BY ARTHUR T. HADLEY
The order of events in a crisis is generally this :
1. A shock to public confidence in a period of liberal, not to
say inflated, credit, creates a demand for ready money. No one is
sure that his neighbor will remain solvent. Each man is therefore
anxious to secure himself against future loss. Every borrower seeks
means of paying his obligations and increases the demand for money ;
almost every capitalist tries to enlarge his cash reserves and thus
lessens the available supply.
2. This increase of demand and diminution of supply at first
puts up the interest rate on short-time loans. Money is needed to
tide over the immediate exigency, and every one is willing to pay
large prices in order to obtain it. But this is only a temporary meas-
ure. Under the stress of need for securing money, people who have
engagements to meet sell their goods at a sacrifice in order to obtain
it. An unusually large supply of products and securities is thrown
upon the market just at the time when many property owners feel
themselves least able to invest, and when some consumers are restrict-
ing their purchases instead of expanding them. The temporary in-
crease in the interest rate gives place to a more lasting fall in prices.
3. Such a fall in prices lowers profits. A large number of people
have made engagements with their creditors and with their employees
based on the supposition that prices will continue at the old level.
A fall in price renders it impossible to pay interest out of current
^"Adapted from Economics, pp. 297-99. Copyright by G. P. Putnam's Sons,
1896.
PROBLEMS OF THE BUSINESS CYCLE 231
earnings. Readjustments and foreclosures follow one another in
rapid succession. In cases where the lenders of money have obtained
proper security the contracts are maintained at the expense of the
principal of the borrowers. If a railroad bond is really secured by
stock behind it, the loss falls on the stockholders, and the bondholders,
ultimately at any rate, receive all that the interest contract calls for.
But if, as frequently happens, the security has been a delusive one, the
lenders are compelled to assent to a reduction of the interest which
they believe to be safely guaranteed.
4. When the interest contracts have been in large measure re-
adjusted, the chief effect on wages begins to make itself felt. It
might be supposed, on general grounds, that a fall in price would
affect the laborer sooner than the investor. But in the early stages
of a commercial crisis the capitalist is not in a position to dictate
terms to his laborers. He must make goods and sell goods at any
price, in order to keep his head above water. As long as it lasts,
the cut-throat competition which lowers profits prevents the demand
for labor from being very rapidly lessened. It is when readjustments
of interest have been made that the laborers' condition becomes worse.
After foreclosure sales have been completed and capital is reorganized
on a new basis, no capitalist is necessarily compelled to work at a
loss, and some probably go out of work altogether. Under these cir-
cumstances the demand for labor becomes appreciably less than it
was, and the price offered falls rapidly.
The first moderate changes are as a rule accepted by the laborers
as inevitable, but as reductions become more sweeping they are re-
sisted, particularly because house rents and consumers' prices, owing
to the inertia of retail trade, do not fall nearly as fast as producers'
prices. The workman sees his wages reduced because his employer
cannot sell goods at the old figure, while the price that he pays for
his supplies remains nearly the same. He thinks that something is
wrong and strikes. This usually indicates the beginning of the end
of a commercial crisis. It has become a proverb in the financial
world that railroad strikes give no help to those who are trying to
depress the price of securities.
On the contrary, in spite of the losses attending such conflicts, it
has been found in 1877, 1885, and 1894 that the price of securities
in general began to go up at the very time when matters seemed to
be at their worst. There are two reasons for this. First, strikes
cut down production in any given line to such an extent as to enable
competing producers to dispose of their products or services more
readily. Second, strikes indicate that wage contracts, as well as in-
terest contracts, have been readjusted to the price conditions which
232 CURRENT ECONOMIC PROBLEMS
prevail, and that matters have therefore reached a point where specu-
lators can make arrangements for the future with the assurance that
the marginal price charged by labor and capital for their services
does not exceed the market price which the consumers are likely to
pay for the results of such service.
D. INDUSTRIAL CONDITIONS DURING A
DEPRESSION
101. Panics versus Depressions"
BY GEORGE H. HULL
Panic is defined as "a sudden, unreasoning, overpowering fear,
especially when affecting a large number simultaneously." A "finan-
cial panic" is, therefore, the efifect produced upon the finances of a
country by sudden, unreasoning, and overpowering fright.
Depression is defined as "a state of dulness or inactivity ; a pro-
tracted season when business falls below the normal." "Industrial
depression," therefore, means literally a state of dulness or inactivity
in the industries of the country ; a protracted season during which
the production of buildings, furniture, goods, machinery, etc., falls
below the normal.
A financial panic is precipitated by sudden, excited, and imprudent
action. An industrial depression is precipitated by deliberate, thought-
ful and prudent inaction. One is the result of mental excitement,
which results in a temporary check to a natural flow of the media of
exchange. It is a mental disorder. The other is the effect of calm,
deliberate consideration, which results in reducing the rate of pro-
duction of materials of physical wealth. It is a physical disorder.
A financial panic is an acute malady. Its beginning is sudden,
intense, vivid, and startling. Its chief element is fright. It par-
alyzes finances at a single blow. Each subsequent step in its course
is an alleviation. Each day, week or month shows a marked recovery.
From its nature and intensity it is short-lived.
An industrial depression is a stubborn, chronic malady. Its begin-
ning is gradual and quiet. It commences and goes on increasing in
force for many months, unnoticed. Its cause is silently doing its
fatal work while actual business is increasing by leaps and bounds.
When actual depression appears, its cause has almost ceased to exist.
From its nature and its deep-seated growth industrial depression is
long-lived.
i^Adapted from Industrial Depressions, pp. 18-20. Copyright by Frederick
A. Stokes Co., 191 1.
PROBLEMS OF THE BUSINESS CYCLE 233
A financial panic is usually a matter of a few months, weeks, or
days. An industrial depression is usually a matter of one or more
years.
A financial panic may be compared to a mob, in which a great
number of excited minds work upon and incite each other until
men act in a body as no one of them would act if left to himself.
Industrial depressions, on the other hand, are the cumulative results
of the deliberate and thoughtful decisions of individual men.
These two calamities can be classed together only because the
results of each have a disastrous effect upon business. A panic has
an effect which is short, exciting, and a temporary disaster, not to
existing material wealth, but to the documentary representatives of
wealth ; a loss from which the country may entirely recuperate with-
in a short time. The other is a compulsory laying down of the tools
which produce wealth, by a vast army of wealth-creators ; a loss
that can no more be regained than a lost day or year can be regained.
102. The Extent of the Depression of 1907-812
A few facts and figures will indicate the extent of the present
industrial depression. Bank exchanges at all the leading cities of
the United States were $2,073,910,424 for the week ending January
30, 1908, a decrease of 23.3 per cent compared with the correspond-
ing week of 1907, and 37.2 per cent compared with the corresponding
week of 1906. The decrease in New York and Philadelphia exceeded
28 per cent, compared with 1906, and was greater than in any other
cities.
For the first two weeks of January, 1908, gross earnings of rail-
r^ds were about 13 per cent less than in 1907. For the last week in
December they were 15.52 per cent below those of 1906. For the
entire month of December gross earnings were 1.13 per cent, while
net earnings were 17.46 per cent less than were those for December,
1906.
Transactions of the New York stock exchange amounted to
16,634,817 shares, compared with 22,712,420 in January, 1907. The
decline in the prices of commodities in the last few months has been
about 10 per cent.
The sharp falling off in the net earnings of the United States
Steel Corporation in the last quarter of 1907 show the remarkable
decline in industry. The net earnings fell from $17,052,211, in Oc-
tober, to $10,467,253, in November, and to $5,034,531, in December.
This is a decline of over 70 per cent.
1- Adapted from an editorial in Moody's Magazine, V, 151-54. Copyright,
January, 1908.
234 CURRENT ECONOMIC PROBLEMS
The unparalleled number of idle cars affords a barometer of our
industrial condition. Today there are approximately 320,000 freight
cars and 8,000 locomotives standing idle, representing an invest-
ment of more than $400,000,000, and there are more than 30,000
unemployed trainmen. And yet three months ago there were not
enough railroad cars to move the traffic of the country.
The money market affords one of the best barometers of the
great change that has come over the industrial situation. From a
deficit of $54,103,600 on November 23, in the surplus reserves of
the New York Associated Banks, there was a surplus of $40,626,725
on February i. From rates of 25 per cent or more, last fall for call
money, we now have rates of less than 2 per cent. From rates of
from 7 to 12 per cent for time money last fall, we now have rates
of from 4 to 45^ per cent on stock exchange collateral, and from 5 to
6 per cent on commercial paper. The return of hoarded money and
the slackening demand for money in industrial and commercial opera-
tions are mainly responsible for this sudden transformation of the
money market.
Already gold exports have begun from this country. They may
reach a considerable volume before next July. Money rates, how-
ever, may be expected to remain about as at present. Money rates
are being followed by rising prices for bonds and other secure
securities. During January the price of bonds rose about twice as
much as the price of common stocks. Under existing conditions
investors find bonds very attractive in view of the uncertainty of
the situation. Many interior banks have put their idle funds in
bonds on account of the comparatively high interest return they
can secure by such a course.
E. WAR AND THE CYCLE
103. The Beginning of the War^^
The entrance of the United States into the war has caused ad-
vances in prices, greater demand for goods, and greater scarcity of
materials in many lines of trade. Manufacturing plants are running
as fully as the supply of labor and of materials will permit. The
problem of deliveries has been very annoying because of the limitation
of output and troublesome transportation conditions.
The labor situation has become very acute. It hampers not only
the manufacturers, who are under the necessity of turning out iron
and steel, ammunition, clothing, textiles, and other products in greater
13 Adapted from "General Business Condition, District No. 3 — Phila-
delphia," in Federal Reserve Bulletin (May i, 1917), pp. 385-86.
PROBLEMS OF TBE BUSINESS CYCLE 235
quantity than ever before, but it is also greatly retarding the basic
industries, such as agriculture and mining.
There is a patriotic desire on the part of the people in the agricul-
tural sections to do their full duty toward producing the maximum
amount of foodstuffs; but, on account of the high price and the
scarcity of fertilizers, the high price of seed, and the scarcity and
high wages of labor, it appears that the acreage planted to food crops
cannot be materially increased. Owing to enlistments and to the
transfer of labor from farming to the more lucrative employment in
munitions, the farm labor shortage has become so acute that there is
grave doubt that farmers can cultivate and harvest a crop as large
as last year.
In particular trades, canners have disposed of most of their old
pack and prices have been advancing. Department stores report that
trade is extremely good. The wholesale grocery trade is having dif-
ficulty because of excess demand for goods. The continued high
price for coal is having a marked effect upon the cost of iron and
steel production. The immediate prospect of large government bor-
rowings is causing hesitation in the investment of funds. Sales of all
kinds of securities have fallen off and prices have declined.
104. Eight Months Later'*
Current reports indicate substantial progress in war organization
without serious disruption or diminution of general activity and pros-
perity. Unsatisfactory transportation conditions continue and indi-
cate that more rapid adjustment is to be made if the strain upon the
railroads is to be lessened and serious congestion avoided. Industries
essential to war preparations are seriously hampered, especially the
coal-mining industry and through it all manufacturing.
The general comment indicates active and prosperous business.
Agricultural implements are selling well at prices substantially higher
than normal. Activity in machinery manufacture continues un-
abated, supported largely by government orders. Demand for rail-
way, mill, and mining supplies is lessened slightly. Building-trade
materials are purchased only for limited immediate requirements.
The absolute necessity of increased housing facilities in factory and
shipyard centers has led to special efforts toward construction of
this kind.
Sustained activity is the report from the textile and clothing
industries. Manufacturers of cotton textiles are hampered by dif-
ficulty in obtaining raw cotton promptly, and particularly by the
^* Adapted from "General Business Conditions, District No. 2 — New
York," in Federal Reserve Bulletin (December i, 1917), PP- 960-61.
236 CURRENT ECONOMIC PROBLEMS
problem of the labor supply. Buying demand is excellent, with a ten-
dency not to question prices, buyers trading for months ahead. Silks
are readily selling and with no sign of diminishing demand. Further
evidence of the absence of rigid economy is furnished by the heavy
volume of sales of jewelry and watches.
Interior decorators and house-furnishing companies are exper-
iencing a recession of business. The paper manufacturers are having
a good volume of business, though with narrowing profit, because of
increased cost of labor, fuel, and wood. There is considerable un-
settlement in the drug and chemical lines, with demand better than
supply.
Conditions in the metal trades are very uneven. Practically all
the copper produced in this country is now being taken by the gov-
ernment. Production of lead, on the other hand, has outrun con-
sumption. The oil industry reports an upward trend in prices of
lubricating and fuel oils, but no recent change in the price of gaso-
line or burning oils.
Conditions in relation to food stuffs continue little changed, buy-
ing being careful and for immediate needs only, with prices steady at
levels considered high by the trade. For the past six weeks there
has been a considerable shortage of sugars.
105. The Winter of 1917-18^5
It is gradually becoming possible to discern a distinct line of de-
m.arkation between industries which are essential and those which are
not. This district, like the whole country, is on a war basis. Con-
servation orders, fixation of maximum prices, and the recent fuel
order, bring personally to every man and woman a vivid realization
that this war is a serious business, requiring the co-operation of all
resources and the co-operation of every citizen. This is reflected in
the diminishing volume of business in luxuries.
Heavy snowfall in this district completely paralyzed transporta-
tion for practically two days and greatly aggravated the already
serious shortage of coal at industrial centers and elsewhere. The
coal situation has been a cause of anxiety for months. Stocks were
low and many large consumers were able to maintain only small sup-
plies sufficient for a few days. With the complete tie-up of the
railroads even these surpluses were wiped out and this district found
itself in a coal famine. Radical steps had to be taken and the recent
edict of the fuel administrator forbidding the use of coal for a period
15 Adapted from "General Business Conditions, District No. 7 — Chicago,"
In the Federal Reserve Bulletin (February i, 1918), pp. 120-22.
PROBLEMS OF THE BUSINESS CYCLE 237
of days, except by essential enterprises, should furnish a means of
replenishing depleted coal bunkers.
Necessary industries of the district have in general been working
to capacity, meeting the shortage of fuel, material, and transportation
with the means at hand.
There continues to be a scarcity of labor. Wages are the highest
ever paid. The demand is so great in some localities that it has been
found impossible to house the necessary men. Very little wage dif-
ficulty is experienced.
Quiet reigns in the investment market, the chief subject of in-
terest being government financing. Bank deposits are high through-
out the district. Rates hold firm and no softening is anticipated.
In many cases automobile manufacturers have turned to gov-
ernment work.
As there has been no distillation of beverage spirits since Septem-
ber 8, 191 7, distillers are disposing of accumulated stocks and at
high prices. Dry-goods houses report a good volume of sales, the
preference running to necessities. Speculative purchases are still a
factor of volume. Collections are fair to good.
Conditions in the grain business are extremely unsatisfactory.
Because the bad weather has hampered car movement, grain re-
ceipts have been reduced to a minimum. The result is that farmers
hold enormous amounts of grain which they are unable to market,
while different localities throughout the country are suffering.
Wholesale grocers report satisfaction with the volume of sales.
Prospects for business in the hardware line are reported good.
Jewelry houses succeeded in maintaining sales for December at
normal. The leather industry is active where government orders have
been placed, but quiet in civilian lines. Prices in the live-stock market
have eased somewhat. The railroad situation has eased receipts at
the yards temporarily. Lumber for building is not in demand to an
appreciable extent. Mail order houses report their usual increase in
volume of sales.
Piano orders are fair in number, but show a decided drop from
last year. About half of the woolen and worsted factories in the
country are employed at government work. This had tended to ad-
vance prices materially for civilians. Mills are offering for future
sale the highest priced fabrics ever known, and these prices are being
met as purchasing power is strong, due to high salaries and wages.
The usual inventory sale is not so much in evidence this year, re-
tailers being unwilling to sacrifice goods which they can replace only
at higher figures. Clearings in Chicago are less than for the cor-
responding days of the month a year ago.
238 CURRENT ECONOMIC PROBLEMS
106. The End of the War^«
Important changes in the business and financial situation have
occurred during the month of December, The transition from a war
to a peace basis is now in full swing and numerous modifications in
the organization of business are now under way. Reports show
that the following significant factors may be enumerated :
1. Far-reaching modifications of government control over in-
dustry, transportation, manufacture, and prices.
2. Extensive cancellation of government contracts for manu-
facture and purchase of war goods.
3. Displacement and readjustment of labor resulting from the
suspension of war production and the absorption of labor in indus-
tries which have thus far suffered from shortage.
4. Changes in the volume of trade, indicating on the whole a
slight decrease in volume.
5. Revision of prices with considerable shrinkage in specified
articles and on the whole a distinct though slight downward tendency.
6. Expansion in demand for banking accommodations and for
capital.
In general the transition has thus far proceeded with considerable
smoothness. Such slackening as has occurred is due to conservatism
and is an outcome of a desire on the part of producers to know more
of public policies and the probable trend of business.
Thus far the readjustment of labor to new conditions has caused
little inconvenience or difficulty. Labor set free by the war has been
steadily absorbed by general business. The principal effect thus far
has been the relief of a previously existing shortage. There is still
an excess of demand at many points. Costs have altered but little,
and the high expense of living has made employers feel that it was
incumbent upon them to maintain wages.
From the productive standpoint conditions continue to be satis-
factory'' in most staple lines. Agriculture is reported to be in an ex-
ceptionally promising condition. In the South the farmer is holding
his cotton for better prices and is marketing his output conservatively.
Excellent crop prospects are reported from the south and west. In
the live-stock region conditions are much improved.
Iron and steel, so frequently taken as an authoritative index of
business conditions, are unsettled on account of the cuts that have
already been made and the expected new price basis for them. The
market for steel is quiet. The output for coal is again moving up-
16 Adapted from "The Business and Financial Situation in December,
1918," in the Federal Reserve Bulletin (January i, 1919), pp. 10-13.
PROBLEMS OF THE BUSINESS CYCLE 239
ward, car service has improved in certain sections, and labor condi-
tions are reported fairly satisfactory.
In manufacturing the outlook is by no means uniform. Freight
is moving fairly well. Munition industries have largely reduced their
activity. Machine tool manufacture is slowing down on account of
the cancellation of government orders. Cotton and wool mills have
been running full, but the end of unfilled orders is now approaching
and but little new business is being placed. There has been an in-
crease in retail trade, due to the holiday season and to a relaxation
of war economies.
Prices on the whole have shown only slight changes. There has,
if anything, been an advance in the prices of consumers' goods, while
raw materials have shown a disposition to decline. The average
level of prices appears to be past the peak, but as yet with only a
slight movement downward.
On the whole a general review of industrial and commercial con-
ditions points to a distinct trend toward a normal or peace basis.
While there are substantial alterations of conditions in particular
lines, a good volume of output in the staple articles of commerce is
still maintained.
107. Production and Prices
Much interest attaches to the problem of how far the rapidly
expanding volume of business in the last six years has been due to
an increase in the volume of physical goods produced and how far
it represents merely a rise in prices.
On account of the scantiness of statistics of production this prob-
lem cannot be studied in a thoroughly satisfactory manner. The best
line of attack is to take production and import figures of staple raw
materials and interpret the results on the assumption that the total
amount of all goods produced varies roughly as the quantity of these
raw materials produced in or imported into the United States .
To this end estimates of production, or imports, or production
plus imports, as the case required, have been made for ninety staple
commodities. This estimate has been made by years for the six year
period 1913-1918. Three series of indexes have been computed.
The first indicates the increase in the physical volume of production ;
the second, the increase in the price of the article ; and the third
reflects the combined effect of increase in output and rise in prices
for the period under review. In all three series commodities are
classified as coming from farms, forests, or mines. In these com-
putations 1913 is taken as the basis.
1^ This statement is based upon a comprehensive statistical study made by
Wesley C. Mitchell for the War Industries Board, 1919.
240 CURRENT ECONOMIC PROBLEMS
The figures below are a comparison between 191 3 and 191 8. In
index numbers the production of twenty-five vegetable farm products
increased from 100 to 106; their prices increased from 100 to 191 ;
and their aggregate values from 100 to 225. The production of thir-
teen "animal farm products" increased from 100 to 126; their prices
from 100 to 193; and their aggregate value from 100 to 246. The
production of twenty-three "forest products" decreased from 100
to 99; their prices increased from 100 to 174; and their aggregate
value increased from 100 to 147. The production of twenty-seven
"mine products" increased from 100 to 127; their prices increased
from 100 to 192 ; and their aggregate value from 100 to 263. The
production of two "fisheries products" increased from 100 to 118;
their prices from 100 to 304; and their aggregate value from 100
to 350.
If these computations are thrown together into a table for all
commodities the general result is as follows. The physical volume
of output shows an increase from 100 in 1913 to 116 in 1918. The
rise in prices runs from 100 to 192. The combined effect of increase
in output and rise in prices varies from 100 in 1913 to 225 in 1918.
F. CONTROL OF THE INDUSTRIAL CYCLE
108. Panic Rules for Banks^»
BY WALTER BAGEHOT
In time of panic, advances, if they are to be made at all, should
be made so as, if possible, to obtain the object for which they are
made. The end is to stay the panic; and the advances should, if
possible, stay the panic. For that purpose there are two rules :
First, that these loans should be made only at a very high rate
of interest. This will operate as a heavy fine on unreasonable timid-
ity, and will prevent the greater number of applications by persons
who do not require it. The rate should be raised early in the panic,
so that the fine may be paid early ; that no one may borrow out of
idle precaution without paying well for it ; that the banking reserve
may be protected as far as possible.
Secondly, that at this rate these advances should be made on all
good banking securities, and as largely as the public asks for them.
The reason is plain. The object is to stay alarm, and nothing, there-
fore should be done to cause alarm. But the way to cause alarm is
to refuse someone who has good security to offer. The news of this
will spread in an instant through all the money markets at a moment
"Adapted from Lombard Street (loth ed. ; 1873), pp. 199-200.
PROBLEMS OF THE BUSINESS CYCLE 241
of terror; no one can say exactly who carries it, but in half an hour
it will be carried on all sides, and will intensify the terror every-
where. No advances indeed need be made by which the banks will
ultimately lose. The amount of bad business in commercial coun-
tries is an infinitesimally small fraction of the whole business. That
in a panic the banks should refuse bad bills or bad securities will not
make the panic worse ; the "unsound" people are a feeble minority,
and they are afraid even to look frightened for fear the unsoundness
will be detected. The great majority, the majority to be protected,
are the "sound" people, the people who have good security to offer.
If it is known that the banks are advancing on what in ordinary times
is reckoned good security, the alarm of the solvent merchants and
bankers will be stayed. But if securities really good and usually
convertible are refused by the banks, the alarm will not abate, the
other loans made will fail in obtaining their end, and the panic will
become worse and worse.
109. How a Panic Was Averted in 1914^"
It is possible that there have never been two months in the history
of the United States since the Civil War when so many and such
far-reaching financial and commercial problems were presented as
have been offered during August and September of this year. Be-
ginning with the sudden outbreak of the war, drastic and unpre-
cedented fluctuations in securities, cotton, chemicals, and other com-
modities were witnessed. They were accompanied by a suspen-
sion of practically all communication with outside countries, due to
the unwillingness of shipowners to continue the operation of their
vessels from fear of capture. The total annihilation of export trade
for the time being, as well as the partial destruction of import busi-
ness, produced serious financial and labor difficulties in the United
States. At the basis of the whole situation lies the financial problem
that was forced to the front by the declaration of war.
Hardly had the actual outbreak of the war become known when
the closing of the European exchanges gave the signal for similar
action in the United States. On August i, the New York stock
exchange closed its doors, and this example was shortly followed by
the cotton and coffee exchanges, and by the Consolidated Stock Ex-
change. The immediate reason for the closing of the New York
stock exchange was twofold: (i) Europeans, foreseeing a tre-
mendous draft on their resources, hastened to sell investment securi-
ties in the only great market untouched by the war. To this end
^^ Adapted from "Washington Notes," Journal of Political Economy,
XXII (1914), 791-93.
242 CURRENT ECONOMIC PROBLEMS
European holders of American stocks and bonds cabled their bankers
in New York to dispose of securities at practically any price. This
process was in operation during the days before the closing of the
exchange and had already caused heavy shipments of gold to Europe.
Had it been allowed to continue, it would have, almost certainly,
deprived the United States of a very large proportion of its gold
stock; (2) stock exchange operators who had obtained bank loans
protected by collateral security saw that the reduction of prices on
the exchange which would necessarily ensue would effectually "wipe
them out," while the banks which were "carrying" these persons
understood that, if obliged to "call" the loans thus made, they would
still further aggravate the pressure of selling orders and would
bring about widespread ruin in the financial world.
The confessed closing of the exchanges, because of the danger
of loss of gold and of depreciation of prices, naturally tended to
arouse serious alarm in many minds, and withdrawals of cash both
from the banks and from the Treasury began to be heavy. Almost
simultaneous with this condition was the declaration of a so-called
"moratorium" by most of the principal countries of Europe. This
prevented Americans who had maturing European claims from col-
lecting the amounts due them until a later date than they had
expected. Hence such persons were compelled to draw more heavily
upon their home bank accounts and so far as possible finance them-
selves through fresh loans at the banks. Fearing the heavy draft
on their resources that was thus threatened, the New York banks
almost immediately had recourse to the "national currency associa-
tion" which had been organized after the adoption of the Aldrich-
Vreeland Act.^" Other banks promptly took like action. Applications
were at once made to the government for the issue of emergency
currency, and it was resolved also to employ an issue of clearing-
house certificates. Both of these methods were sanctioned by the
government on August 2, and on the following day the work of
issuing the certificates and notes was actively begun. It was found,
20 The Aldrich-Vreeland Act of May 30, 1908, attempted to create an
elastic currency for use in emergencies. It provided for the formation of
"national currency associations" by ten or more national banks having an
aggregate capital of $5,000,000. Upon application of one of these associa-
tions, the Comptroller of the Currency, with the approval of the Secretary
of the Treasury, was permitted to issue circulating notes not to exceed 75
per cent of the commercial paper or 90 per cent of the state, county, and
municipal bonds which were required to be deposited with the Treasury as
security. The total of additional notes for the entire country was not to
exceed $500,000,000. A tax of 5 per cent per annum for the first month
was imposed upon the issue of these. notes. An additional tax of i per cent
per annum was imposed for each month until a tax of lO per cent per
annum was reached. — Editor.
PROBLEMS OF THE BUSINESS CYCLE 243
however, that the Aldrich-Vreeland Act placed some serious obstacles
in the way of an easy issue of currency. In consequence a bill for
the relief of this state of things was introduced in Congress and was
signed by the President on August 4. This amendatory act reduced
the tax on Aldrich-Vreeland notes for the first three months of their
circulation to 3 per cent and raised the limit of issues to 125 per cent
of capital and surplus. While no public announcement was made of
the issue of clearing-house certificates, it is known that in both New
York and elsewhere an enormous amount of such certificates were
issued. The emergency currency taken out under the amended legis-
lation already referred to expanded so rapidly that by the opening of
September more than $250,000,000 of it had been issued. The
emergency currency was freely accepted by individuals, and banks
in New York as well as elsewhere adopted the policy of paying it
out whenever possible while holding gold. Thus the financial strin-
gency was narrowly averted.
110. Emergency Elasticity of Credit-'
BY HAROLD G. MOULTON
Emergency elasticity of credit and loans will be secured under
the currency system established by the Federal Reserve Act through
what is known as rediscounting commercial paper.
Suppose the First National Bank of Joliet should, when the
country is face to face with a crisis, find itself confronted with a
heavy demand for commercial loans. This means that a large number
of business concerns wish to borrow on their promissory notes, and
receive a deposit account against which they can draw checks to
meet current payments. It will be remembered that a bank must
keep a certain percentage of cash reserves to deposits. Suppose now
the cash of this bank is at a minimum, and that, if it makes further
loans on commercial paper, the reserves will fall below the legal
requirement. Under the old system the bank would have had to
refuse the loans to the detriment of legitimate business enterprise.
But under the new law the Joliet bank is enabled to increase its
reserves, and thereby enlarge its loaning capacity by rediscounting
some of the promissory notes in its possession with the Federal
Reserve Bank in Chicago. Let us make this matter of rediscounting
clear.
When John Jones needs money he may take a note for $1,000
that he holds against William Wilson to his bank in Joliet and sell
it to the bank for cash. The bank will give him $1,000 minus interest
244 CURRENT ECONOMIC PROBLEMS
for the time the note has yet to run. What the JoHet bank does for
John Jones is precisely what the Federal Reserve Bank in Chicago
will do for the First National Bank of Joliet. When this bank needs
cash it can take this note which it has discounted and have it dis-
counted by the Federal Reserve Bank. The Joliet bank will get
$i,ooo less the interest for the short time the note still has to run.
This second discount is what is known as a rediscount. The Federal
Reserve banks are, therefore, bankers' banks, and they do for the
individual member banks precisely what the individual banks do for
their customers generally. This ability to convert paper into cash
and thereby increase its reserve enables the Joliet bank to extend
loans to its customers even under severe financial pressure.
Suppose that a bank in a rural community in the Chicago district
finds, in the face of an emergency, that there is a heavy demand for
loans in the form of bank notes. How can the increased quantity
of notes be obtained? Under the new law elacticity of note issue is
gained by permitting the issue of notes secured by commercial paper
or bank assets. The country bank desiring to issue more notes sends
some of the promissory notes of customers to the Federal Reserve
Bank in Chicago for rediscount. The latter may upon this paper as
security have printed new bank notes and send them to the country
bank. This gives an elastic bank-note currency because the demand
for more money itself brings into existence the commercial paper
that is to be the security for the new notes. A farmer, for example,
wants money with which to pay his laborers. So he gives his banker
a promissory note, which is secured by the crops soon to be marketed.
His banker rediscounts the promissory note and turns the necessary
bank notes over to the farmer. But when the need is passed this
currency is contracted. The farmer sells his crops and pays his
promissory note at the bank. The bank now pays these notes over
to the Federal Reserve Bank in Chicago to meet the obligation which
had resulted from the rediscount. Bank notes equal in quantity to
the amount issued have now come back to the place of issue. The
payment of the obligation which brought them forth has automatic-
ally retired them.
By these means panics can be substantially checked if not pre-
vented altogether. In the face of a heavy pressure of loans at a
time of crisis, any bank can avail itself of the process of rediscount-
ing. This enlarges the loaning power of the banks, makes it possible
for legitimate business concerns to secure bank accommodations
when needed, and thereby prevents failures. A business which is
unsound or mismanaged is not entitled to and cannot obtain loans
from a bank. It deserves to fail, and its early failure will be dis-
PROBLEMS OF THE BUSINESS CYCLE
245
tinctly beneficial. But the business concern which is fundamentally
sound and well managed ought to be able to secure banking accom-
modations. The new currency law permits this; and at the same
time the ability of the banks to provide more currency and to expand
loans enables banks to meet all obligations, forestall runs, and escape
failures.
111. Bettering Business Barometers^^
BY WESLEY C. MITCHELL
The American man of affairs who seeks to keep informed about
the trend of business conditions relies upon the financial columns of
his daily paper, one or two of the financial weeklies, and a special
trade journal. The data which he can compile from these sources
covers a considerable range.
Commodity prices at wholesale are represented by actual quota-
tions and by index numbers like Bradstreet's. The prices of loans on
call and on time for thirty days or six months are reported for New
York, together with the market and bank rates in London, Paris, and
Berlin. The prices of securities are published in detail, and to show
the general trend of the market there are convenient records, such as
the Wall Street Journal's average of twenty railway and twelve in-
dustrial stocks.
Fluctuations in the volume of business must be estimated from
various sources : bank clearings, railways' gross earnings, number of
idle cars, imports and exports, coal, copper, pig-iron and steel output,
shipments of grain, live stock, etc. Government crop reports help to
forecast the probable state of trade in various agricultural sections.
Quite helpful are the reviews of business conditions in different
papers.
Information about the currency is supplied by the official esti-
mates of the monetary stock, by reports of gold imports and exports,
by the recorded movements of money into and out of the New York
banks, and by the figures concerning the production and industrial
consumption of gold, and the distribution of money between the
banks and the public. Regarding the banks there are telegraphic
statements from the central institutions of Europe, as well as a va-
riety of domestic reports from clearing-house and national and state
banks.
Some idea of the volume of investment and speculation going on
may be obtained from the transactions of the New York stock ex-
change, the number of building permits granted, the mileage of rail-
way under construction, etc.
22 Adapted from Business Cycles, pp. 591-95. Copyright bj' the author,
1913. Published by the University of CaHfornia Press.
246 CURRENT ECONOMIC PROBLEMS
Last and most important, the prospects of profits are best shown
for the railways, whose gross and net earnings are regularly pub-
lished. The earnings of the United States Steel Corporation prob-
ably stand second in general esteem. Then comes a mass of infor-
mation supplied by the reports of large corporations engaged in
mining, manufacturing, banking, etc. The other side is shown by
the statistics of bankruptcy compiled weekly by two great mercantile
agencies.
Though far from complete, this list of materials is far too long
for the average business man. To compile and analyze the available
data requires more time, effort, statistical skill, and analytical ability
than most men have for the task. Hence the typical individual skips
the bewildering evidence and reads only the summary conclusions
drawn by the financial editor. That the studying of business barome-
ters and the forecasting of business weather has become a profitable
business affords convincing proof of the need and difficulty of using
effectively the available materials. It is from such specialists that
we may expect the improving and disseminating of the information
required as a basis for perfecting social control over the workings
of the money economy.
Professional forecasters do not find the data at hand too elab-
orate. What they most need to improve their forecasts is more ex-
tensive and more reliable materials to work upon. But it is also
quite possible to better the use they make of the data already avail-
able.
Among the most needed additions to the list of business barom-
eters are the following:
A general index number of the physical volume of trade could
be made from data showing the production of certain staples, the
shipment or receipts of others, the records of foreign commerce,
etc. Much material for this purpose is already incidentally provided
in official documents. Separate averages should be struck for the
great departments of industry, since the difference between the rela-
tive activity in different lines would often be not less significant than
the computed changes in the total.
The proposed plan for obtaining reports concerning the volume
of contracts let for construction work and the percentage of work
performed on old contracts merits careful consideration. Few sets
of figures would give more insight into business conditions when
prosperity was verging toward a crisis or when depression was en-
dangering prosperity.
An index number of the relative prices of bonds and corre-
sponding figures showing changes in interest rates upon long-time
PROBLEMS OF THE BUSINESS CYCLE 247
loans would not be difficult to prepare. Even if standing alone these
two series would possess great value as reflecting the attitude of
investors ; but they would be still more useful if accompanied by-
data concerning the amounts of bonds and short-term notes put
upon the market by business enterprises and by governments.
Certain states have made a beginning in providing statistics of
unemployment. But we have no comprehensive data of this kind.
Their value, not only as an index of welfare among wage-earners, but
also as reflecting changes of activity within important industries
and changes in the demand for consumers' goods, is such as to make
the present lack a matter of general concern.
Most to be desired are statistics which would show the relative
fluctuations of costs and prices. Unhappily the difficulties in the way
of obtaining such figures are particularly grave. But certainly every
extension of public authority over corporate activity should be
utilized to secure such uniform methods of accounting as have been
imposed on the interested railways, and the reports obtained by the
government should be made available in some significant form for
the information of the business public.
The old barometers of business could also be considerably im-
proved. The index numbers of commodity prices at wholesale
would be more useful if separate series were computed for raw ma-
terials and for the articles manufactured from them, and if the raw
materials were subdivided into farm, animal, forest, and mineral
products. The differences between the fluctuations of these several
groups would be of assistance in determining the causes, and there-
fore the significance of changes in the grand total. Further, an
index number of identical commodities in the United States, Eng-
land, France, and Germany would facilitate the effort to follow
the concomitant courses of business cycles in different countries and
to anticipate the reaction of foreign upon domestic conditions.
Stock prices should be computed upon the index number plan
instead of in the current form of averaging actual prices of shares.
To facilitate comparisons the basis chosen should agree with that
chosen for commodity prices. The distinctively investment stocks
should be separated from the speculative favorites, and separate
averages should be struck for railways, public utilities, and indus-
trials. By proper selection fluctuations in the prices of industrial
stocks might be made to reflect the fortunes of enterprises especially
concerned with providing industrial equipment.
Reports of clearings would be more useful if accompanied by
provided for the centers in which financial operations, industriai
index numbers show'ng the relative magnitude of the changes in
248 CURRENT ECONOMIC PROBLEMS
the actual amounts. Separate averages for these figures should be
activity, and agricultural conditions are the dominant factors. Fi-
nally, one of the darkest points of current business conditions in
America could be cleared up if the rates of discount upon first-class
commercial paper in these various centers could be regularly ascer-
tained.
To extend the list of suggestions for bettering figures of the
sorts already published would be easy ; but enough has been said
to make clear the character of the desirable changes. In general,
the need is for more careful discrimination between dissimilar data
now often lumped together in a single total, the collecting from new
centers of data already published for New York, more uniform
methods of compilation to guarantee the comparability of what pur-
ports to be similar figures, and the computing of relative fluctuations
upon a common basis. In many, if not all these cases, a double set of
relative figures is desirable — one set referring to actual average
amounts in some fixed decade, the other set making comparisons
with the corresponding period of the previous year.
112. The Severity of the Trade Cycle in America-^
BY W. A. PATON
The peculiar characteristics of modern industrialism which make
it susceptible to serious disturbance are too well known to require
detailed description. They include the detached and impersonal
relations between producer and consumer, and producer and investor ;
the interdependent nature of co-operative production; the extreme
length of the productive process ; the unstable character of demand
in dynamic society, and frequent and radical changes in technique.
These characteristics are universal throughout the Western World ;
yet American industry has been particularly subject to industrial
disturbance.
The inadequacy of our banking system and credit facilities has
often been urged as the explanation. Since we use credit to a far
greater extent than European countries, we have particular need
for stability in banking and credit. It is hoped that the new Federal
Reserve System, by giving in a higher degree than before these
characteristics, will do much to modify the severity of the ebb and
flow of the trade cycle. But it needs to be emphasized that banking
reform can never be more than a palliative. Lax banking and un-
sound currency systems do something to breed speculative fever.
But the fundamental conditions leading to the severity of these dis-
turbances lie deeper.
2» 1915.
PROBLEMS OF THE BUSINESS CYCLE 249
First among these is the supreme optimism which has always
characterized American industrial development. Here was a vast
new continent, with an abundance of land, minerals, natural power,
and other resources untouched. People from all countries were
drawn into the task of developing these resources. To them America
was the long-sought-for "promised land." There were no rigid class
walls ; there existed every opportunity for "self-development." A
loose social system and the reaction of the physical environment
made it inevitable that the bourgeoise attitude should prevail. The
immigrant who, as a peasant in Europe, has no thought of chang-
ing his status ; the native frontiersman, Yankee son of the old New
Englander; the prospector looking for diggings — in each you had
the would-be capitalist. There was also the man with capital look-
ing for sudden wealth in the shape of land concession, franchise
rights, or public contracts. The situation, the large class of specu-
lative investors, great and small, and the political organization, mak-
ing a fetish of the principle of let-alone, could not but induce a
highly speculative, over-optimistic attitude toward industry.
A partial justification of American optimism made it the more
speculative. The scarcity of labor incident to the opening of a new
country, the demand for improved transportation facilities to permit
the utilization of new lands and new resources, and the rapid and
comprehensive extension of the machine technique into line after
line of production, did much to convince the American that any-
thing is possible.
The changes in industrial technique have been more rapid and
more extensive than in any other country. The greater and increas-
ing dependence upon machinery has led to increasing complexity in
the productive process, as well as to its greater length. The dis-
turbance in the labor market, such as temporary unemployment,
which has been chronically incident to its introduction, is but a single
example of the strain and shock to which the system as a whole has
been subjected.
But minor causes have also been at work. The influx of labor-
ers from abroad has continually altered the proportions between
the productive factors. In this country, filled with people who have
broken away from their old surroundings, custom and tradition
have had comparatively little force ; among us it has been hard for
conventions, even those adapted to the new situation, to be built up ;
and the situation as a whole has been particularly sensitive and
variable, especially in demand.
This brief statement suggests the essential aspects of the Amer-
ican industrial structure which has given it its peculiar dynamic
250 CURRENT ECONOMIC PROBLEMS
character, and has made it more highly sensitive to irregularity
than that of any other country. A word should be added to indi-
cate, how these conditions may intensify the severity of the trade
cycle. The great speculative optimism of the American people, to-
gether with the need of improved technological equipment, leads to
a greatly increased demand for capital goods — producer's goods.
This means that a great deal of labor power and a large volume of
capital are devoted to producing these kinds of goods. In other
words, in America there is an unusual heaping up of society's pro-
ductive resources in the initial stages of the long-time process. This
process continues for some time, the boom period. The length of
time necessary to permit these investments to yield returns is gen-
erally underestimated, as was the case particularly with many of
the early American railway projects ; and in other cases the ven-
tures are ill advised and could never become profitable. In such a
situation many entrepreneurs find themselves embarrassed when
their obligations fall due, and a great many failures ensue. Build-
ing and development work hahs abruptly ; prices of raw materials
fall very sharply ; all prices go down in sympathy, and a more or less
severe period of readjustment follows.
In view of the conditions above described, it is difficult to see
how this country could have had its very rapid development with-
out these accompanying periods of stress. As the country becomes
older, as technique becomes more dependable, as social conventions
standardize demand, as efficient government checks the wildest dis-
plays of speculative fever, as speculative capital has to look for
golden opportunities abroad, and as we have to look more toward
internal organization and economy, rather than to external acci-
dent, for industrial gain, the ebb and flow of trade depressions will
be less and less severe. We are perhaps nearer than we know to the
orderly period wherein their rhythm is as circumscribed as in prosaic
Europe.
VI
THE PROBLEM OF ECONOMIC ORGANIZATION
FOR WAR
Our recent experiences have led to an easy association of the words "war
and economics." We refer glibly to "the financing of the war," "the battle
of credits" between the nations, the "death struggle for raw materials," "the
conservation of man power," and "the complete utilization of national wealth."
Beneath military strategy we are prone to discover a larger economic strategy;
back of the glory and din of the fighting front we discover the proasic work
of farm, factory, and mill ; and we learn that the problems of industry and
war are more important and more instructive, if perhaps less interesting, than
those of fighting and war. We are all surer that there is an "economics of
war" than we arc of the specific subject to which these euphonious words refer.
To be exact war has, not one, but many economic aspects. Immediately
speaking war comes out of a pursuit called diplomacy; but the latter is con-
cerned with shipping, trade regulations, concessions, the exploitation of
primitive lands, the assurance of plentiful raw materials, and dreams of trade
expansion with its promise of profits, property, and empire. War is made by
nations, who in their political capacities perform economc functions which
incidentally result in the extension of the benefits of modern culture, the
machine technique, and the price-system into alien lands. In this benevolence
it frequently chances that governments get into each other's way and the
competition cannot be kept on a peaceful plane. The waging of war rests
upon a peculiar and complicated technique which in turn has its roots in
scientific knowledge, the state of the industrial arts, the habits of the people,
and their response to discipline. The provision of the miscellaneous lot of
services and articles which constitute "the sinews of war," requires the solution
of many baffling problems in industrial organization. Where the price-system
is in vogue these are dependent upon the proper handling of many technical
problems of finance. Last of all, war raises its legacy of new problems to
take its place for many decades after it is gone and leaves its heritage in
changes in economic institutions.
All of these problems have their places in the literature of economics.
The question of the economic antecedents of war involves a long chapter in
history and cannot adequately be dealt with here. The dependence of war
upon science, technique, and social custom carries us back into pre-industrial
society, reveals another aspect of the industrial revolution, and illustrates
anew the importance of the machine system. This finds expression in an
insatiable demand for men, munitions, and materials — insatiable because the
struggle is a competitive one and a sufficient surplus means victory.
This problem is, at least for our purposes, the most important of those
which are grouped as "the economics of war." In its manifest terms it is the
problem of creating a huge surplus of wealth; but complicated by the necessity
of being useless unless it appears in the form of specialized articles properly
apportioned to each other. In more complex terms it is the problem of
reorganizing the human and material means of production to secure the
maximum supply of a bill of specified goods. There are, in general, two
theories of how this surplus is to be procured. The first depends upon in-
creased production ; the second upon the diversion of goods, while still flexible,
from old to new, or from non-essential to essential uses.
Neither of these theories is wholly adequate, though each has a measure
of validity. Since a nation always has human and material resources which
251
252 CURRENT ECONOMIC PROBLEMS
are going to waste, it has a source of additional wealth. In addition, because
of the rhythmic character of business, at the beginning of a war there is likely
to be much slack in the business system that can be taken up. Further the
new incentives which war brings enable a nation to get out of it resources
much more than is usually deemed possible. But there are limits to the
surplus available through increased production. Besides, since the struggle
is competitive, no matter how successful this procedure, it will not solve the
problem. The surplus must be larger than that of the enemy. Hence, if the
struggle be a protracted one, diversion is necessary. In a society like ours
the simple problem of diversion resolves itself into a thousand administrative
details concerning particular businesses, economic arrangements, social habits,
and like matters, all of which require for solution a clear conception of the
problem of economic organization for war and a generous allowance of
specific technical information.
The problem of war finance is less important than it is usually assumed
to be. The real "sinews" of war are men and materials, not money and
credits. In a simple society the problem would not arise at all. In our
society it is an instrument, a mere device for assuring the production of
the right goods and for diverting wealth into the new uses. Yet because all
activity rests upon the price-system and the financial structure of society
is complicated and delicate, the problems of war finance must be handled with
knowledge and care. If they are "bungled" not only will "the industrial
machine" be half stalled, but a list of problems will be passed on to a people
at peace. But care requires a clear recognition of the instrumental character
of war finance.
Together the problems of "industrial mobilization" and of "war finance"
raise the issue of the dependence which can be put in the price-system to
effect adequately and quickly the changes in economic organization necessary
to insure war supplies. This has usually been settled by an answer which
gives to government greater discretion than in time of peace. It has led to
such peculiar economic institutions as administration of food and fuel,
licenses for foreign trade, priorities to the use of transport and raw materials,
and the authoritative fixing of prices.
Finally we have the list of problems which constitute the economic after-
math of the war. About them few general statements can be made. It is
safe only to say that, fundamentally considered, they are old, not new, prob-
lems. The war did not create, it analyzed, industrial society. These prob-
lems are not the problems of this chapter. They are the problems of this
volume and of the larger current economics which is put up in no book. But
it is significant that the war placed its emphasis not upon pecuniary, but upon
social economics. Its problem was not. What paid? It forced us to at-
tempt to find out how the nation as a whole could get the most out of its
resources. It revealed the presence of a surplus over and above the necessities
of its members. In war this surplus has a specific use. But the question,
one of the most important in economics, remains of the use to which a nation
at peace is to put its surplus wealth.
A. THE NATURE OF MODERN WAR
113. War and the State of the Industrial Arts^
BY ADAM SMITH
Among nations of hunters, the lowest and the rudest state of
society, every man is a warrior as well as a hunter. When he goes
to war, either to defend his society or to revenge its injuries, he
1 Adapted from An Inquiry into the Nature and Causes of the Wealth
of Nations (1776), Wakefield ed., Book V, chap. i.
PROBLEM OF ECONOMIC ORGANIZATION FOR WAR 253
maintains himself by his own labor in the same manner as when he
lives at home. His society is at no sort of expense either to prepare
him for the field or to maintain him while he is in it.
Among nations of shepherds, a more advanced state of society,
every man is, in the same manner, a warrior. When a nomadic
nation goes to war, the warriors will not trust their herds and flocks
to the feeble defense of the old men, their women, and children ; and
their old men, their women and children will not be left behind with-
out defense and without substance. The whole nation takes the field
in time of war. Whether it marches as an army or moves about as a
company of herdsmen, the way of life is nearly the same, though the
object proposed by it be very different.
The ordinary life, the ordinary exercise of a Tartar or Arab
prepare him sufficiently for war. Running, wrestling, cudgel-playing,
throwing the javelin, drawing the bow, etc., are the common pastimes
of those who live in the open air and are all of them the images of
war. When the Tartar or Arab actually goes to war he is maintained
by his own herds and flocks, which he carries with him in the same
manner as in peace. Hence his chief is at no sort of expense in
preparing him for the field ; and when he is in it the chance of plunder
is the only pay which he either expects or receives.
In a yet more advanced state of society, among those nations of
husbandmen who have little foreign commerce and no other manufac-
tures but those coarse and household ones which almost every private
family prepares for its own use, every man, in the same manner, is a
warrior or easily becomes such. They who live by agriculture, gener-
ally pass the whole day in the open air, exposed to all the inclemencies
of the seasons. The hardiness of their ordinary life prepares them for
the fatigues of war, to some of which their necessary occupations bear
a great analogy. The necessary occupation of a ditcher prepares him
to work in the trenches and to fortify a camp as well as to enclose a
field. The ordinary pastimes of such men are the same as those of
shepherds and are in the same manner the image of war. But as
husbandmen have less leisure than shepherds they are not so fre-
quently employed in these pastimes. They are soldiers, but soldiers
not quite so much master of their exercise. Such as they are, how-
ever, it seldom costs the sovereign any expense to prepare them for
the field.
Agriculture, even in its lowest state, supposes a settlement, some
sort of fixed habitation which cannot be abandoned without great
loss. When a nation of mere husbandmen therefore goes to war,
the whole people cannot take the field together. The old men, the
women, and the children at least must remain at home. All the men
254 CURRENT ECONOMIC PROBLEMS
of military age, however, may take the field, and, in small nations
of this kind, have frequently done so. In every nation the men of
military age are supposed to amount to about a fourth or a fifth of
the whole body of the people. If the campaign should begin after
seedtime and end before harvest, both the husbandman and his prin-
cipal laborers can be spared from the farm without much loss. He is
not unwilling, therefore, to serve without pay during a short cam-
paign, and it frequently costs the sovereign or commonwealth as little
to maintain him in the field as to prepare him for it.
In a more advanced state of society two different causes con-
tribute to render it altogether impossible that they who take the field
should maintain themselves at their own expense. These two causes
are the progress of manufactures and the improvement in the art of
war.
Though a husbandman should be employed in an expedition, the
interruption of his business will not always occasion any considerable
diminution of his revenue. Without the intervention of his labor,
nature herself does the greater part of the work which remains to be
done. But the moment that an artificer, a smith, a caq)enter, or a
weaver quits his workshop, the sole source of his revenue is com-
pletely dried up. Nature does nothing for him ; he does all for him-
self. When he takes the field, therefore, in defense of the public, he
must necessarily be maintained by the public. But in a country in
which a great part of the inhabitants are artificers and manufacturers,
a great part of the people who go to war must be drawn from those
classes, and must therefore be maintained by the public as long as they
are employed in its service.
When the art of war, too, has gradually grown up to be a very
intricate and complicated science, when the event of war ceases to be
determined, as in the first ages of society, by a single irregular
skirmish of battle, but when the contest generally is put out through
several different campaigns, each of which lasts through the greater
part of the year, it becomes universally necessary that the public
should maintain those who serve the public in war, at least while they
are employed in that service. Whatever in time of peace might be
the ordinary occupation of those who go to war, so very tedious and
expensive a service would otherwise be by far too heavy a burden
upon them.
The art of war as it is certainly the noblest of all arts, so in the
progress of improvement it necessarily becomes one of the most com-
plicated among them. The state of the mechanical, as well as of some
other arts, with which it is necessarily connected, determines the
degree of perfection to which it is capable of being carried at any
PROBLEM OF ECONOMIC ORGANIZATION FOR WAR 255
particular time. But in order to carry it to this degree of perfection
it is necessary that it should become the principal occupation^ of a
particular class of citizens, and the division of labor is as necessary
for the improvement of this as of every other art. It is the wisdom
of the state only which can render the trade of a soldier a particular
trade separate and distinct from all others. A private citizen who in
time of profound peace and without any particular encouragement
from the public should spend the greater part of his time in military
exercises might, no doubt, both improve himself very much in them
and amuse himself very well ; but he certainly would not promote his
own interest. It is the wisdom of the state only which can render it
for his interest to give up the greater part of his time to this peculiar
occupation.
A shepherd has a great deal of leisure ; a husbandman, in the rude
state of husbandry, has some ; an artificer or manufacturer has none
at all. The first may, without any loss, employ a great deal of his
time in martial exercises; the second may employ some part of it;
but the last cannot employ a single hour in them without some loss,
and his attention to his own interest naturally leads him to neglect
them altogether. Those improvements in husbandry, too, which the
progress of arts and manufactures necessarily introduce, leave the
husbandman as little leisure as the artificer. Military exercises come
to be as much neglected by the inhabitants of the country as by those
of the town, and the great body of the people becomes altogether
unwarlike. That wealth, at the same time, which always follows the
improvements of agriculture and manufactures, and which in reality
is no more than the accumulated produce of those improvements, pro-
vokes the invasion of all their neighbors. An industrious and upon
that account a wealthy nation is of all nations the most likely to be
attacked ; and unless the state takes some new measures for the public
defense the natural habits of the people render them altogether in-
capable of defending themselves.
In these circumstances there seem to be but two methods by which
the state can make any tolerable provision for the public defense.
It may either, first, by means of a very rigorous police, and in spite
of the whole bent of the interest, genius, and inclinations of the people,
enforce the practice of military exercises and oblige either all the
citizens of the military age, or a certain number of them, to join in
some measure the trade of a soldier to whatever other trade or pro-
fession they may happen to carry on. Or, secondly, by maintaining
and employing a certain number of citizens in the constant practice
of military exercises it may render the trade of a soldier a particular
trade, separate and distinct from all others.
2S6 CURRENT ECONOMIC PROBLEMS
114. War and Economic Organization-
BY CLARENCE E. AYRES
Before one can form an adequate conception of modern warfare
one must get rid of two misconceptions which have been very pre-
valent in America. The first of these is the natural result of the habit
of thinking of war only as a series of physical combats between the
armed forces of opposing nations. Our predilection to this obviously
fragmentary notion is due in part to the influence of the military men
who, true to their training, describe war as the manipulation of armies
in the field, as a matter of strategy and tactics. It is also due in part
to man's innate propensity to look for the picturesque, rather than
for the humdrum, workaday machinery behind the panoply of war.
The second misconception from which it is necessary to free one's self
is the illusion of dollars and cents. We are an excessively business-
like people ; that is, we are very prone to calculate everything in
pecuniary terms. We take to the intricacies of war finance with
relish, and the men whose opinions on the war we value highest are
bankers and brokers and big-business men in general. Consequently
we reckon victories by the flotation of war loans and defeats in the
language of inflation.
A year's disillusioning experience in the work of war, however,
has served to teach us that war is neither wholly nor even largely a
matter of valor in the field and sound financial tone at home. Modern
war is almost wholly a matter of industrial technique. It is an affair
of office and factory.
Under modern conditions of transportation and large-scale
machine production it is possible for a nation to throw its entire pro-
ductive energy into the fight. The victory depends not only upon
placing in the field soldiers who are most valorous, but also upon
turning out the most destructive shells in quantities sufficient to
deluge any or all parts of the enemy's line at will, the largest quantity
of railroad equipment and auto trucks with which to make its artillery
and infantry more mobile than those of the enemy, the largest quan-
tity of airplanes with which to observe the enemy's movements, to
bomb him behind his lines, and to bring down the planes which serve
him for similar purposes. The world-supply of coal and metals is
concentrated upon these tasks ; therefore one must add the building
of merchant ships, transports, and a navy as instruments required for
the transportation of raw materials and the finished products of
munitions industries as well as men from all parts of the world. The
successful accomplishment of this portion of the military program
2 Adapted from an unpublished essay, 1918.
PROBLEM OF ECONOMIC ORGANIZATION FOR WAR 257
demands the diversion to munitions industries, including shipping, of
milHons of workers and of great quantities of all sorts of raw
materials and products in the early stages of manufacture which
would otherwise have been consumed in various ways by the civilian
population. At the same time the transfer of men to the army and to
munitions industries, the diversion of materials from the manufacture
of farming implements to munitions, the devastation of fertile lands
by the armies, and the exigencies of the shipping situation all serve
to make the problems of feeding and clothing the civilian population —
which is manning the munitions industries — of paramount im-
portance.
Under modern conditions, therefore, war becomes a problem in
the organization of a nation, so that the proportion of men engaged in
holding the lines compared with the proportion of men assigned to
making guns and shells, airplanes, transportation equipment, mer-
chant and battle ships, and all other strictly military supplies, com-
pared with the proportion of men who are engaged in raising and
manufacturing just the amount of food and other necessities that is
required to maintain the civilian population as well as the armies at
maximum efficiency, shall be calculated to bring to realization the
full strength of the nation.
Among the infinite variety of difficulties which this problem of
organization presents three main types can be clearly discerned. An
enumeration of them will serve to illustrate further the nature of
modern war. First there is the difficulty of bringing the whole popu-
lation into line with the requirements of the military situation — the
difficulty of inducing men not only to allow themselves to be enlisted
freely into the army and into military industries but, a rather more
delicate thing, to permit their property to be used, and used up, if
necessary, by the government. This is not a mere matter of investiga-
tion and decision. The human animal is very unplastic material —
particularly where he has been habituated to the exercise of the pre-
rogative of self-direction — that is, in so far as he has lived under
democratic institutions. The remark has frequently been made by
farsighted persons in this country as well as in Germany that the
American scheme of training men to military service in one summer
vacation at Plattsburg overlooks the fact that no soldier is truly
effective who has not been habituated to soldierly ways of thinking
from childhood up. The same thing is true of the civilian population.
No people is sufficiently plastic in the hands of its military organizers
which has not been trained for more than a generation to submit
readily to an indefinite number of things verboten and to look to
superior authority for the properly authenticated version of every
258 CURRENT ECONOMIC PROBLEMS
man's duty. If a nation is to be successful in war it must look well
to the scheme of highly centralized paternalism and feudal sub-
servience to authority. Lacking a people trained to such a fine tem-
per of obedience it must devise some means to induce its people to
give over for the time being at least their supposed rights of self-
direction and fit themselves as well as may be into that scheme of in-
dustrial organization which is the first prerequisite to victory.
Yet the temper of the people and the degree of their susceptibility
to the appeal of the war lords is only one of the problems of the
military organizer of a nation. A second resides in the fact that an
organization itself cannot be brought into existence overnight. The
industrial order is so complex that no one knows exactly how complex
it is. It is so delicate that it cannot be completely reconstructed on
the basis of any a priori plan no matter how skilfully that plan may
have been constructed. If it is to be adapted to war, that adaptation
must inevitably occupy a considerable time even under conditions of
perfect wisdom on the part of the military organizers. Obviously it
makes all the difference in the world what the industrial situation
is to begin with. If there is no labor organization which commands
the loyalty of all the laborers in a certain trade or industry, or if there
. is no central national labor exchange through which the demands for
laborers in all parts of the nation take effect, if all the important war
industries are broken up into a large number of small competing
concerns which are bound together by no stronger tie than voluntary
membership in trade associations, then the nature of the military
situation clearly demands the institution of more highly centralized
types of organization, such as will fall in more readily with the war-
time policy of commanding whole trades. In distinguishing between
reasonable and unreasonable restraint of trade a military government
must bear in mind the services to be rendered by the combination in
time of war ; it must weigh the military need for a close-knit, central-
ized organization of each industry, readily convertible to war uses,
• against considerations of equity and justice to the consumer. If the
nation depends upon imports for military supplies it must encourage
the production of such military necessities at home by the offer of
bounties and the levy of protective tariffs, thus holding out substan-
tial pecuniary rewards to those business men who assist it in this task
of perfecting the organization of the industrial structure for war.
One thing, however, industrial organization itself will not provide.
Technical genius comes from other sources — this third difficulty must
be met in other ways. Modern war is peculiarly a war of weapons ;
that is to say, the technique of fighting changes so rapidly under mod-
ern conditions that it is not sufficient to be able to produce and wield
PROBLEM OF ECONOMIC ORGANIZATION FOR WAR 259
a given set of military paraphernalia. The successful nation i§ the
one which can invent new weapons of offense faster than the enemy
can devise means of defense and at the same time protect itself not
too tardily from the new offensive weapons of the enemy. But this
technical capacity is not a matter of sheer inventive genius ; it de-
pends upon the amount of technical knowledge which the nation can
command in its scientific men and upon the readiness with which that
knowledge can be turned to account. The military organizer is pre-
sented with the problem of seizing upon the whole available stock of
scientific knowledge, of increasing it if there be time, and of diverting
it from its function as an instrument for the discovery of further
truth to those industrial channels in which it will best serve the mih-
tary purpose. So far as the needs of modern war are concerned
chemistry is the mine from which gas bombs and synthetic nitrates
are extracted ; history is the raw material out of which national prop-
aganda may be manufactured. Victory casts her laurels upon the
nation whose scientific genius invents the most atrocious weapons and
the most convincing propaganda.
It must be clear from all this that modern war is no longer exclu-
sively heroic. It is no longer decided entirely, or perhaps even
primarily, by individual valor in the clash of arms. It has become a
sordid affair of the machine process in which the real hero is as likely
to be an engineer or a physicist as a dashing general. Its problems
are the problems of the adaptability of the whole people to the dis-
cipline of war, of the organization of industrial monopolies and the
creation of non-indigenous industries, of the utilization to the fullest
extent of the scientific genius of a people. The game is played on
the farm and in the factory ; the armies merely tally up the score.
115. The Larger Economic Stategy^
The larger strategy of war calls for the solution of complicated
problems in industrial organization. Single military campaigns may
aim at the taking of supplies, the capture of men, or the occupation
of territory. But these immediate objects are part of the larger pur-
pose of a destruction of the armed resistance of the enemy. In terms
of this event their success or failure is to be judged. To this end it
is necessary that eventually, as campaign follows campaign, an army
sufficient in numbers, equipped with an adequate amount of devices,
and supplied with the requisite volume of materials be hurled upon
the opposition. Antecedent to the strictly military problem this larger
^Adapted from a reading with the foregoing caption in Clark, Hamilton,
and Moulton, Readings in the Economics of War, pp. 120-25. Copyright by the
University of Chicago, 1918.
26o CURRENT ECONOMIC PROBLEMS
strategy involves the two problems of securing the requisite men and
materials and of distributing and utilizing them in complementary
branches of service.
It is evident that the first of these problems depends upon the
nature and intensity of the struggle. If the enemy is vastly inferior
in man power and in economic resources, or if serious deficiencies in
industrial organization make it impossible for it effectively to bring
its strength into play, the strategy of supply involves no difficulties.
If, for example, the United States were seriously bent upon the con-
quest of Mexico, an army large enough for the purpose and an
adequate supply of materials might be obtained with little difficulty.
An army might easily and quickly be recruited by calling for vol-
unteers who could leave their positions or their leisure with little
difficulty. The material might be obtained simply by taking up the
slack in the industrial system, which is not running at full speed.
But if the enemy is strong in men and resources, well organized, and
willing to pay the necessary price for military success, the problem is
greatly changed. It is suicide to meet an enemy with a million men
with an army of only half a million. Gas shells by the tens of thou-
sauds are not a match for gas shells by the hundreds of thousands, and
rifles are ineffective against machine guns. Furthermore, if the
opponents be evenly matched, the struggle becomes a competitive one.
A surplus of men and machines gives one side an advantage for
attack, and every effort is made to secure it. But this calls for similar
exertion by the other. It is the competitor who is willing to plunge
most heavily who determines the plane of competition. If the enemy's
effective forces are not matched, the victory is lost. They must be
overmatched if effective victory is to be won.
In view of this really cut-throat competition, the securing of a
surplus of men, machines, and materials becomes alike of the greatest
importance and of the greatest difficulty. However simply it may be
stated, it involves great precision in estimating the strength of the
enemy and in anticipating the course of events, nice calculations and
careful judgments about the use in a complementary way of many
groups of men and a bewildering variety of industrial equipment. It
involves a reconciliation between three sets of interests. First, men
and means must be left at their appointed tasks to turn out food,
clothing, and other necessities sufficient to insure health and productive
efficiency to the population. Secondly, a force must be sent to the
front sufficient to prove effective there. And thirdly, men and ma-
terials must be kept back of the line adequate to produce the large
and varied supplies which the army requires. Too many men and
materials in the first or third of these groups is at the expense of
PROBLEM OF ECONOMIC ORGANIZATION FOR WAR 261
the second. Too few rob the second of a part of their fighting
efficiency. In short, the problem is to make the fighting force, which
is the cutting edge of the industrial machine, as large and as efficient
as is necessary, without weakening the supply service enough to de-
crease its efficiency. It is evident that the problem requires the utmost
delicacy to be manifested in a series of careful judgments. To cite
examples of its importance, examples now quite familiar, England
suffered during the earlier years of the war from not having men and
materials enough at the front, and one of the causes which led to the
disorganization of the Russian industrial structure, so evident after
the revolution, was the withdrawal of too many men from the eco-
nomic system for use in the armies.
Under most favorable conditions the solution of the problem is
attended with difficulty. In democratic nations like Great Britain,
France, and the United States the difficulties are particularly baffling.
One problem is in adjusting to the unified demands of war an in-
dustrial system which has been contrived with no such end in view.
Laborers are specialized to particular tasks, capital has been stereo-
typed into buildings and equipment which know not war, trade has cut
deep and peaceful grooves for itself, and personal habits have become
unwarlike and rigid. Although the nation may be willing, it is hard
for rational thought to displace the habits and conventions of gen-
erations, and for the newer rationalized thought to create a belligerent
industrial system in its own likeness. A kindred obstacle lies in the
great difficulty of securing the surplus for war use in a society as
intricate and complicated as ours. One runs the risk of failing to
secure a surplus large enough to put an adequate army at the front
and yet of imposing upon certain groups of society burdens heavier
than they can bear and still retain their efficiency. In short, there
may be much waste which might be converted into necessary war
materials. From this it is evident that the problem of securing the
surplus is a strategic one which ramifies throughout the industrial
system and in its solution calls for the co-operation of all the people
of the country.
At this point an illustration may serve to point the nature of this
problem of strategy. It is now a commonplace that the army which
has the offensive is at an advantage, and that superior numbers of
men and materials give the chance for the offensive. Each of the
warring nations has been trying to get to the front as many men as
possible. To do this all of them have utilized the services of children,
the aged, the infirm, and the leisured in industry. Above all, they
have attempted to draw women into industrial occupations to release
men for the front. In this connection it may be remarked that at
262 CURRENT ECONOMIC PROBLEMS
present American women are just beginning to awaken to their part
in the strategy of the war surplus. For months they used a large
supply of labor in turning out a very small product by knitting for
the Red Cross. Of course this little was better than nothing. But
it cannot be remarked too often that a nation which uses the machine
system exclusively possesses an enormous advantage over one which
employs in considerable measure the technique of handicraft.
But the problem of securing an economic surplus large enough to
be effective leads to a second strategical problem of an economic
nature. The men and materials freed from the industrial tasks of
peace times are a fluid mass. The men have to be separated into
groups, such as infantry, aeroplane, munitions, etc., and these have
to be specialized for tasks which in the great art of war are comple-
mentary. And each of these larger groups has to be divided into a
myriad of subgroups. Likewise the materials have to be specialized
to particular services. This separation has to be carefully made and
the correlation carefully effected in view of a larger program of mili-
tary operations. It is manifest that this separation and correlation is
a problem in the organization of men and materials.
Complementary to this and conditioning it is the third problem
of the larger strategy, that of hurling it upon the enemy so as to
secure the disorganization of armed resistance. This resolves itself
into the kindred problems of concentration and dissipation. The object
is to concentrate one's effective strength and to cause the enemy to
dissipate his, or, more properly, to fall upon an enemy who has been
forced to dissipate his forces with a military establishment organized
against his weakest point. Such a problem involves conserving the
economic resources of men and materials and causing the enemy to
waste as many men and as much of his limited materials as possible.
To cite an example, the object, or at least one of the objects, of the
Gallipoli campaign, was to cause a "diversion' 'of the resources of the
Central Empires from the Eastern and Western fronts. Italy's en-
trance into the war was premised upon no expectation of being able
immediately to break the strength of Austria by crossing the Alps, but
to weaken the German lines on the Western front. And, in a way, the
dissipation of the resources of the Central Powers and their inability
to strike a conclusive blow was the chief result of Russia's participa-
tion in the war. How the costs of these ventures compare with the
results is a question which does not now concern us. The point is
that the object is to cause the enemy to use as many men and materials
as possible by the expenditure of a minimum of energy on the part of
the aggressor.
PROBLEM OF ECONOMIC ORGANIZATION FOR WAR 263
Perhaps the clearest example of an attempt to force a great waste
of men and resources upon the enemy with little expenditure is the
use of the submarine by Germany. The casual reader, who has no
interest in the larger problems of strategy, has been taught by the
newspapers that the success of the submarine is to be measured by
its ability to bring the Allies to their knees by disorganizing their
communications and forcing starvation upon the people of England
Those responsible for submarine activity doubtless had some thought
of such a happy outcome and would not be seriously disappointed in
such an event. But its success or failure is not to be appraised by so
obvious a method as its ability or disability to bring England to terms.
Its destruction of ships has added to the cost of carriage of cargoes
the cost of the ships destroyed as well as the cost of the cargoes
which have gone to the bottom. One can see also that if the average
ship makes twenty, or even forty or fifty, trips before it goes to the
bottom, the cost of carriage, which is in the last analysis nothing else
but labor and economic resources, has been multiplied many fold
because of submarine dangers. But to this must be added the labor
of men and materials embodied in convoys, destroyers, mine-sweep-
ers, aeroplane observation, and the development and manufacture of
the thousand and one devices which are used in submarine chasing.
In addition, the scarcity of ships interposes an obstacle between the
manufacture of munitions in America and their use three thousand
miles away. The small neck of the bottle interferes in ways too
subtle and too numerous to be mentioned here with the production of
supplies in the proportions to each other which those responsible for
the military program deems necessary. What these costs in the aggre-
gate are, and what the items would be as an overhead charge for the
protection of shipping in any larger scheme of national accountancy,
is not definitely known and it would be idle to try to compute it from
the meager evidence at hand. But it is apparent to any candid mind
which wishes to face the facts, that the men and materials required
to maintain the submarine menace are only a fraction of those re-
quired to meet it. In short, by the use of a certain amount of limited
resources Germany is able to force upon her enemies the expenditure
of many times that amount of resources.
Together, these problems — the organization of men and materials
between necessary civilian production, war supplies, and the opera-
tions of the front, the apportionment of men and materials between
various military and semi-military demands, and the problem of con-
centration of resources against an enemy dissipating his, constitute
the larger problem of strategy. Aspects of this problem are neces-
sarily antecedent to the military problem ; others are complementary
264 CURRENT ECONOMIC PROBLEMS
to it ; but all are intimately associated with it, and the problem of
purely miliary strategy can be solved only in terms of, and in the
light of, the solution of the larger problem of the economic strategy
of war.
B. THE SINEWS OF WAR
116. The Demands of War*
The art of war is the master and slave of industry. However
dependent it is upon generalship, numbers, and the manly fiber of
troops, these are of little avail unless the industrial system is in
bondage to its ends. The military establishment is the visible part
of a complex structure of materials, men, and values which compre-
hends the social order. The army which engages the enemy three
thousand miles from home is the cutting edge of a great and complex
machine, which ramifies unto the utmost confines of the land, includes
the activities of all sorts and conditions of men, and depends for its
speed and efficiency upon the everyday habits and activities of
ordinary people. All the aspects of the economic order, the medley
of arrangements and relations which make it up, and the scheme of
motives, ideals, and ends which find expression in it, can be assessed
in terms of advancing or impairing military efficiency. In this ability
to meet the requirements of war nations may be divided into two
groups. The first includes those whose governments, industrial sys-
tems, and habits and customs, have in time of peace been arranged
into an articulate whole capable of direction to military ends. The
second comprehends those which, unmindful of military strength or
weakness, have allowed these things to develop as a people at peace
would have them. Germany belongs to the first group ; the United
States typifies the second.
In Germany the whole industrial system, with its complement of
farms, mines, factories, banks, railways, shops, and what not, long
ago was arranged so that very quickly the whole could be turned into
a gigantic engine of war. For instance, railways were built to con-
nect the sources of military supply with the frontiers ; establishments
which wrought iron and steel were built with an eye to their conver-
sion to munition plants ; and chemistry, to mention but one science,
was not allowed to forget that it might be needed to aid a penetration
into alien lands not altogether peaceful. There was much ado that the
country should be able to produce as nearly as possible everything
essential to success at arms. In order that the surplus of men and
materials might overwhelm the enemy, women were taught to assume
tasks which in Western countries were exclusively the occupations of
*An editorial, 1918, 1919.
PROBLEM OF ECONOMIC ORGANIZATION FOR WAR 265
males. The concentration of all national energy upon a single ob-
jective was achieved by the elaboration in time of peace of a unified
and far-reaching scheme of control. The state not only attempted to
regulate industry, government, and individual conduct by actual inter-
ference, but also, through a careful direction of the school, the church,
and the press, it aimed to create a single public opinion that could
at will be bent to military ends. Easily and quickly Germany could
make the readjustments necessary to war. However difficult it will
be for a Germany in defeat to organize its industries for peace, the old
Germany, at the end of a successful war, could easily have returned
to peace which was only an armed interlude between wars.
War came less easily to liberal nations and affected them more
profoundly. The United States has attempted to read no scheme of
military use and wont into its political system, its industrial organiza-
tion, or its social life. The yield of farm, factory, and mine was
devoted to consumption or securing additional equipment. The sur-
plus produced in excess of necessities was allowed to find its way into
individual incomes where it appeared as comforts and vanities. Plants
were not established with a view to their quick conversion to military
uses, nor were they grouped in accord with their complementary char-
acter. The conglomerate net of the railroads of the country had no
military design woven into its pattern. There was nowhere, either
in the design of the industrial system or in national thought, the idea
of a surplus of wealth as large as possible to be devoted to military
ends. The national scheme of work and of life was little controlled
by the government and responded to the many and conflicting desires
of many men. The agencies through which opinion is organized,
school, church, press, and playhouse, were left uncontrolled. At the
beginning of the war there was little popular appreciation of its nature
and cost. There was almost as little expert understanding of the
sweeping transformations in industry, its organization, and control,
needful to make it obey new impulses. The plans of the most ardent
advocates of preparedness would have proved of little avail had they
been carried out. Their authors, one and all, failed to understand
the industrial basis of modern war and assumed that readiness to
meet an enemy consisted in crowding men into uniforms and putting
them through an obsolete ritual.
The problem with which the nation in its unpreparedness was con-
fronted at the beginning of the war seemed simple. It was to use our
limited resources in national wealth, industrial equipment, and man
power in the creation and equipment of an army as large and efficient
as possible ; to organize it into its component and complementary
parts ; and to hurl the mass upon the enemy. But only the statement
266 CURRENT ECONOMIC PROBLEMS
of the problem is simple. Its magnitude, complexity, and far-reach-
ing character can best be indicated by a citation of some of the innova-
tions by which it was met and the changes these wrought in the qual-
ity of national life. Some four million men were withdrawn from
ordinary pursuits to enter the army. Their places were taken by the
unemployed or they remained unfilled. Women were inducted into
work that rightly belonged to men, learned the trade, became efficient,
liked the wages, and were reluctant to jvithdraw. The growth of
war industries drew no one knows how many million workmen and
led to a geographic and occupational redistribution of labor. Plants
were converted to new uses and new ones sprang up to serve the
country's needs. The limited supplies of coal, iron, steel, copper,
wool, and other priceless materials were carefully conserved. The
railroads were welded into a single instrument of national transport,
in which the identities of individual lines were for the time lost. An
attempt was made to unify all industry in support of the army abroad.
117. The Organization of Man Power^
BY MARK SULLIVAN
The purpose of this article is to attempt to bring simplicity and
understanding to the industrial situation in the United States at the
present time. It is an attempt to set down what has happened, is
happening, and is going to happen to the fundamentals of the busi-
ness and industrial structure of the country. It begins and ends with
man power, for that is what it all comes back to. If the discussion be
kept in terms of man power, it will be within the comprehension of
any understanding, for the whole problem becomes merely one of
addition and subtraction — under our present conditions, chiefly sub-
traction.
"Man power" is frequently used in military discussion as meaning
the total number of soldiers a nation can bring together. More
broadly, and more properly, it is the entire strength of a nation, mili-
tary and industrial. In this more correct sense the man power of the
United States is 35,ooo,ooo^the 35,000,000 men, women, and children
who do the country's work, who serve it in the army, who dig its coal,
who raise its crops, who! run its trains, who build its roads, who make
its powder, who turn out its munitions.
This 35,000,000 man power is our all. It is the whole measure,
and the true measure, of our wealth. It is the measure of our effect-
iveness in war and peace. It is the total — to put it in terms of our
^Adapted from "Man Power," Collier's Weekly (June 22, 1918), pp. 1-2;
35-38. Copyright by P. F. Collier & Son, Inc., 1918.
PROBLEM OF ECONOMIC ORGANIZATION FOR WAR 267
national card game — of our pile of chips in the fight with Germany.
We cannot increase it. To a certain extent we can mobilize it more
effectively and manage it more economically. But we shall always
come back to this 35,000,000, and no more, as the measure of this
nation's capacity to work, to fight, to accomplish, to do.
Now let us see just what has happened to this 35,000,000 since the
war began. The first thing to bear in mind is that with the beginning
of the European War the greatest source of increase for our man
power was cut off. We used to get an increase of a million man power
a year through immigration. We now get substantially nothing. Few
people recognize the significance, in a business and economic sense,
of this cutting off of immigration. The immigrant was almost the
only source of what we call "day labor," the men who do the building
and repairing of railroads, the mending of streets and roads, mining,
and the rough work of steel mills and other factories. We have gone
on as if this source of our labor were a perpetual fountain. We have
not stopped to consider the business and economic and social changes
which must come about when the fountain runs dry, and we are com-
pelled to adapt ourselves to a condition very strange to us. More-
over, an immigrant raised to maturity, with all the expense of his
nurture and training paid by his own country, delivered at our gates
free of charge as a working unit of man power, was a valuable asset.
After the cessation of the accustomed increase from immigration
the most obvious thing that has happened to our man power is that
2,000,000 of it, between the ages of twenty-one and thirty-one, have
gone into the army, and are no longer at their accustomed posts in
factories, mines, offices, and farms. This 2,000,000 is the best of
our man power. It was at the age of greatest vitality. The loss of
it to our industries is greater than the mere figures indicate. Two
million man power (a year from now it will be 3,000,000, two years
from now it will be 5,000,000) out of our total 35,000,000 have ceased
completely to be normal producers of goods. Incidentally, as soldiers
they have become larger consumers than they were before of food,
clothes, and other materials.
Here, then, is the first subtraction: 2,000,000 from 35,000,000
leaves 33,000,000. But this is only the first, and not the largest, of
many subtractions.
Subtract another half million for the navy.
Subtract another half million for shipbuilding.
At this point it might be appropriate to ask some of the "business
as usual" advocates just how business can be as usual, just how
32,000,000 man power can do the amount of work and business
usually done by 35,000,000. As a matter of fact, we do not have
268 CURRENT ECONOMIC PROBLEMS
even 32,000,000 man power left available for business as usual. For
the deductions just pointed out are not by any means all the deduc-
tions that have occurred. They are not even the largest deductions.
I have set them down first merely because they are the most obvious.
They are the best ones for illustrating the thing that is happening.
They involve actual dislocations of man power — men who go away,
not only from their accustomed pursuits, but also from their accus-
tomed homes. But it must be remembered that man power can be
diverted without being dislocated. A man may continue to live in the
same house, and use the same pick, and work in the same mine, and
get his wages from the same boss ; but if the ton of ore he digs finds its
ultimate destination in rifles instead of piano wires, he is a unit of
man power subtracted from its normal uses. And these diversions
are enormous.
As to the precise number who have gone and are now going from
their normal pursuits into powder making and bullet making and rifle
making and gun making and the like, it is not possible to give figures
as exact as in the case of the army and navy. But it is possible to
arrive at some convincing estimates. Consider, for example, one of
the minor war industries, airplane making. Ultimately, if we do what
we ought to do, we shall have at least 50,000 aviators in France. It is
estimated that one aviator on the fighting front will require forty
men back of the line for repairs and in the factories as mechanics
and gathering spruce and in other ways producing the materials.
Based on that estimate, we shall, during the present and coming year,
take another 2,000,000 out of our power for building our air fleet, and
keeping an adequate supply of these unusually intricate and unusually
breakable machines flowing toward the front in France.
But airplane making is merely one of the minor of the several war
industries which are taking millions away from the usual pursuits
of our normal 35,000,000 of man power. In one concern, Bethlehem
Steel, nearly 100,000 employees, about 90 per cent, are engaged on
government orders. This is fairly typical of the steel business as a
whole. During May and for three months preceding, 85 per cent of
the entire steel trade of the United States was engaged in war work.
And until the war ends this proportion is sure to increase rather than
diminish.
But it is not necessary to go through all the tedious computations
of the number of our man power which has been taken for powder-
making, for shell-making, for rifle-making, and the like. The figures
change from day to day, and the change is always an increase. Out
of all the mass of figures, exact and estimated, the one net fact, the
"red-ink" fact, as the accountants express it, is this: as compared
PROBLEM OF ECONOMIC ORGANIZATION FOR WAR 269
with normal peace-time production there is a labor shortage in the
United States of at least 15,000,000 man power. Such a shortage
from normal as 15,000,000 is not a shortage at all, but a famine, and it
is this famine in man power which underlies all other famines.
Already "the farms are crying for labor. The mines are crying
for labor. The shops are crying for labor. The railroads are crying
for labor. The manufactories are crying for labor. There is short-
age of labor everywhere."
Beat the devil around the bush as we may, we shall always arrive
at the same point ; namely, a fixed total of 35,000,000 man power, and
under present conditions a shortage of from 15,000,000 to 18,000,000.
That is the main, central fact. That is the essential truth.
11.8. The Insatiable Demand for Munitions'"'
BY RIGHT HON. EDWIN MONTAGU
When an attack is planned against a securely entrenched enemy,
with barbed wire everywhere, with elaborate communication trenches,
and powerful long-range supporting artillery, the first necessity is to
break down the wire and smash his first line of trenches. This means
a heavy expenditure of field artillery, shrapnel, and trench mortar
bombs for wire cutting, and heavy howitzer shells for trench destruc-
tion. If this task is inadequately performed, if the wire checks the
infantry, if machine-gun emplacements remain intact, the attack fails,
and fails with horrible results. When the bombardment has dis-
closed to the enemy an impelling attack, the enemy tries to stop it by
curtain fire. During the bombardment the enemy, from his observa-
tion posts, is constantly watching for the infantry assault. He con-
centrates a converging fire from hundreds of long-range guns upon
the trench area from which the infantry must debouch. That fire has
got to be subdued, or the attack takes place under a perfect tornado
of projectiles ; hence the necessity for counter-battery work. An
immense expenditure of shells from long-range guns, controlled from
the air, whence alone the fire can be directed at the enemy's guns,
goes on whenever aerial observation is possible. The guns are well
entrenched, and this runs away with an enormous amount of heavy
and medium ammunition. Next the attack takes place. Its flanks
have got to be protected, and while the infantry is engaged in facing
the parapet of the captured trenches the other way they have got to
be protected from counterattack. A counterattack begins by the
enemy's bombers coming down the communication trenches and
^Adapted from a speech delivered before the House of Commons, August
15, 1916.
270 CURRENT ECONOMIC PROBLEMS
bombing the captured trenches. They cannot be seen — cannot be
spotted from the artillery observation posts. The only means of
dealing with them is to direct a barrage fire which sweeps every com-
munication trench, leaving nothing to chance. Later the enemy's
more formidable counterattack comes along. It is organized under
cover of concentrated artillery fire by means of massed infantry from
the support trenches. The success of these attacks has not only got
to be prevented, but the enemy must not be allowed to formulate
them. So the successful infantry must be protected on its flanks
and front by barrage fire of shrapnel and high explosives directed
against the enemy's support trenches, where the infantry, unseen, are
organizing for the counterattack.
Finally, to be able to press on successfully from one attack to the
next, the resisting power of the enemy must be worn down by want
of rest, of relief, of food. All day and all night the approaches to his
trenches must be kept under fire to prevent relief coming to his men,
to prevent the replenishment of ammunition supplies, and to prevent
his obtaining food and rest. If you add one more detail, what I believe
the French call tire de demolition, which is directed by the very heav-
iest howitzer guns against especially fortified nodes which are dotted
about the area of the German lines, and consider all the operations
which I have described, wonder ceases that you want so much am-
munition. The only marvel that remains is that you can ever produce
enough to sustain the attack which goes on week after week, day and
night, with varying, but always with sustained intensity.
119. The Scientific Basis of War Technique"
BY GEORGE K. BURGESS
The chemists say this is the chemists' war, the engineers claim it
as theirs, while a distinguished French physicist calls the struggle
"a grandiose physical phenomenon," and the medical and surgical
fraternity demonstrate that prevention from epidemics and rendering
possible the return to the front of some three-fourths or more of all
invalided and wounded has made the continuance of trench warfare
possible.
Verdun has been named "the metallurgical battle" and also "the
battle of the trucks," referring in the first case to the importance of
the iron-ore deposits of the Briey region located a few miles to the
northeast, and in the second to the \ast numbers of automobile trucks
employed by the French on the only highway open at the outbreak of
the battle.
^Adapted from "Applications of Science to Warfare in France," Scientific
Monthly, V, 289-97. Copyright, 1918.
PROBLEM OF ECONOMIC ORGANIZATION FOR WAR 271
The meteorologist is listened to with attention by the Great Head-
quarters, as was the astrologer of yore, before an extensive offensive
is undertaken ; and the geologist is consulted for information as to
where to halt and dig in, where shelters may be safely built, and as to
the probability of underground waters. Even the astronomer's ser-
vices are considered of great importance, for example, in the prepa-
ration of new artillery tables and maps, the improvement and inven-
tion of instruments which differ but slightly in principle, however
much they may differ in the nature of their use, from those with which
he is familiar. Again, the statistician is a most valuable person when
an offensive is being planned. Also France, at least, has found the
mathematician indispensable, for in the person of M. Painleve he sits
at the head of them all as Minister of War, whose civil, technical staff
is largely made up of eminent members of the same profession. Is
this then a mathematicians' war?
In truth, chemistry, physics, hygiene, mathematics, engineering,
geography and geodesy, metallurgy, geolog}', bacteriology, mete-
orology, or pretty much the whole curriculum of physical and natural
sciences and their applications are each of them fundamentally essen-
tial in modern warfare, some of course more apparently so than
others, but almost none could be spared and the war carried on suc-
cessfully.
Two most important corollaries immediately suggest themselves :
First, the war can not be successfully prosecuted if there is lacking
any of the necessary raw materials, including chemical, physical, and
metallurgical supplies such as nitrates, optical glass, coal, and steel,
to name but a few. The operations of modern warfare are so com-
plex and interrelated that the want of crucial supplies in one domain
may seriously hamper all ; hence the phenomenon of which there are
instances innumerable, of intensive scientific research in the develop-
ment of substitutes as one or another essential material becomes
scarce.
Second, modern warfare can be waged successfully only by the
proper organization of these diverse scientific elements in addition to,
and co-ordinated with, or incorporated in, the military establishments.
In a completely mobilized country, such as France, it is essential
that each man in the community, which is nearly' identical with the
military establishment, be assigned to the task for which he is best
fitted — or there must be scientific organization and management to
secure the country's greatest possible efficiency.
What is this organization? How and to what extent are the
sciences used in warfare ? And how are the scientific men mobilized
272 CURRENT ECONOMIC PROBLEMS
or otherwise made use of? A brief statement of some of the im-
pressions gained during a three months' stay in England and France
may not be without interest.
The most striking impression brought home is one of unity of
purpose, perfect adaptation and co-ordination of the several branches ;
a harmonious whole, in fact, made up of separate and often highly
intricate parts constituting an organization in which all the sciences
and their applications blend into one, which is focused by the admira-
bly trained technical and staff officers on the sole object of destroy-
ing the enemy. The French traits of individuality, initiative, and
self-reliance, are, however, in no sense lessened or dulled by this
co-operation.
What are some of the component parts of this unity in scientific
warfare? We shall mention but a few in illustration of the whole.
Of all the branches of this science the one that had in recent years
been lagging behind the others and to whose development the least
attention was being paid, was acoustics ; yet it is not an exaggeration
to say that the application of the principles of acoustics, or sound, is
of the greatest importance at the front.
One of the most highly developed is the location of enemy guns,
concerning the details of which a volume could be written; suffice
it to say that in the French armies there are several systems in use,
all of which will locate to within a few yards an enemy battery at ten
or twenty kilometers, indicate the caliber of the guns, differentiate
between the sounds of discharge, flight through the air, and bursting,
and record each and every separate shot ; and the spot from which the
shot was fired may, under certain conditions, be located before the
shell bursts. There have been developed several ingenious listening
devices built on entirely different acoustical principles for use in mine
warfare, by means of which enemy mining operations may be exactly
located. Again, for the location of sounds in the air, especially use-
ful, for example, in locating airplanes at night, several new types of
sound apparatus of extreme sensitiveness are in use. For submarine
detection some of the most promising methods for further improve-
ment are based on the use of still other sound-detecting devices.
Wonderfully powerful megaphones for use in battle have also been
developed. Acoustics as an active branch of physics has most de-
cidedly come into its own.
In photography and the technique of photographic map making
there have been great improvements, brought about directly by mili-
tary necessity, especially in aerial photography, apparatus, and in-
terpretation. One of our most interesting visits at the front was
to the photographic headquarters of a French army corps, where we
PROBLEM OF ECONOMIC ORGANIZATION FOR WAR 273
listened to an admirably delivered, illustrated lecture on the taking
and interpretation of aerial photographs. The art of map-making
from photographs, as carried out at the front, is practically a new
branch requiring great skill, and is evidently of the first importance,
as oftentimes the success of an offensive is largely dependent upon
the quality of this work.
As would be expected, there have been not a few advances made
in applications of electricity, especially wireless apparatus and meth-
ods, signalling and listening devices. There may be, for example,
during a battle more than 1,500 separate wireless stations sending
messages simultaneously ; provision is successfully made for prevent-
ing interference and sorting out this great mass of signals so as to
avoid confusion. Portable wireless outfits are supplied by the tens
of thousands — requiring for the construction of these instruments
alone a veritable army of skilled mechanics.
The reading public is perhaps more familiar with some of the
applications of chemistry to warfare, such as the asphyxiating, tear-
producing, and other noxious gases used in waves or clouds and lately
more and more in shells ; and the importance of nitric acid, toluol,
and the like has been impressed on everyone. The stupendous scale
on which such substances must be produced to keep up with the
demands of the armies is perhaps not sufficiently realized, nor is there
any adequate appreciation of the amount of scientific investigation
being carried out. In France I understand there are some twenty-
five distinct laboratories engaged in nitrogen-fixation research alone.
Turning now to meteorology, what has the weather man to do
with war? He too plays a capital role. With his sounding balloons
he keeps the troops informed as to when a gas attack may be expected
and when it would be profitable to start one ; the artillery depends on
him for data to calculate important corrections, as for wind, humidity,
pressure, and temperature and upper-air conditions in sighting their
guns ; the aviators as to prevailing winds, especially high up, and for
general weather conditions ; the balloon men keep in close touch with
him, and even the transport service depends upon him for advance
information as to muddy roads ; headquarters relies upon him for
knowledge of impending fog or rain and other changes — the weather
man has a very heavy responsibility in helping to decide the most
propitious moment for an attack on a grand scale, and if his forecast
is erroneous, disaster may result.
We have not touched upon the applications of science in the
various branches of military engineering, some of which are new in
this war, requiring the highest directing, technical talent, and thou-
sands of workmen ; the advances in medicine, sanitation, and surgery
274 CURRENT ECONOMIC PROBLEMS
have not been treated, nor have we mentioned trench warfare with
its manifold engines, appliances, and materials, necessitating the
creation of new industries accompanied in all cases by elaborate
scientific research. Gas warfare alone is based on what is literally
a stupendous industry requiring the employment of chemists and
other scientifically trained men on a great scale. Again there are
large and very active laboratories maintained for the examination of
enemy munitions and appliances of all kinds, and for the development
of new and improved types.
Examples enough have been given to impress upon the reader,
I hope, the tremendous magnitude, enormous scope, and far-reaching
extent of the problem of modern warfare looked at from the point of
view of the applications of science and the employment of scientific
and technical men.
The wonderful organization was not all built up in a day, neither
were mistakes avoided, nor could all the developments that have
taken place have been foreseen. In the early days of the war men were
sent to the front, whose brains today would be an invaluable asset ;
national laboratories were almost depopulated ; the military authori-
ties were indifferent to advice from civilian specialists. Today one
would be embarrassed to decide whether an officer in one of the spe-
cialized services was an officer before the war or, let us say, a pro-
fessor of chemistry. The national laboratories have been multiplied
tenfold ; and such care is now taken to protect productive brains that
it may happen that the inventor of a new device is not allowed to go
to the front to try it out.
C. METHODS OF INDUSTRIAL MOBILIZATION
120. Voluntary Army Recruiting^
BY ANDRE CHEVRILLON
Voluntarily recruiting is not merely unjust; it is harmful in its
outcome. It is the injustice which causes the obvious and immediate
difficulty. For instance, for young bachelors of twenty and twenty-
five to remain peacefully smoking their cigarettes in the streets while
heads of families are risking death is evidently unjust; but it also
involves extra expense to the state, for every unmarried soldier costs
only eighteen pence a day and his keep, while in the case of each
married volunteer a wife and almost always several children must be
provided for. It was calculated in the month of August that three
men who had enlisted in London on the same day were leaving alto-
^Adapted from England and the War, pp. 197-99. Copyright by Doubleday,
Page & Co., 1917.
PROBLEM OF ECONOMIC ORGANIZATION FOR WAR 275
gether twenty-six persons to be supported by the state. Not only,
then, for a moral reason should compulsory service, if established, be
enforced first of all on bachelors. The voluntary system has other
defects still more injurious to the successful conduct of the war. Not
only is the number of recruits smaller than it might be, but who can
foretell what this number will be tomorrow, or six months hence?
It is impossible to estimate and prepare the necessary equipment and
the adequate lists of instructors and officers ; this became clear in the
first months of the war. Such was the sudden rush of volunteers,
that for lack of enough buildings, uniforms, guns, and instructors
many had to be refused. The men were discouraged ; the idea spread
that no more men were wanted, and the next appeal met with a poor
response ; it was necessary to resort to new propaganda. Then there
was another difficulty leading to another kind of confusion. A man
would often enlist for a particular corps or a particular service only.
A chief engineer, priceless in the workshop, would insist on going to
the firing line ; an unskilled mechanic would prefer to serve at home in
a factory. Penally, for lack of the numbers of fighting men which
conscription would give, the state, as the war extends and the need of
soldiers increases, ends by taking all who offer themselves, even boys
and weaklings, who quickly sink to the hospital and are finally dis-
missed. Time was required to reveal all these defects, some of them
clearly immoral, of a system which owes all its prestige to its appear-
ance of superior morality and the force of tradition.
121. Voluntary Enlistment of Factories'
BY HAROLD G. MOULTON
The most usual method of industrial mobilization is by means of
what may be called the voluntary enlistment of factories in the pro-
duction of war supplies. This is induced on the part of the govern-
ment by means of an offer of high prices and large profits. This
has sometimes been called the financial method of readjustment,
because it involves the use of money as a medium for effecting the
necessary readjustments.
The precise role that money plays in industrial society is confusing
at all times to the economic novice, and it is perhaps especially so in
connection with war. Our government is to raise the first year of the
war $19,000,000,000. It is to spend this vast sum in inducing people
to furnish the materials that are required for military operations.
These funds are to be passed through the Treasury Department in
successive instalments, giving purchasing power while there, but
"Adapted from "Industrial Conscription," Journal of Political Economy,
XXV (1917), 917-45-
276 CURRENT ECONOMIC PROBLEMS
passing, in the act of purchasing, back again into the channels of
industry. Money then is the means by which the government is
enabled to buy the things it needs.
While the process thus far is perhaps generally enough understood,
it is usually not so clear that if the commodities required by the
government are to be found ready on the market when they are
desired, the government must use the money placed in its hands in
such a way as to induce capital and labor to be shifted into the
production of the supplies and materials demanded.
Let us take some concrete examples. X, a manufacturer of
automobiles, is offered a contract by the government to produce motor
trucks for army service. If the price offered is attractive, and if the
factory can be easily adapted to the manufacture of motor trucks, the
manager will usually readily accept the government contract. Here
we have a diversion of energy without great difficulty and without
having to pay enormously high prices to accomplish it. But let us
take a different case. Y is engaged in the manufacture of candy, or
perfumery, or beer, or ceramics. The government seeks to induce
Y's concern to manufacture war supplies. To do so would require
extensive rehabilitation of plant if not indeed new factories altogether.
Will Y change the character of his business? Purchasers of candy,
perfumery, beer, and ceramics engage in direct competition with the
government and seek to induce Y to continue his present business, by
demanding the usual output of such commodities. The government
must here greatly outbid private spenders if it is to secure the pro-
duction of war supplies.
In this connection it must be borne in mind that the government
is not a very effective competitor for either labor or capital — it must
pay much higher returns than normal industry if it is to attract the
requisite production. Why? Because the laborer does not usually
feel the call of patriotism or the lure of adventure except when he
contemplates entering the active military establishment. The pecu-
niary motive alone must generally be looked to as the means of in-
ducing him to enter the industrial army of the government. He will
not often voluntarily leave his position and apply for one in munitions
factories at the same wages, because of the costs incident to trans-
ferring to a new (and often distant) employment, and because of the
ephemeral nature of the demand for war materials. Very high wages
are therefore required if he is to be tempted.
Similarly, the government must pay very high prices for the
materials supplied if the capitalist is to be tempted into new and
uncertain fields. Can he get efficient laborers for this work ? How
high wages will he have to pay ? How long will the war last ? These
PROBLEM OF ECONOMIC ORGANIZATION FOR WAR 277
are but a few of the questions the industrial manager has to ask and
answer as best he may. Generally speaking, he will assume the
speculative risks involved if the financial inducements are high
enough, but not otherwise.
It should be observed in this connection that the government's
inducement must be high enough to cover all costs incident to the
transition into the war business, the losses due to high cost of opera-
tion while engaged in the manufacture of war supplies, and finally the
losses incident to the transition back to peace-time industry of the
period of reconstruction at the close of the war. Now there may be a
few who would volunteer under any circumstances ; but the general
tendency in any event would be to delay as long as possible, to delay
perchance too long to be of any assistance in the prosecution of the
war.
It should be observed, however, that this method eventually
results in a readjustment of business to war requirements. It is
largely accomplished by a negative process — as a result of declining
profits from normal operations, caused by a curtailment of consump-
tive demand. There are several reasons for this retrenchment in
consumption. In the first place, the perfect barrage fire of argument
as to the necessity of saving which has been hurled at the American
public in recent months is bearing fruit.
In the second place, it is impossible for the rank and file of the
American people to buy Liberty Bonds and spend as usual. If they
buy bonds it must be at the sacrifice of accustomed luxuries. More-
over, we are now looking forward to the payment of taxes, and we are
making our preparations for this by economizing in our normal
purchases. It must be borne in mind in this connection also that at a
time when the future is so uncertain a great many people are saying,
"I had better save all I can now, because there is no telling whether
it will be possible for me to save anything in the next few years."
Finally, it must be noted that the rapid rise of prices in nearly
every line eventually forces rigid economy among the masses. Sta-
tistics published by the government early in 1918 show that retail
prices of foodstuflfs in the United States are now 57 per cent higher
than they were in 1914, while general wholesale prices are 81 per cent
higher. Students of the question are unanimous in the belief that
prices will continue to rise here throughout the war, just as they have
in the nations of Europe. It will therefore shortly be impossible for
the masses of our people to devote much of their earnings to the pur-
chase of nonessentials. They will count themselves fortunate if
they are able to purchase enough of the necessities of life to sustain
themselves in a state of normal efficiency. Already in many cases the
278 CURRENT ECONOMIC PROBLEMS
pinch of war prices is beginning to mean real privation.
These forces, however, do not for several years result in a complete
shifting of productive energy from nonessential lines. The chief
reason for this is that the laboring classes, who as a result of the war
receive unprecedented high wages, are unable to resist the tempta-
tion to spend their new-found wealth for the luxuries and comforts
of life, which have so long been denied them. This excess of purchas-
ing power in the hands of the "rich war laborers" has had a striking
manifestation in England; and it began to develop rapidly in the
United States in the year 1918. A complete readjustment of industry
can be rapidly accomplished, therefore, only by the exercise of some
form of coercion on the side of production, such as the exercise of
priority rulings or conscription of the use of industrial establishments.
122. Voluntary Mobilization of Labor^"
BY LEON C. MARSHALL
In our industrial system the standard mechanism for inducing
laborers to move is that of an offer of higher wages. This offer was
readily forthcoming from the contractors in war industries, particu-
larly from those who held "cost-plus-percentage" contracts, which
made it actually to the profit of the employer to pay high wages for
his workers. War contractors "bid away" from ordinary industries
their skilled workers, disrupting in so doing some of the basic in-
dustries of the country, and then bid against each other for these
workers. The lack of general planning, or indeed of general knowl-
edge of the turn events were taking, caused wages to rise very irregu-
larly in the various trades affected, in the various communities af-
fected, and even' in the different industrial plants within a given
community.
The competitive bidding of the various contractors was ac-
centuated by their firm belief that there was a scarcity of labor,
particularly of skilled labor. It is not surprising that this belief
should have been prevalent. There was undoubtedly a scarcity of
certain kinds of skilled labor ; there was a scarcity of many kinds of
skilled labor in the congested districts ; and the story of England's
difficulties in providing skilled labor had been widely circulated.
One feature of our situation was very generally overlooked. The
scarcity of shipping made our problem very different from that of
England. The actual situation is that, conceding scarcity of certain
kinds of labor and of many kinds of labor in certain districts and of
loAdapted from "The War Program and Its Administration," Journal
of Political Economy, XXVI (1918), 425-60.
PROBLEM OF ECONOMIC ORGANIZATION FOR WAR 279
maladjustment of labor supply in many districts, there is no real
scarcity of labor, taking the country as a whole.
To this hectic wage situation there was added the fact that we did
not have a satisfactory system of employment exchanges through
whose activities the movement of workers could take place in an
orderly fashion according to carefully determined requirements.
The result was that the movement occurred in a highly disorderly
manner, guided, if such a term may be used, by newspaper advertise-
ments of private industries, by wild rumors of high wages in some
distant locality, and by the patriotic desire of the individual worker
to be of service. A plant manager in one of these war-industry towns
said that "for weeks laborers milled around like cattle" in his town.
The story is told of one community in which an investigator met
incoming trains and watched workers accept employment in as many
as six to ten plants in the same day, moving from one to the other in
the hope of ever-higher wages and accepting employment in every
one whose wage offer was larger than that of its predecessor.
There is, of course, no such thing as a "normal" labor turnover.
Some writers have estimated that a labor turnover of 100 per cent per
year represents average conditions. In these war industry plants a
labor turnover of 400 or 500 per cent was regarded as low, and one of
1,600 to 2,000 per cent was by no means phenomenal.
123. Work or Fight' ^
BY GENERAL ENOCH CROWDER
Every man, in the draft age at least, must work or fight.
This is not alone a war of military maneuvres. It is a deadly
contest of industries and mechanics. Germany must not be thought
of as merely possessing an army ; we must think of her as beitig an
army — an army in which every factory and loom in the Empire is a
recognized part in a complete machine running night and day at
terrific speed. We must make ourselves the same sort of effective
machine.
We must make vast withdrawals for the army and immediately
close up the ranks of industry behind the gap with an accelerating
production of every useful thing in necessary measure. How is this
to be done ? The answer is plain. The first step toward the solution
of the difficulty is to prohibit engagement by able-bodied men in the
field of hurtful employment, idleness, or ineffectual employment, and
thus induce and persuade the vast wasted excess into useful fields.
"Adapted from the order known by this name, July, 1918.
28o CURRENT ECONOMIC PROBLEMS
One of the unanswerable criticisms of the draft has been that it
takes men from the farms and from all useful employments and
marches them past crowds of idlers and loafers away to the army.
The remedy is simple — to couple the industrial basis with other
grounds for exemption and to require that any man pleading exemp-
tion on any ground shall show that he is contributing effectively to
the industrial welfare of the nation.
124. Priorities'^
BY ALVIN JOHNSON
Priority must be accorded to the services of war. When an army
is to be moved all means of transport in sight are commandeered.
When an army is to be fed, civilians protest in vain against the seizure
of stores. So matters have stood since time immemorial. This is
why it now seems merely common sense to enact a law giving the
president authority to claim priority in the transportation of goods
essential in the prosecution of the war. Whether the output of steel
mills shall be assigned to the building of war ships, merchant ships,
railways, office buildings, or summer hotels, should, we all feel, be
determined by a like principle of priority. If we have as yet no law
guaranteeing priority for military requirements in the field of pro-
duction, we feel that this is merely a gap in our war arrangements,
to be stopped for the present by patriotic action on the part of the
producers themselves.
What is novel in the present-day conception of priority is rts
breadth of scope. When the whole industry of a nation is mobilized
behind the fighting line, it is not merely finished munitions that must
be given priority in transportation, but also the materials and fuel
for further munitions production. The food supply of the industrial
population, as well as that of the army, has a claim to priority. So
also have clothing supplies, lumber for housing, and whatever else
is essential to working efficiency. In production it would be impos-
sible to fix definite limits upon the application of the priority principle.
We can not much longer permt the free flotation of the securities of
foreign enterprises, nor even of the less essential domestic enterprises,
so long as national loans or issues designed to finance railways or
industrial enterprises of prime necessity are to be floated. Modem
warfare, in involving the whole national life, has made inevitable a
control of business practically coextensive with the economic system.
The application of the priority principle to transportation and
i2Adapted from "What Priority Means," Neiv Republic (June 30, 1917)1 P-
237. Copyright.
PROBLEM OF ECONOMIC ORGANIZATION FOR WAR 281
production is quite in accord with plain common sense. It is none the
less revolutionary in its social economic implications. What it means
is that necessities shall have right of way. If we have excess pro-
ductve capacity, the unessentials and luxuries may be provided, but
not otherwise. And necessities are definable in terms that take
account only of physical requirements. There is no room in the
definition for class distinctions. A new country house may seem a
matter of necessity to the man of fortune, but he will persuade no
priority board to permit shipments of building material while cars are
needed for coal or wheat. Nor will he persuade them to let him have
lumber that could be used for ships or workingmen's camps, or labor
that could be employed to advantage in production for more clearly
national and democratic needs.
125. Industrial Conscription'^
BY HAROLD G. MOULTON
By industrial conscription the government could transfer laborers
from the industries that are unimportant to the fields of production
that are imperatively necessary as rapidly as is required, without
waiting, possibly indefinitely, for public economizing to force read-
justment through the decline of profits and the closing of factory
doors. Industrial establishments engaged in manufacturing com-
modities that are unnecessary for war purposes could by industrial
conscription be forced to convert themselves at once into factories
for the manufacture of munitions and other war materials. New
construction that is not necessary for war purposes could be halted
and the energy engaged therein diverted to the channels where im-
peratively demanded. Such a system would reduce to a minimum
the social loss of time and energy incident to the transition period.
Wisely administered (note the qualification) upon a basis of what
may be called selective industrial conscription it would eliminate a
great part of the confusion, disruption, and maladjustment incident
to the ordinary financial method of readjustment.
Not only are the social losses involved in the transition less than
under the method of gradual readjustment, but the direct losses to
capitalists are almost certain to be less. Assume that time permits a
gradual transition covering a period of two or three years. Would
the losses through gradual readjustment by means of the financial
machinery be less than through direct commandeering? The former
method means vainly struggling along in present lines with lower
i^Adapted from "Industrial Conscription," Journal of Political Economy.
XXV (1917), 917-45-
282 CURRENT ECONOMIC PROBLEMS
margins of profits and heavy losses as reduced sales gradually de-
velop ; it is likely to mean with any given establishment months of loss
before bankruptcy and then a considerable interval of no business at
all while attempting to fit itself into newer lines of production. Only
in cases where the rehabilitation of factories is a simple process can
the conversion be made without heavy losses. Even in these cases,
however, the tendency will be to delay the fatal step as long as pos-
sible, and this means until the pinch of declining profits is no longer
tolerable. Under the method of industrial conscription, however, the
conversion could be forced before the decline in profits threatens
insolvency. And, moreover, the losses attending the entrance into
the new lines of industry could be reduced to a minimum by directing
capital to the places of greatest need. It is a method, substantially
speaking, of carefully planned adjustment by a board of experts
acquainted with the entire situation, as against the slow and uncertain
method of trial and error by business men who hope and believe that
business will continue as usual, and who, when eventually forced from
present lines of activity, find themselves only partially or inaccurately
acquainted with the government's requirements.
But aside from all this it must be emphasized that the method
of industrial conscription saves what is at present more precious
than gold itself — it saves time. If selective conscription of men may
be justified on the ground that the volunteer system is hopelessly slow
and uncertain where speed and certainty are indispensable, may not
conscription of industry be justified on the same grounds? If ships,
munitions, and food rather than soldiers are to render our greatest
service to our Allies, why resort to the method of efficiency in the
raising of armies and the method of inefficiency and uncertainty in
the raising of crops and supplies?
Shall we answer. Because conscription of industry is un-American,
because it places autocratic power in the hands of a democratic gov-
ernment and strikes at the very foundation of our institutions —
private property, vested interests, free initiative, individual liberty,
competition, and all the rest ? A similar answer may be, and has been,
made with reference to military conscription, but we have overruled
that objection mainly on the ground that the time element is so
tremendously important that ordinary peace-time principles and ideals
have to give way. Much as we may dislike the principle and method
of conscription, do we not dislike and fear the alternative — the in-
definite eclipse of democratic institutions — more?
In one important respect industrial conscription is incomparably
less objectionable than military conscription. The man who is com-
PROBLEM OF ECONOMIC ORGANIZATION FOR WAR 283
pelled to serve in the army is forced to offer life itself in the cause
for which he is enlisted ; the man who is compelled to close his factory
or convert it to different uses, the man who, as a laborer, is compelled
to change his employment, at best offers but his services for a smaller
remuneration. It is the old question of life versus property. The
nation which protests and believes that there is all difference between
a prize court and a submarine — between temporary detention of our
ships and their cargo and legally determined compensation after the
war and the sinking of our ships and citizens without a warning — can
make so far as justice is concerned only one decision on the question
of industrial versus military conscription.
The method of industrial conscription obviously raises enormous
problems of its own. How shall we provide the machinery necessary
to its successful administration? Who shall be given the power to
decree life or death for industrial establishments in the exercise of the
selective requirements of the plan? Who shall decide what industries
are important to keep alive in war time — for recreational and cultural
purposes as well as for physical and military requirements? What
man or what body of men can be found with the necessary omnis-
cience, with the requisite prevision, for such a method of industrial
reorganization ? I have spoken of a board of experts, but a friend of
mine remarks : "We may call them experts but that does not make
them really expert ; they would be sure to make no end of mistakes ;
they are not in a position to determine in anything approaching a
scientific manner what lines of human endeavor count for most."
That there is point to such contentions in piping times of peace I
would be the last to deny, but in time of war the problem is profoundly
changed. An administrative board giving its entire time to the study
of the situation could, it seems to me, determine and guide with con-
siderable wisdom the apportionment of our national energy. The
insistent demands of the War Department for ships, for munitions,
for supplies furnishes abundant evidence of the things that are needed
most; the demand side of the problem certainly has no insuperable
obstacles. The determination of what particular commodities shall
be dispensed with is perhaps not so simple a task. But could not any
of us upon reflection think of a score of commodities that are less im-
portant for war purposes than shells, than food, than shovels, than
airships ? We need not look for 100 per cent efficiency in order to
justify the effort. Any percentage of efficiency would be a net gain
over the present method of sheer inefficiency.
284 CURRENT ECONOMIC PROBLEMS
D. MOBILIZATION IN LIBERAL COUNTRIES
126. The Penalty of Taking the Lead^*
BY THORSTEIN VEBLEN
An industrial system which, like the English, has been long en-
gaged in a course of improvement, extension, innovation, and speci-
lization will in the past have committed itself, more than once and
in more than one connection, to what was at the time an adequate
scale of appliances and schedule of processes and time adjustments.
Partly by its own growth and by force of technological innovations
designed to enlarge the scale or increase the tempo 6f production or
service, the accepted correlations in industry and in business, as well
as the established equipment, are thrown out of date. Yet it is by
no means an easy matter to find a remedy; more particularly is it
difficult to find a remedy that will approve itself as a sound business
proposition to a community of conservative business men who have
a pecuniary interest in the continued working of the received system,
and who will not be endowed with much insight into technological
matters anyway. So long as the obsolescence in question gives rise
to no marked differential advantage of one or a group of these
business men as against competing concerns, it follows logically that
no remedy will be sought. An adequate remedy by detail innovation
is not always practicable ; indeed, in the more serious conjectures of
the kind it is virtually impossible, in that new items of equipment
are necessarily required to conform to the specifications already
governing the old.
So, e.g., it is well known that the railways of Great Britain, like
those of other countries, are built with two narrow a gauge, but while
this item of "depreciation through obsolescence" has been known for
some time, it has not even in the most genial speculative sense come
up for consideration as a remediable defect. In the same connection
American, and latterly German, observers have been much impressed
with the silly little bobtailed carriages used in the British goods
traffic; which were well enough in their time, before American or
German railway traffic was good for anything much, but which have
at the best a playful air when brought up against the requirements of
today. Yet the remedy is not a simple question of good sense. The
terminal facilities, tracks, shunting facilities, and all the ways and
means of handling freight on this oldest and most complete of railway
systems are all adapted to the bobtailed car. So, again, the roadbed
and metal, as well as the engines, are well and substantially con-
structed to take care of such traffic as required to be taken care of
^^Adapted from Imperial Germany and the Industrial Revolution, pp.
124-28. Copyright, 1915. Published by B. W. Huebs New York.
PROBLEM OF ECONOMIC ORGANIZATION FOR WAR 285
when they first went into operation, and it is not easy to make a
piecemeal adjustment to later requirements. It is perhaps true that,
as seen from the standpoint of the community at large and its material
interest, the out-of-date equipment and organization should prof-
itably be discarded — "junked," as the colloquial phrase has it — and
the later contrivances substituted throughout ; but it is the discretion
of the business men that necessarily decides these questions, and the
whole proposition has a different value as seen in the light of the
competitive pecuniary interest of the business men in control.
This instance of the British railway system and its shortcomings in
detail is typical of the British industrial equipment and organization
throughout, although the obsolescence will for the most part perhaps
be neither so obvious nor so serious a matter in many other directions.
Towns, roadways, factories, harbors, habitations, were placed and
constructed to meet the exigencies of what is now in a degree an
obsolete state of the industrial arts, and they are, all and several,
"irrelevant, incompetent, and impertinent" in the same degree in
which the technological scheme has shifted from what it was when
these appliances were installed. They have all been improved, "per-
fected," and adapted to meet changing requirements in some passi-
ble fashion; but the chief significance of this work of improvement,
adaptation, and repair in this connection is that it argues a fatal
reluctance or inability to overcome this all-pervading depreciation
by obsolescence.
All this does not mean that the British have sinned against the
canons of technology. It is only that they are paying the penalty of
having been thrown into the lead and so having shown the way. At
the same time it is not to be imagined that this lead has brought
nothing but ^ains and penalties. The shortcomings of this British
industrial situation are visible chiefly by contrast with what the
British might be doing if it were not for the restraining dead hand of
their past achievement, and by further contrast, latterly, with what
the new-come German people are doing by use of the English tech-
nological lore. As it stands, the accumulated equipment, both mate-
rial and immaterial, both in the way of mechanical appliances in
hand and in the way of technological knowledge ingrained in the
population and available for use, is after all of very appreciable value ;
though the case of the Germans should make it plain that it is the
latter, the immaterial equipment, that is altogether of first conse-
quence rather than the accumulation of "production goods" in
hand. These "production goods" cost nothing but labor ; the imma-
terial equipment of technological proficiency costs age-long exper-
ience.
286 CURRENT ECONOMIC PROBLEMS
127. Social Customs and Efficiency in War*'
BY HAROLD G. MOULTON
In Anglo-Saxon and Latin countries women are traditionally
home-keepers. In the Teutonic nations they are traditionally co-
workers with their men in the work of the world. This difference in
social custom is proving at the present time one of the powerful
factors in the world-war.
The information has been disclosed that the allies were out-
numbered on the western front in the spring and early summer of
1 91 8. It has seemed impossible to many people that this could be
true ; for — leaving America out of consideration at this period — is
not the population of Great Britain, Canada, Australia, France and
Italy greater than that of the Central Powers ? It has seemed incred-
ible that the Allies could be outnumbered in face of the indisputable
population statistics.
Numerous explanations have been offered for the enigma. The
one most frequently given is the dissipation of British forces in
consequence of the necessity of keeping troops in Mesopotamia,
Egypt, and Saloniki ; the maintenance of a large naval force, etc.
Another explanation is the more effective utilization by Germany of
her prisoners of war, including civilian populations from conquered
territories, the number of such prisoners employed on farms and in
industrial establishments in Germany being estimated in 1917 at one
million two hundred thousand. Still another explanation is that the
German organization has more effectively mobilized the man power
of the country in consequence of a more rigid curtailment of non-
essential production. Not so many men are required back of the
lines in Germany relatively to the number engaged at the front as
in the allied countries, particularly in England, where many are still
engaged in pursuits which are relatively unimportant. The most
important factor in the situation, however, appears to be the part
that women play in industry. It has been estimated that there
were one million five hundred thousand women engaged in British
industry in the spring of 1918. The English have derived great
satisfaction from this remarkable showing and it has given rise to
numerous volumes and scores of articles. Under the circumstances,
that is, in view of the age-old tradition against women in industry,
the British women have done extremely well. Their spirit, in the face
i^Adapted from an article with the foregoing caption in Clark, Hamilton,
and Mouhon, Readings in the Economics of War, pp. 155-57. Copyright by
the University of Chicago, 1918.
PROBLEM OF ECONOMIC ORGANIZATION FOR WAR 287
of a most cherished heritage, coupled with powerful opposition from
British trades unions, is admirable. But in contrast with the part
women are playing in the Central Powers this showing could in the
spring of 1918 cause only anxiety as to the outcome of the struggle.
The German woman's participation in agriculture is proverbial,
and the war has of course necessitated an even heavier carrying of the
burden of agricultural production by female labor. This is equally
true in Austria, Bulgaria, and Turkey. But it is not only in agri-
culture that the German women are playing a tremendously important
role. Even before the war there was a steadily increasing flow of
women into industrial pursuits in Teutonic countries. While the
complete statistics for women in industry in Germany at the present
time are not available, it was reported that as early as the middle of
1 916 there were more women than men employed in the great metal
industries of the Berlin region, and on March i, 1917, it is reported
that there were 3,973,457 women insured in the sick-benefit funds of
Germany. Inadequate as these data are, they clearly show an enor-
mously greater participation of women in essential production in
Germany than in England. Between the ages of eighteen and forty-
five there are in the neighborhood of 11,000,000 women in Germany,
and it is probably a conservative estimate that three-quarters of these
are effectively employed in the creation of the basic necessities for
modern warfare. With 8,000,000 German women in industry as
against 1,500,000 women in English industry it means a release of
6,500,000 men, roughly speaking, for the military establishment.
Nor do knitting and other forms of household manufacture take the
place of machine production ; they may reduce the above difference,
but they do not eliminate them. The German organization is thus
enabled to place a much larger percentage of the man power of the
nation in the army than it has been possible for the Allies to do.
Possibly, in view of Anglo-Saxon social sanctions, it is the best that
we can hope that at the end of four years of war 1,500,000 British
women should be engaged in industry. If so, we must set it down as
one of the serious economic liabilities of the Allies, a liability which
can be offset only by such a marked superiority of man power as the
entrance of America into the conflict affords. It is important to re-
member, however, that without America's entrance into the war the
Allies would quite obviously have had to succumb through defeat on
the western front, a defeat made possible because the "economic
position of women" in the Central Powers is such that they have
been enabled to place a larger percentage of their man power in the
active military establishment than have the Entente nations.
288 CURRENT ECONOMIC PROBLEMS
128. A Nation of Amateurs"
BY LEON C. MARSHALL
The problems which faced our national leaders upon our entry
into the war were literally staggering. A nation whose whole tra-
dition was one of peace was to be placed in the physical and mental
attitude to wage war. Its human and industrial resources were to
be reorganized to meet the drains of war. For the direction of these
tasks there was a pitifully inadequate staff of officials — inadequate
in numbers, in training, in outlook, and in authority — who had not
even had in proper measure the advantages flowing from preliminary
planning.
Under the circumstances, it is not surprising that much industrial
confusion attended our efforts. Conditions in the Ordnance Depart-
ment may be taken as an example of the difficulties involved. At the
outbreak of the war this department had on duty nine commissioned
officers at Washington and a total of ninety-seven in the entire
country. Its peace-time expenditures had been about $13,000,000
per annum. From this nucleus there was developed in one year a
staff at Washington consisting of 3,000 officers, 1,700 enlisted men,
and 9,200 civilians, with a total of 5,000 officers in this country and
abroad. This mushroom staff had charge of direct appropriations
and contract authorizations amounting to several billions of dollars ;
it set up the mechanism for controlling the production of this quantity
of material (for of course it could not be procured on the open market
and its production had to be supervised) ; it provided the adminis-
trative forces for storing and handling, both in this country and
abroad, the material when it had been produced and delivered. The
enterprise was conducted in a fashion that was, upon the whole,
admirable. Men could not be trained overnight, but able engineers
and business executives were called into the service, assigned to duties
in the various divisions of the work, given a considerable range of
authority, and held responsible for results.
Admirable as was the approach of our higher officials to the
problem placed before them, defects in operation resulted from insuf-
ficient planning and from the impossibility of training subordinates
properly in the time available. It would be an unpardonable injustice
to assert that the programs of the production departments were
carried out with little planning. No one who came into contact with
the overburdened officials responsible for the execution of these pro-
grams would make such an assertion. It is true, however (through
i^Adapted from "The War Labor Program and Its Administration,"
Journal of Political Economy, XXVI (May, 1918), 425-28.
PROBLEM OF ECONOMIC ORGANIZATION FOR WAR 289
little fault of theirs), that their planning was hastily done and was not
well co-ordinated. Each production department and indeed each
subdivision of each production department plunged into the execution
of the task assigned to it, knowing little, and often caring less, how
its actions would affect the execution of the programs of others. The
officers in charge, particularly the subordinates, saw no other course
open to them. They had been trained in our school of individualistic
enterprise where "results" counted — "results," however, which did
not depend upon national team work, since the projects involved did
not demand the effective utilization of all the resources of the nation.
The country demanded "results." In the absence of co-ordinatmg
supervision at the top it seemed clear to the average production officer
that his patriotic mission, to say nothing of his chances of preferment
and promotion, began and ended in his "pushing his own program
through." And he had a reputation as a "pusher." He was the
veritable "he-man" so popular in Washington dispatches. He had
superlative contempt for the "super-co-ordinator" who dared ask
whether the nation's interests did not require studies in priority and
carefully balanced production. Furthermore, this "pusher" was
almost certain to have accepted the prevailing fallacy that the expendi-
ture of dollars rather than materials would win the war. He accord-
ingly placed his emphasis on grinding out contracts for vast quantities
of materials — an emphasis which the contractors themselves were not
averse to stimulating. Under such conditions one can well believe
that carloads of hull paint were delivered at shipyards where the ways
had not yet been laid on which the hulls were to be constructed. The
nation's resources, unadjusted as they were, could not adequately
meet such haphazard demands.
The conclusion resulting from the apotheosis of the Great Amer-
ican Pusher was accentuated by difficulties arising from another quar-
ter. Since there was little or no guidance from the top, since the in-
dustries and labor resources of the country had never been effectively
catalogued and classified for military purposes, since war contracts
of European nations had been centered in certain districts, and since
the successful business managers and engineers called into the gov-
ernment service came mainly from the industrial districts of the
country, the outcome of the zeal of the contracting officers was a tre-
mendous concentration of contracts. When stock could be taken of
the situation it was discovered that, aside from the contracts of the
Shipping Board, one-fourth of all the government contracts for war
purposes had been located in the state of New York alone, one-half
in three states (New York, Pennsylvania, and Ohio), and three-
fourths in seven states (New York, Pennsylvania, Ohio, Massa-
290 CURRENT ECONOMIC PROBLEMS
chusetts, Illinois, New Jersey, and Connecticut). A greater disper-
sion existed in the case of the Shipping Board contracts because the
vessels themselves were to be built all along our deep waterways.
It is not improbable, however, that the contracts for accessories
needed in shipbuilding showed a somewhat similar concentration,
and the general belief is that the contracts of our Allies were quite
as heavily concentrated.
The war-industry districts arising from this concentration of
contracts rapidly extended existing plants and built new ones. They
reached out to the rest of the nation for materials, money, and men,
They required that scores of thousands of workers be transferred to
them from districts where war work was not being done. Then
followed a tremendous congestion of transportation facilities — a
congestion that was later to play its part in causing the issuance of a
so-called fuel order which was really an order to relieve an "in-
dustrial jam."
129. The Consumer's Dilemma
a) The Appeal to Spend}''
DON'T BE A BUSINESS SLACKER
Right now the man who allows fear to paralyze the hand he writes
checks with is just as dangerous to his country as the deliberate
crank who throws a bomb.
The Motor Corporation believes that the business slacker
here at home is our one real enemy — far more of an enemy than the
Kaiser, because the Kaiser cannot get at us.
If you cannot thrust a bayonet, you can at least drive your busi-
ness harder than you have ever driven it before and thus help create
the imperative prosperity with which alone this war can be won.
It betrays weak-mindedness to think of driving headlong into the
period of panic, penance, abject fear and hysterical economy.
The man who sneaks down and buys a marriage license life-
preserver is not the worst breed of slacker. Conscription will take
care of him. But for the business slacker there is no law but his own
conscience. The man who destroys business takes bread out of the
mouths of thousands.
No matter what comes —
Don't be a business slacker.
Right now is an almighty good time to take the bull by the horns
and look him square in the eye. America is at war. It is a big war — a
I'^An advertisement appearing in the New York Times, May 15, 1917.
PROBLEM OF ECONOMIC ORGANIZATION FOR WAR 291
very big war. It may be a long war, and when we try to imagine
what may happen no one can blame us for looking serious.
But there is absolutely no reason for being scared, or, in a busi-
ness way, even aprehensive.
We cannot avoid the firing line — we can avoid the bread line.
War is transient — the United States is permanent.
The demands on us will be great — but our resources are in-
exhaustible. The United States today has the larger part of all the
real money in the world. But money is just like rnen — if it is inactive
it is useless. While we are talking about making our factories and
our farms produce, let's not forget to keep our money producing.
We will encounter serious problems, but American ingenuity and
inventive genius is equal to any emergency.
We are going to win this fight because we are on the side of
right — and when we come out of it zve are going to be a real honest-to-
God nation.
Meanwhile, what about business?
The real barometers of America's business are the smokestacks
of her factories — her dinner pails — and the mouths of her one
hundred millions.
America is going full speed ahead — don't let anybody talk you
out of that.
Even if America desired hard times, the world would refuse her
the wish. We have been conscripted as the world's kitchen, the
world's shipyard, the world's bank — the world's general business
manager — carte blanche.
America is bound to be prosperous. That's her part in the war.
Someone must keep wealthy enough to meet this war's pay-roll.
That's our job. As a result, the great mass of men, women, and
children in this country can no more avoid getting money out of this
present emergency than a lily in the rain can avoid getting wet.
Get these facts through your head, for they are the only true
facts on which you can base your business plans.
America has taken what amounts to a seven thousand million
dollar order.
Mind you, this is only the first of many such orders. Seven
thousand million dollars' worth of shoes, guns, munitions and what
not must be manufactured and delivered.
Who gets the seven billion f
If you are a merchant, every customer on your books will get a
piece of it. If you are a manufacturer or mechanic, you yourself
will get your part of it.
292 CURRENT ECONOMIC PROBLEMS
There is going to be no non-productive labor or capital in this
country. Everybody must produce — which means that everybody
must be on somebody's pay-roll.
For at least three years America cannot avoid being the most
prosperous nation the world ever saw.
America's wealth is about to be redistributed and put in the hands
of our people.
— not in the hands of the hoarding few. When our people get
money they have the courage to spend it.
So look out for big business — tremendous and inevitable big
business — and get ready to take care of it when it comes.
We assure you that the Motor Corporation, for one, pro-
poses to keep right on building and selling and creating its share of
the wealth with which this war must be fought, and we have reason
to believe that the whole motor car industry feels exactly the same
way about it.
The biggest week ever had was last week — our biggest day
so far was yesterday.
— and it looks now as if we had only started — ^proving that honest
merit still wins. , with its unheard-of advantages and its un-
questioned quality, constitutes real economy at $1985.
If you have thought of buying a car this year, go ahead and buy it.
Meanwhile remember that the man who allows fear to paralyze
the hand he writes checks with is as dangerous to his country as the
deliberate crank who throws a bomb.
Motor Corporation.
b) Practical Patriotism ^^
HOTEL
ST. BROADWAY ST.
Tables Are Now Being Reserved for New Year's Eve.
$4.00 Per Cover
Elaborate preparations are being made to make this a thoroughly
patriotic American and Allied introduction to 191 8. Special orchestra
and leading singers have been engaged to carry out a program of
international and topical songs and music.
Orchestra
"Soldier Boy" Souvenirs
Reservations May Be Made by Telephone, Columbus
i^An advertisement appearing in the New York Times, December 28, 1917.
PROBLEM OF ECONOMIC ORGANIZATION FOR WAR 293
c) Consumptive Slackers ^°
BY THOMAS NIXON CARVER
If I were to stand on the street corner or some other public place
and lift up my voice in impassioned oratory to persuade men to stay
out of the army and the war industries, saying to them, "Don't
enlist ! Don't go into the shipyards ! Don't go into the munition
factories ! Don't go into the coal mines ! Don't work for the rail-
roads ! Don't go onto the farms to help produce food !" — I should
certainly be mobbed, if the police did not take me to jail, and I should
deserve all the rough treatment that I should receive.
There are other and more effective ways than street oratory of
persuading men to stay out of the industries which are essential to
the running of this war. Street oratory seldom accomplishes any-
thing, and the street orator who tries to keep men out of the war
industries is not a very serious menace, though he ought clearly to
be abated as a public nuisance. If I really wanted to accomplish
such a disloyal purpose as to keep men out of the war industries, I
should spend as much money as I could for nonessentials and should
advise everyone else to do the same. I should publish articles advis-
ing against too much economy and should do all in my power to get
people to spend their money for nonessentials. I should advertise
nonessentials in as alluring forms as I could invent. Every dollar
which is spent for these things will hire someone to make and sell
them, and the more these things are bought the more man power will
be hired to stay in the nonessential and out of the essential industries.
That is a much more effective, as well as a much safer, way of keeping
men out of the war industries.
I am not a believer in mob violence, but if there is anyone who
deserves to be mobbed, it is not these poor simpletons who make
ineffective speeches against working in the war industries, though
they are bad enough : it is rather those respectable people, some of
them in positions of high authority, who still persist in advising people
that they must continue spending their money freely for things which
they do not need, in order that business may not be disarranged.
130. The Curtailment of Nonessentials-"
The Council of National Defense recently undertook an investiga-
tion to determine whether purchases by civilians in the United States
have been increasing or decreasing during the war period. One of
^^From the New York Evening Post, February 11, 1918.
2oAdapted from "Progress in Curtailment of Nonessentials," in the Fed-
eral Reserve Bulletin" (September i, 1918), pp. 852-55.
294 CURRENT ECONOMIC PROBLEMS
the most illuminating statements was furnished by a very large busi-
ness house dealing directly with consumers throughout the entire
country. Because of the diversity of the merchandise handled and
customers served, the business of this firm may be considered a rea-
sonably accurate barometer of comparative purchasing activities.
The following conclusions are taken from the statement prepared by
the firm. Boys' clothing shows a marked decrease in the quantity
purchased in the higher priced lines, while all items of small money
value show a sufficient increase to offset this. Work clothes show a
great increase, with the percentage of value very much larger than
the percentage of quantity. Men's furnishing goods show the largest
decrease in quantity of all the men's apparel lines. Women's dresses
alone show a quantity increase of about 32 per cent. The decrease,
however, in suits, skirts, and misses' dresses is sufficient to offset this
increase and brings the entire line down to a volume equal only to
that of last year. In shoes the total quantity decrease is about 33
per cent.
As regards furniture, the slight decrease in the heavier lines
shown in this company's business may be due as much to congested
traffic conditions discouraging purchasing from a distance as to a
decrease in demand. Curtains, drapes, and floor coverings show
about an equal quantity. In rugs there is an unusually good demand
for the smaller sizes, with a considerable falling off in the larger.
Crockery and glassware show a marked increase in quantity.
There is a decided increase in sales of small-sized diamonds and a
falling off in sizes from one-half carat upward. Watches are in
great demand especially wrist watches, which have been enormously
popularized by the war. Fountain pens and stationery show a
decidedly increased demand, for the obvious reason that so many
men are leaving their homes. The quantity of cigars and tobacco
shows a noticeable increase, which can be accounted for by the slogan,
"Smokes for the soldiers." Face powders and creams show an
increase. Toilet articles, such as manicure and shaving sets, brushes,
and combs show a decrease. There is a great demand for pianos and
organs. The company was unable to make comparisons about the
demand for phonographs, since it entered the field in earnest only in
the fall of 1917. The increase in demand for bicycles and sundries
seems to come from industrial centers, indicating that workmen are
using them in going to and from their plants.
In general terms the firm states, in the first place, in merchandise
for women's exclusive use, it is certain that sales are increasing.
This is possible because thousands of women never before employed
are now earning very fair wages, while others previously employed
PROBLEM OF ECONOMIC ORGANIZATION FOR WAR 295
are earning increased wages. Luxuries and semi-luxuries, such as
musical instruments, watches, jewelry, and diamonds, show an in-
crease in quantity as well as in dollars, giving an impression of gen-
eral prosperity.
The company expresses the belief that economy is being practiced
by well-to-do persons and those of moderate means, while the in-
creased compensation received by large numbers of people previously
somewhat more restricted in purchasing power has made it possible
for them to buy more freely of the articles considered luxuries.
In terms of geographical location, the company says that in the
South especially in the cotton-growing states, its business is better
than ever before. In the far West the civilian population is buying
freely and in greater quantity than in previous years. In the northern
states of the Middle West buying is more conservative and more
restricted to staples and necessities, but the volume is at least equal
to the average. In the East there is a rather marked decrease in the
quantity of purchases, especially in nonessentials ; in fact it is quite
noticeable even in essentials.
E. GETTING OUT OF WAR
131. The Rate of Demobilization^!
A problem of moment is the rapidity with which demomilization is
to be effected. How speedily the whole process moves is, perhaps, an
affair of no great moment, except as it involves losses in human and
material resources through delay in getting them back into ordinary
uses. It is much more important that the two principal movements,
flow into the labor market and re-employment, should go on at the
same rate. To determine what conscious control of the rate of de-
mobilization is possible we must separate it into its elements and
enumerate the contingencies upon which each depends.
The flow of labor into the market for employment will, during
the demobilization period, be made up of five principal streams.
These are: (i) demobilized men now under arms abroad; (2) de-
mobilized men now under arms in the United States; (3) workers
involuntarily discharged from munitions industries; (4) immigrants;
and (5) young people coming upon the labor market for the first
time. The rate at which each of these streams comes into the market
is more or less subject to control. Since the governing factors vary
-^Adapted from an anonymous article entitled "The Problem of De-
mobilization," Journal of Political Economy, XXVI, 923-29. Copyright by the
University of Chicago, 1918.
296 CURRENT ECONOMIC PROBLEMS
from group to group, each of these rates will have to be discussed
separately.
I. The rate of release of men under arms abroad depends upon
a combination of military and industrial considerations. Of these the
most important are military expediency and shipping.
Military expediency is of importance both for determining the
time at which demobilization is to begin and for affecting its rate.
Men cannot be released so long as the military situation requires
their presence under arms ; and, when release begins, they can be
spared only as the passing of military necessity dictates. Since
actual hostilities against an armed enemy are over, the first check
upon the rate of release lies in the terms of the armistice which
requires the presence for some months of large forces upon the
frontier. A second check lies in the necessity of using men for
police purposes even after peace in what were recently the Central
Empires, in Russia, and in the Balkans.
It is more likely that shipping will prove to be the limiting factor
in the release of over-seas men. The rate at which they can be re-
turned can be ascertained only by estimating the tonnage available
for transport service during the period of need. This inquiry resolves
itself more specifically into the following matters of fact and policy.
The amount of American shipping at the end of the war must
be determined. A reasonably accurate anticipation of this at any
future time may be had in terms of prospective building. An esti-
mate must be made of the rail increase in transport facilities which
can now be effected through a reorganization of shipping. This
will include the addition of vessels now used for transport purposes
and of cargo ships converted into transports. It will also include
gains in tonnage from the discontinuance of circuitous routing and
from a separation in the direction of the movement of supplies and
men, both of which during the war went in the same direction.
Lastly, the amount of shipping available for transport as against
trade purposes must be determined.
The availability of foreign ships for the transport of American
soldiers is still undetermined. We relied heavily upon British and
neutral tonnage to get our soldiers to France; but it is not certain
that they can now be relied upon to get them back. Britain will
be under obligations to give preference to the troops of her own
colonies. In addition, there will be an insistent mercantilist demand
for immediate use of her ships in foreign trade. Whether German
vessels, now tied up in her own and neutral ports, will be available
is still undecided. A chance to use them may come from their con-
fiscation, from accepting their use as part payment of an indemnity
PROBLEM OF ECONOMIC ORGANIZATION FOR WAR 297
to the Allies, or from an understanding with the successors of our
erstwhile enemy. These uncertainties involve so large a percentage
of possible tonnage as seriously to affect the rate at which soldiers
can be brought home.
The assumption above has been that men are to be mustered out
of service as rapidly as the military situation and transportation
facilities permit. American sentiment demands the return of hus-
bands and sons with the utmost dispatch. The belief is universal
that if they are returned faster than they can be absorbed into in-
dustry it is better to stimulate employment than to retard demobiliza-
tion. But the possibility of equalizing employment with discharge
by checking the rate at which men are mustered out of service is an
alternative that must be considered.
2. The rate of release of men under arms in the United States
is, perhaps more than any of the other rates, subject to control. It
may be decided to speed discharge or to delay discharge according
to the amount of available employment. But in view of the popular
sentiment demanding a return of kindred, and of political pressure
to reduce the national budget with the utmost dispatch, it is doubtful
whether discharge of these men can be long delayed. In addition it
seems much wiser, as a matter of public policy, if the men cannot be
reabsorbed into industry, to utilize their labor effort upon public
work of permanent value than to allow it to go to waste. An alterna-
tive that will doubtless be considered is training them and sending
them overseas to take the place of men longest in service abroad. If
transport is the limiting factor in the discharge of the army abroad,
such a plan merely accentuates the problem. But if military need
controls demobilization, men going abroad make possible a more
rapid discharge of the army in Europe. In this event the question
ceases to affect the rate of demobilization and becomes one of
I)ersonnel.
3. The most troublesome factor in the problem is the rate of
release of workers in war industries. The rate of discharge of sol-
diers is subject to the direct control of a single authority, that of war
workers to many. Public opinion, too, is much more concerned with
finding positions for returning soldiers than with avoiding the un-
employment of men and women at present engaged in industries with
a frail hold on life. In addition it is by no means improbable that to
those discharged from war industries must be added a host from non-
war industries where places have been given to soldiers. Thus one
employment problem, instead of being solved, may be translated
into another. It is more likely that, because of imperfect control,
the war workers will be turned loose to flood the market and that.
298 CURRENT ECONOMIC PROBLEMS
later, soldiers will be discharged into a market already gutted with
surplus labor. Even before the armistice was signed many laborers
were discounting discharge by returning to non-war employment.
The change can be avoided and the rate can be controlled only by
the establishment of a central agency for the clearance of all con-
tracts and a policy for their gradual cancellation. Even at best this
will provide a very uncertain check upon the rate of flow of ex-war
workers into the labor market.
4. The rate of immigration is subject to control both by conscious
decision and by the physical fact of shipping. If we choose we may
prohibit all immigration so long as there appears to be danger of an
oversupply of labor. Or, instead, we may prohibit the coming of cer-
tain types of immigrants most likely to interfere with employment
here. In fact, the present law imposes serious handicaps upon the
entrance of unskilled labor into this country. In addition it is more
than possible that many European countries will impose restrictions
upon emigration, despite the desires of many people of the war- ridden
countries to come to America. If the discharge of men overseas were
to start at once the limited supply of shipping would prove an effective
check upon immigration until the army is demobilized. If it is to
be delayed for some months, despite the poverty of Europe, there
is a prospective flood of immigrants to be faced and an immigra-
tion policy to be framed.
5. In addition the stream of young men and women seeking
employment for the first time will flow on as usual during the
demobilization period. The shorter the period of demobilization
the fewer of them there will be to be reckoned with. But while their
numbers add to the seriousness of the problem, it does not follow
that demobilization should be effected slowly merely in order to pre-
vent the problem from being complicated by large numbers of the
industrially uninitiated.
Together these factors determine the rate at which workers are
to flow into the labor market. Together they determine the rate
at which employment must be found for them. Some of the con-
siderations mentioned above can be reduced to definite statement by
securing facts more or less accessible. Others depend upon future
policy which can be anticipated with fair precision. Still others rest
upon events and judgments still too uncertain for anything more
than a guess. While such uncertainties prevent an accurate state-
ment of the rate of discharge, it is obvious that the wider the range
of information and the more accurate its character, the more fear-
lessly and intelligently can the problem of controlling the rate of dis-
charge from the army be met.
PROBLEM OF ECONOMIC ORGANIZATION FOR WAR 299
132. Keeping Production Up^^
BY DAVID FRIDAY
The most important and difficult task just ahead is to maintain the
productive level of which we found ourselves capable during the war.
We have increased our output of products from 25 to 30 per cent over
the pre-war period through the complete utilization of our natural
resources, our plant and machinery, and our labor. If production is
allowed to return to the pre-war level output will slump off by 20 per
cent. This would mean a corresponding waste of productive resources
and a decrease of $i4,ooo,ooo,ooo per annum in our national income
as measured by the present price level. In view of the magnitude of
this waste the government can well afford to spend several billions of
dollars per annum if need be to maintain the level of productive out-
put. The essence of the process would be that we would waste two
billion dollars of our productive capacity in order to keep ten to four-
teen billion dollars' worth of resources from running to waste because
of unemployment. The result is a net addition of ten billion dollars to
our national income. The alternatives presented by this situation are
not government expenditure of this amount as against private ex-
penditure ; they are government expenditure of several billions as
against a waste of productive resources many times as large.
A decline of the high level we have reached during the last two
years will bring about a lowering of the standard of living which our
laboring classes have attained during the war. It will prevent the
possibility of that improvement in the standard which we should
realize now that we have ceased wasting a large part of our output
on war. It will mean a decline by half in the volume of annual sav-
ings which we have made during 1916, 191 7, and 1918. During the
war the excess of production over consumption has grown from six
and a half billions in 191 3 to over twenty billions in 1918 ; it has made
possible the furnishing of thirteen billion dollars of capital to foreign
nations, the addition of over one billion dollars to our stock of gold,
an enormous extension of our plant equipment, and the prosecution
of eighteen months of war without any appreciable diminution of the
standard of living of our people. Finally, such a decline will have as
its concomitant a period of widespread unemployment.
It is relevant here to recognize the dependence of employment and
industrial output upon the state of business enterprise. Considered
as a problem in business psychology the task is that of maintaining the
exuberant spirit which has characterized business during the last
22Adapted from "Maintaining Productive Output— A Problem in Re-
construction," Journal of Political Economy, XXVII, 117-26. Copyright by
the University of Chicago, 1919.
300 CURRENT ECONOMIC PROBLEMS
three years. If this spirit can be maintained, it is safe to presume that
our labor, our natural resources, and our plant and machinery will be
fully employed ; that our productive output will be large ; and that
the fund available for taxation will be ample to meet the needs of the
federal government as easily as they have been met during the past
fiscal year. In fact, the problem of unemployment, of the main-
tenance of productive output, and of fostering business enterprise are
at bottom one and the same problem.
The fundamental fact that demand and production are interde-
pendent and that therefore domestic demand is determined primarily
by the state of domestic employment is the first great lesson to be
grasped. The demand for goods will depend primarily upon the
purchasing power of the masses, and the volume of production can
be maintained only through the complete employment of labor. This
means that the business men as a whole have in their hands the size
and scope of the combined demand presented by the markets of the
country. From the standpoint of national enterprise the problem is,
not so much how to capture the markets that exist at the end of the
war, but rather how to keep the various markets co-ordinated in such
a manner that the sellers in one group of markets will be steady buy-
ers of the things which other markets oflfer.
Our business men and legislators must be shown that the great
mass of demand for American goods must come from American
buyers and not from foreign trade. There is much misunderstanding
on this point. There seems to be a general impression that with our
huge added capacity we should have to add almost all the world's
trade to our own for consumption to equal our present capacity. An
elucidation of principles and a collection of facts which would suc-
ceed in turning the attention of the American business man to the
development of regulatory machinery for the control of the business
cycle, rather than the control of imports and exports, would be a great
attainment.
If entrepreneurs are to enter upon an active program of con-
verting plants and producing goods they must have a credit situa-
tion which will put them in possession of the necessary funds. Here
the government's policy in settling claims arising out of the cancella-
tion of war contracts will play an important part. If these are set-
tled promptly, entrepreneurs will have available bank credit ; if not,
they will have undertaken claims against the government which will
be settled only after years of litigation. The effect of prompt settle-
ment upon the resumption of productive activity should be ascer-
tained with some degree of quantitative definiteness. The govern-
ment can then determ-'re the results which will flow from a prompt
PROBLEM OF ECONOMIC ORGANIZATION FOR WAR 301
settlement of these claims. A saving of four or five hundred millions
of dollars in settling might result in a waste of productive resources
of ten times this amount because of idleness. This would be a penny-
wise pound-foolish policy.
If the business interests of the country grasp clearly this prin-
ciple, and if the government gives proper aid by way of statistical
information and the formulation of policy, it will aid materially in
maintaining the productive level. But the most sanguine of us hardly
imagine that it will maintain the flow of products that we witnessed
during the war. The best that can be done is to prevent a depression
which will carry our productive activity below normal. This normal,
as we knew it before the war, will still be far below the maximum that
we have recently attained.
It seems that somewhere in the present industrial process there
is a factor of retardation which is only occasionally cast out by such
a holocaust as war. What is the secret of its casting out, even for
the space of three years? If this secret can be discovered, we may
indulge the hope of institutionalizing it and adding permanently ten
billion dollars to our annual national output. We could then realize
the high standard of living of which reformers have dreamed, and
could increase our national wealth at a rate equal to that of half of
the civilized world outside. The usual view of the matter is that
business lags in normal times because of a failure of demand ; that
during the war there was an extraordinary demand, at first from the
European governments and then from our own in addition. It was
this additional demand that moved entrepreneurs to produce to full
capacity. Now that the war demand has fallen off, it seems to most
people obvious that production cannot go on at its former pace. "If
it did, where would we find our market?" they ask. The fundamental
fallacy lurking in this analysis is obvious. Production creates demand
in ordinary times. It is an old maxim of political economy that wants
are insatiable. This is still true, even in a country where the average
of productive output is as high as our own.
Not more than 10 per cent of the families of the United States
have incomes of $3,000 or more. With such a situation there is still
an immense amount of unsatisfied demand which depends for its
appearance in the actual market upon nothing more than the oppor-
tunity to work and produce. To say that production lags because
demand is not forthcoming starts with the assumption that produc-
tion has already lagged and so has reduced demand. The secret of the
thing must be sought elsewhere.
A more fundamental explanation is that low profits, or even
ordinary profits, are not sufficient to tempt business men to high
302 CURRENT ECONOMIC PROBLEMS
productive activity. Modern business is carried on for profit. When
large profits are in prospect, therefore, production goes on at a fever-
ish rate. It is doubtful whether this explanation of the matter is
quite adequate. Most business men are perfectly willing to produce
for low profits, especially when no opportunity presents itself to
make high ones. The fundamental reason why production is retarded
when only low profits are in sight is that a situation which yields small
profits is one in which the prices of products and the prices of cost
goods are close together. The risk that a fall in the former or a rise
in the latter shall completely absorb the margin of profit is increased
as these two sets of prices approach each other and is lessened as
the margin between them widens. If the prices of the labor and
material come to exceed the price of the product, the entrepreneur
faces loss and ruin. During the last three years prices for products
have risen at an enormous rate, and while it was certain that the price
of cost goods would rise also, the margin between the two which the
entrepreneur foresaw was so great as to minimize his risk. In this
situation he was willing to produce to the full capacity of his plant.
The factor that prevents a full realization of our productive
capacities is this risk of loss. If it could be minimized or eliminated
the nation could have a high level of productive output even with
normal profits. It is pertinent, therefore, to inquire into the pos-
sibility of decreasing industrial risk through formal organization.
Thus far the most successful institution which has been developed
for the elimination of individual risk is the institution of insurance.
In essence this is a pooling of the particular risk involved. Houses
burn ; the building of houses would, in the absence of insurance, be
a venture fraught with risk, and the supply of houses would there-
fore be restricted and of poorer quality. But by pooling the risk
through fire insurance, one can be relieved of the risk of loss by
fire for a small payment. One can then proceed to make his plans
for building as though no risk of such loss existed. Cannot a similar
principle be applied to the risk of industrial loss with beneficial re-
sults? If it were possible to guarantee every entrepreneur at least
his operating expenses, including depreciation, the risk of loss could
be minimized. This would unquestionably stimulate production.
Such guaranty could be made only by the government, for it only
can exercise the taxing power necessary to take from the more
fortunate industries those fortuitous profits which are the obverse
of the losses incident to the modern industrial process. It would
not do away with the right of private property or with individual
initiative, nor would it in any wise lessen the incentive to prudence
and efficiency. Neither would it induce anyone to put his capital
PROBLEM OF ECONOMIC ORGANIZATION FOR WAR 303
into an unwise venture. There would still be the same incentive to
exercise care in the direction of production, and to attain proficiency
in its prosecution, for without these no adequate rate of profit could
be realized.
This would not be socialism, because the entire industrial equip-
ment of the country would still remain private property, and the
profits of industry would belong to the owner. They would, of
course, be subject to taxation, and the tax system would have to
be adjusted in such a manner as to take from certain enterprises the
amount needed to cover the insured losses arising from the risks of
modern business. Production would still be directed by individuals
who would decide what should be made and would choose the method
of production. The right of private property in the means of produc-
tion would probably have imposed upon it a new function. If the
government assumed part of the risk of industrial loss it would no
longer allow an owner to keep plants standing idle when idleness
caused unemployment. Any scheme of this sort would involve an
examination and approval of the costs of labor and material before
insuring them, otherwise the process might easily be open to fraud.
But after an experience of the last eighteen months this task cer-
tainly is not an impossible one.
133. The Fetish of Reconstruction'-^
No word is more in vogue just now than "reconstruction." Its
popularity is equaled only by the variety of meaning which clothes it.
Its use is indicative of a praiseworthy hope of a better society to come
out of the war. Its popular appeal is suggestive of the loose and
nebulous ideas with which most minds surround it. If we are to
find out what "getting out of the war" means, we must inquire as
specifically as we can into this popular term, even though we are will-
ing to admit in advance that we can reduce it to specific statement
only after a decade has gone by and the fact of accomplishment is at
hand to give evidence.
I. In common speech the word "reconstruction" is a shibboleth
for the establishment of a new and perfect social order. The mind
which coined the word supplied a cosmic term that is almost mean-
ingless. In truth few expressions have given such genuine satisfac-
tion to such an assortment of minds. To the exporter it means for-
eign markets ; to the politician, more offices ; to the gild socialist, at
least industrial councils ; to the single taxer, the single tax ; and to
social workers, "betterment." The Weeks Bill, robbed by the armistice
23An editorial (1919).
304 . CURRENT ECONOMIC PROBLEMS
of its chance to provoke senatorial oratory, meant by "reconstruc-
tion" what any banker would mean by it. The British Ministry of
Reconstruction, in the likeness of which many would have created an
American commission, resolved the matter into more than one hun-
dred inquiries, ranging from the constitutionalization of industry to
the demobilization of mules. At a minimum it seems to mean the
return to ordinary uses of the men and materials displaced by the war.
As a maximum it connotes an attempt to take advantage of the general
state of flux to arrange elements into a more pleasing social order.
2. The crisis caused by the war makes it necessary to consider at
this time a very large number of social problems. These problems
are alike old and new. The issues they present are among the most
venerable which each age inherits from its predecessor. How can the
industrial system be organized to include all of its resources in ma-
terials and men? Upon what terms shall capital and labor combine
their efforts in supplying society with the comforts and vanities of
life? How can each instrument be assured such a return as will
enable it fitly to perform its allotted task? What use shall society
make of the surplus of wealth which it produces over and above the
necessities of its members? Shall it be spent upon education and
scientific experimentation, competitive armaments, the maintenance
of higher living standards, or the satisfaction of the whims of those
who by effort, talent, guile, or accident chance upon it? But such
questions are also new. Each of them has its place in the immediate
return of a vast, intricate, and delicate industrial system to the service
of a people at peace. As the process runs its course each must receive
at least a passing solution in terms of immediate readjustments. H
times were less stirring and the current of change ran shallow, a
reluctant people might let them pass. But the depths have been stirred
and the floods are loose. They have become too imperative and too
explicit to be denied.
3. These problems cannot be solved, even for the moment, by a
return to the pre-war scheme of things. The task ahead is not one
of restitution ; it cannot be accomplished by reversing the processes
which created the machinery of war ; it is no matter of formulas and
manipulations. The wheels of the draft machinery could not run
backward if they would. Old jobs are gone or are held by efficient
women who do not wish to be dispossessed. Merchant and manu-
facturer cannot find his old market. The accommodation of laborers
to new working conditions canot be forgotten. The impress which
the war has left upon the minds of the people cannot be ironed out.
The depreciation of physical, material, and human resources which
has followed in the wake of war cannot be rubbed from the social
PROBLEM OF ECONOMIC ORGANIZATION FOR WAR 305
balance sheet. Men and machines must be adjusted, not to old, but
to new conditions.
4. The problem, therefore, becomes one of the conscious guid-
ance of social and industrial development through a grave crisis. In
this crisis the problems which make up the larger whole will have
to be taken up specifically. Each of them has a history of its own.
Each has associated with it peculiar factors an understanding of
which is necessary to its successful handling. Each will demand a
share of our attention far in excess of what we can allot to it. Since
each of these issues is a mere aspect of an economic problem which
has a history back of it and is current in something of an eternal sense,
each must be discussed in its own specific place. The bundle of issues
dubbed "reconstruction" must be distributed to the established prob-
lems to which they belong.
But, in our zeal for such a distribution, we must not forget that
while the problems of reconstruction are many, they are yet one.
Together they resolve themselves into the larger question of the guid-
ance of social development. The problem is the problem of the decade
before the war, of the war, and of many a decade to come. It
differs from the older problem only in that the issues are more
complex and more imperative. The larger problem and the ques-
tions which make it up must receive their tentative answers in
terms of the ideals of the society which addresses itself to them. It
is the question of ends which make these problems one. In contrast
with this larger problem of organizing a nation's energies for peace,
the matter of preparation for war is simplicity itself. In war the end
to be achieved is simple and definite. A nation has a limited amount
of labor, materials, equipment, and other resources. Its task is to
divert as large a part as possible into a surplus that can be used to arm,
equip, and hurl upon the enemy a force large enough to overcome it.
But the end of a reorganization for peace has no such simplicity. It
is not to turn out the largest aggregate of goods useful for a single
purpose. On the contrary, it is bound up with a clash between the
immediate interests of individuals and of groups, between the present
and the future interests of these groups, and between the desires of
the groups and what is best for society as a whole.
But the importance of the question 'of ends cannot be escaped.
It might be easy to settle the matter by producing the largest aggre-
gate of wealth measured in pecuniary terms or physical output. Un-
fortunately, however, there are no units for such measurements.
Besides the problem involves the kinds of goods produced as well as
their quantity; it must attend to the uses to which they are put as
well as to their volume; it must keep in view their distribution as
3o6 CURRENT ECONOMIC PROBLEMS
well as their place in the statistics of income. It involves a social
accountancy in which human values and costs are assessed and meas-
ured. The end of it all may at best be only approximated, but its
vague character makes all the more necessary an attempt to come by
it intelligently. With it something is at hand to give at least a sem-
blance of unity to a program which otherwise can be nothing more
than a jumbled heap of fragments.
VII
THE PROBLEM OF INTERNATIONAL TRADE
Problems come and go, but the tariff seems to be a permanent American
institution. In a country where "every man is his own poHtical economist" it
possesses a perennial freshness. It has, time and again, been proved guilty at
the polls of raising and lowering the standard of living, of increasing and
decreasing wages, of creating and destroying monopoly, of abetting and dis-
couraging immigration, of producing crises and causing prosperity. In part
this has been due to an easy association of the question with sentiments of
nationalism; the absence of grave social problems, such as are found in more
mature societies ; and the popular idea that it is a simple and manageable piece
of mechanism. But, in part at least, its popular hold has been legitimate. It
has been intimately associated with the development of the country^ and it has
served as an instrument for controlling our development.
However particular tariff questions may be stated, the real issue lies in the
antithesis between protection and free trade, which are the ends of the tenden-
cies underlying particular programs.
The theory of free trade is "a mere corollary to the principle of the division
of labor." Foreign, like domestic, trade, "allows increased specialization," and
consequently "increases the aggregate of wealth." A study of the mechanism
of exchange shows that "goods are paid for with goods." "Foreign trade fixes
its own limits." The tariff, if used, should have as its object the raising of
revenue; it should leave "industrial conditions as it finds them." The argu-
ment implies a conception of industrial society in static terms, is an aspect
of the general theory of laissec-faire, and rests upon a belief in the efficacy
of price as an organizing force.
The strength of protection lies in a mercantilist spirit as old as society.
Tradesmen have always been willing to use agencies of social control to in-
crease their sales. This disposition is revealed in the inhibitions against buying
goods out of town, supported by custom or opinion ; in the attempts of legis-
latures to exempt manufacturing establishments from taxation; and in duties
placed upon imported goods.
Nevertheless, there is a social theory of protection. It rests upon the
concept of a developing society, the necessity of social direction of that
development, and the possibility of determining, partially at least, its course
by assessing, raising, lowering, and removing duties upon imported goods.
It implies a constant adaptation of the "tariff policy" to the changing condi-
tion of the country. This theory reveals itself in the arguments that protec-
tion can transform an agricultural into an industrial society, develop a nation
strong in arms, add industry after industry to the national wealth, and "scat-
ter plenty o'er a smiling land" by piling up huge aggregates of capital.
All of these things, it is asserted, it has accomplished for American so-
ciety. Unfortunately we have no trustworthy evidence of the role it has played
in the transformation of our system. The histories of the tariff are largely
records of what has happened to it rather than of what it has done. The
argument "from experience" has failed to disentangle the influence of the
tariff from the vast complex of "forces" which together have made our system
what it is. Yet it is. quite evident that the tariff has played its part in the
creation of our highly pecuniary, industrial, and urban culture. The develop-
ment of manufacturing and mining, upon which the structure so largely rests,
would have come without protection ; for our abundant natural resources could
not be ignored; but a highly accelerated movement necessitated high prices,
increasingly large quantities of cheap labor, and larger and larger aggregates
307
3o8 CURRENT ECONOMIC PROBLEMS
of capital. Protection promised high prices; the open door to immigration
offered cheap labor ; either would have sufficed. But to make assurance doubly
sure we chose both. Protection, with other agents, has transformed resources
into stupendous incomes, out of which large aggregates of capital have been
saved and reinvested. Thus it has been an active factor in our "prosperity."
It need not be said that, in view of changed conditions, its potency in the past
is no guaranty that in future it can play an identical role.
But our social scheme has proved too complex for it to accomplish just
the industrial effects it was intended to accomplish and no more. With com-
plementary factors, it has induced a gigantic, clumsy, feverish development of
manufacturing and mining; it has caused a headlong "lunge" in a particular
direction. But it has induced the inevitable attendants of this growth—urban
life, city comforts, luxury, slums, poverty, and vice; greater concentration of
wealth and more pronounced class differences; a medley of races and a babel
of tongues; a clash of political and ethical systems; a vast array of bewil-
dering problems. It has been responsible for development in ethics, politics,
and social life, though it has been impotent to direct this development. It
has made the attention to these aspects of social life more imperative than
ever, though the "prosperity" which it has induced has served to delay our
attention to the question of whether the older institutional system is adequate
for the newer industrial life. In short, it has induced growth, faster than we
have been able or willing to perfect means for controlling that growth. Its
results, too, have been accompanied by prodigious waste. That its "good" is
so conspicuous is due largely to our enjoyment of gains from the exploitation
— the oz;^r-utilization — of our natural resources and our passing of the costs
to succeeding generations.
Aside from the theoretical difficulties, the method of its use prevents pro-
tection from being an adequate means of social control. Since a legislative
body is depended upon for tariff laws, we may well say, "Protection is all
right in theory, but it will not work in practice." Did you ever hear of Con-
gress, when considering a tariff bill, giving attention to the "end" to be reached,
noting carefully the larger social as well as the purely industrial results of
anticipated duties, carefully calculating gains against costs, and on this basis
fixing duties for periods just long enough to secure the desired results? Or
have you rather noted that, without attention to general principles and the
relation of particular duties to these, a tariff bill is evolved through an aggre-
gation of compromises between particular interests?
But the tariff is still our heritage. At present there is some disposition
to treat it as a "moral issue" intimately connected with the fact of class and
the distribution of income. There is a demand, perhaps waning but still
strong, for a "scientific revision." This finds its source, partly in a protest
against the way in which Congress draws a tariff bill, and partly in a super-
stitious reverence for whatever wears the label "scientific." Its weakness is
that it fails to see that science can furnish only a mechanism, and that the
nature of the tariff depends largely upon the theory underlying legislation.
There is a cry for "freer trade" from many men with many minds. Now that
the war is over the practical manufacturer who sees in foreign markets the
salvation of domestic production, the patriotic American who contemplating
our large and newly acquired merchant marine, beholds our industrial future
"beyond the seas," and the cosmic idealist who visualizes in the coming league
of nations "a world lapt in universal law," unite in a cry for an unhampered
trade. Yet, with it all, there still lingers, less vocal than of old, but still loud
enough to be heard in legislative halls, the perennial cry for higher duties and
more of them.
But, most important of all, there is reason for believing that the limita-
tions of the tariff for good or bad are being more clearly seen, and that in
the future it will be supplemented by other and more delicate instruments
of control which together can impart to social life a more symmetrical
development.
PROBLEM OF INTERNATIONAL TRADE
309
A. THE BASIS OF INTERNATIONAL TRADE
134. International Co-operation^
BY CHARLES GIDE
It is Strange that the advantages of international trade have been
considered from two precisely opposite points of view. The classical
economists consider only imports. They regard importation as the
object of international trade. Exportation is but a means — the only
means — by which a nation can procure the goods it imports. Ex-
ports, in other words, are the price paid for imports. The less we
give in exchange for what we want — so reason the classical econo-
mists — the more profitable is the transaction.
According to the protectionists and current public opinion the
advantages of international trade must be considered from the view-
point of exports. Exports, it is held, constitute the real profits of
international trade. Imports are thus regarded only as a necessary
evil to which a nation must submit whenever it cannot produce all
that it needs ; but a nation should strive to reduce its imports to the
lowest possible amount. Exportation means increased wealth, the
receipt of money in payment for goods sold abroad. Importation,
on the other hand, means expense, the payment of money to foreign
nations.
Both of these opposite points of view are false. Both are based
upon the mistaken assumption that a nation may be regarded in the
same light as an individual. A great country cannot be likened to
a person carrying on trade solely as a means of procuring what he
needs. A nation does not export goods merely to import them, but
because exportation furnishes advantages that are peculiar to itself.
Inversely, the second point of view, which likens a great nation
to a storekeeper who buys only to sell again, and whose profit con-
sists of the excess of the selling-price over the purchase price, is no
less erroneous. What a singular idea it is to measure the benefits
of exchange and commerce among nations just as one would measure
the profits of merchants. If merchants and traders made no profit
at all, exchange would be none the less beneficial ; nay, it would even
be more beneficial.
The advantages of international trade are not susceptible of
arithmetical calculation. They are too complex for such simple
methods, and are found on both the side of imports and that of
exports.
^Adapted from Principles of Political Economy (2d American cd.), pp.
301-7. Translated by C. William A. Veditz. Copyright by D. C. Heath &
Co., 1903.
3IO CURRENT ECONOMIC PROBLEMS
The following are the advantages of importation :
I. Additional well-being is imparted by the imported goods which
a country, because of its resources or climate, could not have produced
within its own borders. For example, without international com-
merce, Holland could have no building stone, Switzerland no coal,
England little lumber and no wine, France no copper and the United
States no tea or coffee.
II. Economy of labor is realized when wealth is imported that
could be produced at home only at a higher cost than abroad. France
could make good machinery, but it is more profitable to import it
from the United States, which is better provided with coal, iron and
facilities for manufacturing. To realize this advantage it is not
necessary that the importing nation be inferior in the production of
the good it receives from abroad. It may be to its advantage to import
goods which it might produce under even more favorable conditions
than the country which sends them. Cuba, for example, might be
able to produce wheat more advantageously than the United States,
but also to produce sugar even more advantageously. In this case it
will be more profitable for Cuba to raise sugar and import wheat,
despite her advantage over the United States in the production of
wheat ; for thus she can purchase through sugar what otherwise would
have cost her more labor to produce. Thus it may happen that a
country in all points superior to its neighbor will find it profitable to
import goods from them.
An allied advantage is that whenever an accident of any sort
unexpectedly reduces the productivity of one country, it may depend
upon others to remedy this accident, which, in the absence of inter-
national commerce, might have disastrous consequences. Thus in-
ternational commerce provides a kind of insurance against famines
and against the severe stress of national panics and depressions.
Although a nation could perhaps produce a sufficient quantity of
many commodities which at present it imports, the quantity at home
could be increased only at a very great cost in labor and capital and
a consequent increase in prices. The United States, for example,
imports a large quantity of lead. If imports were cut off, it would
be necessary to work poorer mines, and incur the necessarily greater
costs, which, in higher prices, will obviously fall upon the consumers
of lead.
As for exportation, the following are its advantages :
I. It utilizes natural resources and productive forces which, if
there were no foreign outlet, would be superabundant, and there-
fore partially useless. Were it not for exportation, Peru would not
know what to do with her nitrates, Australia with her wool, Spain
PROBLEM OF INTERNA TIONAL TRADE 3 1 1
with her wines, Pennsylvania with her iron and steel, nor the South
with its cotton.
II. It develops a nation's industry. It is well known that the
extent of the division of labor and the progress of large-scale pro-
duction are proportionate to the size of the market. Division of
labor cannot be at all detailed when the market is small, whereas with
every extension of the market a more elaborate division of labor
and the introduction of more expensive but in the long run more
productive processes and machinery becomes possible. International
trade, by creating world-wide markets for goods, tends to develop
the division of labor ; it leads to a fuller utilization of the possibilities
of the soil and the population, to a completer development of acquired
aptitudes, and hence to a great increase of the productive energy of
humanity. England could never have become the great manufactur-
ing nation it now is, did it not export to all parts of the world. The
possession of an extensive market made it possible for her to make
immediate and profitable use of the latest inventions and improve-
ments in manufacturing.
135, The Law of Comparative Costs-
BY FRED M. TAYLOR
Here is a lawyer who very likely can mow his lawn, cultivate his
garden, and take care of his furnace much better than the persons
whom he hires to do these things. But what he does is to devote
himself to his profession, and buy the services named from other
people ; and of course he acts wisely in so doing. It is clear that he
gains most by devoting himself to the thing for which he is best
fitted. He is not interested in the fitness or unfitness of his neighbor
as compared with himself, but rather in the superiority of his own
fitness in one line as compared with his fitness in another line. So
long as he can find a market for his output, it is better for him to
devote his time to doing the things for which he is pre-eminently
fitted, and get his supplies of other things from his neighbors, even
though he can make those other things better than they.
It is evident that in this respect the case of the community or the
nation is like that of the individual. The upper peninsula of Michigan
produces little but copper and iron, getting most other goods through
exchange with other communities. Yet it would be easy to prove that
this section is really better fitted to produce some of the things which
it buys than the sections from which it buys them. The explanation
^Adapted from Principles of Economics (2d ed.), PP- 75-77- Copyright
by the author. Published by the University of Michigan, 1913.
312 CURRENT ECONOMIC PROBLEMS
is to be found in what has long been known as the law of comparative
costs. It may be stated as follows :
Ignoring cost of transportation, two communities find it profitable
to specialize respectively in the production of two commodities and to
exchange those commodities each for the other, provided the com-
parative real costs of the two commodities in one community are dif-
ferent from their comparative real costs in the other community.
Let us illustrate. Letting labor represent all real costs, suppose
that in England the cost of a ton of iron is 25 days' labor and the
cost of a yard of broadcloth is 5 days' labor; while in America the
cost of iron is 16 days' labor and that of broadcloth 4 days' labor.
These costs may be expressed in the following proportions :
Eng. cost iron : Eng. cost cloth : : 25 15
Amer. cost iron: Amer, cost cloth:: 16:4
Since in England a ton of iron costs five times as much as a yard
of cloth, it will naturally tend to be worth the same as five yards
of cloth ; under which conditions England can afford to give iron
for cloth if, and only if, she can get more than five yards per ton ;
or trade cloth for iron if, and only if, she can get it with less than
five yards per ton. In America, on the other hand, a ton of iron
tends to be worth four yards of cloth ; under which conditions
America can afford to trade iron for cloth if, and only if, she can get
more than four yards per ton ; or to trade cloth for iron if, and only
if, she can get it with less than four yards. But the first hypothesis
for England and the second for America are plainly shut out. Eng-
land cannot get more than five yards of cloth for iron, since in America
it is worth only four yards. So America cannot buy with less than
four yards of cloth since it is worth five yards in England. On the
other hand, the second hypothesis for England and the first for
America fit each other perfectly. England can get iron for less than
five yards, since it is worth only four in America ; and America can
sell iron for more than four yards of cloth, since it is worth five in
England. Accordingly, under the conditions supposed, an exchange
of English cloth for American iron would be profitable.
It goes without saying that if one nation is absolutely inferior to
its neighbor in respect to the production of one commodity and abso-
lutely superior in respect to the production of another, then, obviously,
the comparative costs of these commodities in one country are differ-
ent from their comparative costs in the other, and so exchanging them
will pay.
But, as the argument above has shown, it is equally clear that
if a nation is absolutely superior to another in the production of each
PROBLEM OF INTERNATIONAL TRADE
313
of two commodities, it will produce the one in which its superiority
is the greater, and will import the latter. Likewise, if a nation is in-
ferior to its neighbor in each of two commodities, it will produce the
one in which its inferiority is less, and import the other.
/,
136. The Theory of Free Trade^
The theory of free trade is nothing else than a deduction from
the advantages of foreign trade, or rather, of trade. The industrial
policy of a people is concerned, not with the welfare of classes or
the productive profits of particular individuals, but with securing
for the people as a whole from the limited social resources at their
command the largest amount of material wealth. This involves a
problem of economic organization. This problem can be solved in
two ways, logically antithetical, as well as in innumerable intermediate
ways which combine the two primary solutions.
The one is the resolution of the economic world into a large num-
ber of infinitely small districts. In each district there is a body of
people, a fund of accumulated capital, and land possessed of definite
productive powers. The people, capital, and products of each dis-
trict are to be kept clearly within the confines of the district. Com-
mercial intercourse and personal movement from district to district
are to be prohibited. Thus each district is called upon to solve its
own problem in economic organization. It must directly satisfy the
wants of its own people ; to that end it is compelled to make the best
possible accommodation of its labor and capital to its natural re-
sources. It need not he said that under such a system of small self-
sufficient units, few wants could be satisfied ; little capital could be
accumulated ; the advantages of specialization would be lost ; little
natural skill could be developed ; and only limited potentialities of the
natural resources could be utilized.
The alternative is the treatment of the economic world as a single
industrial unit. Population and capital are to be allowed freely to
move wherever they please; there is to be no barrier to the free
exchange of goods. The problem of economic organization is to be
worked out for the economic world as a single entity. Under freedom
from interference, population and capital will gravitate towards those
places where they can get the largest returns, or where they can best
utilize nature's contributions. Where they go, industries will be estab-
lished. The goods produced will not have to be consumed in the
region in which they are produced ; they will likewise naturally seek
the places where they can command the highest prices. Under this
3An editorial (1915).
314 CURRENT ECONOMIC PROBLEMS
system the people of any territory do not seek directly to supply all
their own wants. They produce surpluses of the goods in the making
of which natural resources or acquired skill make them pre-eminently
fit, and exchange them for similar surpluses produced by their neigh-
bors, far or near. Such an economic organization is nothing else than
a territorial division of labor. It makes industry more efficient
through the better utilization of natural resources, through the devel-
opment of specialized skill, and through the larger volume of capital
accumulated out of the larger earnings. The expenses of trade are a
tax upon this system ; but the exchange which trade makes possible
pays at least its own expenses. If it failed to do so, it could not be
carried on. In the majority of cases it yields, in addition, a surplus to
both parties.
Neither of these alternatives can be perfectly realized. The former
cannot be, because it is practically impossible to find a unit of terri-
tory logically small enough. The latter cannot be, because of the
expenses of transportation. The cost entailed by distance will always
involve the element of a scattering over wide territories of the estab-
lishments producing many separate goods. It will permit only a few
localized industries to satisfy world-wide demands. But distance is
to be looked upon, not as a friend, but an enemy, to material progress.
Every invention in transportation which reduces the costs of carriage
is to be regarded as a means to greater social economy, and as an
eflfective device for extending still further the market, specializing
more narrowly in production, and swelling the volume of material
goods. On the contrary, everything which increases costs must be
looked upon as a device tending to break society up into smaller
groups, decrease the area of the market, and reduce the amount of
material wealth. Protection is a system of taxes the object of which
is to cause industrial society to be organized in a smaller group than
otherwise it would be. It is nothing else than an increase in the costs
of carrying goods from place to place. Consequently its interference
with the establishment of a natural economic organization prevents
the fullest utilization of limited social resources and leads to the pro-
duction of a smaller volume of goods than would be attained through
free trade.
The theory of free trade is premised upon the proposition that a
trade yields an advantage, not to one, but to both parties to the
transaction. Since society is an aggregate of individuals, trade in
aggregate yields a corresponding advantage. Political lines are arti-
ficially drawn. Their presence cannot affect either the nature or the
advantages of trade. Therefore the way to fullest national prosperity,
not for particular individuals or industries, but for society as a whole^
is through the policy of untrammeled commerce.
PROBLEM OF INTERNATIONAL TRADE 315
137. The Favorable Balance of Trade
BY THOMAS MUN *
Although a kingdom may be enriched by gifts received, or by pur-
chases taken from some other Nations, yet these are things uncertain
and of small consideration when they happen. The ordinary means
therefore to increase our wealth and treasure is by Foreign Trade,
wherein wee must ever observe this rule; to sell more to strangers
yearly than wee consume of theirs in value. For suppose that when
this Kingdom is plentifully served with the Cloth, Lead, Tinn, Iron,
Fish, and other native commodities, we doe yearly export the over-
plus to foreign Countries to the value of twenty-two hundred thou-
sand pounds by which means we are able beyond the Seas to buy and
bring in foreign wares for our use and Consumptions to the value of
twenty hundred thousand pounds: By this order duly kept in our
trading, we may rest assured that the Kingdom shall be enriched
yearly two hundred thousand pounds, which must be brought to us
in so much Treasure ; because that part of our stock which is not re-
turned to us in wares must necessarily be brought home in treasure.
For in this case it cometh to pass in the stock of a Kingdom, as
in the estate of a private man ; who is supposed to have one thou-
sand pounds yearly revenue and two thousand pounds ready money
in his Chest: If such a man through excess shall spend one thou-
sand five hundred pounds per annum, all his ready money will be
gone in four years ; and in like time his said money will be doubled
if he take a Frugal course to spend but five hundred pounds per
annum, which rule never faileth likewise in the Commonwealth.
BY CHARLES W. FAIRBANKS^
The history of our foreign trade during the sixteen years fol-
lowing the Cleveland administration shows that our commerce con-
tinually expanded under the protective policy. One of the fine things
about it was that our exports far exceeded our imports; that is to
say, we sold abroad more than we bought abroad, and as a result
there was a substantial trade balance in our favor. The excess of our
domestic exports over imports in the sixteen years ending March i,
191 3, was $7,348,942,251. The magnitude of this addition to our
national wealth may be more fully realized when we reflect that the
total net balance to our credit upon our foreign commerce from
^Adapted from England's Treasure by Foreign Trade, or The Balance
of Our Foreign Trade Is the Rule of Our Treasure (1664), chap. ii.
^Adapted from an address entitled "Let Us Now Unite in the Old Faith,"
delivered before the Indiana Republican State Convention at Indianapolis,
April 23, 1914,
3i6 CURRENT ECONOMIC PROBLEMS
George Washington's first term to William McKinley's first term was
less than $400,000,000.
Our free-trade friends seem to ignore the wisdom of keeping our
money at home so far as we reasonably can by buying at home.
Whether we send abroad a hundred millions of dollars more or less
to pay for commodities produced by foreign labor is a matter of slight
importance to them. We who hold to the protective system conceive
it to be sound policy to patronize our home producers where possible,
and keep the money in our own midst. If it goes abroad, it is, of
course, withdrawn from our pockets, but if it remains at home it
goes into the circulation of our own trade and our countrymen —
laborers and farmers, merchants and manufacturers^ — have a chance
to get it sooner or later.
138. The Mystery of the Balance of Trade*"'
BY HARTLEY WITHERS
The Statistics published by our Board of Trade show that for
1912, which is a typical year, our net imports, including bullion,
amounted to £702,000,000, while our exports, including bullion,
reached only £552,000,000. This gives a net excess of imports over
exports, including gold shipped both ways, of approximately £150,-
000,000.
Now this huge excess of imports, which is much bigger in the
case of England than In that of any other country, is often very
terrifying to people who have not thought much about the subject.
It is commonly called an adverse balance of trade, a phrase which
has an uncomfortable sound, as if there was something chronically
rotten in the state of our commerce, and it is sometimes used as a
proof that other countries are continually pouring goods in to us and
taking nothing from us in return, and that this is a state of things
which ought immediately to be stopped in the interests of the national
welfare. If this were true, it would seem, on consideration, to be
rather a comfortable state of affairs. Any individual who could
arrange his commercial relations with his fellows on these lines would
be likely to wax very fat. To be always consuming more than he pro-
duced is just the sort of life that would have been thoroughly agreea-
ble to the economic man. With a nation, likewise, it would seem to
tend to the enjoyment of plenty with little effort.
But, in fact, these things do not happen. The other countries of
the world have not conspired together to kill England with kindness
^Adapted from Money-Changing : An Introduction to Foreign Exchange,
pp. 51-63, 78-82. Copyright by E. P. Button & Co. and Smith. Elder & Co., 1913.
PROBLEM OF INTERNATIONAL TRADE 317
and give us £150,000,000 worth of goods every year for nothing.
Goods are never sent anywhere unless there is a reasonable certainty
that the country to which they are sent will be able to pay for them.
The foreign seller of goods expects to be paid in money of his own
country by selling his claim through the machinery of exchange. But
if the importing country were always buying more than it sold, the
supply of claims on it would be continually greater than the demand
for them and the exchanges would be steadily going against it, and it
would either have to export gold or export promises to pay as long
as it could finance itself on Mr. Micawber's principles.
Now it is certain that we are not exporting gold. Year in and
year out we import more gold than we export. It is also certain that
we are not on balance exporting promises to pay, either our own or
other people's. If we were doing the former, we should be raising
loans abroad or exporting or selling our securities abroad, neither of
which things we are doing. If we were exporting other people's
promises to pay, it would mean that we were selling to foreigners
out of our holdings of foreign securities. But this is not happening
to any great extent. Nor do rates of exchange move steadily against
us, as they must if we were really leading the profligate life of com-
mercial dissipation that a glance at the figures might lead the unwary
to infer.
It is thus clear that the big gap between our recorded exports
and imports of goods is filled by unrecorded, and so usually called
"invisible," exports of various kinds of services, and that there is
no need to be frightened about it. England does about one-half of
the carrying trade of the world. It is quite evident that these carry-
ing services do not themselves pass through custom-houses, and hence
are "invisible." And it is evident that a large part of our surplus
of imports consists of payments for these services which we are per-
forming for foreigners.
In addition to this there is an equally elusive factor in the shape
of the import and export of securities and interest on capital. Almost
every country in the world is a lender or a borrower. The borrower
exports securities, or promises to pay, and takes in return the goods
or services it requires. Later on, when interest payments fall due,
the lender has coupons to export, and the borrower has to ship goods
to meet them. When Russia raises a loan in France it exports its
bonds or promises to pay, and sells them to thrifty French investors.
Thereafter French investors export coupons every half-year to Rus-
sia, representing claims of interest due. Thus the exportation of
securities and the subsequent exportation of coupons by the lender
both tend to produce the same result, a balance of visible imports.
3i8 CURRENT ECONOMIC PROBLEMS
Consequently we find that this adverse balance — or excess of visi-
ble imports — is a feature in the trade figures, both of the young and
go-ahead countries that are habitual borrowers and are always export-
ing securities, and of the old established nations that have plenty of
accumulated capital to spare and have placed blocks of it abroad,
and so always have plenty of coupons to export. In both of these
cases there is an invisible export, in one case of securities, in the other
of coupons, which usually has to be met by visible imports of goods,
which thus create a so-called adverse trade balance. The so-called
favorable trade balance, under which a country shows more goods
going out than coming in, is chiefly shown by those nations which
have reached the stage of being in a position to pay interest on bor-
rowed capital out of their own productions, without having to borrow
more from their creditors in order to meet interest. The United
States is typical of the last class, Canada and England of the first.
The actual import of securities, then, should tend to produce an excess
of exports, and an export of coupons to secure a surplus of imports.
But there are other invisible items that get into the total. Every
American who goes forth with his Baedeker to widen his mental
horizon in England brings with him a supply of notes. These have
been bought for gold in New York, and consist of claims on London
merchants created by the importation of American goods. Conse-
quently his notes pay for the beefsteaks which he, an American, con-
sumes under English skies, and for the invisible culture which he
takes back to his native land. The goods which he consumes in Eng-
land are properly to be regarded as English exports.
Another streamlet which sometimes swells into a respectable tor-
rent IS made by the many drops poured in by poor immigrants into
new countries, who send home to their kinsmen such small sums as
they can spare. In this respect Italy is believed to score heavily.
The Italians seem to take with them the home-grown power of living
largely on sunshine and good humor, and the sums they send home are
an important cause of the power shown by Italy to maintain a so-
called adverse trade balance, without the assistance of investments
abroad or the profits of a big carrying trade. Ireland is another coun-
try that takes toll of the rest of the world through the filial piety of
her sons who have gone abroad to seek their fortunes in lands where
thews and sinews find a better market than at home.
Another class of emigrant in another way helps the older coun-
tries by causing a drain on the country of its origin. This class is
formed by the wealthy American heiresses who find English and
European husbands and draw year by year large surns from the
United States in the shape of dowries, so that this item in the trade
PROBLEM OF INTERNATIONAL TRADE 319
balance is usually called the "dowry drain." In this case Europe
and England can balance against the excess of imports the exporta-
tion of conjugal affection and social prestige.
The presence of these items, which escape customs statistics,
shows that after all our exports and our imports balance each other,
and that there is no real balance of trade.
B. THE PERENNIAL ARGUMENT FOR RESTRICTION
139. Keeping Trade at Home'
"A dollar spent in Auburn gives you another chance at it; but,
if it is spent out of town, it's 'Good-bye Mary.' "
"Down with the parcels post. No more diabolical device was
ever perfected by the big cities for stripping the small towns and
country districts of all their surplus cash. Let the rich mail-order
houses wax fat with the dollars that are the property of local mer-
chants."
"Everything bought from the city takes just so much money out
of town."
"The summer boarders are a great blessing to our little village ;
they put into circulation a lot of money which means at least tempo-
rary prosperity."
"If I were mayor, and had my way, I would place a fine of one
hundred dollars on every man who ordered goods from a mail-order
house."
"The individual can get rich only by selling more than he buys.
Likewise a community can prosper only by selling to other communi-
ties more than it buys from them."
"Brethren, let me call your atention to the fact that Brother Hiram
Johnson, who, this week, is opening a new grocery store on Main
Street, is a member of this church. If you patronize him, you will
not only contribute to the prosperity of an excellent grocer, but you
will be helping a fellow Christian and Methodist."
"The European war will in a way, too often overlooked, contribute
vastly to the prosperity of the Pacific Coast. Americans annually
have been spending more than $200,000,000 in foreign travel. No
sane man can for a moment doubt that practically every dollar of
this is lost to the home circulation. Now it will be spent in travel
to the Pacific Coast. California will get the largest share of it. This
"^ It seems unnecessary to give a specific reference to the source of each
of the excerpts given belowr. The reader by a little attention to local papers
can easily duplicate it. The editor is indebted to Taylor, Principles of Eco-
nomics, for several of these excerpts.
320 CURRENT ECONOMIC PROBLEMS
money will spell prosperity for every one of the state's industries.
But, we must remember the duty we owe our state. We can profit
by this increase in wealth only if we keep clearly in mind the precept
that it must be spent for things produced at home. Let us see to it
that the dollars thus given us do not find their way out of the state."
"When I came to Marblehead they had their houses built by
country workmen and their clothes made out of town, and supplied
themselves with beef and pork from Boston, which drained the town
of its money."
"The annual influx of students and other outsiders into our fruit
belt to engage in fruit-picking and packing is an abuse that should be
stopped at once. These people consume very little, saving their
money to take back to Ann Arbor, Madison, Champaign, and other
places from which they come. Thus, while making large sums off
us, they give little or nothing in support of our industries."
"The county commissioners should be promptly impeached and
removed from office for their action of last Monday, We under-
stand that the contract for the building of the new courthouse was
let to the Knoxville firm only because their bid was $i,8oo under
that of our fellow-citizen James R. Robertson. Robertson, as we are
all aware, is an expert at this line of work, and was well equipped
to do a handsome job. The only excuse which the commissioners give
is the $i,8oo. But, against this must be set down the $32,000 which
will be paid to the Knoxville gang. Think of it ! Sending $32,000
out of town to save a paltry $1,800."
"The Gazette has always been outspoken in favor of education.
Our stand in favor of university, college, and school cannot be ques-
tioned. We do not wish to question the wisdom of our fellow-citizens
who are sending their children away to school. But we do wish to
remind them of a duty which they owe it to the town not to neglect.
They should see to it that their sons and daughters are supplied with
clothes and all other necessary articles before they leave home for
their schools. Our citizens owe nothing to the merchants of the
communities in which these colleges are located. But they do owe a
debt to the town which gives them homes. And they should see to
it that the money spent for necessary articles is kept here as far as
possible."
"'Now look here. Doc,' said the dollar to the dentist, 'if you'll
only let me stay in this town, and won't send me to Roars, Sawbuck
& Co.'s in Chicago for that shaving mug, I'll circulate around and
do you a lot of good. You buy a big beefsteak with me, and the
butcher will buy groceries, and the grocer will buy dry goods, and
the dry goods merchant will pay his doctor's bill with me, and the
PROBLEM OF INTERNATIONAL TRADE 321
doctor will give me to the farmer for oats with which to feed his
horse, and the farmer will buy fresh beef from the butcher, and
the butcher will come around to you and get his tooth mended. In the
long run you see I will be more useful to you here at home than if
you send me away forever.' "
"The recent cold spell, which caused a large number of water
pipes to burst, has been a bonanza for business. Few things in the
last year have caused so many people to dig down into their jeans
and cough up the cartwheels that spell prosperity."
140. Gold and Wealth^
BY MARTIN LUTHER
Gold has brought us Germans to that pitch that we must needs
scatter our gold and silver in foreign lands, and make all the world
rich and ourselves remain beggars. England should indeed have
less gold, if Germany left her her cloth ; and the king of Portugal also
would have less if we left him his spices. Reckon thou how much
money is taken out of German land without need or cause in one
Frankfort fair, then wilt thou wonder how it comes that there is a
penny left in Germany. Frankfort is the silver-and-gold hole through
which everything which sprouts and grows among us, or is coined
and stamped, runs out of German lands. If this hole were stopped,
we would perchance not hear the complaint how on all hands there
is naught but debts and no money, and all provinces and cities are
burdened and exhausted by interest-paying.
141. The Production of Prosperity^
BY DANIEL DEFOE
Trade encourages manufacture, prompts invention, employs
people, increases labor, and pays wages : As the people are employed,
they are paid, and by that pay are fed, clothed, kept in heart, and
kept together ; that is, kept at home, kept from wandering in foreign
countries to seek business, for where the employment is, the people
will be.
This keeping the people together is indeed the sum of the whole
matter, for as they are kept together, they multiply together; and
^Adapted from the address on "Trade and Usury," Opeti Court, XI (1524),
18. Translated by W. H. Carruth. Copyright.
^Adapted from A Plan of the English Commerce (1730), pp. 8-10, 33-34, in
A Select Collection of Scarce and Valuable Tracts on Commerce, edited by
J. R. McCulloch.
322 [CURRENT ECONOMIC PROBLEMS
the numbers, which by the way are the wealth and strength of the
nation, increase.
As the numbers of the people increase, the consumption of
provisions increases ; as the consumption increases, the rate of value
willrise at market; and as the rate of provisions rises, the rents of
land rise : So the gentlemen are with the first to feel the benefit of
trade, by the addition to their estates.
As the consumption of provisions increases, more lands are cul-
tivated ; waste grounds are inclosed, woods are grubbed up, forests
and common lands are tilled, and improved ; by this more farmers
are brought together, more farmhouses and cottages are built, and
more trades are called upon to supply the necessary demands of
husbandry. In a word, as land is employed, the people increase, of
course, and thus trade sets all the wheels of improvement in motion ;
for from the original of business to this day it appears, that the
prosperity of a nation rises and falls, just as trade is supported or
becomes decayed.
As trade prospers, manufactures increase; as the demand is
greater or smaller, so also is the quantity made ; and so the wages of
the poor, the rate of provisions, and the rents and value of the lands
rise or fall, as I said before. And here the very power and strength
of the nation is concerned also, for as the value of the lands rises
or falls, the taxes rise and fall in proportion.
Trade furnishes money, money pays taxes, and taxes raise
armies; and so it may truly be said of trade, that it makes princes
powerful, nations valiant, and the most effeminate people that can-
not fight for themselves, if they have but money, and can hire other
people to fight for them, become as formidable as any of their
neighbors.
Seeing trade then is the fund of wealth and power, we cannot
wonder that we see the wisest princes and states anxious and con-
cerned for the increase of the commerce and trade of their subjects,
and of the growth of the country, anxious to propagate the sale of
such goods as are the manufacture of their own people; especially
such as keep the money of their dominions at home, and on the con-
trary, for prohibiting the exportation from abroad, of such things
as are the products of other countries, and of the labor of other
people, as which carry money back in return.
Nor can we wonder that we see such princes and states endeavor-
ing to set up such manufactures in their own countries, which they
see are successfully and profitably carried on by their neighbors, and
to endeavor to procure the materials for setting up those manufac-
tures by all just and profitable methods from other countries.
PROBLEM OF INTERNATIONAL TRADE 323
142. The Ten Commandments of National Commerce^"
1. Never lose sight of the interests of your compatriots or of
the fatherland.
2. Do not forget that when you buy a foreign product, no mat-
ter if it is only a cent's worth, you diminish the fatherland's wealth
by so much.
3. Your money should profit only German merchants and work-
men.
4. Do not profane German soil, a German house, or a German
workshop by using foreign machines and tools.
5. Never allow to be served at your table foreign fruits and
meat, thus wronging German growers, and, moreover, compromising
your health because foreign meats are not inspected by German
sanitary police.
6. Write on German paper with a German pen and dry the ink
with German blotters.
7. You should be clothed only with German goods and should
wear only German hats.
8. German flour, German fruits, and German beer alone make
German strength.
9. If you do not like the German malted coffee, drink coffee
from the German colonies. If you prefer chocolates or cocoa for
the children, have a care that the chocolate and cocoa are of exclu-
sively German production.
10. Do not let foreign boasters divert you from these sage
precepts. Be convinced, whatever you may hear, that the best
products, which are alone worthy of a German citizen, are German
products.
143. The Test of Faith^^
BY ROSWELL A. BENEDICT
Q. What is Protection?
A. It is a principle. It holds that home producers alone make,
and therefore alone own, the home market.
Q. What is Free Trade?
A. Also a principle. It holds that producers abroad should be
allowed to compete for the home market.
Q. Who are the Protectionists?
A. Home producers standing by their title to the home market.
^"Adapted from a circular widely circulated in Germany in 1910.
i^Adapted from "A Tariff Catechism," American Economist, III (1914), 62.
324 CURRENT ECONOMIC PROBLEMS
Q. Who are the Free Traders?
A. Importers and their pals stealing the home market from its
lawful owners.
Q. Wherein does the work of the Protectionists and the Free
Traders differ?
A. The Protectionists make and defend while the Free Traders
attack and destroy home civilization.
Q. How do Free Traders destroy home civilization?
A. They destroy home production which employs the people,
and so substitute violence for industry as a breadwinning craft.
Q. After all, are not those zvho pass Free Trade laws merely
scholars, high minded and pure, moved solely by pride in the com-
mon weal?
A. No. It is not pride but price that moves them to»sell the
home market to the Market Robber. Under whatever color or cover,
it is still the Market Robber's silver paid to these, our Judases, by
which we are betrayed.
Q. Who is the Market Robber?
A. The importer who robs it of its power to employ home pro-
ducers in the market made and owned by them.
Q. What is the secret of the Market Robber's power?
A. Market-robbing booty. His competitor, the home producer,
is lucky to get 6 per cent a year from his mine, forest, farm, factory,
or fishery, while the Market Robber's booty may be lOO per cent,
big enough to bribe his way into any market.
Q. Why did the Market Robber fight so hard to break into our
market?
A. To steal billions in wages from our home laborers.
144. The Seen and the Unseen^^
BY FREDERIC BASTIAT
Have you ever had occasion to witness the fury of the honest
burgess, Jacques Bonhomme, when his scapegrace son has broken
a pane of glass? If you have, you cannot fail to have observed that
all the bystanders, were there thirty of them, lay their heads together
to offer the unfortimate proprietor this never-failing consolation,
that there is good in every misfortune, and that such accidents give
a fillip to trade. Everybody must live. If no windows were broken,
what would become of the glaziers? Now, this formula of condo-
^^Adapted from the essay The Seen and the Unseen, quoted in Walker,
Political Economy (1850), pp. 321-23.
PROBLEM OF INTERNATIONAL TRADE 325
lence contains a theory which it is proper to lay hold of in this very
simple case, because it is exactly the same theory which unfortu-
nately governs the greater part of our economic institutions.
Assuming that it becomes necessary to expend six francs in
repairing the damage, if you mean to say that the accident brings
in six francs to the glazier, and to that extent encourages his trade,
I grant it fairly and frankly, and admit that you reason justly.
The glazier arrives, does his work, pockets the money, rubs his
hands, and blesses the scapegrace son. That is what we see.
But, if by way of deduction, you come to conclude, as is too often
done, that it is a good thing to break windows — that it makes money
circulate — and that encouragement to trade in general is the result,
I am obliged to cry. Halt ! Your theory stops at what you see, and
takes no account of what we don't see.
We don't see that since our burgess has been obliged to spend his
six francs on one thing, he can no longer spend them on another.
We don't see that if he had not this pane to replace, he would
have replaced, for example, his shoes, which are down at the heels ;
or have placed a new book on his shelf. In short, he would have em-
ployed his six francs in a way in which he cannot now employ them.
Let us see, then, how the account stands with trade in general. The
pane being broken, the glazier's trade is benefited to the extent of six
francs. That is what we see.
If the pane had not been broken, the shoemaker's or some other
trade would have been encouraged to the same extent of six francs.
This is what we don't see. And if we take into account what we
don't see, which is a negative fact, as well as what we do see, which
is a positive fact, we shall discover that trade in general, or the aggre-
gfate of national industry, has no interest, one way or another,
whether windows are broken or not.
Let us see again how the account stands with Jacques Bonhomme.
On the last hypothesis, that of the pane being broken, he spends six
francs, and gets neither more nor less than he had before, namely, the
use of a pane of glass. On the other hypothesis, namely, that the
accident had not happened, he would have expended six francs on
shoes, and would have had the enjoyment both of the shoes and the
pane of glass.
Now, as the good burgess, Jacques Bonhomme, constitutes a
fraction of society at large, we are forced to conclude that society,
taken in the aggregate, and after all accounts of labor and enjoyment
have been squared, has lost the value of the pane of glass which has
been broken.
526 CURRENT ECONOMIC PROBLEMS
C. THE CARE FOR PROTECTION
145. America's Allegiance to Protections^
BY ALBERT J. LEFFINGWELL
I intend to state a few propositions, which, as generally accepted
facts, appear to me to influence very largely the national acquies-
cence of America in the protective policy. Perhaps they may be
heard with more patience from one who has never had the slightest
conection with the manufacturing interest ; who ought apparently
to clamor for the cheapest market, but who is nevertheless, for the
following reasons, a firm adherent to the protective system :
I. No country of modern times, which is without manufactures,
which exports raw products for foreign made goods, and the inhab-
itants of which are almost wholly engaged in cultivating the soil,
has succeeded in obtaining wealth, prosperity, and power as a na-
tion. This simple fact is recognized by every civilized government
in the world. Free trade at the present day is either an English
or a barbarous practice. Even English colonies perceive that they
must build up their home industries if they are ever to gain essential
prosperity. Just so far as free trade contributes to the supremacy
of British manufactures, it is a means towards the maintenance of
national wealth and power. If it shall ever cease to do this, it will
be abandoned.
2. If, during the past fifty years, America had permitted a sys-
tem of unrestricted trade with all the world, she could never have
reached the development of her manufactures which has rendered
her independent ; but would, today, be little more than a huge agri-
cultural colony, exchanging the produce of her fields for the manu-
factures and fabrics of Europe. To be a nation of farmers, to ex-
cell in sheep-raising and in agriculture — this is the English ideal
of what America ought to content herself with being. If there ex-
isted between the United States and England a perfectly free and
open trade, a distribution of industry unfettered by tariflfs, England
would be the manufacturing member, and the United States the
agricultural member of the partnership.
3. Under the system of protection America has been able to,
develop Tier boundless mineral resources, to encourage the growth
of her manufacturing industries, until, today, she is not merely inde-
pendent and able to supply her own wants, but she exports to for-
eign nations, and has begun to compete with England for the mar-
i^Adapted from an article in the London Contemporary Review, XXXVIII
(1880), 56-68.
PROBLEM OF INTERNATIONAL TRADE 327
jcets of the world. Conclusive evidence of this exists on all sides.
1 he caretul observer can not escape it.
4. A protective tariff has been the most important, and, indeed,
the essential agent, in the development of the manufacturing indus-
trres" of the United States. This proposition can hardly be seriously
denied at the present time. Through the enhanced prices paid at
first by consumers, manufactures have been created and fostered.
Perhaps for a while they have been very costly to the nation. But
of the result the country can well be proud. It has made them inde-
pendent of other nations for their supplies. And, in the end, with
growth and improvements, goods have fallen in price, greatly to the
benefit of the American consumer.
5. The working class in the United States, under a system of
protection, enjoy a greater degree of prosperity than the working
classes of England under a system of free trade. No test can be
more satisfactory and practical than to compare the position of the
laborer in one country with his position in another; and, however
difficult it may seem at first thought to weigh in the balances privi-
lege, opportunity, comfort, and general prosperity, certain financial
facts and statistics afford us a tolerably safe method for arriving at
sound conclusions. That the working man here, if thrifty, has a
far better chance for improving his condition, for educating his fam-
ily, for acquiring landed property than is the case with his brother
in Europe is generally admitted. It could not well be otherwise
where one may so easily exchange the forge or loom for the settler's
cabin and the plow. The great mass of the American working people
are better housed, better fed, better clothed, and in all respects better
situated than the working millions of the nations whose ports are
open to the world.
These are some of the reasons which appear to me to largely de-
termine the persistent allegiance to the doctrine of Protection by the
people of the United States. Of the ultimate adoption by nations of
the principles of absolute free trade I have as little doubt as the
most sanguine disciple of Adam Smith. But it is a dream of the far-
distant future. It assuredly cannot be realized while the tramp of
armies is louder than the din of the workshop. By America, how-
ever, the day of its adoption may be much nearer our own time.
History often repeats itself. Like England, by thorough protection
of our growing industries, we have laid the foundations of success
in every branch of manufacture. So soon as our preeminence is
absolutely assured, there will exist no longer the necessity to pro-
tect. Of that future we have apparently every reason to hope.
When the production of American skill and industry is found in
328 CURRENT ECONOMIC PROBLEMS
shops in Europe cheaper than their home-made wares, it is probable
that we shall then take our turn in eulogizing free trade, in open-
ing our ports to all nations, and in preaching the blessings of unre-
stricted trade to a reluctant and still doubting world.
146. Protection and the Formation of Capital'*
BY ALVIN S. JOHNSON
The additions to the capital of a nation must come from the
annual income. That the income of a nation will, at any given time,
attain its maximum under freedom of trade is a proposition that
admits of only rare exceptions. Does it not then follow that the
capacity of a nation to accumulate capital will be greater under free
trade than under protection? If all classes in society saved equal
proportions of their incomes, it would follow of necessity that what-
ever tends to reduce the national income must reduce the annual
addition to the fund of capital. But, in fact, the disposition to accu-
mulate capital varies widely in the different classes that compose a
nation ; and it is the essence of protection to alter the proportions in
which the social income is distributed. We cannot, therefore, accept
without further examination the view that protection and the conse-
quent reduction of the social income must necessarily retard the ac-
cumulation of capital.
Apart from purely individual differences in thrift, the tendency
to save is affected by general economic and social conditions that en-
able us to divide the members of society into more or less distinct
thrift classes. A man is not likely to save, if he knows of no invest-
ment attractive to him ;Tie is not very likely to save if the road to the
esteem of his fellows lies through expenditures for consumption.
The most attractive form of investment is the acquisition of
tangible capital goods to be employed under one's own control. Such
an investment gives visible evidences of economic efficiency. Ac-
cordingly those who are in a position to make such investments have
the strongest incentive to save. These persons are entrepreneurs
who have not yet fully equipped their businesses with capital. Them
we may place in our highest thrift class. We may assign to a lower
thrift class those who live upon salaries or returns from professional
service. They have no ever-present means of investment ; they are
under the domination of rigid standards of consumption. They
must, however, make provision for disability or superannuation. In
a yet lower class I should place those who derive their incomes
^^Adapted from an article in the Political Science Quarterly, XXIII,
221-41. Copyright, 1908.
PROBLEM OF INTERNATIONAL TRADE
329
from rents, interest on mortgages and bonds, dividends on stocks, — .-^,
the tunded income class. They are in no pecuHarly favorable situa-
tion to make new Investments ; they are subject to rigid standards of
consumption ; and they are under no compulsion to set aside a por-
tion of their incomes for future needs. In the lowest class of all I )
place the great mass of workingmen, since tliey have the least favor-
able opportumly tor investment and are subject to the most tyrannical
standards of consumption.
When an industry reaches the acme of development, the position
of the independent entrepreneur becomes assimilated to that of the
recipient of funded income. Accordingly we are justified in draw-
ing a distinction between the entrepreneur engaged in an industry
which quickly attains its full development and those engaged in an
industry of practically unlimited development. Thus we arrive at
the conclusion that the richest and most enduring sources of new
capital are the interest and profits of the manufacturing entrepre-
neur class.
A practical tariff system cannot bestow all its benefits upon a
higher thrift class and impose all its burdens upon a lower one. Nev-
ertheless it can hardly be denied that the chief benefits of modern
protectionism have been bestowed upon those engaged in capitalistic
enterprise. In the United States protection, down to the present day,
has meant Uttle but the diversion of income from all other classes
in society to the capitalist manufacturer. The farmer and wage-
earner have carried a net burden ; the manufacturer alone has se-
cured"a net gain. Here a rapidly developing agriculture has been
taxed for the benefit of rapidly developing manufactures. Although
under these conditions a high thrift class has been taxed, agricul-
ture would quickly have attained a state of full development, and
thus would have ceased to give large incentive to thrift. The im-
petus given to manufactures, which under modern conditions pos-
sess almost unlimited power of absorbing capital, must, of itself,
have accelerated accumulation. It is worth noting that in the long
run protection in a democratic state~rriust favor The higHer thrift
classes at the expense of the lower. In every state protection is
essentially a minority interest. The export industries can gain noth-
ing from the policy ; industries that supply a purely local demand also
gain nothing. These two groups of industries outweigh the indus-
tries which would suffer under competition. The number of persons
whose incomes are diminished by protection will greatly exceed the
number of persons whose incomes are enlarged by it.
If it is true that the general tendency of modern protection has
been to divert income from a lower to a higher thrift class we are
330 CURRENT ECONOMIC PROBLEMS
justified in saying that protective duties have played a part in equip-
ing modern society with the vast stock of capital goods which it
now possesses. For proof of this we must have recourse to an analy-
sis of the effects of protection upon capital formation in concrete
instances. Let us suppose that in a country which formerly im-
ported its silk a heavy duty is levied with the object of creating a
silk-manufacturing industry at home. Men, intending to invest
otherwise, are induced to go into the silk business. At the begin-
ning the capital goods with which the new industry is equipped rep-
resent no net addition to the productive wealth of the country. But
a new industry is naturally speculative in character; and the more
conservative entrepreneurs are slow to enter it. In the nature of the
case the industry will be undersupplied with capital. This means
that capital will be more than ordinarily productive in the industry ;
it means further that entrepreneurs will be steadily endeavoring to
secure more capital to expand their operations. Under these cir-
cumstances it is inevitable that a large proportion of the profits cre-
ated by the industry will be reinvested in it. Here then we have a
net addition to the productive wealth of the country.
We arrive at practically the same result if we select a commodity
entering chiefly into the consumption of the wage-earners. A large
proportion of the wage-earning class saves practically nothing,
whether wages are high or low. Standards of consumption tend to
absorb any surplus income that may appear. A duty borne by the
wage-earning class places little check upon accumulation. Thus the
main effect of the duty is to divert income from a lower thrift class
to a higher one, and hence to give an impetus to the formation of
capital.
In answer to this line of argument it is alleged that a tariff con-
structed in such a way as to equalize costs of production at home and
abroad would not permit the surplus profits out of which capital is
built. This is true. But one may safely challenge all the economists
in the world to point to one instance of a "scientific" tariff. In the
nature of things there can be no such tariff. What manufacturers'
association would conduct political campaigns, roll logs, and other-
wise exert itself for the mere privilege of being placed on an equal-
ity with the foreigner? What would be the object in establishing
a new industry if it were to offer only profits that might be secured
from industries already existing?
It is true that if the protected industry operates under great nat-
ural disadvantages, as in the classical case of producing wine in
Scotland, the burden to the consumer will be so much greater than
the net gain of the producer that the net effect upon accumulation
PROBLEM OF INTERNATIONAL TRADE 331
will be unfavorable. But it is not the practice of entrepreneurs to
demand, nor of statesmen to grant, protection for industries that
labor under extraordinary disadvantages. Rather the selection of
industries for protection tends to be such that a greater part of the
tribute exacted from the consumer is bestowed upon the producer in
the form of profit instead of being wasted in the insane struggle with
refractory natural conditions.
What is the test by which it can be determined whether the pro-
tective system shall be abandoned? By the academic protectionists,
duties should be abolished when the protected industries are in a po-
sition to meet foreign competition. According to the theory here
put forth, they should not be removed until the protected industries
cease to develop rapidly. Then the duty should be removed whether
the industry can meet foreign competition or not.
I 147. The Economics of Protections^
The economic fallacy of free trade lies, not in its logic, but in its
assumptions. The latter are part and parcel of the static and indi-
vidualistic system of thought of the later eighteenth century which
made Nature the hero in the piece and assigned to the state the role
of villain. At the basis of the arg ument for free trade are the two
quite dissimilar but complementary propositions thaf men are guided
by a supreme natural pre-wisdom to choose the best lines of pro-
duction, and that the process of production consists in juggling
together a certain number of productive units from each of three
great hoppers, called land, labor, and capital. To make clear the
dependence of the theory upon these underlying assumptions, let us
strip it of its verbiage and reduce it to its simplest terms.
It may best be stated as a problem : Given a definite amount of
land, of capital, and of labor; in what particular permutations shall
the three be put up in such a way as to secure the largest amount of
consumptive goods? Obviously, since labor and capital are the
human factors, they must be economized; their supplies must be
made to "go as far as possible." This can be done by making Nature
shoulder the largest possible amount of the actual work of produc-
tion. This last can be achieved by having each article produced in
the place best fitted for its production, and letting the peoples of the
various places exchange their surpluses. In other words, the best
possible adjustment of the mobile factors of labor and capital must
be made to the immobile factor, land. To illustrate, an attempt
should not be made to produce both watches and oranges in Con-
necticut and Florida. With the available but limited amounts of labor
i^An editorial (1915).
332 CURRENT ECONOMIC PROBLEMS
and capital a larger quantity of both watches and of oranges, can
be produced, if Connecticut devotes itself to the production of watches
and Florida to the cultivation of oranges, than if each tries to pro-
duce for itself both of these commodities. If, then, the government
does not interpose artificial restrictions, a scheme of profits and
losses will secure the localization of industries at places best fitted
for them. Consequently a larger amount of consumable goods will
be produced under free trade than under a restrictive system. The
theory might properly be called the law of the economic utilization
of labor and capital.
In yiewjof this statement the weakness in the assumptions of the
argument will quickly be noted. The first is the preconception of the
rationality of human judgment in the localization of industry. Tt
imputes omniscience to that judgment; for the decision has to be
made before the industry is located; and the evidence to guide that
judgment, in profits and losses, is not available until much later. At
best, rational judgment can locate industries at points where Nature's
contribution can be most fully utilized only after a protracted and
costly period of experimentation. It is doubtful, too, whether the
owners of natural resources, who have had little experience with the
larger world of affairs, can determine just what industries are
adapted to a given locality. If they are left alone, custom is likely
to ripen into the inertia that breeds stagnation. Further, because of
the intricacy of the industrial cycle and the imperfection and lack
of availability of business barometers, it is impossible for the average
business man to look into the future and see all the exigencies which
converge to make a business a success or a failure. No one expert
is sufficient for this task. Technical experts who know all the po-
tential productive capacities of a particular place need to be assisted
by business experts who are able to forecast demand and general
business conditions. A group of them should, by the use of scientific
methods, determine the industrial needs that are most pressing and
the localities best adapted to the production of articles to satisfy
these needs. Encouragement should be given, if conditions are
favorable, to the prosecution of various businesses. Towards this
end the protective tariff should prove a most useful device.
The second glaring error in the assumptions is a conception of
potential resources in fixed terms. The elements out of which useful
goods are made are most variable. Our natural resources are what
they are, because our industrial system is what it is. Change the
system, and the catalogue of our resources would be materially
altered. In a sense China's wealth is far greater than Japan's, yet
it lacks a certain almost indefinable dynamic quality. Labor, particu-
larly, defies expression in rigid calculable terms. Man is possessed
PROBLEM OF INTERNATIONAL TRADE
ZZZ
of many potential gifts. The majority of these always remain latent ;
some two or three are developed. Take a boy from a rural environ-
ment, where possibilities are narrowly circumscribed, to a large city
and watch unsuspected talents develop. Physically speaking, the
amount of land, capital, and labor may remain the same. Each as it
is, as a static thing, may be best utilized under free trade. But the
important question is, Does society under free trade develop the most
important latent capacities ? Does free trade permit society to utilize
its full capacity for development? The worst that is said about
protection is that for a time it imposes higher prices upon consumers'
goods. Admit the charge. Its cost is far more than offset by its
transformation of society into a more complex and integrated whole,
which offers a larger range of opportunity to the individual, and
surrounds him with an atmosphere surcharged with a spirit that
brings out his latent powers. Again, the fallacy of free trade is that
it overlooks the possibility of developing new capacities for produc-
tive work.
The third glaring error is, in a sense, of a kind with the second.
It is~the assumption of a fixed q uantity of each of the productive
factors. Our own experience has demonstrated quite clearly the
possibility of greatly increasing two of these factors, labor and capi-
tal, and in a way increasing the third, land, by the creation of an
industrial system that allows a fuller utilization of natural resources.
In the argument above, labor was the important factor ; here capital
takes the first place. The importance of a definite increase in the
volume of capital is not clearly enough appreciated. Land, of course,
physically speaking, is fixed in quantity. If a nation has reached
the point of diminishing returns, an increase in numbers is attended
by a fall in the standard of living. Material progress, then, is asso-
ciated with an increase in the quantity of capital. Protection, as
Professor Johnson has shown in another reading, increases for pro-
tected businesses the margins between costs and selling prices. A
large part of the additional profits realized is turned back into the
business in the form of reinvested capital. The growth of an in-
dustry is closely dependent upon its control by a permanent man-
agement who have vast pecuniary stakes in its success. This is pos-
sible only under a system which permits expansion through reinvest-
ment of profits. This protection makes possible. The alternative,
involving the investment of outside capital in the business, can be
taken only at the cost of a sacrifice of part of the ownership, and, con-
sequently, of the control of the enterprise. Since, therefore, material
progress is dependent upon the addition of new increments to the
available supply of capital, its debt to protection is a large one.
334 CURRENT ECONOMIC PROBLEMS
Since protection increases the amount of invested capital, it fol-
lows that it increases the incomes of the mass of individuals. The
argument is perhaps already evident, but let us state it, at least for
the most important share in distribution, that of labor. As political
economists agree, the wages of labor depend upon the marginal pro-
ductivity of the laborer. Capital increases that productivity, and
consequently raises wages. To illustrate, let us take two countries,
Denland and Norland. They possess the same number of laborers,
similar natural resources, the same technical system, and the same
amount of accumulated capital. It is evident that under our principle,
the real wages will be the same in the two countries. If, however,
Denland differs from Norland only in having a larger amount of
accumulated capital, then the marginal laborer in that country is
working with improved equipment, and will turn out a larger product
than the marginal laborer in Norland. Accordingly wages will be
higher. Likewise, an increase in accumulated capital in Norland
itself improves the facilities with which the marginal laborer works,
and consequently increases his product and his wage. Under pro-
tection, therefore, wages will be higher than under free trade.
Protection, as a system, has seemed to the economists to lack a
fundamental basis only because they have insisted upon judging it
on the basis of the static and individualistic assumptions underlying
their own creeds. We must remember that free trade is a theory of
the proper utilization of definitely limited factors of production. Pro-
tection is a theory of the development out of crude human stuff and
natural resources of the largest possible productive funds and of
the best conservation of these funds. It goes back of the factors of
production, the starting-point of the free trader, and seeks to increase
their size and intensify their force. When development stops, and
society becomes static, then it will be to our advantage to adopt the
free-trade theory of maximum utilization. But so long as industrial
society possesses capacity for growth, we can best profit by clinging
to the use of the developmental theory of protection.
D. THE TARIFF AND WAGES
148. High Wages an Obstacle to Manufacture^^
BY DANIEL WEBSTER
The present price of iron at Stockholm is not far from $40.00 at
the mines. Freight, insurance, and duty make the price of Swedish
i^Adapted from a speech delivered in the House of Representatives,
* April I and 2, 1824.
PROBLEM OF INTERNATIONAL TRADE
335
iron in our market about $83.00. We perceive by this fact the cost
of the iron is doubled in reaching us from the mine in which it is
produced. Why, then, cannot iron be manufactured at home? Our
ore is as good, or better. Nothing could be more sure of a constant
sale. It is an article of absolute permanent necessity.
Sir, the true explanation seems to me to lie in the present prices
of labor. I think it would cost us precisely that which we could
worst afford, that is, great labor. The principal ingredient in the
cost of bar iron is labor. Of manual labor, no nation has more than
a certain quantity, nor can it be increased at will. As to some opera-
tions, indeed, its place may be supplied by machinery ; but there are
other services which machinery cannot perform for it, and which it
must perform for itself. A most important question for every nation
is how it can best apply that quantity of labor which it is able to
perform. Labor is the great producer of wealth ; it moves all other
causes. If we call machinery to its aid, it is still employed, not only
in using the machinery, but in making it. Now, with respect to the
quantity of labor different nations are differently circumstanced.
Some need, more than anything, work for hands ; others require
hands for work ; and if we ourselves are not absolutely in the latter
class, we are still, most fortunately, very near it. I cannot find that
we have idle hands. The price of labor is a conclusive and unanswer-
able refutation of that idea; it is known to be higher with us than
in any civilized state, and this is the greatest of all proofs of general
happiness. Labor in this country is independent and proud. It has
not to ask the patronage of capital, but capital solicits the aid of labor.
This is the general truth in regard to the conditions of our whole
population. The mere capacity to labor in common agricultural em-
ployments gives to our young men the assurance of independence.
We have been asked whether we will allow the serfs of Russia and
Sweden the benefit of making iron for us? Those same serfs, sir,
do not make more than seven cents a day, and they work in these
mines for that compensation because they are serfs. Have we any
labor in this country that cannot be better employed than in a business
which does not yield the laborer more than seven cents a day ? This,
it appears to me, is the true question for our consideration. There
is no reason for saying that we will work iron because we have the
mountains that contain the ore. We might for the same reason dig
among our rocks for the scattered grains of gold and silver which
might be found there.
336 CURRENT ECONOMIC PROBLEMS
149. Protection and High Wages^^
Not only are wages ift the United States twice or three times the
average of Europe and from ten to twenty times those of Asiatic
countries, but our hours of labor are the fewest in the world.
So far as can be learned from a rough computation of the aver-
ages in the United States, the American laborer now gets fully $2.50
per day in a week of 54 hours' work. If we should take the average
of all men, women, and children wage-earners in this country, it would
be well beyond the doUar-a-day line.
The question then follows : Is not the cost of living proportion-
ally more here than abroad? There is very little difference, the
same things considered, but the American lives much better and his
needs are far in excess of the foreigner's because of his education,
his intelligence, and his tastes. The American two-dollar-a-day man
not only gets a better living for himself and his family than the
European dollar-a-day man, but the American has another dollar for
comforts, conveniences, luxuries, and pleasures unknown to the
European laborer.
There must be some reason for this state of affairs, and this
reason is the American system of protection. That system tends to
make us do practically all our own work, keeping our money at home
and in constant circulation, creating and sustaining a purchasing
ability that demands more and more production, the very producers
becoming greater consumers of each other's products.
We are not an agricultural people. We are not a manufacturing
people. We are not a mining people. Nor are we fishermen or
foresters. We are productive people, and our productions include
every need of man and nearly every luxury. Our small surplus is
readily sold abroad, and to a greater extent than our purchases.
This is the American system of protection. This is the reason for
American wages and the cause of American habits and ways of liv-
ing. Our diversification of production is the greatest economic leaven
of our almost immeasurable loaf of prosperity. There is only one
thing that will permanently lessen it — a reduction of wages made
necessary by a repeal of one or more tariff schedules bringing us into
competition with the dollar-a-day labor of Europe and the dime-a-day
labor of Asia. Nor does the whole chain of interdependent indus-
tries have to be broken. The breaking of a single link will work
irreparable disaster. We must preserve intact our splendid American
policy of protection and its attendant high wages and universal pros-
perity.
^'''Adapted from "Wages and Causes," American Economist, XXVIII
(1901), 175.
PROBLEM OF INTERNATIONAL TRADE 337
150. The Effect of Industrial Changes on Wages^^
BY ALVIN JOHNSON
A policy that draws labor from the fields that are of greater nat-
ural productiveness to fields of lower natural productiveness tends
to reduce wages.
In any country wages are determined by the marginal productiv-
ity of labor. We will represent the various opportunities of employ-
ment that a country like the United States affords by the symbols,
A, B, C. and D. A may stand for a group of industries in which
we have exceptional advantages over foreign countries. B stands
for a group of industries in which our advantages are less, C one
in which they are still less, and D the group of industries in which
they are least of all. When our population is so small that all our
labor can be engaged in the group represented by A, wages will be
at their maximum. When our population increases so that some
of the labor will have to be set to work in group B, the wages of
all labor must decline to the level of the productivity in that group.
We will suppose that population has increased up to a point where
the opportunities represented by A and B are fairly well manned,
and wages are determined by the productivity of labor in B.
With wages thus determined, it is clear that no employer, with-
out governmental aid, can afford to hire labor to exploit the oppor-
tunities represented by C and D. This would necessitate paying labor
in C and D as much as it produces in B, and that by hypothesis is
more than it produces in C and D.
Now let us suppose that a political party is in power which holds
the belief that we should produce everything that we consume, that
is, that the opportunities represented by C and D should be exploited
as well as those represented by A and B. Labor may be drawn away
from A and B. This involves the necessity of compensating en-
trepreneurs in some way for the disadvantages under which they will
operate in C and D. Either wages must be reduced in A and B, or
some form of subsidy must be granted to C and D.
The commodities that the industries composing C and D will pro-
duce have been hitherto, we assume, obtained from abroad through
exchange for commodities produced by A and B. The government
now renders this difficult by placing high duties upon the former
class of commodities. This means that producers in the groups A and
B — both employers and workmen — must pay higher prices for what
they buy. They do not receive higher prices for what they sell ; in
fact, they receive lower prices, as this, we have seen, is the effect of
i^Adapted from Introduction to Economics, pp. 359-6i. Copyright by D.
C. Heath & Co., 1909.
f(
338 CURRENT ECONOMIC PROBLEMS
protective duties upon export industries. It appears, then, that part
of the disadvantage of producers in C and D is removed by reducing
wages in A and B,
After the duty has gone into effect and the prices of commodities
that can be produced by C and D have risen sufficiently, enterprisers
will be able to hire labor at the wages prevailing in A and B, and
establish industries in C and D. So far as the remaining laborers in
A and B buy the products of C and D, the difference between the
price which they pay for those products and the price that they would
pay if they were permitted to import those products duty-free is a
tax paid not to the government, but to the producers in C and D,
to enable the later to remain in business. It is an uncompensated
deduction from the natural earnings of the laborers in A and B.
Their wages have been reduced. Nor are the workers in C and D
paid as much, estimated in purchasing power, as they would have
received if they had been allowed to remain in A and B under the
earlier conditions. The net effect of the imposition of the duty has
been to saddle the self-supporting industries, A and B, with the sup-
port of the pauper industries, C and D. Yet the inventors of this
policy have the effrontery to tell laborers in A and B that this policy
is the bulwark of their high rate of wages !
The principles involved in the illustration may be stated in the
following general terms : Wages in any country will be at the high-
est point when all the labor of that country is concentrated in the
industries in which its relative advantages over other countries are
greatest. If there are no protective duties whatsoever, employers will,
as a rule, seek out the industries in which their country has the great-
est relative advantages. Protective duties enable other industries to
exist, but only through taxing the more productive industries for
their support. Protection as a permanent policy means a slight reduc-
tion of money wages, and a greater reduction in wages estimated in
purchasing power.
E. TARIFF POLICY IN PROCESS
151. A Half-Century of Tariff History"
BY HARRISON S, SMALLEY
A Study of the historical setting of the current tariff problem need
not take us back beyond the period of the Civil War. True, the tariff
had played a part in politics from the beginning, a part out of all pro-
portion to its real importance. For the first quarter-century of our
i^Adapted from "A Short Sketch of American Tariff History," in Read'
ings in Political Economy. Privately published, 191 1.
PROBLEM OF INTERNATIONAL TRADE
339
national existence the idea of protection had found but precarious
foothold in our tariff schedules. However, the natural protection fur-
nished by the Napoleonic wars had resulted in the establishment of
many manufacturing industries, which had proceeded to make their
presence known immediately the war was over. The result had been
a series of bills granting relatively high duties from 1819 and 1824
until 1846. However, the South had opposed, and the high level of
duties had, even in those days, been subject to many vicissitudes.
From 1846 until the Civil War the dominant theory underlying tariff
policy had been that of revenue, but protective features had not been
entirely abandoned. However, as we have said, the present era prop-
erly begins with the Civil War.^°
The Morrill law, passed in 1861, raised the level of duties quite
substantially. Modifications in duties were constantly being made
throughout the conflict, and in the end the level of duties was very
greatly raised.
Although the idea of protection was quite prominent, the primary
reason for the increase was the need of revenue. The government
had adopted a most elaborate policy of internal taxation, including
taxes on manufactured goods. It seemed just, therefore, since Ameri-
can producers were burdened with excise duties greatly increasing
their costs of production, to protect them by a proportionally higher
tariff duty. In fact, had this not been done, the government's attempt
to collect revenue in many cases would have failed. Accordingly
many "compensating duties" were added to the already high rates.
This level was still further raised through the efforts of designing
congressmen, who found it easy to secure duties for favored indus-
tries under the pretense of raising revenue.
During the war no one imagined that the excessive duties would
be permanent. But the war passed, and tariffs have come and gone,
but still we have a general level of duties about like that which pre-
vailed at the end of the war. Soon after hostilities ceased Congress
began to repeal the special internal revenue duties. But the com-
pensating duties, made necessary by these, were not taken off. So
today we are still paying many special duties designed to compensate
manufacturers for duties which have not been levied upon them for
forty years.
Several reasons may be assigned for the failure of Congress to
reduce the war tariff after the close of the conflict. Its attention was
largely drawn to the problems of reconstruction in comparison with
which the tariff was a minor issue. Again, southern opinion, which
alone was favorable to free trade, was not strong. Furthermore, the
20 Mr. Smalley is not responsible for the opening paragraph.
340 CURRENT ECONOMIC PROBLEMS
tariff was in a state of great confusion, and its intelligent revision
would have required a great deal of time and care. Still another
factor of a political character was probably of considerable conse-
quence. The Republican party had been organized as a protest
against the spread of slavery. With the successful termination of
the Civil War its object was accomplished. Hence it was left without
a special reason for its continued existence. If the party was to
remain a force in politics it must have a positive platform on which to
stand. So the Republican leaders seized upon protection and made
it one of their leading policies. But most important of all, the pro-
tected interests exerted in the congressional lobbies a powerful in-
fluence to prevent a reduction of duties. Indeed, from that time to
this the pressure brought by protected producers upon Congress and
congressmen has been the most serious obstacle in the way of tariff
reform. For these reasons the war tariff level was maintained.
Within a few years the popular mind became accustomed to high
protection and more or less adjusted to it, and the lobbyists and
representatives of protected interests found it relatively easy to secure
what they wanted from Congress.
Readjustments were, of course, made ; but they were more numer-
ous than important. In 1870 under cover of certain reductions the
duties were raised on a large number of articles. In 1872, because of
surplus revenue, it* was thought expedient to make a horizontal reduc-
tion of 10 per cent. Putting coffee and tea on the free list evidenced
the determination of Congress to lower revenue rather than pro-
tective duties. In 1875 the tariff was restored to its former level.
Because of a popular demand and another excess of revenue the
schedules were again revised in 1883. The effort to satisfy the popu-
lar demand and at the same time to save the principle aroused con-
siderable protest. In 1888 Cleveland came out strongly in favor of
tariff reduction.
Viewing their victory at this election as a vindication of their
policy, the Republicans proceeded to adopt a new tariff, the McKinley
Act, which surpassed in altitude all previous achievements. How
well the demand for reducing revenue without sacrificing favors was
met is evidenced by their action in removing the duty on sugar, aver-
aging 2 cents a pound, and substituting for it a bounty of 2 cents a
pound on all sugar produced in this country.
The popular protest was immediate. In the election of 1890 the
Democrats captured the House, and won the presidency and the
Senate two years later. The panic of 1893, which came while the
McKinley Act was a law, and the troubles over the coinage of silver,
for a time delayed revision. They also served to destroy party unity.
PROBLEM OF INTERNATIONAL TRADE 341
A bill was passed by the House embodying substantial reductions.
This, however, was radically amended by the Senate, the Republicans
and a few bolting Democrats being responsible for the changes. The
bill as passed embodied a series of duties lower than those of the
McKinley bill, but substantially higher than those of the tariff of
1883. President Cleveland was so displeased that he allowed the bill
to become a law without his signature.
The act failed to relieve the depression following the panic which
had been caused very largely by the silver legislation of the Repub-
licans. Perhaps no tariff bill could have mended matters. Certainly
there was no threat to business in the Wilson-Gorman bill. Yet people
began to blame the act for the failure of business to recover from the
panic. The opportune reappearance of the silver question offered the
Democrats a way of sidetracking the tariff. So, when Bryan in the
national convention of 1896 made his "cross of gold" speech, he was
hailed as the new leader of the party, and the free coinage of silver
was declared to be the paramount issue.
Nevertheless, the tariff was not by any means lost from view.
The Republicans, victorious in the election of 1896, felt authorized to
raise the tariff once more. In consequence, they passed the Dingley
law of 1897, which was a revision upward, restoring the general level
of the McKinley Act.
By 1900 the Republicans had formulated an argument which
proved most effective. It was : "From 1894 to 1897 we had a Demo-
cratic tariff and hard times ; from 1897 to 1900 we have had a Repub-
lican tariff and prosperity." Some members of the party went so far
as to attribute the panic of 1893 to the Wilson-Gorman bill, which
was not passed until more than a year later. It made no difference
that the Democratic tariff had been a high protective measure. Nor
did it make any difference that the hard times and prosperity were due
to a very large number of other causes. Post hoc is propter hoc. The
Democrats lacked courage to meet the issue, and attempted to use
Imperialism as a shield.
By 1904 sentiment favorable to revision had again begun to ap-
pear. The rise of the trusts, the revival of the old fear of monopoly,
and the knowledge that these combinations had in many cases been
able to charge high prices because they were protected from foreign
competition gave impetus to the movement for tariff reform. This
was increased by the growing concern over the increase in the cost of
living. By 1908 the sentiment was so strong that the Republicans
promised that, if successful in the election, they would revise the
tariff. The courage of the Democrats had returned and they de-
manded downward revision both in 1904 and in 1908.
342 CURRENT ECONOMIC PROBLEMS
The result of the Republican victory was a special session of
Congress in 1909, at which the Payne-Aldrich Act was passed. This
act decreased many duties but raised many others. The general level
of the Dingley bill of 1897 was maintained. It permitted no com-
promising of the protective principle. As yet it is not evident that
it contained changes tending either to curb monopolies or to reduce
the cost of living.
152. Recent Tariff History-^
The protest against the Payne-Aldrich bill was immediate and
outspoken. At the biennial election in 1910 the Democrats won con-
trol of the House by a substantial majority. Looking ahead to the
presidential election of 191 2, and sparring for political advantage, the
majority party in the House passed several bills amending parts of
the tariff act. These lowered duties, particularly on wool and prod-
ucts used on the farm. A personal revolt against President Xaft
within his party added enough votes to the Democratic minority to
secure the passage of these bills through the Senate. But, as was
to be expected, they were vetoed by the President.
In 191 2 the tariff again became one of the main issues in the
election. The sentiment for revision was based upon a number of
quite different considerations. The opposition to monopoly and a
belief that by legislation the government could furnish relief from
the high cost of living were perhaps dominant. A belief that the tariff
was conferring "special favors" upon privileged individuals, and
hence was contrary to the spirit of government, was very widespread.
In addition there was a substantial demand from quite a considerable
contingency of manufacturers and commercial men favorable to re-
vision. This demand was to a considerable extent due to the changed
industrial position of the country. The era of prosperity through
which we had passed had led to an enlargement of many plants to a
point where they could supply much more than the domestic demand
for their commodities. Since these businesses were in the stage of
diminishing costs, they were anxious to find wider markets. Realiz-
ing that foreign trade is reciprocal, the manufacturers involved were
aiming to create a domestic demand for additional foreign products
in order that foreigners might have claims with which to buy Ameri-
can goods. Consequently some manufacturers who, in 1897, when
the fight was for the domestic market, favored high duties, in 191 2
were found demanding lower duties. This sentiment was strength-
ened by a feeling that in some branches protection was no longer
necessary. This demand from manufacturers is significant because
2iAn editorial (1915).
PROBLEM OF INTERNATIONAL TRADE
343
of Its evidence of a change in America's position in international
trade.
Although division in Republican ranks was instrumental in giving
Wilson an unprecedented vote in the electoral college, and in securing
for the Democrats control of the Senate and House, there is little
doubt that the country at large stood committed to a downward re-
vision of the tariff. This was undertaken at a special session of Con-
gress and culminated in the act of October 3, 1913. The making of
no tariff bill in two generations was less influenced by the representa-
tives of special interests sent to Washington. The bill was not
extreme, but represented a g enuine; ^ attempt to reduce duties. Its
most significant changes were in putting wool on The free list imme-
diately and sugar at the end of two and a half years. The former
was a result of the popular agitation against the notorious Schedule
K of the Payne-Aldrich Act. With free wool went the removal of
the specific compensatory duties on woolens, as well as the specific
duties on cottons and silks. Iron ore, pig iron, steel rails, and agri-
cultural implements were all put on the free list. The act substituted
many ad valorem for specific duties. But, since the reductions were
in many cases upon articles which we habitually export, they were
nominal rather than real. The reduction of duties on agricultural
products is a case in point.
In general the tariff seems neither to have justified its friends nor
its enemies. It has not reduced prices ; nor has it led to a closing
of industries and general unemployment. Its effects, if effects it
has had, have been so merged with those of numerous other active
factors, particularly those of the European war, that they cannot
be isolated. It was not expected that the act would result in any
immediate extension of foreign markets. Custom and habit are too
strong, and the spirit of business enterprise a little too slow for that.
Whatever effect it may have had in sending American goods abroad
has lost its identity in the general stream of causes affecting trade
which have come in the train of the European struggle. The stalwart
Republicans are attributing current bad industrial conditions to tariff
tinkering. The financial papers, however, are not demanding upward
revision. Their demand just now is for business to be let alone. At
present there seems to be no strong sentiment in favor of upward
revision. It is, perhaps, premature to express the hope that the tariff
question is settled, and is a matter of history. The old sectional
clash, intensified by an industrial struggle between the interests which
demand foreign markets and the industries which still wish domestic
protection, is too strong for that. The questions of the distribution
of wealth between classes will also serve to keep it alive. Yet, since
344 CURRENT ECONOMIC PROBLEMS
we are coming to grapple with the more vital problems of a full-
grown industrial system, it seems safe to say it will never again have
the importance which it has had in the past.
153. What a Tariff Bill Is Like"
Section I
Schedule A. — Chemicals, Oils and Paints.
I. Acids: Boracic acid, ^ cent per pound; citric acid, 5 cents
per pound; formic acid, i^^ cents per pound; gallic acid, 6 cents per
pound ; lactic acid, i ^ cents per pound ; oxalic acid, i j4 cents per
pound; pyrogallic acid, 12 cents per pound; salicylic acid, 2}^ cents
per pound ; tannic acid and tannin, 5 cents per pound ; tartaric acid,
3^ cents per pound ; all other acids and acid anhydrides not specially
provided for in this section, 15 per centum ad valorem.
5. Alkalies, alkaloids, and all chemical and medicinal compounds,
preparations, mixtures and salts, and combinations thereof not spe-
cially provided for in this section, 15 per centum ad valorem.
19. Chloroform, 2 cents per pound.
48. Perfumery, including cologne and other toilet waters, articles
of perfumery, whether in sachets or otherwise, and all preparations
used as applications to the hair, mouth, teeth, or skin, such as cos-
metics, dentifrices, including tooth soaps, paste, including theatrical
grease paints, and pastes, pomades, powders and other toilet prepara-
tions, all the foregoing, if containing alcohol, 40 cents per pound and
60 per centum ad valorem ; if not containing alcohol, 60 per centum
ad valorem ; floral or flower water containing no alcohol, not specially
provided for in this section, 20 per centum ad valorem.
Schedule B. — Earth, Earthenware and Glassware.
74. Plaster rock or gypsum, crude, ground or calcined, pearl
hardening for paper makers' use; white, non-staining Portland ce-
ment, Keene's cement or other cement of which gypsum is the com-
ponent material of chief value, and all other cements not specially
provided for in this section, 10 per centum ad valorem.
91. Spectacles, eyeglasses and goggles, and frames for the same,
or parts theerof, finished or unfinished, 35 per centum ad valorem.
99. Freestone, granite, sandstone, limestone, lava and all other
stone suitable for use as monumental or building stone, except marble,
breccia, and onyx, not specially provided for in this section, hewn,
dressed, or polished, or otherwise manufactured, 25 per centum ad
22Adapted from The Tariff Act of October 3, 1913, pp. 1-93. The repro-
duction of the act in its entirety would require about one hundred pages of the
size of this one.
PROBLEM OF INTERNATIONAL TRADE 345
valorem ; unmanufactured, or not dressed, hewn, or polished, 3 cents
per cubic foot.
100. Grindstones, finished or unfinished, $1.50 per ton.
Schedule C. — Metals and Manufactures of.
102. Chrome or chromium metal, ferrochrome or ferrochromium,
ferromolybdenum, ferrophosphorus, ferrotitanium, ferrotungsten,
ferrovanadium, molybdenum, titanium, tantalum, tungsten or wolfram
metal, and ferrosilicon, and other alloys used in the manufacture of
steel, not specially provided for in this section, 15 per centum ad
valorem.
no. Steel bars, and tapered or beveled bars; mill shafting;
pressed, sheared, or stamped shapes, not advanced in value or con-
dition by any process or operation subsequent to the process of stamp-
ing ; hammer molds or swaged steel ; gun-barrel molds not in bars ;
all descriptions and shapes of dry sand, loam, or iron molded steel
castings, sheets, and plates ; all the foregoing, if made by the Bes-
semer, Siemens-Martin, open-hearth, or similar processes, not con-
taining alloys, such as nickel, cobalt, vanadium, chromium, tungsten
or wolfram, molybdenum, titanium, iridium, uranium, tantalum,
boron, and similar alloys, 8 per centum ad valorem ; steel ingots,
cogged ingots, blooms and slabs, die blocks or blanks ; billets and bars
and tapered or beveled bars ; pressed, sheared, or stamped shapes not
advanced in value or condition by any process or operation subsequent
to the process of stamping ; hammer molds or swaged steel ; gun-
barrel molds not in bars ; alloys used as substitutes for steel in the
manufacture of tools ; all descriptions and shapes of dry sand, loam,
or iron molded castings, sheets, and plates ; rolled wire rods in coils
or bars not smaller than* twenty one-hundredths of one inch in
diameter, and steel not specially provided for in this section, all the
foregoing when made by the crucible, electric, or cementation process,
either with or without alloys, and finished by rolling, hammering, or
otherwise, and all steels by whatever process made, containing alloys
such as nickel, cobalt, vanadium, chromium, tungsten, wolfram,
molybdenum, titanium, iridium, uranium, tantalum, boron and similar
alloys, 15 per centum ad valorem.
Schedule E. — Sugar, Molasses, and Manufactures of.
177. Sugars, tank bottoms, sirups of cane juice, melada, con-
centrated melada, concrete and concentrated molasses, testing by the
polariscope not above seventy-five degrees, seventy-one one-hun-
dredths of I per cent per pound, and for every additional degree
shown by the polariscopic test, twenty-six one-thousandths of i
cent per pound additional, and fractions of a degree in proportion ;
molasses testing not above forty degrees, 15 per centum ad valorem;
346 CURRENT ECONOMIC PROBLEMS
testing above forty degrees and not above fifty-six degrees, 2}i cents
per gallon ; testing above fifty-six degrees, 4^^ cents per gallon ; sugar
drainings and sugar sweepings shall be subject to duty as molasses or
sugar, as the case may be, according to polariscopic test : Provided,
That the duties imposed in this paragraph shall be effective on and
after the first day of March, nineteen hundred and fourteen, until
which date the rates of duty provided by paragraph two hundred and
sixteen of the tariff Act approved August fifth, nineteen hundred and
nine, shall remain in force: Provided, however. That so much of
paragraph two hundred and sixteen of an Act to provide revenue,
equalize duties, and encourage the industries of the United States,
and for other purposes, approved August fifth, nineteen hundred and
nine, as relates to the color test denominated as Number Sixteen
Dutch standard in color, shall be and is hereby repealed : Provided,
further. That on and after the first day of May, nineteen hundred and
sixteen, the articles hereinbefore enumerated in this paragraph shall
be admitted free of duty.
Schedule G. — Agricultural Products and Provisions.
i88. Barley, 15 cents per bushel of forty-eight pounds.
193. Rice, cleaned, i cent per pound; uncleaned rice, or rice
free from the outer hull and still having the inner cuticle on, ^ of i
cent per pound.
195. Butter and butter substitutes, 2}^ cents per pound.
196. Cheese and substitutes therefor, 20 per centum ad valorem.
205, Hay, $2 per ton.
206. Honey, 10 cents per gallon.
213. Straw, 50 cents per ton.
214. Teazels, 15 per centum ad valorem.
Schedule N. — Sundries.
341. Dice, dominoes, draughts, cheesemen, chess balls, and bil-
liard, pool, bagatelle balls, and poker chips, of ivory, bone, or other
materials, 50 per centum ad valorem.
347. Feathers and downs, on the skin or otherwise, crude or
not dressed, colored, or otherwise advanced or manufactured in any
manner, not specially provided for in this section, 20 per centum ad
valorem; when dressed, colored, or otherwise advanced or manu-
factured in any manner, and not suitable for use as millinery orna-
ments, including quilts of down and manufactures of down, 40 per
centum ad valorem ; artificial or ornamental feathers suitable for
use as millinery ornaments, artificial and ornamental fruits, grains,
leaves, flowers, and stems or parts thereof, of whatever material
composed, not specially provided for in this section, 60 per centum
ad valorem ; boas, boutonnieres, wreaths, and all articles not specially
PROBLEM OF INTERNATIONAL TRADE 347
provided for in this section, composed wholly or in chief value of
any of the feathers, flowers, leaves, or other material herein men-
tioned, 60 per centum ad valorem : Provided, That the importation
of aigrettes, egret plumes or so-called osprey plumes, and the feath-
ers, quills, heads, wings, tails, skins, or parts of skins, of wild' birds
either raw or manufactured, and not for scientific or educational
purposes, is hereby prohibited ; but this provision shall not apply to
the feathers or plumes of ostriches, or to the feathers or plumes of
domestic fowls of any kind.
Free List.
387. Acids : Acetic or pyroligneous, arsenic or arsenious, car-
bolic, chromic, fluoric, hydrofluoric, hydrochloric or muriatic, nitric,
phosphoric, phthalic, prussic, silicic, sulphuric or oil of vitriol, and
valerianic.
389. Acorns, raw, dried or undried, but unground.
391. Agricultural implements: Plows, tooth and disk harrows,
headers, harvesters, reapers, agricultural drills and planters, mowers,
horserakes, cultivators, thrashing machines, cotton gins, machinery
for use in the manufacture of sugar, wagons and carts, and all other
agricultural implements of any kind and description, whether spe-
cifically mentioned herein or not, whether in whole or in parts, in-
cluding repair parts.
407. Ashes, wood and lye of, and beet-root ashes.
457. Coflfee.
512. Ice.
513. India rubber, crude, and milk of, and scrap or refuse India
rubber, fit only for remanufacture.
586. Rags, not otherwise specially provided for in this section.
652. Original paintings in oil, mineral, water, or other colors,
pastels, original drawings and sketches in pen and ink or pencil and
water colors, artists' proof etchings unbound, and engravings and
woodcuts unbound, original sculptures or statuary, including not
more than two replicas or reproductions of the same.
154. The Tariff Commission-^
As the outcome of a long agitation on September 8, 1916, Congress
authorized the creation of a tarifif commission. This action was taken
as one element in the revision of the revenue system which included
the re-enactment of the income tax on a new basis and the adoption
of additional tariff duties. The Tariff Commission now provided for
23 Adapted from "Washington Notes," Journal of Political Economy,
XXIV, 1014-15. Copyright by the University of Chicago, 1916.
348 CURRENT ECONOMIC PROBLEMS
is "bipartisan" and consists of six members to be appointed by the
President, not more than three of whom are to be members of the
same political party. The function of the commission is to be that
of investigating "the administration of fiscal and industrial effects of
the customs laws, the relation between rates of duties on raw materials
and the finished products, the effects of ad valorem and specific
duties, the arrangements of schedules, the classilication of articles,
and like matters. Material compiled by the commission is to be
furnished to the President and the appropriate committees of Con-
gress whenever desired. The usual provisions for maintaining the
secrecy of the information obtained and for organizing and in-
augurating the work of the new board are included.
It is to be noted that the Tariff Commission is provided with
power to furnish evidence or necessary industrial data to bodies
charged with tariff revision. It is also of note that the act creating
the commission has nothing to say with reference to the ascertain-
ment of what is called "comparative cost of production." Neither
is there any stress upon so-called "foreign cost of production." The
powers of the new commission are broad and are stated in language
free from the theoretical bias implied in the idea of the comparative
cost of production.
It is generally admitted that the work of the commission will be
affected in no small degree by the developments consequent upon the
close of the European war. Few, if any, further changes in the tariff
are to be expected for the present. No revolutionary change in the
direction of foreign trade is to be looked for prior to the close of hos-
tilities. In this view of the case the commission may have a period of
uninterrupted investigation equal to the time between its organization
and the end of the war.
One important phase of the commission's duty is the requirement
that it shall investigate tariff relations between the United States
and foreign countries, including commercial treaties, preferential
tariff provisions, and the like. There is here a field for work which
is not only large but likely to be of immediate importance upon the
conclusion of the European war, which is not necessarily dependent
upon domestic tariff legislation. The new commission thus has
duties of a varied and important kind, independent of the direction
taken by political events, although in this case, as in others, much
will depend upon the direction given to the work by the persons who
may be named members of the new organization.
PROBLEM OF INTERNATIONAL TRADE 349
F. THE ARGUMENT FROM EXPERIENCE
155. Protection and Prosperity-*
BY ROBERT ELLIS THOMPSON
The policy of protection is challenged now to justify itself by us
works at the bar of public opinion. We are not afraid of that test.
We ask your attention to its broad results.
It has raised the average of our national wealth from $514 a head
(slaves included) in 1850, to $870 a head in 1880.
It has increased the value of our manufactures five hundred per
cent, and that of our foreign commerce in the same ratio, while the
commerce of England increased but three hundred and fifty per cent.
It has secured higher wages to our workmen and better prices
to our farmers, without increasing to either the cost of staple manu-
factures, as is shown by comparing the prices of textiles and hard-
wares before and since i860.
It has diversified our industries and raised our people out of that
uniformity of occupation which is the mark of a low industrial devel-
opment.
It has stimulated inventions and improvements to the degree that
some of the great staples of necessary use have been permanently
cheapened to the whole world.
It has drawn the different sections of the country into closer bus-
iness relations, and has interlaced the great trunk lines of railroad
to the West with others running southward.
It has brought the foreign artisan across the ocean, and has nat-
uralized his craft on our shores, whereas free trade would have
brought his work only.
It has made us as regards the great staples independent of all
other countries in case of war, while it has consolidated the national
unity and increased the national strength to a degree that makes the
rest of mankind anxious to be at peace with us.
It has created a sentiment in favor of this policy so powerful
that no political party ventures to oppose it openly, and such that
the friends of free trade are hardly heard in our national campaigns.
2*Adapted from Protection to Home Industry (1886), pp. 57-58. The
student can easily find for himself a contemporary reading making practically
the same argument.
350 CURRENT ECONOMIC PROBLEMS
156. Free Trade and Prosperity ^^
HOW WORKMEN'S WAGES HAVE GONE UP
SINCE 1880
The increase in wages in the chief industries throughout the
United Kingdom in the last 20 years, according to the Third Fiscal
Blue Book (p. 212), has been as follows:
Agriculture - - - - 10 per cent
Building Trades - - - 17 per cent
Coal Mining - - - - 52 per cent
Engineering - - - - 15 per cent
Textiles 22 per cent
FREE TRADE MEANS AN INCREASE IN YOUR WAGES
FREE TRADE GIVES US THE FOREIGNER'S JOB
One of the most absurd posters issued by the Tariff Reformers
was one in which a British workman was supposed to say: "The
Foreigner has got my job."
.It is the Foreigner who provides jobs for British Workmen!
FOR EVERY £1 OF MANUFACTURED GOODS IM-
PORTED INTO THIS COUNTRY OVER £2
WORTH ARE SENT ABROAD
THE WORLD BANKS IN BRITAIN
Under Free Trade Great Britain Is the Banking Center of the World
The growth of British banking may be measured by the value of
the business transacted during the last 40 years.
Here are the figures of the Bankers Clearing House Returns :
1869 -- £3,626,000,000
1879 -------- 4,886,000,000
1889 -------- 7,619,000,000
1899 -------- 9,150,000,000
1909 -._---__ 13,525,000,000
^^^Adapted from Wages, Food Prices and Savings, a pamphlet used by
the Liberal party in the English Parliamentary campaign in 1909-10.
PROBLEM OF INTERNATIONAL TRADE 351
FREE TRADE MEANS LARGER INCOMES
Great Britain's increasing prosperity under free trade is shown by
the fact that the amount raised by the income tax has steadily in-
creased.
In 1882 a tax of I c?. in the i produced
£1,915,000
In 1909 a tax of Id.m the £ produced
£2,784,000
More pounds were earned, and consequently more people were
able to pay income tax in 1909 than in 1882.
Those who pay income tax have larger incomes than before.
PROGRESS ON THE RAILWAY
EXPRESS SPEED TO PROSPERITY
The growth of business under free trade can be seen by the in-
crease in the traffic on our railways as shown by the following official
figures :
PASSENGER TRAFFIC RECEIPTS
1880 £27,200,000
1890 34,300,000
1900 -------- 45,400,000
1909 -------- 51,200,000
GOODS TRAFFIC RECEIPTS
1880 -------- £35,700,000
1890 -------- 42,200,000
1900 53,500,000
1909 59,500,000
THE NUMBER OF RAILWAY SERVANTS EMPLOYED HAS IN-
CREASED 398,000 IN 1897 TO NEARLY 500,000 IN 1909
THE PROFITS OF RAILWAYS HAVE INCREASED FROM £38,-
000,000 IN 1895, TO £45,136,000 IN 1909
G. PROTECTION IN PRACTICE
157. A Humble Request of Congress-*^
Resolved, That the mutuality of the interests of the wool pro-
ducers and wool manufacturers of the United States is established
26 Resolutions of the National Wool Growers' Association and National
Association of Wool Manufacturers, Hearings of the Ways and Means Com-
mittee of the House of Representatives, 60th Cong., 2d sess., House Document
143, p. 5331 (1909).
352 CURRENT ECONOMIC PROBLEMS
by the closest of commercial bonds, that of demand and supply;
it having been demonstrated that the American grower supplies
more than 70 per cent of all the wool consumed by American mills,
and, with equal encouragement, would soon supply all which is prop-
erly adapted to production here; and further, it is confirmed by the
experience of half a century that the periods of prosperity and
depression in the two branches of the woolen industry have been
identical in time and induced by the same general causes.
Resolved, That as the two branches of agricultural and manu-
facturing industry represented by the woolen interest involve largely
the labor of the country, whose productiveness is the basis of national
prosperity, sound policy requires such legislative action as shall
place them on an equal footing, and give them equal encouragement
and protection in competing with the accumulated capital and low
wages of other countries.
Resolved, That the benefits of a truly national system, as applied
to American industry, will be found in developing manufacturing
and agricultural enterprise in all the States, thus furnishing markets
at home for the products of both interests ; and
Resolved, further, That it is the sense of this meeting that in the
coming revision of the tariff the present duties both on wool and
woolen goods be maintained without reduction.
158. A Recipe for Securing Duties^^
Elsmere, April 4, 1897
Dear Mr. Whitman : Now about the tariff. I cannot, after what
has been said to me in reference to my confidential relations with
the committee, keep you posted as I would like to do Let
me ask you a question. Should tops at a 24-cent line have the same
compensatory duty as yarns at a 30-cent line? Should tops at a 24-
cent line have a compensatory duty of 27 J^ cents? I do not
want you to intimate to any Senator that I have written you on
this subject. I am kept at work from 10 A. M. until midnight and
I have not sufficient clerical assistance as yet. I am the only person
whom the committee allows at its meetings.
Truly yours,
S. N. D. North.
Boston, June 2, 1897.
My dear Mr. Nbrth : We all depend upon you to watch closely
our interests, to see that nothing is overlooked or neglected by our
27Adapted from Hearings of the Ways and Means Committee, ibid., pp.
5492-93-
PROBLEM OF INTERNATIONAL TRADE 353
friends on the committee. I have no doubt they will do all they can
do, but with so many interests^o look after, our special representative
must see to it that our interests receive proper attention.
Yours very truly,
William Whitman
159. The Tariff a Local Issue^^
Local interests, rather than fundamental considerations of prin-
ciple, are the motives determining the attitude of the average con-
gressma n on the tariff. He is supremely concerned with securing
for the favored interests of his own district all the protection pos-
sible. His concern for interests in other districts is a mere means
to this more important end. Alone he can accomplish nothing. He
is perforce compelled to favor duties on articles produced elsewhere
in order that he may secure what he desires. As a result a struggle
over a tariff is by no means an attempt properly to apply fundamental
and well-recognized principles to particular situations. It is rather
an attempt to reconcile a conflict of a multitude of local and indus-
trial interests.
The following typical proposals will give a fair idea of the raw
material out of which the tariff bill of 1909 was constructed. They
will also throw some light upon the logic of the process by means of
which the bill finally assumed form. A Massachusetts Republican
demanded that hides be put on the free list. A Texas Democrat
insisted that the duty on hides be raised. A South Carolina Demo-
crat demanded a protective duty on rice. Free coal was pronounced
by a Pennsylvania Republican to be a repudiation of the policy of
protection. Several representatives, from different parts of the
country, pleaded for higher duties on glass. Senators from the
Rocky Mountain states dwelt upon the importance of protection of
wool. The representatives from California demanded protection on
lemons. A Democratic senator from Texas demanded a high duty
on lumber. A Michigan Republican argued as ardently for a duty
on sugar. A congressman from' New York insisted that a duty on
postcards would even things with Germany. Only one man was
patriotic enough to want to apply the principle of protection without
the slightest reservation. An Iowa congressman rose to the occasion
by pleading that selfishness should be laid aside, that all should forget
local and personal interests, that America should be the matter of
28The evidence upon which this reading is based is all taken from the
Congressional Record^ 1909.
354 i^URRENT ECONOMIC PROBLEMS
first concern, and that the new tariff should be framed in such a way
as adaquately and equally to protect all industries.
Senator Knute Nelson, of Minnesota, a protectionist and a Re-
publican, summed up the situation in these words : "I am tired
of being lectured to about these schedules, and about the orthodoxy
of the Republican party. Let us recognize the fact that with a
tariff bill it is just as it is with the River and Harbor bills. There
is no use disguising it. You tickle me and I tickle you. You give
us what we want on the Pacific coast, want for our lead ore and our
citrus fruit, and we will tickle you people in New England and give
you what you want on your cotton goods. When you boil down
the patriotism of the speeches just made you come to the same basis
as that of the River and Harbor bill. You vote for my creeks, you
vote for my harbors, you vote for my rivers, and I will vote for
yours, and it will be all right."
29
160. Tariff for Politics Only
BY PETER FINLEY DUNNE
"Well, sir, 'tis a gr-r-and worruk thim Sinitors and Congressmen
are doin' in Wash'n'ton. Me heart bleeds for the poor fellows,
steamin' away undher th' majestic tin dome iv th' capitol thryin' to
rejooce th' tariff. The likes iv ye want to see th' tariff rejooced with
a jack plane. But th' tariff has been a good frind to some iv thim
boys an' it's a frind iv frinds iv some iv th' others an' they don't
intend to be rough with it. A little gentle massage to rejooce th*
most prominent prochooberances is all that is nicessry. Whiniver
they rub too hard, Sinitor Aldrich says, 'Go a little asier there, boys.
He's very tender in some iv thim schedules. P'raps we'd better give
him a little nourishment to build him up,' he says. An' th' last I
heerd about it, ye won't notice anny reduction in its weight. No sir,
I shudden't be surprised if it was heartier than iver.
"Me congressman sint me a copy iv th' tariff bill th' other day.
I've been studyin' it f'r a week. 'Tis a good piece of summer lithra-
choor. 'Tis full iv action an' romance. It beats th' Deadwood Dick
series. It gives ye some idee iv th' gloryous governmint we're livin
undher, to see our fair Columbia puttin' her brave young arms out
defindin' th' products iv our soil fr'm steel rails to porous plasthers,
hooks an' eyes, artyficial horse hair and bone casings, which comes
under th' head of clothin' an' I suppose is a polite name f'r panta-
loons.
29Adapted from "The Tariff," in Mr. Dooley Says, pp. 144-57. Copyright
by Charles Scribner's Sons, 1909.
PROBLEMS OF INTERNATIONAL TRADE 355
"Iv coorse, low people like ye, Hinnissy, will kick because it's
goin' to cost ye more to indulge ye'er taste in ennervating luxuries.
D'ye know Sinitor Aldrich? Ye don't? He knows ye. 'Tis as if
he said : 'This here vulgar plutocrat, Hinnissy, is turnin' th' heads
iv our young men with his garish display. Before this, counthries
have perished because iv th' ostintation iv th' arrystocracy. We must
presarve th' ideals iv American simplicity. We'll put a tax iv sixty
per cent on ready made clothin' costin' less thin ten dollars a suit.
That'll keep Hinnissy from squanderin' money wrung fr'm Jawn D.
in th' roo dilly Pay. We'll make a specyal assault on woolen socks
an' cowhide shoes. We'll make an example iv this here pampered
babe iv fortune,' says he.
"An' there it is. Ye haven't got a thing on ye'r back excipt ye'er
skin — an' that may be there ; I haven't got as far as th' hide schedule
yet. It's ye'er own fault. If ye will persist in wearin' those gee-
gaws ye'U have to pay f'r thim. If ye will go on decoratin' ye'er
house with shingles an' paint an' puttin' paper on th' walls, ye've got
to settle. That's all.
"Ye'd think th' way such as ye talk that ivrything is taxed. It
ain't so. 'Tis an insult to th' pathritism iv Congress to say so. Th'
Republican party, with a good deal iv assistance fr'm th' pathriotic
Dimmycrats, has been thrue to its promises. Look at th' free list, if
ye don't believe it. Practically ivrything nicissry to existence comes
in free. What, for example, says ye. I'll look. Here it is. Curling
stones. Ye'll be able to buy all ye'll need this summer for practically
nawthin. What else? Well, teeth. Here it is in th' bill: 'Teeth
free iv jooty.' Undher th' Dingley Bill they were heavily taxed.
Onless ye cud prove that they had cost ye less thin a hundred dollars,
or that ye had worn thim f'r two years in Europe, or that ye were
bringin' thim in f'r scientific purposes or to give a museem, there
was an enormous jooty on teeth. Now ye don't have to hand a five
to th' inspictor an' whisper : 'I've got a few biscupids that I picked
up abroad. Be a good fellow and let me through.' No sir, teeth are
free.
"What other nicissities, says ye? Well, there's sea moss, news-
papers, nuts and nux vomica. They've removed th' jooty on Pulu.
I didn't think they'd go that far. Ye know what Pulu is, iv coorse,
an' I'm sure ye'll be glad to know this refreshin' bev'rage or soap is
on th' free list. An' cannary bur'rd seed is fhree. Lookin' down th'
list I see that divvy-divvy is free also. But there are other items,
mind ye. Here's some of them : Apatite, hog bristles, wurruks iv
art more thinn twenty years old, kelp, marshmallows, life boats, silk
worm eggs, stilts, skeletons, turtles, an' leeches. Th* new tariff bill
356 CURRENT ECONOMIC PROBLEMS
puts these family commodyties within th' reach iv all. An' yes,
opium is on th' free list. Th' tariff bill woulden't be complete without
that there item. But it ought to read: 'Opyum f'r smokin' while
readin' th' tariff bill.' Ye can take this sterlin' piece of lithrachoor to
a bunk with ye an' light a ball iv hop. Befure ye smoke up p'raps ye
can't see where th' tariff has been rejooced. But afther ye've had a
long dhraw it all becomes clear to ye. Ye'er worries about th'
children's shoes disappear an' ye see ye'ersilf floatin' over a purple
sea, in ye're private yacht, lulled by th' London Times, surrounded
be wurrks iv art more thin twinty years old, atin' marshmallows
an' canary bur-rd seed, while the turtles an' leeches frisk on th'
binnacle.
"Well, sir, if nobody else has read th' debates on th' tariff bill, I
have. Th' walls iv Congress has resounded with th' loftiest sinti-
ments. Hinnery Cabin Lodge in accents that wud melt th' heart iv
th' coldest manyfacthrer iv button shoes has pleaded f'r freedom f'r
th' skins iv cows. I'm sorry this appeal wasn't succissful. Th' hide
iv th' pauperized kine iv Europe will have to cough up at th' custom
house before they can be convarted into brogans.^° This pathriotic
result was secured be th' gallant Sinitor fr'm Texas. He's an ardint
free thrader, mind ye. He's almost a slave to th' principles iv th'
Dimmycratic party. But he's no blamed bigot. He can have prin-
ciples an' lave thim alone. An' I want to tell ye, me frind, that whin
it comes to distributin' th' honors f'r this reform iv th' tariff, don't
fail to throw a few flowers at th' riprisentatives iv our small but
gallant party. It was a fine thing to see thim standin' be th' battle
cry if our grand old organyzation.
"Says th 'Sinitor fr'm Louisyanny : 'Louisyanny, th' proudest
jool in th' dyadim iv our fair land, remains thrue to th' honored
teachin's iv our leaders. Th' protective tariff is an abomynation.
It is crushin' out th' lives iv our people. Wan iv th' worst parts is
th' tariff on lathes. Fellow sinitors, as long as one dhrop iv pathriotic
blood surges through me heart, I will raise me voice again a tariff on
lathes, onless,' he says, 'this dhread implyment iv oppressyon is
akelly used,' he says, 'to protect th' bland an' beautiful molasses iv th'
State iv me birth,' he says.
" 'I am heartily in sympathy with th' sinitor fr'm Louisyanny,'
says th' Sinitor fr'm Virginya. 'I loathe th' tariff. Fr'm me arliest
days I was brought up to look on it with pizenous hathred. At many
a convintion ye cud hear me whoopin' agin' it. But if there is such a
lot iv this monsthrous iniquity passin' around, don't Virginya get
3°It is prosaic to spoil Mr. Dooley's figure by stating that he is wrong
on this point. Hides were admitted free of duty by the Payne-Aldrich bill.
PROBLEM OF INTERNATIONAL TRADE 357
none? Gintlemen, I do not ask, I demand rights f'r me common-
wealth. I will talk here ontil July fourth, nineteen hundred an'
eighty-two, agin' th' proposed hellish tax on feather beds onless
somethin' is done f'r th' tamarack bark iv old Virginya.'
"A sinitor : 'What's it used f'r ?'
"Th' sinitor f r'm Virginya : 'I do not quite know. It is ayther
a cure f'r hives or enthers largely into th' mannyfacture iv carpet
slippers. But there's a frind iv mine who makes it an' he needs th'
money.'
" 'Th' argymints iv th' Sinitor f r'm Virginya are onanswerable,'
says Sinitor Aldhrich. 'Wud it be agreeable to me Dimmycratic
colleague to put both feather beds an' his what-ye-call-it in th' same
item?'
" 'In such circumstances,' says th' Sinitor f r'm Virginya, 'I would
be foorced to waive me almost insane prejudice again' th' hellish
docthrines iv th' distinguished Sinitor fr'm Rhode Island,' says he.
"An' so it goes, Hinnessy. Nivir a sordid wurrud, mind ye, but
ivrything done on th' fine old principle iv give an' take."
"Well," says Mr. Hinnessy, "what difference does it make? Th'
foreigner pays th' tax, anyhow."
"He does," said Mr. Dooley, "if he ain't turned back at Ellis
Island."
161. Tricks of Tariff Making^^
A superficial comparison of two tariff bills gives very little clue
to the differences between them. An accurate count of the number
of increases and decreases in the later, as compared with the earHer
bill, throws no light upon the larger question of whether the revision
was an upward or a downward revision. This method is important
only because of its suggestion of a method for proving to superficial
observers that there has been an upward or a downward revision.
Real changes and their effects can be determined only by examining
rates on particular commodities in view of a knowledge of all the
conditions surrounding the production of these commodities. This
can be well illustrated by reference to the tariff of 1909.
The statement has been repeatedly made that this tariff substan-
tially reduced the level of duties. The conclusion is established by
the arithmetical process of counting advances and reductions. It
fails, however, to take into consideration the fact that most of the
duties reduced were upon commodities which are produced in this
country for export. In such cases tariff duties are purely nominal.
3iThe evidence presented in this reading is all taken from "The Tariff
of 1909," by H. Parker Willis, in the Journal of Political Economy, XVII,
597-611.
358 CURRENT ECONOMIC PROBLEMS
They can in the very nature of things furnish no protection, because
there is nothing to protect against. On the contrary the increases
were upon goods which needed, or at any rate could profit by, ad-
vances. To take a few illustrations : In Schedule A the duties on
most acids were cut, as well as upon ammonia, borax, and ether.
On drugs, however, which were in position to profit, substantial
advances were made. In Schedule B the rates were reduced on
firebrick, marble, onyx, granite, and other non-portable articles. On
pumice stone and certain grades of glass, duties, however, were
raised. In Schedule C the reductions in nominal duties were very
large, that on iron ore dropping from 40 to 15 cents. Yet upon the
more expensive and finished metal products there were material
advances. The best examples in the bill, however, are contained in
Schedule G, dealing with agricultural products, of which we export
very large surpluses. Neglecting the obvious facts of the grain
trade, Congress tried to give the impression of great care for the
farmer. Thus on broom com, which had been free, a duty of $3 a
ton was imposed ; the rate on buckwheat flour was raised from 20 to
25 per cent; on oats from 15 to 20 cents a bushel. Hops were
advanced from 12 to 15 cents a pound. For some obscure reason
the duty on cabbages was dropped from 3 to 2 cents. Nursery stock
and fruits received a general raise. Congress, of course, did not
overlook the opportunity for dealing the usual "blow at the beef trust"
by reducing the duty which it did not need.
But many devices much more subtle than these found their way
into the bill. Many changes were made in the unit of measurement
for customs purposes. Electric lighting carbons, for instance, which
had been 90 cents per hundred, were now made 65 cents per hundred
feet on certain grades and 35 cents on other grades, the only kind
imported in practice being dutiable at the higher rate. A provision
in the cotton schedule that in counting threads, upon the number of
which the rate of duty depended, "all the warp and filling threads"
should be included, operated practically to double the duties upon
some classes of goods, in so much as, under the former method of
counting, "double yarns," in which the thread is twisted together out
of two or more yarns, had been counted as a single thread. The
enormous concession made to the public by the reduction of the tariff
on sugar by one-twentieth of a cent a pound, a reduction which could
have no influence on price, was the mask for changing the method
of weighing sugar, which in itself amounted to a substantial increase
in duty.
These examples by no means cover the act. In fact it is doubtful
whether all the tricks in the bill will ever be discovered. However,
PROBLEM OF INTERNATIONAL TRADE 359
they are typical of the kinds of tricks that are incorporated in the
American tariff bill.
32
162. The Impossibility of Ascertaining Costs
BY H. PARKER WILLIS
The case against the cost-of-production theory as a regulator
of tariff duties may be summed up in a series of propositions some-
what as follows :
1. In practice the ascertainment of costs is impossible. No
board of commission has the power to demand cost statements from
manufacturers or producers ; and if it had, it could not secure truth-
ful statements. Moreover, there is no way of obtaining statements
of any kind from foreigners.
2. Even if all manufacturers both here and abroad were willing
to throw open their books in an absolutely honest and impartial
way to an all-powerful commission, it would be of little service.
This is because cost accounting is not generally practiced by pro-
ducers and because, where it is practiced, there is no general agree-
ment as to the treatment of different elements of cost.
3. If there were a perfect system of cost accounting installed
upon a uniform basis in every plant manufacturing a given article
throughout the world, knowledge of comparative costs would still
be of little service, since costs in every country would have to be
known before any conclusions could be arrived at as to what tariff
rate was needed to protect a given country against the competition
of others.
4. If all these facts were known for every country, the diffi-
culty would be about as great as it was previously if the data were
to be used for the establishment of tariff rates. This is because
costs of production vary as widely within a given country as they
do between different countries. Unless it were known whether a
duty were to be imposed for the purpose of equalizing costs as
between the best, the poorest, or the average estabhshments in the
several countries, the information about costs would be useless as a
basis of tariff duties.
5. Even with knowledge on all of the points already enumer-
ated, and with a clear-cut intention on the point indicated above,
the cost analysis would still be inadequate because of the fact that
many commodities are produced in groups, or as by-products of
one another, so that to utilize the general cost analysis as a basis
32Adapted from an article in the lournal of Political Economy, XIX
(1911), 374-76.
36o CURRENT ECONOMIC PROBLEMS
for tariff rates, it would be necessary to know the manufacturer's
intention with reference to the fixing of prices. It would further
be necessary to know that the manufacturer had no disposition to
establish "export prices" at rates lower than those that would be
dictated by his costs of production.
6. If all of the foregoing factors were known, including posi-
tive data regarding the intention of the manufacturer in regard to
the establishment of prices, there would still remain the question
whether this information about costs, which is necessarily stated in
terms of money, would have any real significance of a permanent
economic character. Money costs do not correspond in all cases
to real costs as measured by sacrifice of labor and capital. It may be
true that a given country can produce much more cheaply than
another, yet it does not follow that it will so produce, since its cost
advantage in some other line may be so much greater as to dictate
its devoting its attention almost exclusively to that line.
For all these reasons, the conclusion must be reached that cost
of production is both practically impossible and theoretically un-
sound as a basis for the establishment of tariff duties.
H. THE TARIFF AND WORLD-TRADE
163. Recent Changes in the World's Trade^^
BY GROSVENOR M. JONES
Toward the close of the last century there was apparent a decided
change in the character of the foreign trade of the United States
both on the import and the export side. This was coincident with
the change in the trend of our economic development. It^ began to ap-
pear that we were reaching the peak of our production of wheat, corn,
OX'^ and other grains, and that we had about reached the maximum number
of cattle and sheep that could be sustained on our lands. This condi-
tion was reflected in a decrease of our exports of farm products.
At this time manufactured goods began to be exported in increasing
volume and there was a corresponding increase in the importation
of raw materials and semi-manufactured products.
Even if the war with Europe had not occurred this shift in the
character of our imports and exports would have continued. It
would have been accompanied by a gradual liquidation of our indebt-
edness to Europe which had been created by European investments
s^Adapted from "The Declining Independence of the United States,"
Annals of the American Academy of Political and Social Science, LXXXIII,
25-34. Copyright, 1919.
PROBLEM OF INTERNATIONAL TRADE 361
in the United States and by a rapid extension of investments of
American capital in foreign lands.
The war has accelerated these tendencies in foreign trade and has
produced conditions which are decidedly new. It has changed us
from a debtor to a creditor nation. Whereas we formerly owed
Europe four or five billions Europe is now indebted to us to the
extent of nine or ten billions. It has given us increased financial
power. It has given us a merchant marine which we probably would (
not have had otherwise for many years. It has brought about a more ^ yj^
rapid ex tension of our trade in foreign markets and a better under--A^?-~/^
standing of the importance of foreign trade. It has resulted in a -^
tremendous increase in our production of all classes of manufactured
goods. It has stimulated new industries.
Indirectly the war has affected us by its effects upon the economic
development of other countries. It has altered their relative stand-
ings in international trade to the advantage of certain countries and
to the detriment of others. The full force of these changes is diffi-
cult to gauge amid the uncertainties of the transition period. Not
until the nations have begun to devote their full energies to peace-
time pursuits can forecasts be made with any assurance.
Of the nations of Europe none have been affected more by the
war than have Great Britain and Germany. While the former has
lost heavily in ships and piled up a huge debt which must place a
heavy war burden upon her industries, the necessities of the war
acted as a spur. The result has been that in many industries there
are new and larger plants, more modern machinery, and more mod-
ern methods of manufacture. Great Britain is increasing and im-
proving and quickening our industrial resources to an extent which
would have been impossible but for the demands of the conflict.
The effects of the war upon the economic conditions of Germany
cannot be appraised with accuracy as yet. This much, however, is
certain. The terrific loss of men must cripple many German indus-
tries for years. The rehabilitation of the railroads and of plants in
which machinery was worked to a feverish limit during the war will
require several years at least. Moreover, the low stocks of important
raw materials for which Germany is chiefiy dependent upon other
countries, coupled with her crippled financial position, must further
retard her resumption of industry. The loss of the iron ore of
Lorraine and the coal supplies of the Saar Valley will also have an
effect. Add to these the payment of heavy indemnities and the re-
linquishment of most of her merchant marine, and it seems clear
that it will be years before Germany can again assume an important
362 CURRENT ECONOMIC PROBLEM^
place in foreign commerce. Yet, freed from the burden of main-
taining large military and naval establishments and with the well-
recognized organizing ability of her industrialists and the thrift and
energy of her population, no one can predict how soon Germany will
take an influential place in international trade.
The effects of the war upon the industries of Belgium and France
need not be recounted. The numerous blast furnaces, textile mills,
machine shops, sugar mills, and coal mines of Belgium and northern
France have been either completely wiped out or so badly damaged
as to require years for making the necessary repairs. The fertility
of large areas of agricultural lands has been greatly impaired and
hundreds of thousand of cattle and work animals have been destroyed
or consumed. The speed with which Belgium and France are re-
stored to their former industrial position will depend largely upon
the amount and character of the indemnities they receive and upon
the financial assistance extended them by their Allies. Both peoples
are noted for their habits of industry and thrift. The heavy losses
in man power will be compensated for, in part at least, by the modern-
izing of industry and the introduction on a large scale of labor-saving
machinery and methods.
The industrial districts of Poland, those near Warsaw in par-
ticular, have suffered heavily through actual destruction or through
pillage by the Germans. Many mills in Polish industrial centers
will not be restored to their former activity for many months or
perhaps years.
The economic rehabilitation of Russia is doubtless the most un-
certain factor in the equation. If political conditions gave only a
slight promise of betterment within the coming year, it would be far
easier than it is at present to gauge the future of world-trade. For,
under ordinary conditions, Russia furnishes a large proportion of
the world's supply of grain, lumber, hides, wool, manganese, platinum,
and other commodities. Russia is now a very large but uncertain
debtor to Great Britain and the United States.
In some parts of the world the war acted as a great stimulus to
industry. Absorption of the leading countries of Europe in the war
stimulated agriculture, mining, and manufacturing elsewhere. These
industries were stimulated not only in the United States, but also in
Canada, many of the Latin-American republics, Japan, China, India,
the Dutch East Indies, and South Africa. The stimulus of war has
greatly increased the world's production of many commodities, as,
for example, wheat, corn, and rice ; copper, lead, and zinc ; iron and
steel ; textiles, machines and meat products.
PROBLEM OF INTERNATIONAL TRADE 363
The shortage of shipping during the war also has had a profound
effect upon trade. The scarcity of ships necessitated their use on
the shortest routes, regardless of the cost of commodities. Speed in
delivery, not price, was the controlling factor. Huge quantities of
goods in Australian ports, although available at prices far below
similar products raised in the Angentine and the United States, were
unavailable because of the scarcity of shipping. Time was the
essence and the nearest market was given the preference. This has
had the effect of establishing more direct routes for American trade.
Far from helping, the great excess of value of exports over im-
ports, produced by the abnormal war demands of Europe, has be-
come so great as to threaten a temporary impairment of our foreign
trade. This comes just at a time when this trade is needed to take
up the slack of the after-war period.
This check need not cause alarm. It is a natural reaction from the
long period of extensive foreign buying in our markets. During the
war the so-called favorable balance of trade has been liquidated in
part by the return of several billions of American securities and by
the payment of more than a billion dollars in gold; but an even
greater amount is still due us in the form of British and French
government loans.
It is clear that Europe cannot continue to import in large volume
from the United States without some new financial arrangements.
Yet Europe must buy of us large quantities of foodstuffs, cotton,
lumber, hides, copper, other necessary raw materials, iron and steel
products, and machinery. During the coming year these purchases
will probably far outrun in value our purchases in Europe. How can
Europe liquidate this unfavorable trade balance in addition to pay-
ing five or six hundred millions of dollars in annual interest on her
debt to us. The factors enumerated below give the probable answer
to the problem : ( i ) We might invest largely in public-service and
industrial enterprises in France and Belgium. (2) We might in-
crease our importation of raw materials or semi-manufactured arti-
cles. (3) The resumption of travel in Europe would doubtless help
to restore the balance sheet. (4) The remittances of Americans to
relatives and friends in Europe will doubtless be far in excess of
sums sent in the past, since there will be large demands upon the
generosity of the more fortunate kinsmen in the Old World. Of
these devices that of large-scale investments in European enterprises
seems to be most practical and most important.
The war, it is clear, has changed, at least temporarily, the charac-
ter, extent, and direction of our foreign trade. While it has freed
us from indebtedness to Europe, it has made us more dependent
364 CURRENT ECONOMIC PROBLEMS
upon other parts of the world for supplies of foodstuffs and many
important raw materials. This dependence increases as our popula-
tion grows, as our manufacturing industries become larger and more
diversified, and as the costs of interior transportation in the United
States become higher. In addition we shall find it necessary to
receive interest payments on foreign investments and on loans to
foreign governments largely in the form of foodstuffs, raw materials,
and semi-manufactured goods. This will tend to facilitate importa-
tion and to make us more largely dependent upon other countries than
we now are. Our proud boast of self-sufficiency can be made with
less assurance Than form erly. — — —
34
164. The Increase in Shipping
BY RAYMOND GARFIELD GETTELL
A few months after the passage of the act creating the United
States Shipping Board, the nation entered the war. Unrestricted
submarine warfare was destroying the world's shipping faster than
it could be replaced, and the United States was faced, not merely with
the difficulty of securing shipping space for the accumulation of
goods awaiting shipment abroad, but also with the problem of finding
facilities for transporting to Europe a large army with all equipment
and supplies. Under these conditions the construction and acquisi-
tion of vessels and their effective operation became paramount, and
the question of regulation of private shipping relatively unimportant.
The war program compelled the Shipping Board to secure a large
ocean-going fleet as speedily as possible.
Acting under the authority of the Shipping Act, the Shipping
Board on April 16, 1917, organized the Emergency Fleet Corporation,
and delegated to it the execution of its construction program. After
some delay the corporation began to give contracts for what is prob-
ably the largest construction undertaking ever attempted by a single
institution.
When the United States entered the war there were thirty-seven
shipyards building steel vessels in the United States, and twenty-four
yards building wooden vessels. In these yards were a total of 235
shipways. Seventy per cent of the ways of the steel yards were
being used in construction for the navy, and many of the modern
yards were unfit for modern shipbuilding purposes. To procure ships
it was, therefore, necessary to expand existing yards and build new
8*Adapted from "Shipping and World- Politics," Atlantic Monthly,
CXXIII, 257-60. Copyright by the Atlantic Monthly Co., 1919.
PROBLEM OF INTERNATIONAL TRADE 365
ones. The number of steel yards has been approximately doubled
and of wooden yards trebled since the United States entered the
war.
In addition, four large agency yards, with 196 shipways for the
construction of fabricated steel vessels were built. These yards alone,
when in full operation, can produce more tonnage per year than all
the yards in any country have produced in any year up to this time.
Government yards for the construction of concrete vessels were also
established. There are now over two hundred shipyards, with more
than one hundred shipways, in the United States. Contracts provid-
ing for more than 2,000 vessels, aggregating 15,000,000 dead-weight
tons, have been given to these yards, and completed vessels have been
turned out in record time. The delivery of a 3,500-ton vessel ready
for service thirty-seven days after work was started on it is a sample
of the amazing achievements of our new shipbuilding industry. Prior
to the war the United States was a poor third among shipbuilding
nations. It now ranks first in shipyards, shipways, shipyard workers,
ships under construction, and ships completed during the past year.
Meanwhile the Shipping Board was given the authority to take
over the title or the use of American vessels or vessels building in
American shipyards. On August 3, 191 7, all steel vessels of 2,500
dead-weight tone or over under construction or under order in Ameri-
can shipyards for private or foriegn owners, were requisitioned. The
second step involved the requisition of American vessels in active
service; and on October 12, 1917, a general requisition order was
issued, by which all American steel power-driven cargo vessels of
2,500 dead-weight tons, or over, and all American passenger vessels
of 2,500 tons gross register, suitable for foreign service, were taken
over. Some of these vessels have since been released from requisition
and additional vessels have been taken by special order. At present
there are about 450 ships, aggregating 3,000,000 dead-weight tons,
under requisition to the Shipping Board. These vessels are in general
intrusted for operation to companies by which they were formerly
controlled, but under strict governmental regulation.
When the United States entered the war there were interned in
the United States and in its island territories ninety-nine German ves-
sels of about 650,000 dead-weight tons. A joint resolution of Con-
gress authorized the President to take possession of all vessels within
the jurisdiction of the United States which were under enemy owner-
ship or registry. This power was conferred on the Shipping Board
by executive order June 30, 191 7, and the necessary steps were taken
by formal seizure to confirm possession of these vessels. A number
of German and Austrian vessels, seized by other countries, were later
366 CURRENT ECONOMIC PROBLEMS
purchased or chartered by the Shipping Board and by American citi-
zens. In addition on March 30, 1918, the President issued a proclama-
tion which brought under the control of the Shipping Board eighty-
nine Dutch vessels of over 500,000 dead-weight tons.
In addition the Shipping Board has chartered about three hundred
vessels of over 1,200,000 dead-weight tons from other countries,
chiefly neutral ; and American citizens have chartered about an equal
tonnage of foreign ships. Arrangements have also been made with
Japaii for the purchase of fifteen completed ships of 127,000 tons and
for the construction in Japanese yards of about fifty vessels of 380,000
tons. Contracts have also been let for the construction of four vessels
in a Chinese shipyard.
By these various steps the Shipping Board now has under its
control more than 2,000 vessels, of about 10,000,000 dead-weight ton-
nage. If the construction program is continued as planned, the
United States will possess in 1920 a merchant marine of 25,000,000
tons. This is equivalent to one-third of the world's tonnage at the
outbreak of the war, and will place the United States abreast of Great
Britain as an ocean carrier.
165. New Policies in Foreign Trade^*
BY WILLIAM B. COLVER
Altered commercial conditions in international trade resulting
from the world-war have completely disarranged the world's com-
mercial chessboard. A regrouping is taking place whereby the rela-
tive positions and spheres of influence of the leading commercial
countries are being vitally afifected. This universal dislocation of
commerce has greatly stimulated activity in foriegn trade. Efforts to
regain what has been lost or is being endangered by new competitors,
and to hold and expand what has been newly acquired, surpasses all
precedents in scope, in keenness of rivalry, and in systematic method
of endeavor. A world-wide drive for foriegn trade has begun. The
nature and intensity of this can be indicated by an enumeration of
the details which together form the foreign trade policies which the
various countries of the world are now formulating. For our pur-
poses the developing trade methods and policy of Japan will serve as
a typical example.
The expansion of Japan's trade and industries during the war has
been phenomenal. Large orders for munitions from the Allies and
s^Adapted from "Recent Phases of Competition in International Trade,"
Annals of the American Academy of Political and Social Science, LXXXIII,
223-48. Copyright by the Academy, 1919.
PROBLEM OF INTERNATIONAL TRADE 367
requirements from the Far Eastern countries, where the imports from
Germany had ceased to come, enHvened the export trade. The
scarcity of freight space throughout the world and the abnormal
chartering of Japanese ships for foreign trade stimulated shipbuild-
ing. The sudden shortage of imported chemico-industrial products
and of machinery caused new enterprises in those lines to spring up
at home. Lastly, the great accumulation of funds facilitated the
expansion of commercial and industrial activities.
Japanese business men were quick to recognize the opportunities
open to them in foreign markets. In a systematic way and backed by
their government, a well-organized trade machinery was established
with the result that the value of the total exports from that country
was trebled in 1918 as compared with 1913.
During the war Japan's exports of cotton cloth have been multi-
plied five-fold in value. The government recognizes that if newly
gained markets are to be retained, the quality of Japanese cotton
cloths must bear comparison with that of cloths of British and other
production. Japanese manufacturers will, therefore, be required by
the government to keep their exports up to a fixed high standard.
The Department of Agriculture and Commerce announced recently
that a scheme was in preparation for the formation of an association
of textile manufacturers, which would be charged by the government
with strict supervision over goods woven for export. The association
will also examine such goods through inspection committees, and
bounties will be granted by the government to bear part of the cost of
conditioning exports.
In Japan the subsidizing of commerce is practiced on a larger
scale than in other countries. During the past four years this policy
has been pursued with an increased vigor, particularly in connection
with those industries which are calculated to net large increases in
foreign trade. Under a special law enacted in 191 5 the government
is authorized to give financial aid to the dyestuffs industry. A de-
termined attempt is being made to introduce Japanese dyes in the
markets of the Far Eastern countries. Japan supplies about 28 per
cent of the total world's consumption of silk. Approximately one-
third of her total exports prior to the war consisted of raw silk. Com-
prehensive plans have been made to foster this trade.
The expansion of her merchant marine has been consistently
advocated in Japan's foreign trade policy. During the war shipbuild-
ing has been promoted by all possible means, and governmental sub-
sidies have been freely extended for this purpose. Japanese vessels
now run on four great routes to Europe, North America, South
America, and Australia. There are also lines plying between Japanese
368 CURRENT ECONOMIC PROBLEMS
ports and Korea, Northern China, and nine ports on the Yangtse-
kiang. The Japanese government exercises strict supervision over
shipping.
The Japanese banks are active forces in the foreign trade ma-
chinery. The Yokohoma Specie Bank, for instance, had its charter
modified in order to enlarge its foreign trade department. Other
banks are also extending their operations at home and abroad, and
are giving financial help to shipping undertakings. At present they
are giving attention to the mineral resources of China. They are
also reported to be considering the establishment of electrical under-
takings in the interior of China with Japanese money, machinery, and
engineers.
Recently the keenness of the Japanese has been apparent in the
systematic way in which they are extending trade with the countries
round about. A commercial museum is to be established at Singapore
with the object of extending trade through that center. Not only will
merchandise be exhibited, but investigations relating to trade and
commerce will be undertaken. The museum is intended to become
a central base of Japan's commercial operations in that part of the
world. The establishment of similar institutions is contemplated in
due course of time at other places.
This single example is typical of the world-wide preparations for
post-war competition in international trade. An analysis of the whole
situation makes it appear that, in the future, competition in the
world's markets will be carried along dififerent lines than in the past.
Improved methods of trade expansion and new policies of trade
strategy have been introduced. A much greater degree of solidarity
of commercial interests has been brought about through the forma-
tion of trade associations and combinations of manufacturers and
exporters. Through various forms of participation in industry, espe-
cially by granting subsidies, new domestic interests have been firmly
established. By means of bank amalgamations and through inter-
lacing directorates huge agglomerations of capital have been effected.
International promoting companies have been formed for acquiring
and developing mining, transportation and other concessions in for-
eign countries.
In view of this situation the demand of the hour seems to point
out the need of constructive action on an international basis for the
future protection of commerce and trade. A new international code
of regulations for the protection of industrial property against unfair
methods of competition, dumping, infringements of patents and
trade-marks, and potent means for enforcing agreements of this kind
through an international tribunal of commerce and trade, may prove
PROBLEM OF INTERNATIONAL TRADE 369
to be one of the most important instruments for preventing friction
and promoting good-will in the commercial theater of the world.
166. Export Associations^^
"Export Associations," as they were conceived by those who
devised the Webb-Pomerene Act, signed by the President on April 10,
1918, are groups of competing manufacturers, producers, or other
business concerns. They could not get together before in a formal
business agreement because of the Sherman Antitrust Law. Now
they are permitted to form a special kind of corporation or company,
with a charter obtained from any of the states in the usual way. They
can engage in foreign trade in combination without fear of prosecu-
tion under the antitrust laws unless they resort to obviously unfair
practices. They cannot use their association to affect any kind of
rontrol of business in the United States.
Probably the most typical export association already incorporated
is the Copper Export Association. The whole nation has a business
interest in permitting the copper producers to get together and meet
as a unit organization the buying combine of Europe. Oven ten years
ago the European trust of copper buyers took advantage of the unor-
ganized copper producers of this country, forbidden as they were to
join in any policy of price-control. As a result American copper was
obtained by European manufacturers, delivered in Europe, at nearly
half a cent a pound below the American market price which our
manufacturers paid. In America competition was enforced upon
sellers and buyers. In Europe buyers could combine in their cam-
paign and use our enforced competition to their advantage. The
Copper Export Association, consisting of fourteen American corpora-
tions, which do no export business except through their association,
makes the price for the foreign buyers. Already export copper prices
are higher than domestic.
This is the typical export association contemplated by the f ramers
of the law. It is a "horizontal" combination of business concerns
which produce or manufacture the same goods and are competitors
for the business within the United States. They are forbidden by
the Sherman Act to do anything to control domestic prices or dis-
tribution. In keeping with the Webb-Pomerene Act they have ac-
complished a complete merger of all their foriegn business.
There is another kind of combination which it has all along been
believed to be legal under the Sherman Act. This is the "perpendicu-
36Adapted from an unsigned article entitled "Beginning the Merger Period
of World-Wide American Business," The Americas, V (No. s), 1-3. Copy-
right by the National City Bank of New York, 1918.
370 CURRENT ECONOMIC PROBLEMS
lar" or "tandem" combination of producers, manufacturers, or mer-
chants of lines of goods which are not directly competitive, but are in
the same "line," and together make up complete lines or assortments
of merchandise. The International Paper Export Association was
this kind of "perpendicular" combination and did business abroad
for several years. It contained one newsprint manufacturer, one
writing-paper manufacturer, etc., and no competitors. It was able to
offer to foreign customers any kind of paper product they needed, and
enjoyed all the economies of a selling organization made possible by
this arrangement. It is not now certain whether this kind of combina-
tion can continue without coming under the terms of the Webb-
Pomerene Act.
The adoption of the new law has advertised all over the country
the advantages of formal combination in conducting foreign business.
As a result it seems evident that our coming effort for export busi-
ness will consist largely of highly organized combination, amounting
in some cases to "super-organization," of grouped business interests.
We are on a wave of consolidation and merger as applied to develop-
ing foreign trade. This is very much like the beginning of our great
period of industrial, railway, banking, and commercial combination
of twenty years ago.
I. TRADE AND THE PEACE OF THE WORLD
167. Protection and the National Defense^^
Until a few months ago it was conventional to insist that even the
partial free trade which has been attained in the Western World has
caused the war-drum to throb no longer. The argument was rational,
and since it was assumed, for some unknown reason, that man's
actions were rational, it was quite convincing. It ran something like
this : The actions of nations, like those of individuals, are premised
upon a desire to realize the highest measure of material welfare.
States are, therefore, likely to do those things which lead to an in-
crease in welfare, and to leave undone those things which seriously
threaten it. Now commerce ties industrial countries together with
bonds of common pecuniary interests. So close are these and so
intricate is the scheme of pecuniary interests which is created, that
anything which breaks the commercial nexus seriously threatens the
profits and material welfare of capitalists and laborers alike in many
industries in many countries. Because these relations are not of
3'^ An editorial (1915).
PROBLEM OF INTERNATIONAL TRADE
371
dependence, but rather of interdependence, nations cannot afford to
fight. The antipathy to fighting is strengthened by the prominence
of commercial opinion in determining national policy. On the con-
trary the gains from war are illusory. Increases in territory are
nominal rather than real. They are attended by no great increase
in material welfare. Indemnities do not repay their cost of collec-
tion. Loot is a breach of the ethics of warfare. Consequently the
partial free trade of the present is an excellent investment in peace
insurance.
Unfortunately, however, the events of the last few months have
proved that the wisdom of nations does not reside in the rational
calculations of ledgers. The pecuniary fact has as yet completely
conquered neither the statesman nor the man in the street sufficiently
to make economics the basis of national action. Instinct and impulse
are still associated with rationality in political judgment. Race and
creed and politics are still matters of concern. The pocketbook has
not mastered hate, and the bank-ledger has not as yet won the victory
over jealousy. Accordingly, the European conflict teaches quite
clearly that, whatever may be rational, there is more than a possi-
bility that a nation may find itself suddenly at war.
The supreme national duty, then, is to be ready for war. In this
preparation the tariff policy is a matter of the greatest moment.
Clearly, whatever may be our disadvantage, it will not do to 'depend
upon a foreign source of supply for munitions of war. A navy alone
may stand between us and that source. Should the fleet be defeated,
there would be no chance for us to save ourselves. But only a
moment's reflection is necessary to show that, even if we manufacture
our own munitions, it is equally necessary that we produce the raw
materials out of which they are to be made. The cutting off of a
single essential raw material would prove fatal. To munitions must
be added all that long list of articles which, under modern conditions,
are essential to the successful conduct of the war. Soldiers, if they
are expected to win battles, must be properly fed, clothed, and housed.
We can depend upon the caprice of import for no article essential to
their personal efficiency. We must also have many auxiliary articles
and devices upon which the success of the force as a fighting unit
depends. These include horses, automobiles, gasoline, copper, steel,
drugs, chemicals, and innumerable other things. Our transportation
system, too, must be prepared to meet military exigencies. In short,
war practically involves, as it is carried on under the modern machine
process, making the whole industrial system function toward military
efficiency. War comes unexpectedly. An industry, on the contrary,
cannot be quickly started. Time and experimentation are necessary
372 CURRENT ECONOMIC PROBLEMS
to make it fit into a complicated industrial scheme. Consequently in-
dustries which supply every essential article required in war must be
built up to high efficiency in time of peace. At best we can expect only
a few industries to be built up in just the right way in response to the
capricious demand of pecuniary profit. A use, and a very extensive
use of protection is, therefore, necessary to prepare a nation for the
acute stress that may mean life or death.
168. The Future of Trade and Peace'*
BY J. RUSSEL SMITH
The pictured world of almost countless comfortable millions, with
plenty of goods, developing trade, education, the arts, and the great
art of living, can only inhabit the earth if we can banish from it per-
manently several conspicuous characters of history — Captain Kidd,
Alexander, Caesar, Tamerlane, the Kaiser. Those accursed twins,
the pirate and the conqueror, one using government as a sham, the
other boldly flouting it, are the archenemies of world-peace. History,
if we take the record of the race in perspective, is a sad chronicle of
almost unending marauding conquest. Civilizations have risen only
to fall before the smashing blow of some vigorous band of rovers.
Organized society only arises in spots easy of protection and sur-
vives for a time until attack from the outside becomes stronger than
defense from within.
The world is one. It is one in trade ; it must also become one in
government. The most serious question just at present facing the
human race is this : whose government shall it be ? Shall we have
a recurrence of world-empire, world-dominion, world-obedience,
world-tribute, world-submission, or shall we have a democracy of
peoples, each free to develop its bit of the earth, to perfect its own
way of doing things, to trade with its neighbors, to live as do the
citizens of any other well-ordered community — tending their gardens,
training their children, buying and selling, coming and going obedient
to no one, or to no class, but obedient to the will of all ?
Our thinking must grow up. We have developed world-trade,
world-investment, world-enterprise. Enterprise must not run loose
and uncontrolled because it is bigger than man's mind, or rather
bigger than man's habit of thinking. We have been trying to run
twentieth-century business with seventeenth-century thinking. Our
mental concepts, our mental content, our mental habits are of an age
long past. We can make a scientific machine in five years and put
38Adapted from Influence of the Great War Upon Shipping, pp. 342-50.
Copyright by the Carnegie Endowment for International Peace, 1919.
PROBLEM OF INTERNATIONAL TRADE 373
«
it to work, but it is a slow job to readjust society to it. We must
develop world-thinking and world-government to match world-enter-
prise, or suffer. Just as the thirteen states relinquished the possibility
of exploiting each other through war, tariff, trade, and financial
disagreement, so the nations of the world, if they would keep the
peace, must stop the exploitation of one regional group of people
by another.
To make this world-organization survive several conditions are
necessary. First, all must have access to the sea. There must be no
more question about the right of a people to have free access to the
sea than there is about the right of a man to have free access to the
public street or road. Second, we must reduce the temptations to
war. War arises out of two desires ; one the lust of dominion, and
the other the desire for special privilege upon the face of the earth.
Especially dangerous is the white man's desire to keep his land white
and to exclude the yellow man and the black man. This exclusion
rests on force ; yet it is one of the things we hold most dear. If we
will insist upon it, as perhaps we shall, we must mitigate it as far
as possible by the abolition of tariffs. The free exchange of com-
modities will do much to share the advantages of exclusive posses-
sion of territory and reduce the need which yellow men of densely
peopled lands feel for the empty lands of the white man.
International trade policy thus becomes one of the great cares of
those who reorganize the world for peace. Tariffs are the chief
factor in trade policy. Fortunately, of the two reasons for tariffs rec-
ognized by economists, one is passing by a process of legislation and
the other will be gradually and automatically removed in exact pro-
portion to the strength of a league to enforce peace. These two
reasons for the tariff are (i) the necessity of starting infant in-
dustries and (2) industrial completeness necessary for war. As to
the first, if the tariff policy aims merely at a protection of infant
industries during the period of infancy, it should be the cause of
no friction.
The second argument for tariffs is the more potent one. There
is almost no limit to its application now that war has become so in-
dustrial. Along with this idea we should never lose sight of the fact
that all economists recognize in the tariff a factor increasing the cost
of living in the country possessing it. The tariff, except as a starter
of new industries, tends to impoverish ; conversely, free trade tends
to enrich by giving the importing country the advantage of the spe-
cialization that may be developed in all other countries.
At the present moment the pains and perils of the Great War have
served to emphasize the importance of tariffs as factors aiding the
374 CURRENT ECONOMIC PROBLEMS
industrial completeness necessary to national defense. We have,
however, already passed the point of the possibility of this as a gen-
eral policy for the nations of the world. We have developed popula-
tion and trade too far ; industry and war have become too complex
for any nation to hope to be commercially independent, even if its
variety of resources is as great as that of this country. Everyone
knows that England and Holland, France and Norway are dependent
upon the sea; but so also is the United States. Our steel industry,
with its whole great class of war supplies, can be ruined by cutting
off imported ores used in hardening steel.
Tariffs cannot make us, even in the United States, independent in
war, although if deliberately used for that purpose they could make
us nearly independent, but at a great cost through high living ex-
penses and inefficient industry.
Every year science is making military completeness less possible,
attack more deadly, and isolation more impossible. The past is gone,
along with it isolation is also gone. The world has given hostage to
peace. Our century of world-trade has already developed the degree
of independence of nations and dependence on the sea and ships,
whereby we are compelled to maintain this commerce or lapse back
to a past epoch of small population or obedience to some tyrant. We
must unite in world-organization with a free sea permitting world-
trade, or start into an epoch of militarism with the menace of being
united by some world-conqueror taking a rich world-tribute.
We cannot hope to remove from man the lust of world-dominion,
but we can do much to remove from it an admixture of the desire for
land and the desire for trade privilege. We cannot hope to remove
land hunger, but we can gradually dull the appetite by establishing
freedom of trade, which will still leave peoples free to develop their
own special conditions. By this mitigation of desire we have some
chance of organizing the world so that it may be able to suppress the
lust of dominion and this modified land hunger.
169. The Cult of National Self-Sufficiency^^
BY EDWIN CANNAN
The cult of national self-sufficiency is incompatible with peace,
since it must inevitably render warfare perpetual by making it neces-
sary for each nation to grab territory which contains the source of
some product which it has not got in its existing territory and which
^^Adapted from "The Influence of the War on Commercial Policy," pp.
44-45, "Reorganization of Industry Series," III. Published by the Council of
Ruskin College, London, 1017.
PROBLEM OF INTERNATIONAL TRADE 375
it must have in order to be self-sufficient. We have seen a little of
this already ; it would be more and more serious, the more intense
the worship of self-sufficiency. Supposing the bigger empires man-
aged to settle down to an uneasy peace, what would become of the
smaller countries ? What is to become of Denmark, Sweden, Portu-
gal, when the big countries reached a high degree of self-sufficiency
and would not deal with them ? They must join the bigger countries,
and soon there would be only two or three great powers in the world
which, after a second or third Armaggedon, would be reduced to one
by some struggle for the source of some indispensable article.
Such arguments may seem telling enough in the countries which
are too small to allow the lust of power to flourish. But in the greater
empires they are likely to fall on deaf ears so long as the present
state of sentiment prevails. In each of these people will be found to
believe that their own country is the best situated for the struggle.
In the large scattered empire of which the parts are separated by
long distances over sea, people think they can best be independent of
outside supplies because their dominions extend into every zone of
temperature and include every kind of soil. In the smaller but com-
pact empire the weaknesses of the larger but more scattered one —
its liability to succumb to submarine attack for example — are clearly
perceived, and it is hoped that the more compact area will win through
with the aid afforded by science in providing substitutes for imported
products. So long as the question is considered from a purely na-
tional point of view, and so long as patriotism is confounded with
contempt and hatred of other nations, we may doubt if argument
directed to show the suicidal character of the gospel of self-sufficiency
will have much effect in the greater countries. When two men
desirous of killing each other are locked together in the water, it is
not much use to tell them to let go if each thinks the other will drown
first.
VIII
THE PROBLEM OF RAILWAY REGULATION
In a machine system continental in extent and embracing a varied host of
correlated industrial activities the railroad occupies a position of strategic
importance. Through it the vast and intricate gear of "the industrial machine"
is made to "engage." Its rates, by influencing costs and prices, perform im-
portant services in the organization and direction of industry. It is inevitable,
therefore, that we should have "a railroad problem" which three considerations
impel the public to keep alive. First, the railroad is an industrial unit of
large size; and in a country steeped in the conventions of competition, the
giant is always under suspicion. Second, the business tends to be monopo-
listic ; and to monopoly the public imputes not only horns and forked tail,
but a capacious maw as well. Third, it is an instrument possessed of great
powers of industrial control; for through its "manipulation" of rates it can
cause industry to flourish or fade ; it can give to industrial development a
"natural" or an untoward direction. These considerations have caused the
problem to wear a constant freshness which comes from its varied and never-
ending sequel.
When "railroads were new" our people were thoroughly imbued with
individualism. Firmly convinced were they that one should have what he
earned, and that he earned "what he got." They were satisfied that in com-
petition the public possessed an adequate safeguard. They did not hesitate to
pronounce "regulation" "meddlesome interference" and to characterize the
almost unthinkable proposal of government ownership as "socialistic." But
they had no adequate conception of the nature of the railroad industry. They
did not see that railway economy requires monopoly; that the proper per-
formance of its services requires the business to be endowed with public
powers ; that costs of particular services cannot be isolated to do duty as
bases for particular rates; and that "normally the industry is in a stage of
increasing returns."
These economic characteristics of the industry, quite in opposition to
popular theory, have determined our policy in dealing with it. We have
found that attempts to fix rates by competition have resulted in alternate pe-
riods of high and low charges, in fluctuating dividends and prices of secur-
ities, in speculation and "railroad wrecking," in unpredictable items of future
cost, introducing elements of grave risk into every business enterprise. We
have been confronted with abundant testimony of discriminations in favor of
large shippers and particular localities ; and have concluded that "unreasonable
rates" were interfering with the "natural" course of development and were
favoring monopoly. And more than once we have suspected that, because of
its peculiar position, the railroad was inclined to charge too much. These
observations we have translated into problems, which through the state, we
have tried to solve.
A protracted and unpleasant experience has convinced us, slowly to be
sure, that the problem cannot be solved in terms of competition. We have
never been quite willing formally to renounce so efficacious an instrument of
salvation ; but, unconventionally at any rate, we have little by little quit trying
to make the railroads compete.
Primarily, perhaps, because discrimination appeals to us as unjust, we
have given our attention to the problem of preventing interference with the
"natural" course of development. This problem is still in process of solu-
376
PROBLEM OF RAILWAY REGULATION 377
tion. The outlawing of rebates has brought forth an almost infinite variety
of ingenious substitutes. As these have been relegated to outer darkness their
places have been taken by others. After many years of strenuous effort we
have not as yet succeeded in ridding ourselves of this "evil." In fact, it seems
that its extirpation can be achieved only by a careful supervision of such
matters as billing, the collection of claims, the making of purchases, etc. At
present many discriminations are concealed in differences in service. We are
realizing this, and service is beginning to be standardized by governmental
authority.
The problem of the railroad as a monopoly is also "in solution." The
grant to the Interstate Commerce Commission of authority to set aside par-
ticular rates soon grew into the power to prescribe whole schedules of rates.
With this process has come many new "problems." To prescribe "reasonable
rates," the Commission has had to know costs. To determine these, it has
been compelled, with the assent of Congress, to prescribe uniform accounting
systems. The problem has further involved a determination "of what the
investment would bear." This has necessitated an evaluation of the railroad
properties of the country, an undertaking that will not be completed for many
years. The intention, underlying this appraisal, is to limit profits, by a
limitation of rates, to a reasonable return. To quite a different effect, soon
after the European war began, the "eastern railroads" were granted permis-
sion to raise rates, their plea being one of insufficient profit. Together these
things are indications of the development of a policy of limiting railroad
dividends to a "fair figure" and of guaranteeing this modest income.
Before this line of development had run its course and the outlines of
future railroad policy were assured, several unexpected factors entered to
confuse both of these problems. Before we entered the war the country was
confronted with an increased demand for transportation facilities; greatly
increased prices for terminals, extra tracks, and other extensions and im-
provements ; great difficulty in finding private capital for such expansion of
service ; and rapidly mounting costs of items getting into "operating costs."
The war brought an increased demand for service, increased cost of operation,
and the necessity of a unified operation of railway properties under govern-
mental control. The requirements of service forced substantial wage increases
as a means of keeping labor in competition with war industries. The demands
found a passing solution in what is roughly described as "the government's
taking over the railroads" but what in reality is private operation under mild
federal supervision with an assumption of all the risks of the business by the
government.
As a result there has come a change in the terms, if not the form, of the
railway problem. Some plan must be found for returning the railroads to
private owners. Some scheme of supervision must be devised to insure unity of
operation and adequacy of service from them. Roads strategically situated
must be limited to a reasonable return on their investments. Roads socially
necessary but with less favorable strategic positions must be given an adequate
guaranty of earnings. A plan must be devised for insuring funds sufficient
to provide transportation service for an expanding and developing country.
Disputes over wages and hours must be settled without impairing the service
furnished by the carriers. Together these problems constitute the railway
problem of the future, but they make of it a somewhat different problem.
These implications of legislation, of administration, of war control, of
industrial policy deserves more than passing notice. Our devotion to individual-
ism is still strong; our faith in the efficacy of competition, even if shaken a
bit, is still firm ; we still refuse to discuss government ownership as a practical
question. But despite all this, we have created a system of government regula-
tion which involves supervising accounts, evaluating property, fixing rates, and
standardizing service; which threatens supervision of expenditures and in-
vestments ; and which tends to limit the railroad to a definite guaranteed return
on its investment. Control is very rapidly passing into the hands of the state.
378 CURRENT ECONOMIC PROBLEMS
The step to the formal assumption of management by the state may be a
tedious, but it is logically a short one. At present we face the alternative of
direct public control or private control under greater public supervision than
has been exercised before. Because of an impression that government man-
agement during the war was less successful than it might have been, the
public is likely, formally at least, to prefer the latter. But increased super-
vision, guaranteed returns, and, above all the seeming necessity for the govern-
ment to furnish capital gives a decided bent toward some form of public
control. Eventually the transition to a new form of control can be effected
by a simple substitution of government bonds for the waning percentage of
privately owned railroad securities. Are we destined to take it? If we do,
will it be a simple matter of conscious choice? Or will it be a solution that has
been forced upon us unwittingly through our attempt to solve isolated railroad
problems one at a time?
Before it has come about that one "railroad problem" after another has
been "solved," only to leave a bigger and more difficult problem in its place.
The question of government ownership is more intricate than any of its prede-
cessors. If the state does take over the roads, what will be the net gain?
Will we be better off than we now are? Will we be better off than we would
have been had we never embarked on a course of regulation? If our railroads
are socialized, what is the effect likely to be m the solution of our other prob-
lems, for instance that of monoply? What influence is such a step likely to
exert upon our theory of the relation of the state to industry and upon our
fundamental "principles" and "concepts"? Are we thus for the last time
dealing with the railroad problem in isolation, or is it likely to continue with
us in ever-varied forms? Is government ownership a mere means of merg-
ing a particular problem in the larger problem of the socialization of industry?
After government ownership — what?
A. THE BASIS OF THE PROBLEM
170. The Dual Nature of the Railway Corporation^
We are all familiar with the easygoing classification of business
enterprises into public and private. There is something quite satis-
fying about the ready way in which this antithesis permits one to
call the corner grocery a private business and the mail service a
public enterprise. Since the two classes are all-comprehensive and
mutually exclusive, it is quite unfortunate that their author was
not possessed of the supreme pre-wisdom to make provision for
the railway which in course of time was to appear, reach gigantic
proportions, work itself into the whole fabric of the industrial sys-
tem, and spoil a very serviceable antithesis. For the railway can
be properly called neither a private nor a public enterprise ; it par-
takes of the nature of both.
That it is a private enterprise is the more evident. You know
that trains are run by a private corporation; that the corporation
sells you a ticket, thereby making a contract with you, to transport
you from New York to Philadelphia; that when Hiram Rankin's
cow is run over, he brings suit against the New York Central &
^An editorial (1915).
PROBLEM OF RAILWAY REGULATION 379
Hudson River Railroad Company; and that your next-door neigh-
bor, James Street, regularly receives what he calls a dividend on
the three shares of preferred stock vi^hich he owns in the Pennsyl-
vania. So far as its actual business is concerned, it appears to you
that a railway company is much like any other corporation.
But if you will study a moment, you will see just as clearly
that the business is of a public nature. You remember your grand-
father telling you how, when he was a member of the state legis-
lature back in the forties, he helped put through a bill which appro-
priated state money to help the K. & W. build a line through your
part of the state. You never heard of the state helping Simpkins,
the corner grocer, in that way. You remember, too, just a few
years ago, that when the L. R. & Q. was running the spur out to
Dalton, Rufus Lunsford would not sell the narrow strip of land
through his farm, which the company wanted to make a part of
their right of way. You remember that he said that he was just
as much entitled to that land as any private corporation was entitled
to its property ; and that no private corporation should get a foot
of ground belonging to him. Yet you remember how it turned
out — that there was a trial ; that the lawyers representing the rail-
way said that the company has been clothed with the right of "emi-
nent domain," and that this gave them the right to take Lunsford's
property, if they needed it, to complete their line, provided they
paid him full compensation for it. You know, too, that the rail-
way has no right to refuse to handle your freight, if you offer it to
them and if you comply with all the conditions. Perhaps you do
not know that when the railway first came, it was thought of as a
"rail" way, as a public highway upon which each man should be
allowed to run his own cars, just as he drove his own carriage or
wagon along the thoroughfare. Of course you see that technical
difficulties prevented this from being done and led to a single cor-
poration being granted an exclusive right to run trains over the
road. But, in making the grant the state was merely meeting the
peculiar situation. It was not surrendering all of its rights to the
private corporation. Thus you see that the railway corporation is
of a public as well as of a private nature.
171.^/The Economic Basis of Regulation-
BY I. LEO SHARFMAN
The need of a system of governmental control arises from the
economic characteristics of the railway. Most of the important
^Adapted from an unpublished volume entitled Railway Regulation, soon
to be published by the LaSalle Extension University, 1913.
380 CURRENT ECONOMIC PROBLEMS
questions involved in the so-called railroad problem can be traced
to the economic character of the railway business. It is necessary
therefore, to indicate the general nature of those economic partic-
ulars and their most striking consequences.
The monopolistic character of the railway business. — The need
of regulation depends chiefly upon the monopolistic character of the
railway business. In ordinary industrial enterprises the existence
of competition, when free and unrestricted by artificial means, pro-
vides an automatic force for the protection of the public. High
prices and large profits in a given industry tend to attract additional
capital to that industry, which results, in the long rtin, in a read-
justment of charges and a reduction of net returns. In like manner,
inefficient service and goods of inferior quality cannot permanently
be imposed upon the public because a policy which is clearly detri-
mental to the interests of the consumer cannot permanently with-
stand the force of competition. The railway business, on the other
hand, tends to be operated under monopolistic conditions. To some
extent railways are entirely exempt from the operation of compe-
tition. The amount of capital necessary for the construction of a
railway is so large and the task of railway building is so substantial
that competition is always relatively slow in becoming active. Cap-
italists will not unite so promptly in building a parallel road because
of the large sums that must be risked in the enterprise ; and even
when they decide to enter upon such an undertaking, the work of
construction requires so much time that the appearance of active
competition is still further delayed. Moreover, even when the par-
allel road is built, it actually competes with the original line only at
certain points, usually the more important cities, while at inter-
mediate points the lines separate and pass tj^iaill^" numerous small
communities which have no other railwa^jffacilities. At these non-
competing points, then, the railways usually enjoy a monopoly of
local traffic ; and while the number of non-competing points is grad-
ually being reduced by the construction of new steam roads and the
multiplication of electric railway lines, doubtless, because of the
very nature of the railway, there will always be many localities
which, in the absence of government control, will be at the mercy
of one transportation agency. In part, therefore, the railway busi-
ness is clearly monopolistic in character.
The nature of railway competition. — But the railway business
tends to be carried on under monopolistic conditions even when
competition does exist, because of the character of railway competi-
tion. Railway rivalry tends to be abnormally keen and competition
ruinous. This, in turn, leads to cooperation in various forms, and
PROBLEM OF RAILWAY REGULATION 381
the inevitable result follows that railway competition becomes self-
destructive. Competing railway companies, weary of the keen
struggle which invariably ensues when competition becomes active,
either assent to a truce whereby competition between them is abol-
ished and an agreement is reached for the maintenance of rates,
or they continue their warfare until one of the roads is driven to
insolvency, and the unsuccessful line, upon reorganization, is taken
over by its victorious rival. In either case effective competition
is destroyed and monopoly conditions are established. The basis
of this ruinous competition is to be found in two fundamental econ-
omic characteristics of the railway business :
Joint cost and railway management. — The services of a rail-
way are rendered to a very large degree at joint cost. From one-
half to three-quarters of a railway's expenditures must be incurred
regardless of the performance of any particular service. In order
to conduct transportation at all, a roadbed must be provided, tracks
must be laid, terminals must be built. This plant is equally neces-
sary for the transportation of passengers and freight, and express
and mail matter. Moreover, it is equally necessary for the trans-
portation of different classes of passengers and different kinds of
freight. The expenditures for the fundamental purpose of pro-
viding the plant of a railway enterprise create the fixed charges of
the business : and these fixed charges, the interest on the capital
invested in the construction of the railway, form a part of the
cost of every service rendered by that railway. As far as expendi-
tures for plant are concerned, all railway operations are conducted
at joint cost. But even the operating expenses are largely joint.
The roadbed and equipment must be maintained in a state of reason-
able repair and efficiency, and many of the employees and much of
the material necessary for conducting transportation must be pro-
vided and most of the general administrative expenses must be
met, regardless of the amount or the kind of traffic carried by the
railway. In other words, a substantial proportion of the operating
expenses, like the fixed charges, are constant. It is practically im-
possible, therefore, for the railway manager to ascertain the exact
cost of a given service. Rate making must necessarily involve a
large degree of guesswork, though it is true that this guesswork
is entrusted to experts. Railway officials have no means of de-
termining with certainty that rates have been reduced to unprofit-
able limits. Under the stress of keen competition, then, conditions
are decidedly favorable to ruinous rate-cutting: and cutthroat com-
petition invariably becomes self-destructive.
382 CURRENT ECONOMIC PROBLEMS
Increasing returns and railway policy. — Railway operations are
so largely conducted at joint cost because a very large proportion
of railway expenditures are fixed or constant. If a railway is built
and equipped and is carrying a given amount of traffic, it can usually
handle a vastly increased quantity of business at a relatively slight
additional expense. Within very wide limits, a given plant and
equipment will accommodate a large as well as a small amount of
traffic, and the only additional cost involved in handling an in-
crease in traffic will consist in that portion of the operating ex-
penses which varies with the amount and kind of service rendered.
In other words, the expenditures of a railway company do not keep
pace with the services which it performs ; an increase in traffic does
not involve a proportionate increase in railway expenditures. It fol-
lows, then, that with each increase in the amount of traffic carried,
the cost per unit decreases ; and the net revenues of a railway increase
faster than the growth of its traffic. The railway business is subject
to the law of increasing returns : every increase in traffic results in
more than a proportionate increase in profits. Railway traffic mana-
gers, therefore, work under a powerful incentive to increase the
volume of their business, and the competition for traffic is intense.
In fact, the passion for traffic becomes the controlling passion of the
railway business. Traffic managers consider it their most urgent duty
to get business — to get it at the highest rates possible, but in any event
to get it. The profitable limit of rate reduction is so uncertain, be-
cause railway expenditures are largely joint, and the advantage of
extensive traffic is so great, because railway expenditures are largely
constant, that there is a natural and compelling tendency on the part
of railway officials to reduce rates to whatever point may be necessary
in order to attract business from competing lines. Ruinous rate wars
follow and competition tends to destroy itself. These conditions lie
at the basis of the abnormal character of railway competition which
almost invariably leads to railway operation under monopolistic con-
ditions.
Railway competition and discriminatory practices. — The keen
rivalry for business leads not merely to rate wars and general rate
cuttings, but to discriminatory practices as well. The passion for
business is so intense that the traffic manager will resort to any
means in order to get it. If the amount of railway traffic can be
extended and hence the size of railway profits disproportionately
increased by means of granting special privileges in the transpor-
tation of one commodity as compared with another, or in the case
of one person or locality as compared with competing shippers or
markets, railway officials will not hesitate long to resort to these
PROBLEM OF RAILWAY REGULATION 383
discriminatory practices. The history of American railways, and
of our monopoHstic industrial combinations or so-called trusts, di-
vulges no greater evil than the granting of railway discriminations
in rates and service for the benefit of one person, locality, or kind
of traffic, to the prejudice and disadvantage of rival shippers, places,
and industries. The motive or stimulus for these practices lies in
the keen desire for additional business, with its disproportionate in-
crease in railway profits. Discrimination has been one of the most
baneful as well as one of the most certain effects of railway com-
petition.
Railway discrimination and the public welfare. — The danger as
well as the injustice of discriminatory practices cannot be over-
emphasized. If our industrial life is to reach its natural and most
efficient economic development, there must be freedom of enter-
prise and fairness of treatment for all persons, all sections, and all
undertakings. In a sense, transportation is a fundamental industry,
underlying all others ; for it is essential to the conduct of all business
and goes far towards determining the direction and conditions of
industrial activity. The item of transportation, whatever it may be,
is one of the elements in all costs, and the outcome of cempetition be-
tween different producers may be largely affected by any divergence
in railway rates which must be paid by each of two or more com-
petitors. It follows clearly, then, that the railway officials who make
transportation rates exercise a tremendous power. By the soundness
of their adjustment of rates and by the degree of fairness with which
established rates are observed, the railways may profoundly affect —
or absolutely determine even — the prosperity of individuals, of in-
dustries, of cities and towns, or of entire sections of the country.
By discriminating between competing shippers, they may destroy the
business of one and build up that of another, making one man rich
and another poor. By stimulating or discouraging a particular class
of traffic they may increase or diminish the importance of industries
and the extent of production of particular articles of commerce, shap-
ing the direction of industrial activity. By discriminating among
cities and towns, they may cause one to grow and another to decay,
determining the commercial importance of business centers. By
modifying their rate schedules in special instances, they may de-
termine the location of industries, guiding the movements of popu-
lation and affecting the prosperity and welfare of extensive local-
ities. By these unfair practices the railways also have it within
their power to build up industrial monopoly ; and the most power-
ful of the trusts against which the people are now struggling made
their first advances towards control of the market through the
agency of special favors in the form of railway discriminations.
384 CURRENT ECONOMIC PROBLEMS '
172. The Futility of Railway Competition^
BY ARTHUR T. HADLEY
We have been taught to regard competition as a natural, if not
necessary, condition of all healthful business life. We accept, almost
without reserve, the theory that, under open competition, the value
of different goods will tend to be proportional to their cost of pro-
duction. According to this idea, if the supply of a particular kind
of goods is short, and the price comes to exceed cost of production,
outside capital will be attracted intcT the business until the supply
is sufficiently increased to meet the wants of the market. But as
soon as this point is passed, and the price begins to fall below the
cost of production, people will refuse to produce at a disadvantage,
the supply will be lessened, and the price will rise to its normal
figure. If all this be true, competition furnishes a natural regulator
of prices, with which it is wicked to interfere.
This may once have been true, but it is not true today, that people
find it to their interest to refuse to produce, if price drops below
cost. To stop producing often involves the greater loss.
Let us take an example from the railway business. A railroad
connects two places not far apart, and carries from one to the other
100,000 tons of freight a month at 25 cents a ton. Of the $25,000
thus earned, $10,000 is paid out for the actual expense of running
the train and loading and unloading the cars ; $5,000 for repairs and
general expenses; the remaining $10,000 pays the interest on the
cost of construction. Only the first of these items varies in pro-
portion to the amount of business done ; the interest is a fixed
charge, and repairs have to be made with almost equal rapidity,
whether the material wears out, rusts out, or washes out. Now
suppose a parallel line is built, and in order to secure some of the
business offers to take it at 20 cents a ton. The old road must meet
the reduction in order not to lose its business, even though the new
figure does not leave it a fair profit on the investment ; better a
moderate profit than none at all. The new road reduces to 15 cents ;
so does the old road. A 15-cent rate will not pay interest unless
there are new business conditions developed by it; but it will pay
for repairs which otherwise would be a dead loss. The new road
makes still further reduction to 11 cents. This is better than
nothing. If you take 11 cents freight that costs you 25 cents to
handle, you lose 14 cents on every ton you carry. If you refuse to
take it at that rate, you lose 1 5 cents on every ton you do not carry.
^Adapted from Railroad Transportation: Its History and Its Laws, pp.
69-74. Copyright by G. P. Putnam's Sons, 1885.
PROBLEM OF RAILWAY REGULATION 385
For your charges for interest and repairs run on, while the other
road gets the business.
Under competition such cases are of constant occurrence,, and
almost as a matter of course when one of the roads is bankrupt.
"Business at any price rather than no business at all" is the motto
of such a road. It has long ceased to pay interest; it can pay for
repairs by receiver's certificates ; and it will take freight at almost
any price that will pay for the men to load the goods and the coal
to burn in the engine. And it is to be observed that when a com-
peting road does not carry the war to this point, it is not a com-
petitive rate. They may agree op a 25-cent rate, thinking it will be
a reasonable and paying one ; but such a rate is actually determined
by combination, even though they take cost of service into account.
The theory that when payment falls below cost active competition
will cease fails. This is because far below the point where it pays
to do your own business it pays to steal business from another man.
This influx of new capital will cease ; but the fight will go on, either
until the old investment and machinery are worn out, or until a pool
of some sort is arranged. This is not confined to the railway business.
Wherever there are large permanent investments of capital we see the
same cause at work in the same way.
There is a marked difference between mercantile competition,
such as was considered by those who established the old law of
competition, and the competition of railroads or factories, such as
we have been considering. In the former case its action is prompt
and healthful, and does not go to extremes. If Grocer A sells goods
below cost. Grocer B need not follow him, but simply stop selling for
a time. For (i) This involves no great present loss to B. When
his receipts stop, most of his expenses also stop. (2) It does involve
present loss to A. If he is selling below cost, he loses more money,
the more business he does. (3) It cannot continue indefinitely. If
A returns to paying prices, B can again compete. If A continues to
do business at a loss he will become bankrupt, and B will find the
field clear again.
But if Railroad A reduces charges on competitive business,
Railroad B must follow, (i) It involves a great present loss to
stop. If a railroad's business shrinks to almost nothing, a large
part of its expenses run on just the same. Interest charges accumu-
late; office expenses cannot be suddenly contracted; repairs do not
stop when traffic sinks ; for they are rendered necessary by weather
as well as by wear. (2) If B abandons the business, A's reductions
of rates will prove no loss. The expense of a large business is
proportionately less than that of a small one. A rate which was
386 CURRENT ECONOMIC PROBLEMS
below cost on 100,000 tons may be a paying one on 200,000. (3)
Profitable or not, A's competition may be kept up indefinitely. The
property may go into bankruptcy, but the railroad stays where it is.
It only becomes a more reckless and irresponsible competitor.
The competition of different stores finds a natural limit. It
brings rates down near to cost of service, and then stops. The com-
petition of railroads or factories finds no such natural limit. Wher-
ever there is a large permanent investment, and large fixed charges,
competition brings rates down below cost of service. The competi-
tive business gives no money to pay interest or repairs. Sometimes
the money to pay for these things comes out of the pockets of other
customers, who do not enjoy the benefit of the competition, and are
charged much higher rates. Then we have the worst forms of dis-
crimination. Sometimes the money cannot be obtained from any
customers at all. Then we have bankruptcy, ruin to the investor,
and — when these things happen on a large scale — a commercial
crisis.
B. ASPECTS OF RATE-MAKING
173. Freight Classification*
BY WILLIAM Z. RIPLEY
Imagine the Encyclopaedia Britannica, a Chicago mail-order
catalogue, and a United States protective tariff law blended in
a single volume, and you have a freight classification as it exists
in the United States at the present time. Such a classification is,
first of all, a list of every possible commodity which may move by
rail, from Academy or Artist's Board and Accoutrements to Xylo-
phones and Zylonite. In this list one finds Algarovilla, Bagasse,
"Pie Crust, Prepared"; Artificial Hams, Cattle Tails and Wombat
Skins ; Wings, Crutches, Cradles, Baby Jumpers and all ; together
with Shoo Flies and Grave Vaults. Everything above, on, or under
the earth will be found listed in such a volume. To grade justly
all these commodities is obviously a task of the utmost nicety. A
few of the delicate questions which have puzzled the Interstate
■^ommerce Commission may give some idea of the complexity of
the problem. Shall cow peas pay freight as "vegetables, N. O. S.,
dried or evaporated," or as "fertilizer" — ^being an active agent in
soil regeneration? Are "iron-handled bristle shoe-blacking daub-
ers" machinery or toilet appliances? Are patent medicines dis-
tinguishable, for purposes of transportation, from other alcoholic
^Adapted from Railroads, Rates and Regulations, pp. 297-304. Copyright
by Longmans, Green & Co., 1912.
PROBLEM OF RA ILWA Y REGULA TION 387
beverages used as tonics? What is the difference, as regards rail
carriage, between a percolator and an everyday coffee pot? Are
Grandpa's Wonder Soap and Pearline to be put in different classes,
according to their uses or their market price ? When is a boiler not
a boiler? If it be used for heating purposes rather than steam gen-
eration, why is it not a stove? What is the difference between
raisins and other dried fruits?
The classification of all these articles is a factor of primary im-
portance in the making of freight rates both from a public and
private point of view. Its public importance has not been fully
appreciated until recently as affecting the general level of railway
charges. So little was its significance understood, that supervision
and control of classification were not apparently contemplated by
the original Act to Regulate Commerce of 1887. The anomaly ex-
isted for many years of a grant of power intended to regulate freight
rates, which, at the same time, omitted provision for control over a
fundamentally important element in their make-up. Control over it
has now been assured beyond possibility of dispute.
The freight rate upon a particular commodity between any given
points is compounded of two separate and distinct factors: one
having to do with the nature of the haul, the other with the nature
of the goods themselves. Two distinct publications must be consulted
in order to determine the actual charge. Although both of them
usu*y bear the name of the railway and are issued over its signature,
they emanate, nevertheless, from entirely different sources. The
first of these is known as the Freight Tariff. It specifies rates in
cents per hundred pounds for a number of different classes of freight,
numerically designated, between all the places upon each line or its
connections. But it does not mention specific commodities. The
second publication which must be consulted supplies this defect. This
is known as the classification. Its function is to group all articles
more or less alike in character, so far as they affect transportation
cost, or are affected in value by carriage from place to place. These
groups correspond to the several numerical classes already named in
the freight tariff. Thus dry goods or boots and shoes are designated
as first class. It thus appears, as has been said, that a freight rate
is made up of two distinct elements equal in importance. The first
is the charge corresponding to the distance ; the other is the charge
as determined by the character of the goods. Consequently, a vari-
ation in either one of the two would result in changing the final
rate as compounded.
Freight tariffs and classifications are as distinct and independent
in source as they are in nature. Tariffs are issued by each railway,
388 CURRENT ECONOMIC PROBLEMS
by and for itself alone and vipon its sole authority. Classifications,
on the other hand, do not originate with particular railways at all ;
but are issued for them by co-operative bodies, known as classifi-
cation committees. These committees are composed of represen-
tatives from all the carriers operating within certain designated
territories. In other words, the United States is apportioned among
a number of committees, to each of which is designated, by the car-
riers concerned, the power over classification. New editions of
these classifications are published from time to time as called for
by additions or amendments, the latest, of course, superseding all
earlier ones. Thirty-seven such issues have already appeared in
series in trunk lines and southern territory, while fifty have been
put forth in western territory, since the practice was standardized
in 1888.
174. State Regulation and Inefficient Service^
BY C. O. RUGGLES
Federal regulation, or the lack of it, is not the only hindrance to
efficient and sufficient railway service. State laws, also, which have
regulated railway operations and service, have prevented an equitable
and economical use of railway facilities.
Some states have attempted through legislation to give shippers
within their borders an advantage over their competitors in other
states. This can be done by low intrastate rates, but it may make
such inroads on railroad revenue that a carrier will have insufficient
funds to provide adequate facilities. It is said that the increase in
rates given by the Intrastate Commerce Commission at the beginning
of the European war was practically offset in the state of Pennsyl-
vania by the reduction in rates on coal to tidewater points. Carriers
may be prevented from financing their properties to advantage by
state regulation of security issues. Complaint was made that the
New York Central, which has a total right of way of only 140 miles
in the state of Illinois, was taxed $600,000 by that state as a prece-
dent to its approval of an intended financing; also that Arizona in
return for approval of an issue of securities asked that litigation
concerning passenger fares be dropped. The Hadley Commission,
in commenting upon state regulation of security issues, said they
believed the time was near when the difficulties of the present system
of dual control and the conflict of state laws would become so mani-
fest that further legislation would be imperative.
State industries may be favored by legislation regulating directly
the service which carriers must furnish to shippers. A state that
^Adapted from "Railway Service and Regulations," Quarterly Journal of
Economics, XXXIII, 162-66. Copyright b^ Harvard University, 1918.
PROBLEM OF RAILWAY REGULATION 389
fixes low carload minima may benefit some of its industries but it
will absorb more than its fair share of railway equipment. Likewise
if one state gives much free time to shippers this means that equip-
ment is detained and shippers in other states are deprived of its use.
It is said that no railroad in Minnesota will permit one of its cars
loaded with flour to go into the New England states, for there they
are permitted four days free time for unloading. This, of course,
means delay to Minnesota farmers who are clamoring for cars. It
is evident, too, that anything which increases detention of equipment
at the same time increases the aggregate supply which is necessary
to move a given tonnage. The unsatisfactory character of regulation
of demurrage by the separate states brought about the adoption of a
uniform demurrage code by the National Association of Railway
Commissioners in 1909, and the Interstate Commerce Commission
approved this code in the same year. By March, 191 5, twenty- four
states had adopted the uniform code for intrastate traffic. While in
the other twenty-four there was a tendency to conform more nearly
to the provisions of the code, the exceptions thereto and the number
of special provisions in state codes were important.
Our early railway legislation prohibited discrimination on the part
of the railways. It is equally important to eliminate discrimination
which results from state regulation. Something more is required than
an increase in railway facilities. What is needed is a thoroughgoing
control of railway service. This is necessary whether the railroads
are restored to private operation, continued under some plan of gov-
ernment operation, or taken over by the government through public
ownership.
/
115^ The Futility of Costs as a Basis for Rates''
BY SIDNEY CHARLES WILLIAMS
The theory of price-determination according to cost of produc-
tion is usually interpreted to mean that the price of each unit is
determined ultimately by the cost of production of that unit. Where
the unit is large and simple, e. g., in the case of a boat constructed
entirely by hand by one man, the only items of expense will be the
material, the man's labor, and some trifling sum to cover the cost
and wear and tear of his tools ; and the price he will ask will be
determined accordingly. Modern industrial conditions, however,
are much more complicated. A factory or workshop will turn out
very many units of many different kinds; involving raw material
^Adapted from The Economics of Railway Transport, pp. 189-98. Copy-
right 1909 by Macmillan & Co.
390 CURRENT ECONOMIC PROBLEMS
of varying values, processes of all kinds, simple and elaborate,
machinery and labor of many sorts, and each unit of each kind
must bear some proportion of those general charges which cannot
be attributed to any one class of product, but must be borne by the
whole.
Now to what extent is it the case that the price charged for each
unit of railway transport is determined by the cost of producing
that unit? At first sight it may seem a very simple and satisfactory
method of arriving at railway charges. The commodity produced
is one — and its cost per unit can be arrived at, and the price to be
charged fixed accordingly. But this seeming simplicity is very far
from being present in reality. For when we begin to think of con-
crete instances of railway transport we see that they include com-
modities very diverse indeed. There are in the first place very
many kinds of haulage, pure and simple — for long distances, me-
dium distances, and short distances, with a cost per mile varying
according to the distance ; there is haulage of all kinds of goods,
from coal and limestone to fruit, flowers, dynamite, and cigars, and
of all manner of passengers, from a Royal party in a special train,
or first-class express traffic to the Scotch moors, to workmen's jour-
neys at 12 miles a penny or half -day seaside trips at similar low
charges; there are also many subsidiary services sometimes given,
sometimes expressly withheld — cartage, delivery, liability for dam-
age or loss, refrigeration, use of company's wagons, express speed
or slow travel, and so forth. In short, we see that the use of the
purely abstract word "transport" gives a quite misleading air of sim-
plicity to what is really a congeries of operations of the most diverse
kind. Railways in fact produce a far greater variety of commodities
than most industrial undertakings.
But it may be urged, this does not demonstrate the impossibility
of basing your railway charges on respective costs of production.
This may be done in one or other of two ways. The first and most
obvious method is to classify your different services and apportion
to each the peculiar expenses connected with it. Then take the whole
of the remaining expenditure of a general kind and apportion that
among the different services according to their respective prime costs.
You will now know the expenditure involved by each service, and as
you know the extent of this traffic you will be able to fix a fair and
reasonable charge which will just give you your expenditure with a
reasonable margin of profit.
If the matter is so simple it should be child's work to apply it
to the first great division of railway work, that between passenger
and goods traffic. The simplest and clearest subdivision of railway
PROBLEM OF RAILWAY REGULATION
391
working expenditure is as follows: General Charges, Ways and
Works, Rolling-Stock, Traffic Department Expenditure.
Now of all these a good deal is not merely independent of any
particular kind of traffic but is independent of traffic altogether.
Among such heads of expenditure are directors' fees, the salaries
of the managing and legal staff, the rates and taxes paid, the greater
part of the cost of maintenance of way and works, and some part of
the traffic working expenses. These items clearly cannot be directly
connected with the respective amounts of goods or passenger traffic.
The cost of passenger and goods locomotives and rolling-stock can,
however, be so allocated ; so also the cost of their respective train-
staffs; and some part of the expenditure of buildings. Indeed, the
very variety of methods adopted to secure this allocation themselves
testify to the difficulty of the operation; train-mileage has been tried
and abandoned, working engine hours are believed in by some, but
the only unanimity among experts is as to the caution with which the
figures arrived at must be viewed and utilized.
The varying speeds, the different kinds of accommodation, the
great variety in the number and complexity of the services rendered,
the different sizes of consignments, the different distances for which,
the different directions in which, and the different times at which they
travel — all these mean some difference in cost ; but since this cost is
made up of so many countless items, who can undertake to reduce it
to a definite schedule of fair prices, however long and complicated?
To achieve a result of even useful accuracy when these difficulties are
borne in mind, and at the same time it is remembered that the schedule
must be simple, uniform, impartial, semi-permanent, and, moreover,
must be known before, not after the consignment has been handled —
is, it will be recognized, indeed a hopeless task.
But it may be claimed that there is an alternative method with
which no such accuracy is expected or desired. All that need be
done is to take the number of units of works done, the passenger-
miles and ton-miles, and dividing these by the aggregate expenses,
so obtain an average figure which will give a working basis for all
rates. But even for this less ambitious project there are insuperable
difficulties. The average ton-mile will link together such dissimilar
units as one ton of coal out of a train load of 800 tons carried, say, 200
miles without a stop and with no auxiliary services, and a ton of
cream cheese carried in small consignments over a few miles with
many subsidiary services, collection, delivery, packing, weighing, and
so forth. The respective rates charged will be as dissimilar as the
services rendered. The coal pays^ very low rate, but the size, regu-
larity, and easy handling of the traffic make it most acceptable; the
392 CURRENT ECONOMIC PROBLEMS
cheese traffic payi, a high rate, but not too high in view of the care
and work it involves. Its very small and variable dimensions, and the
high value of the cheese, make the cost of the transit an appreciable
item, besides say the profits of the retail trader, and an addition to
the price which the well-to-do consumer willingly if unconsciously
pays. Apply such an average figure in defiance of all these differing
conditions, and the result will only be to kill the low grade traffic and
to let off too lightly the high grade traffic, thereby seriously impairing
the prosperity of the railway and ultimately injuring the trading pub-
lic which needs its services.
176. Charging What the Traffic Will Bear^
BY W. M. ACWORTH
The phrase "charging what the traffic will bear" has, for some
not very obvious reason, undoubtedly acquired an ill repute. On
the face of it, it surely seems to represent a principle, not of extor-
tion, but of moderation. To charge what the traffic can bear is, in
other words, not to charge what the traffic cannot bear. Yet the
phrase is commonly understood quite differently. It has been as-
serted that railway managers claim to estimate for themselves pro-
duction cost at A and selling price at B, and to appropriate as rail-
way rate the entire difference. The truth is that, whatever rash state-
ments have been made by individual railway men under peculiar
conditions, no railway administration has ever acted on any such
principle.
The real meaning of the phrase is that within limits — the supreme
limit of what any particular traffic can afford to pay, and the inferior
1 i limit of what the railroad can afford to carry it for — railway charges
' for different categories of traffic are fixed, not according to an esti-
mated cost of service, but roughly on the principle of equality of
sacrifice by the payer. So regarded, "what the traffic will bear" is a
principle, not of extortion, but of equitable concession to the weaker
members of the community. Had railway managers in the past
declared that their principle was "tempering the wind to the shorn
lamb," their descriptive accuracy would have been great, while their
popularity might have been even greater. Somehow the total cost of
maintaining and operating the railway has to be paid for; broadly
and in the long run, the capital invested in railway construction must
be remunerated at the normal rate of interest. Can any system of
apportionment of this necessary expenditure be more equitable than
^Adapted from The Elements of Railway Economics, pp. 75-78. Copy-
right by the Clarendon Press, Oxford, 1904.
PROBLEM OF RAILWAY REGULATION
393
one under which the rich — well-to-do passengers, valuable freight,
traffic with the advantage of geographical situation close to the
markets, and the like — contribute of their abundance ; while the poor
— immigrant passengers, bulky articles of small value, traffic that has
to travel far to find a market, and so forth — are let off lightly on the
ground of their poverty? Translated into railway language the prin-
ciple means this : the total railway revenue is made up of rates which,
in the case of traffic unable to bear a high rate, are so low as to cover
hardly more than the actual out-of-pocket expenses; which, in the
case of medium-class traffic, cover both out-of-pocket expenses and
a proportionate part of the unappropriated cost; and which finally, in
the case of high-grade traffic, after covering the traffic's own out-of-
pocket expenses, leaves a large and disproportionate surplus available
as a contribution toward the unappropriated expenses of the low-class
traffic, which such traffic itself could not afford to pay.
This, in principle and in outline, is the system of charging what
the traffic can bear. It is the system which is, always has been, and
always must be adopted on all railways, whether they be state enter-
prises or private undertakings. It is a system at once in the interest
of the railway, because even the lowest class traffic, by whatever
small amount its rates exceed the additional cost of doing the business,
contributes to the general expenses of the undertaking ; in the interest
of the public, because traffic is thereby made possible which could not
come into existence at all, if each item of traffic were required to bear,
not only its direct expenses, but its full share of all the standing
charges ; and in the interest of the high-grade traffic, because every-
thing which the low-grade traffic pays beyond its own actual out-of-
pocket cost helps to defray the general expenses of the undertaking,
which otherwise the high-grade traffic would have to bear unaided.
177. The Rate Theory of the Interstate Commerce Commission^
BY M. B. HAMMOND
The tendency of the Interstate Commerce Commission's decisions
is, on the whole, toward a cost of service theory of rate making. The
following is an attempt at the task of so stating a theory of rates
as to bring in the various considerations which the Commission has
emphasized as factors in rate making, and show how they can be
related to the fundamental principle. It is perhaps well to say that
nowhere has the Commission undertaken to state such a compre-
hensive theory of rate making.
^Adapted from Railroad Rate Theories of the Interstate Commerce Com-
mission, pp. 192-95. Copyright by the Quarterly lournal of Economics and by
Harvard University, 191 1.
394 CURRENT ECONOMIC PROBLEMS
I. In any system of government-made or government-regulated
railway rates, it would seem that this fundamental economic principle
should be kept in mind : to perform the service of transporting per-
sons and goods with the least possible expenditure of social energy.
->^ 2. One transportation route or one transportation system should
never be allowed to take from another route or system, merely as a
consequence of competition, traffic which the latter route or system
can carry at less expense.
3. Rates should be so adjusted as never to take from a place' its
natural geographical advantages of location ; but natural advantages
should not be so construed as to mean monopoly privileges.
4. Railway rates as a whole should just cover costs as a whole,
allowing for a normal rate of return on capital actually invested, a
normal return for labor of all sorts, and for depreciation, but not for
betterments. This would not mean that superior efficiency in railway
management was not entitled to reap the rewards of its superiority
in the same way it does in the ordinary industrial establishment where
competition rules. On the other hand, the rule must not be construed
to mean that any investment in a railroad, no matter how foolishly or
recklessly made, is entitled to exact high rates from persons and in-
dustries along the line in order to earn current interest rates or divi-
dends. Railway property is not more sacred than other property, nor
are railway investors immune from the consequences of their own
acts.
5., Each commodity transported should, as far as possible, be
made to defray its own share, not only of operating and terminal
costs, but also of the fixed costs and dividends. It is possible under
modern accounting methods to determine these costs with an ap-
proximate degree of accuracy for the principal commodities and
classes of traffic. The rates on other commodities may be determined
by comparing their ascertainable costs with those of the principal
commodities, and to a lesser extent by a comparison of the relative
values of the commodities.
6. Differences in distance may be made a test of the reasonable-
ness of differences in rates where other conditions appear to be
similar; yet the general rule must be kept in mind that though the
aggregate charge should increase as distance increases, the ton-mile
rate should decrease.
7. Where the application of none of the above principles seems
practicable, competition, which has been conducted in a normal man-
ner over a period of several years, may be assumed to have established
a fair relation of rates.
PROBLEM OF RAILWAY REGULATION 395
8. A reasonable rate is one which yields a reasonable compen-
sation for the service rendered. If a given rate is reasonable in this
sense, an increase in the price of the commodity or in the profits to
the producer will not be a valid excuse for increasing the railway
rate. The carrier will justly share in the increased prosperity of the
producer by securing a larger traffic in this commodity.
The possibility of applying these rules to the business of railway
transportation is proved by the fact that the application of every one
of them can be shown by illustrations taken from the Commission's
decisions. Their consistent application would mean that the rail-
roads would neither tax the industries of the country nor have their
own investments sacrificed; they would not build up one place of
industry ; they would not take from some persons or commodities
their proportionate share of the costs of transportation and impose
them upon other persons and commodities ; and finally they would
not by their system of rate making retard industrial progress or have
their own development hindered by failing credit or lack of revenue.
C. THE NATURE AND EXTENT OF REGULATION
~'\ 178. Complaints against the Railroad System^
1. That local rates were unreasonably high, compared with
through rates.
2. That both local and through rates were unreasonably high
at noncompeting points, either from the absence of competition or
in consequence of pooling agreements that restricted its operation.
3. That rates were established without apparent regard to the
actual cost of the service performed, and are based largely on "what
the traffic will bear."
4. That unjustifiable discriminations were constantly made be-
tween individuals in the rates charged for like service under similar
circumstances.
5. That improper discriminations were made between articles
of freight and branches of business of a like character, and between
different quantities of the same class of freight.
6. That unreasonable discriminations were made between locali-
ti es sim ilarly situated.
/ 7.^ That the effect of are prevailing policy of railroad manage-
mVnfwas, by an elaborate system of secret special rates, rebates,
drawbacks and concessions, to foster monopoly, to enrich favored
^Adapted from the Report of the Senate Select (Cullom) Committee on
Interstate Commerce (1886), I, 180-81.
396 CURRENT ECONOMIC PROBLEMS
shippers, and to prevent free competition in many lines of trade in
which the item of transportation is an important factor.
"*■§: — Thsrt~6«Gh-f-avoritism and secrecy introduced an element of
uncertainty into legitimate business that greatly retarded the develop-
metit-sof our industries and commerce.
( g.J That the secret cutting of rates and the sudden fluctuations
thaf^constantly took place were demoralizing to all business except
that of a purely speculative character, and frequently occasioned great
injustice, and heavy losses.
, 10. /That, in the absence of national and uniform legislation, the
rail>©a6s were able, by various devices, to avoid their responsibility
as carriers, especially on shipments over more than one road, or from
one State to another, and that shippers found great difficulty in recov-
ering damages for loss of property or for injury thereto.
11. That railroads refused to be bound by their own contracts,
and arbitrarily collected large sums in the shape of overcharges, in
addition to the rates agreed upon at the time of shipment.
12. That railroads often refused to recognize or be responsible
for acts of dishonest agents acting under their authority.
13. That the common law failed to afford a remedy for such
grievances and that in cases of dispute the shipper was compelled
to submit to the decision of the railroad manager or pool commis-
sioner, or run the risk of incurring further losses by greater dis-
criminations.
14. That the differences in the classifications in use in various
parts of the country, and sometimes for shipments over the same
roads in different directions, were a fruitful source of misunder-
standings, and were often made a means of extortion.
15. That a privileged class was created by the granting of passes,
and that the cost of the passenger service was largely increased by
the extent of this abuse.
16. That the capitalization and bonded indebtedness of the roads
largely exceeded the actual cost of their construction or their present
value, and that unreasonable rates were charged in the effort to pay
dividends on watered stock and interest on bonds improperly issued.
17. That railroad corporations had improperly engaged in lines
of business entirely distinct from that of transportation, and that
undue advantages had been afforded to business enterprises in which
railroad officials were interested.
\i8y That the management of the railroad business was extrava-
gant and wasteful, and that a heedless tax was imposed upon the ship-
ping and traveling public by the unnecessary expenditure of large
Slims in the maintenance of a costly force of agents engaged in a
reckless strife for competitive business.
PROBLEM OF RAILWAY REGULATION 397
179. The Provisions of the Interstate Commerce Act^"
BY LOGAN G. MC PHERSON
The Interstate Commerce Act, taking effect April 5, 1887, prac-
tically applied the principles of the common law which inhere in
the unlimited jurisdiction of the state courts to the regulation of inter-
state traffic by the federal courts. It provided :
First — That charges tor transportation must be reasonable and
just ; prohibiting any unjust discrimination by special rates, rebates,
or other devices, and any undue or unreasonable preferences ;
Second — That there should not be a greater charge for a short
haul than for a long haul over the same line in the same direction
under substantially similar circumstances and conditions ;
Third — Prohibited the pooling of freights and the division of
earnings ;
Fourth — Prohibited any device to prevent the continuous carriage
of freights ;
Fifth — Provided for the publicity and filing with the Commis-
sioner of all tariffs ;
Sixth — The Interstate Commerce Commission created by the Act
is given power to investigate complaints against carriers and to make
reports of its investigation in writing;
Seventh — The Interstate Commerce Commission is authorized, in
case it finds that the carrier has violated the law, to order it to desist
and make reparation for injury done. In case these orders are not
obeyed the Commission is empowered to proceed in a summary way
to have the Circuit Court of the United States enforce them.
11
180. The Provisions of the Elkins Act
The Elkins law, approved February 19, 1903, is an amendment
to the Act to Regulate Commerce, and the only important amend-
ment since 1889. The former act is directed against wrongdoing both
in the fixing of tariff rates and in the failure to apply them when they
have been fixed. Broadly speaking it is the latter class of offenses
only which are affected by the recent legislation. Its provisions are
designed more effectually to reach infractions of law such as the
payment of rebates and kindred practices.
In the first place it makes the railroad corporation itself liable
to prosecution in all cases where its officers or agents are liable under
the former law. Such officers and agents continue to be liable as
i^Adapted from The Working of the Railroads, pp. 248-50. Copyright by
Henry Holt & Co., 1907.
i^Adapted from the Seventeenth Annual Report of the Interstate Com-
merce Commission (1903), pp. 8-10.
398 CURRENT ECONOMIC PROBLEMS
heretofore, but this Uability is now extended to the corporation which
they represent.
The amended law has abolished the penalty of imprisonment, and
the only punishment now provided is the imposition of fines. As
the corporation cannot be imprisoned or otherwise punished than
' by money penalties, it was deemed expedient that no greater punish-
\ \ ment be visited upon the offending officer or agent.
Under the former law it was not sufficient to show that a secret
and preferential rate had been allowed in a particular case ; there
had to be further proof of the payment of higher charges by some
other person on like and contemporaneous shipments. The result
was to render successful prosecutions almost impossible. This defect
seems to have been remedied. The new law in most explicit terms
makes the published tariff the standard of lawfulness, and any de-
parture therefrom is declared to be a misdemeanor. It is sufficient
now to show that a lower rate than that named in the tariff has been
accorded.
A further provision of the law makes it lawful to include as par-
ties, in addition to the carrier complained of, all persons interested in
or affected by the matters involved in the proceeding. Under the
former law carriers only could be made parties defendant ; under the
amended law shippers may also be included.
Another provision confers jurisdiction upon the circuit courts of
the United States to restrain departure from published rates, or "any
discriminations forbidden by law," by writ of injunction, or by other
^ appropriate process.
_^ 181. The Provisions of the Hepburn BilP=^
BY LOGAN G. MC PHERSON
The Hepburn Bill took effect on August 28, 1906. The bill pro-
vides :
a) That as "common carriers" under the Interstate Commerce
. Law shall be included companies transporting oil by pipe lines, express
companies, sleeping car companies, all switches, tracks, terminal
facilities, and that "transportation" under the law shall include all
cars regardless of their ownership, and all service in transit.
b) Prohibits the issue of passes, with certain specified excep-
tions that cover mainly employes, fixing a penalty in case of violation
that shall apply to both the giver and the recipient.
i^Adapted from The Working of the Railroads, pp. 155-59. Copyright by
Henry Holt & Co., 1907.
PROBLEM OF RAILWAY REGULATION 399
c) Makes it unlawful after May i, 1908, for any railroad com-*
pany to transport for sale any commodities in which it may have a
proprietary interest, except lumber and its products.
d) Provides that a common carrier shall provide, when prac-
ticable, and upon reasonable terms, a switch connection for any appli-
cant who shall furnish sufficient business to justify its operation.
e) Makes more explicit the specification as to the filing of tariflFs,
especially providing for the posting and filing of through tariffs;
fixing penalty for violation.
f) Provides that "every person or corporation, whether carrier
or shipper, who shall knowingly offer, grant, give or solicit, or accept,
or receive rebates, concession, or discrimination, shall be deemed
guilty of a misdemeanor, and on conviction thereof shall be punished
by a fine of not less than one thousand or more than twenty thousand
dollars." Moreover, any person, whether officer or director, agent
or employe, convicted of such misdemeanor, "shall be liable to im-
prisonment in the penitentiary for a term not exceeding two years,
or both fine and imprisonment in the discretion of the court." In
addition, the acceptor of any rebate shall forfeit to the United States
three times the amount of the rebate.
g) Provides for the publication of the reports and the decisions
of the Commission and their acceptance as evidence.
h) Empowers the Commission, if upon complaint it finds that
a rate, or any regulation or practice affecting a rate, is "Unjust or
unreasonable, or unjustly discriminatory, or unduly preferential or
prejudicial," to determine and prescribe a maximum rate to be
charged thereafter and modify the regulation or practice pertaining
thereto.
i) Empowers the Commission to award damages against a car-
rier in favor of a complainant.
j) Provides for forfeit to the United States, in case of neglect
to obey an order of the Commission, in the sum of five thousand
dollars for each offense, each violation and each day of its continuance
to be deemed a separate offense.
k) Empowers the Commission to apply to a circuit court for the
enforcement of its order, other than for the payment of money ; for
the appeal by either party to the Supreme Court of the United States ;
and that no order of the Commission shall be suspended or restrained,
except on hearing, after not less than five days' notice to the Com-
mission.
I) Provides for the rehearing by the Commission, upon applica-
tion, at its discretion.
400 CURRENT ECONOMIC PROBLEMS
m) Authorizes the Commission to require annual reports from
all common carriers, that shall contain specified information ; to pre-
scribe the form of any and all accounts, records and memoranda to
be kept by carriers, making it unlawful for the carriers to keep any
other accounts, records, or memoranda than those prescribed and
approved by the Commission ; provides that all accounts of the car-
riers shall be open to the inspection of the special agents, or examiners
employed by the Commission.
n) Provides that a common carrier issuing a through bill of
lading shall be responsible for loss, damage or injury to the prop-
erty covered thereby upon the lines of any company over which it
may pass, leaving it to the line issuing the way-bill to gain recovery
from another line upon which the loss, damage, or injury may have
occurred.
o) Enlarges the Interstate Commerce Commission from five to
seven members, with terms of seven years, increasing the salary from
seven thousand five hundred to ten thousand dollars per annum.
182. The Mann-Elkins Act^^
The Interstate Commerce Bill, as it was reported out of confer-
ence on June 14, contains the following provisions :
1. It creates a court of commerce for the enforcement of orders
of the Interstate Commerce Commission.^*
2. It provides that no railroad shall charge any greater compen-
sation for a shorter than for a longer haul, except in case where such
action is authorized after investigation by the Interstate Commerce
Commission.
3. It provides that railroads shall be required to state in writing
the rate or charge applicable to a described shipment.
4. The Interstate Commerce Commission upon complaint is
authorized to determine and prescribe the just and reasonable indi-
vidual or joint rate as the maximum to be charged and to specify
the individual or joint classification, regulation, or practice which it
deems to be fair, just, and reasonable.
5. The commission may suspend the operation of any new rate,
classification, regulation, or practice for a period not exceeding 120
days, and extend the time of suspension for a further period of six
months, after which time the new rate, classification, regulation or
practice will become effective unless the commission orders to the
contrary.
13 Adapted from articles in the Railway and Engineering Review, L (1910),
546-47, 587-
i*This court was practically abolished in 1912 by the failure of Congress
to make financial provision for its support.
PROBLEM OF RAILWAY REGULATION 401
6. The commission may establish through routes and joint classi-
fications and joint rates as to the maximum to be charged whenever
the carriers themselves refuse to do so.
7. The right is given to the shipper to designate one of several
through routes by which his property shall be transported to its desti-
nation.
8. Every failure to obey an order of the commission shall be
punished by a fine of $5,000.
9. Copies of classification, tariffs, etc., furnished to the commis-
sion shall be public records.
10. Authority is granted for the appointment of a commission to
report upon the advisability of the physical valuation of roads and the
control of railroad capitalization.
Y 183. The Adamson Act"
Two systems controlled in March, 1916, wages of railroad em-
ployees ; one, an eight-hour standard of work and wages with addi-
tional pay for overtime, governing on about 15 per cent of the rail-
roads ; the other, a stated mileage task of one hundred miles to be
performed during ten hours with extra pay for any excess, in force
on about 85 per cent of the roads. The organizations representing the
employees of the railroads in that month made a formal demand on
the employers that as to all engaged in the movement of trains except
passenger trains the 100-mile task be fixed for eight hours, provided
that it was not so done as to lower wages and provided that an extra
allowance for overtime calculated by the minute as one and one-half
times the rate of the regular hour's service be established. The de-
mand made this standard obligatory on the railroads but optional on
the employees, as it left the right of the employees to retain their
existing system on any particular road if they elected to do so.
The principal terms of the demand were as follows:
"i. In all road service 100 miles or less, eight hours or less will
constitute a day, except in passenger service. Miles in excess of 100
will be paid for at the same rate per mile.
"2. On runs of 100 miles or less overtime will begin at the ex-
piration of eight hours.
"3. On runs of over 100 miles overtime will begin when the time
on duty exceeds the miles run divided by 12^ miles per hour.
"4. All overtime to be computed on the minute basis and paid
for at one and one-half times the pro rata rate.
i^Adapted from the opinion of the court in the case of Wilson v. New,
243 U. S. 340-342. On March 19, 1917, the court found the Adamson Act valid.
402 CURRENT ECONOMIC PROBLEMS
"5. No one shall receive less for eight hours or 100 miles than
they now receive for a minimum day or 100 miles for the class of
engines used or for the service performed.
"6. Time will be computed continuously from time required for
duty until release from duty and responsibility at end of day or
run." ^^
The employers refused the demand and the employees through
their organizations by concert of action took the steps to call a general
strike of all railroad employees throughout the whole country.
The President of the United States invited a conference between
the parties. He proposed arbitration. The employers agreed to it
and the employees rejected it. The President then suggested the
eight-hour standard of work and wages. The employers rejected this
and the employees accepted it. Before the disagreement was resolved
the representatives of the employees abruptly called a general strike
throughout the whole country fixed for an early date. The President,
stating his efforts to relieve the situation and pointing out that no
resources at law were at his disposal for compulsory arbitration, to
save the commercial disaster, the property injury, and the personal
suffering of all, not to say starvation, which would be brought to
many among the vast body of the people if the strike were not pre-
vented, asked Congress, first, that the eight-hour standard of work
and wages be fixed by law, and, second, that an official body be created
to observe during a reasonable time the operation of the legislation
and that an explicit assurance be given that if the result of such ob-
servation established such an increased cost to the employers as justi-
fied an increased rate, the power would be given to the Interstate
Commerce Commission to authorize it. Congress responded by enact-
ing the statute whose validity we are called upon to consider.
D. VALUATION OF THE RAILROADS
184. Necessity for Valuation of Railway Property^^
The Commission desires to reaffirm its opinion that it would be
wise for Congress to make provision for a physical valuation of rail-
way property. The increased responsibilities imposed upon the Com-
mission make continually clearer the importance of an authoritative
valuation of railway property, made in a uniform manner for all
carriers in all parts of the country.
18 The language is that of the railroad brotherhoods, not of the Supreme
Court of the United States.
I'^Adapted from the Twenty-second Annual Report of the Interstate Com-
merce Commission (1908), pp. 83-85.
PROBLEM OF RAILWAY REGULATION 403
In the first place, the Commission has been called upon to pass
judgment upon certain rate cases, in which the reasonableness of a
general level of rates was brought into question, and for such cases
one of the most important considerations is the amount of profit
secured to the investment. The actual investment in an enterprise
needed for giving the public adequate transportation facilities is en-
titled to a reasonable return, and no more than a reasonable return, in
the form of a constant profit ; and a reasonable schedule of rates is
one that will produce such a return.
There is a growing tendency on the part of carriers to meet
attacks upon their rates by making proof, through their own experts,
of the cost of reproducing their physical properties. It is obviously
impossible for shippers who are complainants in such cases to meet
and rebut such testimony, or even intelligently cross-examine the rail-
road witness by whom such proof is made. In addition to the large
expense of retaining experts competent to make such investigations,
the shippers have no access to the property of the carriers or to their
records showing the cost of construction and other necessary informa-
tion. The carriers, on the other hand, having access to the records
and property, can use the information compiled from them or not,
in any given case, as their interests may require.
A second consideration is the importance which the question of
capitalization has assumed in recent years. No one at the present
time can say whether railways are undercapitalized or overcapitalized.
A valuation adequate to this problem should not stop with the simple
statement of an amount ; on the contrary, it should analyze the amount
ascertained according to the sources from which the value accrues
and show the economic character as well as the industrial significance
of the several forms of value.
A third argument is found in the present unsatisfactory condi-
tion of railway balance sheets. The balance sheet is, perhaps, the
most important of the statements that may be drawn from the ac-
counts of corporations ; for, if correctly drawn, it contains not only
a classified statement of corporate assets and corporate liabilities,
but it provides in the balance, that is to say, the "profit and loss," a
quick and trustworthy measure of the success that has attended the
operation and management of the property. Every balance sheet
begins with "cost of property," against which is set a figure which
purports to stand for the investment. At present no court, commis-
sion, accountant, or financial writer would for a moment consider the
present balance sheet statement, purporting to give the "cost of prop-
erty," even in a remote degree, as a reliable measure either of the
money invested or of present value. Thus, at the first touch of critical
404 CURRENT ECONOMIC PROBLEMS
analysis, the balance sheets of American railways are found to be
inadequate. They are incapable of rendering the service which may
rightly be demanded of them. The only possible cure for such a situa-
tion is for the government to make an authoritative valuation of rail-
way property, and to provide that the amounts so determined be
entered upon the books of the carriers as the accepted measure of
capital assets,^^
185. Market Value as a Basis for Rates^^
BY ROBERT H. WHITTEN
The theory that rates should be based upon market value would
allow the railroad a return on monopoly value from favorable loca-
tion. Such a monopoly value is not usually claimed for utilities. It
is somewhat similar to the claim that location in the city streets under
a franchise can be capitalized for rate valuation purposes. A closer
parallel, however, is the case of a water supply plant that has secured
the most economical source of supply. It is inconsistent with what
is believed to be the governing principle of justice and equity which
forms the basis of public service control, that rates should be in-
creased, in order to pay a return on the capitalized value of exclusive
location or other monopoly advantage that represents no actual in-
vestment. A railroad exercises the right of eminent domain to secure
its location and the right of eminent domain can only be lawfully
exercised for a public purpose. The location secured by this method
for a public purpose cannot justly create a monopoly that will be
capitalized against the very public purpose that it was intended to
serve — the transportation of freight and passengers.
By the foregoing method rates are based on cost, but not neces-
sarily on the cost of the road itself, but in many cases on the cost of a
competing or hypothetical road. Market value has nothing to do
with the rate question as thus considered. It is only set up after the
rates are in fact determined. To be sure, the theory is that rates are
based on a fair return on the market value of the road under reasona-
ble rates. The impossibility of basing reasonable rates on a market
value that is itself determined by reasonable rates is apparent. It is
a clear case of reasoning in a circle. We have the evident absurdity
of requiring the answer to the problem before we can undertake its
solution. Market value is not really a part of the process but the
i^An Act of Congress, of March i, 1913, provided for the valuation of the
property of all common carriers in the United States under the direction of
the Interstate Commerce Commission.
^^Adapted from Valuation of Public Service Corporations, pp. 53-55.
Copyright by the author, 1912.
PROBLEM OF RAILWAY REGULATION 405
final result. It includes in many cases a capitalization of certain
monopoly profits and the monopoly value thus created is set up as
justifying the higher rates which have in fact created the monopoly
value.
186. Physical Valuation as the Basis of Rates-"
BY SAMUEL 0. DUNN
In recent years a new theory of the proper way to ascertain the
reasonableness of rates has gained wide acceptance. Many believe
that the railways of this country are overcapitalized. They think,
therefore, that the return on their capitalization is not a criterion
of the reasonableness of their rates. The sole true criterion, they
believe, is a "fair return" on the "fair value" of the properties of
the railways; a "fair return" is the current rate of inerest; and
therefore the government should make a valuation of the properties,
and in future so regulate rates as to restrict net earnings to the current
rate of interest on this valuation.
Many believe that large amounts of net earnings, that legally
might have been paid out to the stockholders, have instead been in-
vested in the properties. The properties also contain a large amount
of so-called "unearned increment." It is argued that, as railways are
public service corporations, their owners are not entitled to receive
a return on those parts of their value which have been created by the
investment of earnings or by increases in the value of real estate
caused by the industrial development of the country.
The owners and managers contend, on the other hand, that in any
estimate that may be made of the value of the properties on which a
return should be allowed to be earned, every factor entering into
their present value should be considered. The net earnings, they say,
belong to the stockholders. They may either invest them or pay
them out as dividends ; and where they have chosen to invest them the
value thereby added belongs to them. They also own the real estate
used for railway purposes as absolutely — so long as it is used for rail-
way purpose — as the farmer owns his farm ; and therefore they have
the same right, it is said, to profit by increases in its value.
From a legal standpoint the spokesmen for the railways seem to
have the better of the argument. The fifth and fourteenth amend-
ments to the federal Constitution prohibit the nation and the states
from taking private property for public use without due process of
law and just compensation. When the railway, in the exercise of the
power'of eminent domain, takes the farmer's land, these provisions
2*>Adapted from The American Transportation Question, pp. 84-95. Copy-
right by D. Appleton & Co., 1912.
4o6 CURRENT ECONOMIC PROBLEMS
are construed to mean that it must pay him for it — not what it cost
him — but its reasonable market value at the time that it is taken. A
similar construction of the same provisions as they apply to railways
would require that rates should be so regulated as to enable the rail-
ways to earn a return on the value of their properties at the time that
the rates are being regulated, however the value may have been cre-
ated. For if the rates were so regulated as to disable the company
from earning a return on any part of the value of its property this
would be, in effect, to take so much of its value.
Any plan for valuation, other than present value, is indefensible.
Cost of reproduction is no exception. It costs on the average from
one and one-third to* three times as much to get land for railway
as for other purposes. This is because its acquisition and use for
railway purposes involve damage to adjacent property which must
be paid for, and because land that is directly in the path of a com-
ing railway attains a monopoly value. The Railroad Commission of
Minnesota, in making its valuation of the railways of that state, held
that the appraisal of railway land should be based on the value of
adjacent land used for other purposes.
But how, railway men ask, can what the farmer would have to
pay for land properly be used as a factor in estimating what it would
cost to reproduce the railway? Suppose that adjacent farm land
were worth $ioo an acre ; that the valuation of an established railway
were made on this basis ; and that afterward there was built a new
and competing line, to which the actual cost of land was $200 an acre.
The competitive rates on competing railways must be the same. If
the rates of the older railway were to be so fixed as to restrict it to a
return on $100 an acre, the new railway would have to meet them
and might thereby be deprived of the opportunity to earn a return on
part of its actual investment. This would tend to discourage new
railway construction.
The Railroad Commission of Washington met a situation similar
to this when it made its valuation of the railways of that state. The
Northern Pacific, many years ago, acquired land for extensive ter-
minals on Puget Sound at a low price. The Harriman lines recently
built to Puget Sound, and because of the increase in the value of land
had to pay very much more for it. The two systems were competitors,
and had to make the same competitive rates. To have based the valua-
tion of the Northern Pacific's land on its original cost, or on its
estimated value for other than railway purposes, might have pre-
vented the Harriman lines from earning a fair return on the actual
cost of their land. The Commission, therefore, based the valua-
PROBLEM OF RAILWAY REGULATION 407
tion of the land of both roads on its present estimated cost of acquisi-
tion for railway purposes.
Another important point in estimating the cost of reproducing the
physical plants of railways is what deduction should be made for
depreciation, and what addition should be made for appreciation, in
the value of their various parts. The moment a rail or tie is laid, or a
signal tower or station is finished, it begins to deteriorate, owing to
use, and the ordinarily insidious, but often violent, ravages of the
elements. But while the depreciation is going on there is also ap-
preciation going on. As soon as a new line is finished maintenance
forces are put to work, if it is well managed, which limit the deprecia-
tion that takes place by making constant repairs and renewals. If a
deduction from the cost of reproduction should be made because of
depreciation, an addition to it should be made because of apprecia-
tion.
According to the widely accepted theory, as soon as an estimate
of the cost of physical reproduction is finished, we should go ahead
and so regulate rates on a road as to limit each carrier to the same
return. But is such an estimate a valuation? Indubitably, other
things being equal, a railway having a good physical plant is more
valuable than one having a poor one. But, surely, the estimated
cost of reproducing a railroad's plant is not the value of the plant;
and the value of the plant is not the value of the railroad.
A railway through mountainous country might be more expen-
sive to reproduce than one built through easy prairie country ; but
the latter's plant may be the more valuable, simply because it is the
better machine for rendering transportation.
Again, of two roads having equally good physical plants, that
having the larger net earnings is plainly the more valuable. Now,
net earnings do not depend solely on rates. They are the margin
between gross earnings and operating expenses. Gross earnings de-
pend not only on the rates charged, but on the nature and density of
traffic. These, in turn result largely from the energy and skill used
by the traffic department of the railway in attracting population
to its lines, teaching the farmers how to increase the productivity
of the soil, securing the opening of mines and the location of factories
and so adjusting rates as to enable producers in the territory to
compete successfully in the markets of the entire country and of the
world against the producers in other sections and countries. Whether
operating expenses shall be high or low in proportion to gross earn-
ings depends on the enterprise and skill used by the management in
reducing the grades and eliminating the curvature in track, in en-
larging terminals, developing esprit de corps among officers and em-
4o8 CURRENT ECONOMIC PROBLEMS
ployees, increasing shop efficiency, augmenting tonnage per car and
per train load, and in a hundred other elements of good management.
A road whose traffic is large and whose operating expenses are re-
latively small obviously would have larger net earnings, and, therefore,
be a more valuable property than a road on which the traffic is re-
latively small and the operating expenses relatively high, on any basis
of rates whatever that might be applied on both.
Large traffic and relatively low operating expenses are strong
evidences of good management. If valuation were based entirely
on the cost of physical reproduction, and the net earnings of each
road could be, and were, limited to the same amount, the better
managed roads would be deprived of the fruits of their good man-
agement.
As a matter of fact, such regulation probably would be entirely
impracticable ; for the competitive rates on different roads must be
the same ; and, owing to the differences in density of traffic and
operating expenses, no two roads charging the same rates could
be made to earn the same percentages on their valuations.
187. The "Railway Value" of Land^^
It is manifest that an attempt to estimate what would be the
actual cost of acquiring the right of way if the railroad were not
there is to indulge in mere speculation. The railroad has long been
established; to it have been linked the activities of agriculture, in-
dustry, and trade. Communities have long been dependent upon
its service, and their growth and development have been conditioned
upon the facilities it has provided. The uses of property in the
communities which it serves are to a large degree determined by
it. The values of property along its line largely depend upon its
existence. It is an integral part of the communal life. The assump-
tion of its non-existence, and at the same time that the values that
rest upon it remain unchanged, is impossible and cannot be enter-
tained. The conditions of ownership of the property and the amounts
which would have to be paid in acquiring the right of way, supposing
the railroad to be removed, are wholly beyond reach of any process
of rational determination. The cost-of-reproduction method is of
service in ascertaining the present value of the plant, when it is
reasonably applied and when the cost of reproducing the property
may be ascertained with a proper degree of certainty. But it does
not justify the acceptance of results which depend upon mere con-
jecture.
2iAdapted from the opinion of the court in Simpson v. Shepard, 2,2> Supreme
Court Reporter 761 (1913). This is the well-known "Minnesota Rate Case."
PROBLEM OF RAILWAY REGULATION 409
The question is whether, in determining the fair present value
of the property of the railroad company as a basis of its charges to
the public, it is entitled to a valuation of its right of way not only
in excess of the amount invested in it, but also in excess of the
market value of contiguous and similarly situated property. For
the purpose of making rates, is its land devoted to the public use
to be treated (irrespective of improvements) not only as increasing
in value by reason of the activities and general prosperity of the
community, but as constantly outstripping in this increase all neigh-
boring lands of like character, devoted to other uses? If rates laid
by competent authority, state or national, are otherwise just and
reasonable, are they to be held to be unconstitutional and void be-
cause they do not permit a return upon an increment so calculated?
It is clear that in ascertaining the present value we are not limit-
ed to the consideration of the amount of the actual investment. If
that has been reckless or improvident, losses may be sustained
which the community does not underwrite. As the company may
not be protected in its actual investment, if the value of its property
be plainly less, so the making of a just return for the use of the
property involves the recognition of its fair value if it be more
than its cost. The property is held in private ownership, and it is
that property, and not the original cost of it, of which the owner
may not be deprived without due process of law. But still it is
property employed in a public calling, subject to governmental reg-
ulation, and while, under the guise of such regulation, it may not
be confiscated, it is equally true that there is attached to its use the
condition that charges to the public shall not be unreasonable. And
where the inquiry is as to the fair value of the property, in order
to determine the reasonableness of the return allowed by the rate-
making power, it is not admissible to attribute to the property
owned by the carriers a speculative increment of value, over the
amount invested in it and beyond the value of similar property
owned by others, solely by reason of the fact that it is used in the
public service. That would be to disregard the essential conditions
of the public use, and to make the public use destructive of the
public right.
The increase sought for "railway value" in these cases is an
increment over all outlays of the carrier and over the values of
similar land in the vicinity. It is an increment which cannot be
referred to any known criterion, but must rest on a mere expression
of judgment which finds no proper test or standard in the transac-
tions of the business world.
410 CURRENT ECONOMIC PROBLEMS
Assuming that the company is entitled to a reasonable share in
the general prosperity of the communities which it serves, and thus
to attribute to its property an increase in value, still the increase so
allowed, apart from any improvements it may make, cannot properly
extend beyond the fair average of the normal market value of land
in the vicinity having a similar character. Otherwise we enter the
realm of mere conjecture. We therefore hold that it was error to
base the estimates of value of the right of way, yards, and terminals
upon the so-called "railway value" of the property. The company
would certainly have no ground of complaint if it were allowed a
value for these lands equal to the fair average market value of sim-
ilar land in the vicinity.
E. THE RAILROADS IN WAR TIME
188. The Beginning of Federal Control"
Probably the most far-reaching action with reference to transpor-
tation taken by public authority in a generation or more has been the
President's proclamation on December 26, directing the practical
transfer of the railroads of the country to government control. The
course thus determined upon follows the publication of the findings
of the Interstate Commerce Commission on December 5, wherein
it is set forth, in reply to the roads' plea for higher rates, that such
higher rates would not materially assist their present condition.
From the standpoint of the government three principal reasons are
seen for the taking over of the lines :
1. The avoidance of obstructions to transportation due to the
routing and division of freight, intended to give a fair share to each
line in a given territory.
2. The abolition of preferences to given shippers and kinds of
freight, and the centralization of control over priority in shipment.
3. The practical termination of rate controversies and labor
discussions as between private individuals and the placing of the
roads on a semi-military basis.
The railroads themselves have received the announcement of the
President's action with much greater equanimity than could have
been expected. They undoubtedly see in the step the following
advantages :
I. Assurance of a moderate if not generous income in a period
of great uncertainty and difficulty, during which they have been
22Adapted from "Washington Notes," Journal of Political Economy,
XXVI (1918), 91.
PROBLEM OF RAILWAY REGULATION 411
caught between the upper and nether millstones of fixed rates and ad-
vancing costs and wages.
2. Termination of the danger that threatened them from the con-
tinually maturing obligations which ordinarily they would have little
trouble in refinancing, but which, under existing conditions, can
scarcely be provided for on any basis.
3. Provision of means for betterment and improvement at a time
when such provision can be had practically only through government
orders designed to place such requirements ahead of those of private
concerns.
Due to recognition of these considerations, investors who had
previously regarded the situation with the utmost pessimism have
shown much greater confidence and enthusiasm with respect to rail-
road securities, as is indicated by a rise of from five to ten points in
general values.
189. The Policy of the Railroad Administration^^
BY WILLIAM G. MC ADOO
The policy of the United States Railroad Administration has been
informed and shaped by a desire to accomplish the following pur-
poses, which are named in what I conceive to be the order of their
importance :
First, the winning of the war, which includes the prompt move-
ment of the men and the material that the government requires.
To this everything else must be subordinated.
Second, the service of the public, which is the purpose for which
the railways were built and given the privileges accorded them. This
implies the maintenance and improvement of the railroad properties
so that adequate transportation facilities will be provided at the lowest
cost, the object of the government being to furnish service rather
than to make money.
Third, the promotion of a spirit of sympathy and a better under-
standing between the administration of the railways and their two
million employees, as well as their one hundred million patrons, which
latter class includes every individual in the nation, since transporta-
tion has become a prime and universal necessity of civilized existence.
Fourth, the application of sound economies, including:
The elimination of superfluous expenditures.
The payment of a fair and living wage for services rendered and
a just and prompt compensation for injuries received.
23Adapted from "Doings of the United States Railroad Administration."
Statement by the Director-General on June 15, 1918.
412 CURRENT ECONOMIC PROBLEMS
The purchase of material and equipment at the lowest prices con-
sistent with a reasonable, but not an excessive, profit to the producer.
The adoption of standardized equipment and the introduction of
approved devices that will save life and labor.
The routing of freight and passenger traffic with due regard to
the fact that a straight line is the shortest distance between two points.
The intensive employment of all equipment and a careful record
and scientific study of the results obtained, with a view to determin-
ing the comparative efficiency secured.
The development of this policy will, of course, require time. The
task to which the Railroad Administration has addressed itself is an
immense one. It is as yet too early to judge of the results obtained,
but I believe that great progress has been made toward the goal of
our ideals. All those who have had a share in this great work, includ-
ing especially the members of my staff and the officers and employees
of the railways, have shown intelligence, public spirit, loyalty, and
enthusiasm in dealing with problems that have already been solved
and in attacking those that still await solution.
With their continued co-operation I feel assured of a future in
which the lessons of our accumulating experience will be effectively
employed to humanize the science of railroading and negative the idea
that corporations have no souls.
190. The Results of Federal Control-*
BY J. MAURICE CLARK
I. Finance. — The three most important financial acts of the new
Railroad Administration in its first half-year were : ( i ) the allotment
of nearly a billion dollars for betterments and extensions, (2) in-
creases in wages which are expected to amount to $300,000,000 in
191 8, and (3) sweeping increases in freight and passenger rates.
The total amount allowed for capital expenditures for 191 8 was
$937>96i,3i8, while proposed outlays amounting to over a third more
were eliminated in the final revision. Of this sum, only eighteen
millions go to extensions, the rest being fairly evenly divided between
the two heads of equipment, and additions and betterments to existing
plant. The result should be to enable the roads to cut down their
expense of conducting transportation, which have been unduly
swollen by the past season's congestion of freight. The funds for
these plant outlays come partly from the surpluses of the roads
2*Adapted from a selection in Clark, Hamilton and Moulton, Readings in
the Economics of War, pp. 358-59. Copyright by the University of Chicago,
1918.
PROBLEM OF RAILWAY REGULATION
413
themselves and partly from the "revolving fund" of $500,000,000
appropriated by act of Congress.
The advances in v^ages vi^ere based on the report of a wage com-
mission, with minor changes, and the largest percentage of increase
goes to those receiving the lowest wages. The increases are cal-
culated from the wages of December, 191 5, and since that time the
roads themselves have increased wages more, in some cases, than the
McAdoo order increases them, especially in the higher grades of work,
where the men are strongly organized. The Adamson eight-hour law
has undoubtedly had the effect of raising wages. The advances were
made retroactive, taking effect January i, 1918, though the order was
issued May 26. The wage question is of course always open to
further adjustment.
The increase in rates and fares was made for the purpose of
meeting extraordinary increases in operating expenses, estimated at
from $830,000,000 to $860,000,000 for 1918, including the rise in
wages. Freight rates were ordered increased by 25 per cent, except
so far as specific increases were ordered for particular commodities,
such as coal, coke, and iron ores. The same order levels state rates
up to the interstate basis and cancels all export and import rates, thus
putting an end to the practice of charging less for the same haul on
goods that are going abroad or coming from abroad than on domestic
freight. Passenger fares are increased to 3 cents per mile, or 3^
cents in Pullmans (in addition to the Pullman charge), and com-
mutation fares are raised 10 per cent. These new rates should yield
enormous increases in operating revenues over the $3,824,419,739
earned by the roads in 1917. There is little danger that the roads
will suffer serious loss by reason of any shrinkage of traffic resulting
from the increased charges. Passenger fares may prove high enough
to discourage unnecessary travel, but the administration appears
quite ready to take advantage of this opportunity to reduce passenger
schedules and free the roads for the more essential — and more profit-
able — movement of freight.
2. Operation. — It was a black time when the federal admin-
istration took over the roads, so far as operation was concerned. The
lines were congested to the point of breakdown, and blizzards and
severe cold (which cuts down the ability of locomotives to make
steam) furnished the finishing touches. The traffic became so thor-
oughly blocked that in the first month of federal control the eastern
lines did not move enough freight to pay their operating expenses.
The priority system permitted the yards to fill up with more
freight than could be hauled, and one of the first acts of the new
administration was to put in its place a policy of embargoing traffic
414 CURRENT ECONOMIC PROBLEMS
which it thought it could not move. The measure that the Railroads*
War Board had taken to increase operating efficiency were carried
farther under the new management. Freight cars were made to
carry even heavier loads, cars were more freely ordered from one road
to another, and the administration's control of the routing of freight
was made absolute, regardless of shippers' preferences or of the
earnings of particular roads. The policy is to route freight over the
shortest line, or, if that is congested, then over the shortest line that
is open. A "train-lot plan" of freight moving has been used with
great success, the plan hinging on the willingness of the roads to give
up their privilege of getting what traffic they can and moving it when
they find it advisable not to keep the shippers waiting any longer,
whether the train is full or not. Passenger schedules have been still
further cut, and perhaps to better effect than before. Under competi-
tive conditions the temptation is strong to keep the through train, let
us say, between Chicago and Minneapolis, which competes with the
rival road's through train, and to let some less profitable or less
strategic train go. Competitive duplications in passenger schedules
were by no means eliminated under the Railroads' War Board, though
many trains were taken off relatively unprofitable branch lines where
there was no duplication. Freight solicitation has been stopped and
the city ticket offices of the different roads are being consolidated,
while terminal facilities are being pooled to such an extent that some
observers doubt if they can ever be "unscrambled,"
One of the most hotly debated moves of the Railroad Adminis-
tration has been the introduction of standardized cars and engines.
The chief arguments in favor of this policy are : ( i ) It will facilitate
the free movement of equipment from one line to another and make
possible the economies of pooled equipment without the waste that
results if rolling stock has to be sent home for repairs or be repaired
in shops not fitted for it, (2) Economies in construction are expected
from quantity output. The chief arguments against the plan are:
(i) The models will be compromises and less efficient than the best
now in use. Locomotives in particular are now adapted to the grades
and operating conditions of each particular line far more closely than
standardized engines could possibly be, (2) Delay inevitably results
when new plans must be prepared instead of utilizing those already
available. It appears that many of the plans for standardization
have had to be abandoned. Meanwhile the ordering of new engines
and cars was delayed for several months, with the result that no
new rolling stock can be delivered in 1918 until late in the autumn,
and then probably less than 100,000 cars, and this in the face of an
annual death toll of approximately 150,000 cars.
PROBLEM OF RAILWAY REGULATION 415
One excellent example of the difference between the way things
can be done under federal operation and the way they have had to be
done under private operation is furnished by the raising of demurrage
rates. Demurrage is a charge made to shippers who hold cars
unloaded beyond a specified time, and the rate was formerly $1.00
per day. The roads had long been negotiating with a view to sub-
stituting a sliding scale of from $2.00 to $5.00 per day, and had
finally got permission from the Interstate Commerce Commission and
several state commissions. Under war conditions shippers often
held cars in spite of demurrage (especially contractors whose pay was
to be a percentage above their costs). The Director General was
able, without waiting for negotiations and consents, to establish a
sliding scale, $3.00 for the first day, $4.00 for the second, and so on
up to a maximum of $10.00 for the eighth and subsequent days,
while offending shippers were put under embargoes.
Such sweeping action as this or the increase in freight and pas-
senger charges was made possible by three facts: (i) A central
authority had taken the place of the "system of checks and balances"
between privately owned roads and state and federal commissions
with their essential conflict of jurisdiction. This central power could
act swiftly, but even so, in certain states, there were "vested interests"
in existing differentials between state and interstate rates, and these
were strong enough to bring about a modification of the rate order so
far as it disturbed these differentials. (2) The responsibility was
taken by an agency of government, not by the railroad companies.
(3) It could not increase the profits of the companies, since these were
fixed under the federal guaranty. These last two facts tended to
allay popular opposition, perhaps even more powerfully than the
general recognition of the need of "putting up with things" in the
emergency of war.
191. The Outcome and the Future^'
BY T. W. VAN METRE
There is a general impression that the laws of the country have
prevented unity of operation among railways, and a consistent at-
tempt has been made to lay at the door of the government the failure
of the carriers to co-operate in the use of their physical equipment.
The railroads have failed to "get together" merely because in every-
thing except the fixing of rates the railroad business is required by
law to be a highly competitive business.
25Adapted from "Failures and Possibilities in Railroad Regulation,"
Annals of the American Academy of Political and Social Science, LXXXVI,
3-13. Copyright by the American Academy of Political and Social Science,
1918.
41 6 CURRENT ECONOMIC PROBLEMS
It is useless to assume that the repeal of the anti-pooling clause
of the Act to Regulate Commerce and the modification of the Sherman
Law would by themselves be enough to bring about voluntary railroad
unity. These laws have not stood in the way of the operating unit)
sorely needed at many terminals, and the mere repeal of these acts will
not affect this situation. There is no doubt that the formation of pool-
ing agreements would make it easier for the railroad companies to
effect the financial arrangements necessary to a plan of united opera-
tion under private ownership, if the private owners want such a plan.
Hence, if private operation is to be resumed, it is desirable that pool-
ing should be permitted ; but the mere toleration of pools and rate
agreements will not lead to the voluntary unification of physical
facilities so long as railroad managers desire to continue their hold
on their particular monopoly advantages.
That some adequate system of railroad regulation can be devised
which will permit the railroads to prosper and give efficient service
at reasonable rates is not to be doubted, and it is with this goal in
view that the next steps in railroad regulation must be taken. The
United States is not prepared to adopt a program of government
ownership of railroads, and it is to be hoped that once the present
crisis is passed the railroads will be returned to private management
and a system of regulation be devised under which satisfactory results
may be obtained. We certainly shall never return to the policy
recently abandoned, which has proved such a lamentable failure, and
if government ownership is to be avoided we should begin at once to
take stock of failures and successes and to make plans for the future.
There are a number of radical changes that can be safely made which
would go far toward establishing our regulative system on a funda-
mentally sound basis and would render easy the working out of the
details of a harmonious and constructive policy.
The dual system of regulation as carried on at present inevitably
leads to a violation of the fundamental principles upon which regula-
tion is based : that rates shall be just and reasonable, and that they
shall not be unduly discriminatory. While it is possible technically
to distinguish between interstate and intrastate traffic, there is in an
economic sense no real distinction between them. The fact that
nine-tenths of railroad traffic is interstate and consequently already
under the jurisdiction of the federal commission would seem to indi-
cate that the remaining tenth could be safely entrusted to its authority
without any undue increase of its work and with a considerable gain
in the efficiency and uniformity of regulation.
The urgent need for a unified system of regulating the issue of
securities by railroad corporations and the almost unanimous belief
PROBLEM OF RAILWAY REGULATION 417
that this function should be intrusted to federal authority lead one
to wonder why it takes so long to secure a law by which this much-
needed change may be accomplished. When such a law is enacted
it is to be hoped that it will also include provision for some supervision
of the expenditure of funds derived from the sale of authorized secur-
ities. There is a serious question in many minds as to the wisdom
with which the large investments placed in the railroad business in
recent years have been used. The wholesale expenditure for the
construction of huge passenger terminals at a time when the need for
improved freight terminal facilities was probably much more pressing
has been looked upon with some disfavor, both on account of the
disparity of income from the freight and passenger business and
because in many cases the passenger terminals represent costly
duplications of effort with results that do not show much progress
toward an ultimate solution of the problem of handling a rapidly
congesting passenger traffic.
There should be devised some plan by which needed increases in
rates can be secured with more expedition and promptness than ap-
pears to be possible under present conditions. It is not advisable that
the authority of regulative agencies to suspend proposed increases be
withdrawn, but it would probably be helpful if the time of rate suspen-
sions were made shorter than is now customary. It is of the utmost
importance that the credit of soundly financed railroads be main-
tained, and this can be done only if methods are devised for meeting
promptly sudden emergencies. Rates are now flexible in but one
direction, and it is extremely difficult for the carriers to adjust
their charges so as to meet the rapid increases in wages and prices
of materials.
And finally, as a sine qua non of a resumption of private operation,
provision must be made for the permanency of the operating unity
now going into effect. Two things will have to be done : ( i ) The
carriers must be permitted to enter pooling agreements by means of
which the financial adjustments necessary to operating untiy may be
effected; (2) the carriers must be required to combine their physical
facilities wherever such combination will result in improved service.
There is no reason for limiting the unified "continental railway
system" to the duration of the war; its proved advantages will be all
the more valuable with the return of peace. It must not be expected
that the railroad companies will voluntarily enter agreements for
unity of operation, though it is highly probable that the present
experience with unification under government control will render
compulsion less difficult. In the main the joint use of facilities will
be confined to terminals, where the wastes of competition have been
4i8 CURRENT ECONOMIC PROBLEMS
greatest. Saving must be accomplished, however, through a more
elastic system of routing shipments; the expensive duplication in
passenger service may be cut down, and the necessity for private
car lines and express companies — parasitic organizations which came
into existence solely because of the lack of a unified system of opera-
tion — will be entirely eliminated ; such companies have performed a
real public service in the past, but with unity of railroad operation they
will exist for no useful purpose. The chief economy will be effected,
however, through the reconstruction and reorganization of terminals ;
it begins to appear that the time is forever past when the shamefully
wasteful terminal operation, which exists merely as an evidence of
the monopolistic power of a strongly entrenched special privilege, will
be permitted to stand unchallenged. The willingness or the unwilling-
ness of the carriers to acquiese in co-operation arrangements which
plainly make for increased efficiency will be the deciding factor in the
coming controversy over government ownership.
F. THE CRISIS IN RAILWAY POLICY
192. Solution by Experimentation'*'
BY WILLIAM CMC ADOO
Upon the efficiency of our transportation machine in America
depends in great measure the future prosperity of the nation. Our
transportation system must function at the highest point of efficiency
and at the lowest possible cost if we are to get our reasonable share
of the world's trade and in turn be able to keep a prosperous, con-
tented, and happy population at home.
To attempt to continue federal control under the inadequate
provisions of the present act, and for the very brief period that it
authorizes would be to multiply our difficulties and to invite failure.
On the other hand the return of the railroads to the old competitive
conditions will be hurtful alike to the public interest and to the rail-
roads themselves. This course, however, will bring fewer evils than
the unsatisfactory federal control provided for by the present act.
The railroads were taken over as a war measure. They have been
operated during the past year for the paramount purpose of winning
the war. I think that it will be generally admitted that the war service
has been successfully rendered. I am sure that experience of great
value has been gained not only for the public but for the railroads
themselves during this brief test.
26Adapted from a letter addressed to Hon. Ellison D. Smith, of the Com-
mittee of Interstate Commerce of the United States Senate, on December
II, iQiSi Published in The Commercial and Financial Chronicle, CVII, 2249.
PROBLEM OF RAILWAY REGULATION 419
There is one, and to my mind only one, practical alternative. That
is to extend the period of federal control from the one year and nine
months provided by the present law to five years, or until January
I, 1924. This extension would take the railroad question out of
politics for a reasonable period. It would give composure to railroad
officers and employees. It would admit of the preparation and carry-
ing out of a comprehensive program for improvements of the rail-
roads and their terminal facilities which would immediately increase
the efficiency of the transportation machine. It would put back of
the railroads the credit of the United States during the five-year
period, so that these improvements could be successfully financed. It
would offer the opportunity to test unified control under proper con-
ditions and the experience thus gained would of itself indicate the
permanent solution of the railroad problem.
The American people have a right to this test. They should not
be denied it. In my opinion it is the only practical and reasonable
method of determining the right solution of this grave economic
problem.
I am not interested in proving or disproving the theory of gov-
ernmental ownership or any other kind of theory. I have formed
no opinion myself as to the best disposition of the railway problem
because the test has not been sufficient to prove conclusively the
right solution of the problem. I believe that a five-year test will
give the American people the right answer. An ounce of experience
is worth a ton of theory. With the start already made under war
conditions it would be a simple matter to complete the test.
There are those who may say that an extension of five years for
such a test will mean government ownership. Personally I do not
believe it. But, whatever its outcome we should not hesitate. In a
democracy like ours, where public opinion must finally control, the
plain duty is to take those steps which will fully inform public opinion,
so that judgment may be based upon knowledge rather than upon
theory. Any test which will illumine the subject so that public opin-
ion may operate upon it intelligently would seem desirable in any
circumstances.
Those who may oppose an extension of five years should face the
situation squarely and acknowledge that they prefer the immediate
return of the railroads to private control under the old conditions
without remedial legislation. It is idle to talk of a return to private
control under legislation which will cure the defects of the existing
laws. There is neither time nor opportunity for such legislation at
present. It is impossible and hopeless for the government to at-
tempt the operation of the railroads for twenty-one months after
420 CURRENT ECONOMIC PROBLEMS
peace under the present law. Therefore, the country should squarely
face the condition that the railroads must promptly go back into
private control with all existing legal difficulties unless the only
practical alternative, namely, an extension of time, is promptly
granted.
193. The Plan of the "Railroads""
On January 9, a committee representing the railroad executives
of the country submitted to the Interstate Commerce Committee of
the United States Senate a definite program on the subject of the
relations of the government and the railroads. The railroads' plan
calls for a return to their private owners of the railroad operating
properties in the near future under a system comprising principles
which may be summarized as follows :
1. Private ownership, management, and operation of the roads.
2. Transfer of all powers of control over transportation, whether
interstate or intrastate, to the national government and the exercise
of these functions by it on a definite system.
3. Relief of the Interstate Commerce Commission from ad-
ministrative duties and re-establishment of its functions as a quasi-
judicial body.
4. Establishment of a Department of Transportation headed by
a cabinet officer charged with the administrative duties now exercised
by the Interstate Commerce Commission as well as with others to be
specified.
5. Control of the investment of capital by roads in branches,
costly terminals, and like things, by the Secretary of Transportation.
6. Valuation of railroad properties and control of railroad ac-
counting to be exercised by the Interstate Commerce Commission.
All other executive and administrative duties to go to the new De-
partment of Transportation.
7. Carriers to be allowed to initiate rates, such rates to be
permitted to go into effect by the Secretary of Transportation, or else
to be suspended by the same officer and in either case arrangements
to be made for the reference of rate controversies to the Interstate
Commerce Commission.
8. Principles of rate-making to be laid down in the new legis-
lation subject to the requirements that all rates shall be not only
reasonable but adequate to attract the necessary capital to keep up
the roads.
2'^Adapted from "Washington Notes" in Journal of Political Economy,
XXVII, 129-31. Copyright by the University of Chicago, 1918.
PROBLEM OF RAILWAY REGULATION 421
9, Appeal to the Interstate Commerce Commission with refer-
ence to rates to be permitted to any party in interest who desires to
lodge a complaint.
ID. The Interstate Commerce Commission to have power to
prescribe minimum as well as maximum rates.
11. Existing rates to be continued in effect until changed by the
Interstate Commerce Commission.
12. Carriers to be authorized to complain of the charges of other
carriers if they desire.
13. The Interstate Commerce Commission to divide the country
into zones, each such zone to be under the direction of a local com-
mission controlling transportation therein.
14. Express rates to be regulated in the same way as freight
rates.
15. The Clayton Act to be modified so as not to hamper the
transaction of business.
16. The Sherman Act to be modified so as to permit pooling
and interline agreements.
17. A Board of Arbitration between railroad capital and labor
to be formed under the direction of the Secretary of Transportation.
18. Debt incurred by carrier's during the period of federal con-
trol to be funded.
19. Government control of railroad security issues.
20. Federal incorporation of all roads.
194. Socializing the Railroads-^
BY JOHN A. FITCH
Washington is fairly alive with plans for disposing of the rail-
roads. The proposal involving the most radical departure from the
past is that of Glenn E. Plumb, attorney for the railway brother-
hoods. This proposal has the approval of the "Big Four," and the
ten shop organizations affiliated with the American Federation of
Labor, whose members are in railway employ. It is a plan of gov-
ernment ownership with private operation. An operating corpora-
tion is proposed whose "sole capital" would consist of "operating
ability," or "the skill, industry, and application of every employee
from president down to office boy."
This corporation would be authorized to take over and operate
the railroads of the country as a single unified system. The cor-
poration would be required to meet all operating expenses and fixed
28Adapted from an article with the foregoing caption in the Survey, XLI,
823-25. Copyright, 1919.
422 CURRENT ECONOMIC PROBLEMS
charges, and the net income would be divided evenly between the cor-
poration and the government. The corporation's share would be
distributed as a "dividend on the pay-roll." Whenever the share
received by the government, under this arrangement, exceeds 5 per
cent of the gross operating revenue, the Interstate Commerce Com-
mission is to lower rates sufficiently to absorb the entire amount. It
is contended that every such reduction will produce a greater volume
of traffic and thus increase the volume of net earnings. The reduc-
tion in rates it is suggested, would therefore be automatic.
Nothing is said about a depreciation account; probably that is
included in "fixed charges." But no surplus would be required for
extensions. Under the plan they would be taken care of, in part
at least, by special assessments on the localities where the extensions
are called for, just as the cost of sidewalks and sewers is generally
assessed against the property benefited. Where a community desired
an extension and was willing to assume the whole cost, it would be
obligatory on the government to provide the extension. Where a
community wished to pay only a part of the cost, the extension would
be discretionary. Whatever sums are to be expended in this manner
by the government are to be raised by taxation. Sums to be expended
cannot, through capitalization, become the basis of additional charges
against income. Of course the theory back of the idea of special
assessments is that the benefit derived would fully justify them, and
the property owners would be reimbursed by the rise in real estate
values.
Interesting as these features of the brotherhood plan are, they
are not the things which set it oflf in a class by itself. That is done
by the basic idea behind it all, that management in its fullest sense
is to be in the hands of the railway workers. Next in importance is
the fact that the higher officials are included and accepted as workers.
Those excluded are the stockholders and financiers. There would
be no more stock manipulation under this plan, and the stockholders
would have their rights as citizens and bondholders and nothing
more.
The board of directors is to consist of fifteen persons, five to be
chosen by the appointed officers, five by the classified employees,
and five to be appointed by the President of the United States.
Thus labor would have a two-thirds majority. There would no
longer be any division of interest between officials and rank and file.
Any such arrangement as this raises the question of the adjust-
ment of labor disputes. The brotherhood plan would continue in
effect the present wage boards which have functioned with great
PROBLEM OF RAILWAY REGULATION 423
success during the war. These boards have been composed of operat-
ing officials and employees, with no "neutral" outsiders. The brother-
hoods would have a general wage board with subsidiary boards to
hear and pass upon all matters of dispute, their decision to be final,
except that in case of deadlock the matter would be passed on to the
board of directors.
The plan is not sufficiently explicit to enable one to judge of the
extent to which the interests of the people as a whole would be
served. Certain advantages seem obvious. There would be an end
of inflated capitalization. Rates would be based upon actual values
and services rendered. Development would be natural and extensions
would go where they were needed. It is not clear, however, that
rates would be automatically reduced. With the employees the sole
judges of their own demands, what would prevent a constant increase
in wages that would add to operating expenses and become the basis
for a claim for higher rates ?
Yet it is possible that the advocates of this plan have discovered
the greatest possible antidote to unrest, the greatest possible stimulus
to efficiency. Advocates of profit-sharing contend that their ideas,
if adopted, would work a revolution in industry. Men would be
loyal, more industrious, more in earnest if they were joint owners.
Few employers have ever cared to permit the scheme to go far enough
for anybody to find out whether the theory was sound.
Here is a plan that goes the whole way. It proposes to give real
responsibility to a group of workers which happens incidentally to
be as intelligent, resourceful, and capable as can be found anywhere.
For groups that are less advanced no method has yet been discovered
so efficacious in developing leadership and responsibility as the impos-
ing of confidence, the assigning of duties that call for resourcefulness
and decision. Can anyone doubt that what is true of men of lesser
ability will not be true of men who have already proved themselves
to be men of capacity? Piecework rates, bonus plans, premiums,
Christmas presents — all have failed as stimuli to maximum efficiency.
It would be interesting to find out what the effect would be if the
worker were given a real stake in the job.
195. The Supply of CapitaP^
BY ALVIN JOHNSON
We do not want the old system restored. This does not mean
that we believe private management as it existed before the war was
29Adapted from "Instead of Public Ownership" in the New Republic,
XIV, 345-47- Copyright, 1918.
424 CURRENT ECONOMIC PROBLEMS
corrupt or incompetent, or that public regulation was unintelligent
or obtrusive. On the contrary the very facts that the railways were
on the whole so efficiently and honestly managed and the Interstate
Commerce Commission was so competent and clear-sighted are pre-
sumptive evidence against a system that nevertheless grew progres-
sively more inadequate until it broke down altogether under the
stress of war. It rested upon a false conception of the nature of
the transportation industry and its relation to the state.
Railway men never tire of expiating upon the part the railway
plays in sustaining the prosperity of our entire industrial structure.
They do not exaggerate the importance of the railway in the national
economy. If anything they underestimate it, through modesty or
sheer lack of imagination. After our public school system the railway
has been by far our most important instrument of national develop-
ment. It will be a still more important instrument in the develop-
ment of the coming decades. Would it not then be anomolous to
attempt to restore a system of railway operation and control that
creates only an accidental relation between the function of the rail-
way in developing the country and the motives leading to their con-
struction and improvement?
The construction of a railway builds up the territory through
which it passes. But the traffic resulting from the building up of the
community is the roughest and most inadequate measure of the
values created by the railway. The community may gain in values
many times the cost of a railway, and yet the traffic may remain in-
sufficient to keep the railway company out of the receiver's hands.
The private railway companies are in no position to capitalize national
and civic gains. All that they can take into account is the apparently
inadequate promise of increased revenue from transportation.
But, it may be said, if we had granted the railways more generous
transportation rates they could have afforded. to undertake improve-
ments that from a private business point of view were uneconomic.
No doubt they could have afforded to make such improvements ; but
private business does not nominally sink money in ventures that are
unproductive of profit merely because it can afford to do so. This is
natural and proper. If the public wishes capital to be invested for
other than private financial reasons, it is incumbent upon the public
to devise appropriate institutions for attaining this end.
While public ownership would answer the purpose, it is not the
only conceivable system under which it would be possible to make
the railways a fully efficient instrument of national development.
What is of primary importance is that the public need of railways
PROBLEM OF RAILWAY REGULATION 425
should be determined by public authority. Private capital might be
called upon to supply the need under a guaranty of earnings, or under
some form of partnership arrangement by which the government
would supply so much of the capital as could not be assured a pecu-
niary return. Such an arrangement has recently been outlined by
Mr. Theodore P. Shonts, who is qualified to speak by his experience
with the analogous subway system of New York.
In essence the plan is very simple. Let a certain sum — say, the
present guaranteed net income — ^be made a preferential charge upon
the railway system to satisfy the claims of the present holders of rail-
way securities. Ilet extensions and improvements be financed by the
companies and the government in partnership, the railways furnish-
ing for each project so much capital as can be guaranteed an adequate
income, the government furnishing the rest. When the total net
income exceeds the preferential claims of the private owners of rail-
way property, let a fair interest be paid on the government invest-
ment. If a surplus still appears, let it be divided between the com-
panies and the government in the ration of their investments. As for
control, the supreme authority should be vested in a central board
consisting of representatives of the public, of the railway investors,
and of railway labor.
Under this plan the government would determine what transporta-
tion facilities should be furnished. It would have the final determina-
tion of the charges to be made for the use of such facilities. In so
far the plan meets the same requirements as would public ownership.
The plan lays upon the railways a preferential charge equal to the
present guaranteed net income. Public ownership would be burdened
with an interest charge on the bonds that would have to be sold to
acquire the railways. The difference between the two charges would
probably not be great. Under public ownership the two interests rep-
resented in control would be the general public and railway labor.
Under this plan there would be a third interest, the railway investors.
But in the course of the development of our transportation system
the government investment would probably increase more rapidly
than the private investment, and government control would become
more nearly absolute.
There was a time when the controversy over railway ownership
was bound to be acrimonious. The present generation is ready for a
discussion of the railway problem on a new plane. An adequate
transportation system is essential to the national health and pros-
perity. We cannot get such a system through purely private enter-
prise, whether subject to government regulation or not. We can get
it through public ownership or through some plan of partnership
426 CURRENT ECONOMIC PROBLEMS
between the government and private companies. Which shall it be ?
We shall have to make up our minds soon or slip back into chaos when
our twenty-one months of grace have expired.
196. The Requisites of a National Policy^"
BY JAMES D. MAGEE
The intent of the following paragraphs is to bring together sug-
gestions for our future railway policy.
The railroads should be returned to their owners as soon as needful
changes have been made in the methods of regulation. The aim of the
changes should be to permit more unified action on the part of the
railroads ; to set a definite basis for wages ; to provide a method for
settling wage disputes ; and to provide adequate facilities both in the
way of extensions and new terminals and with respect to service.
The federal government should be the regulating body. The state
commissions should be. deprived of all control over rates, classifica-
tions, and rules. These are national problems and should be solved
on that basis. We admit the early usefulness of the state commis-
sions, the valuation of railroad property for purposes of state taxa-
tion, and perhaps a minimum of regulation under the state police
power in the interest of health and safety.
The old policy of attempting to check combination should give
place to the policy of fostering combination. Probably the best
method of procedure would be federal incorporation. The anti-trust
laws might be amended by exempting from their provisions railroads
with federal charters granted after a certain date. The federal char-
ters should contain provisions for any desired regulation of capitaliza-
tion, rates, accounts, service, and the terms upon which mergers
might be made. In making the combination perhaps it would be neces-
sary to permit the federal corporation to be a holding company ; but
as soon as possible the corporate structure should be simplified. The
minority stockholders should be protected against any attempt to
acquire their property at an undervaluation, and the company should
be protected against any attempt of the minority to hold up the
merger unless their holdings were taken over at an overvaluation.
The probable result of such permission to combine would be the
formation of a relatively small number of large, strong companies.
In this country we have never had any control over railroad build-
ing in the sense of preventing roads from being built. In the early
days, when special charters were necessary, the public was interested
soAdapted from "What Shall We Do with the Railroads?" Journal of
Political Economy, XXiVII, 348-53. Copyright by the University of Chicago,
1 91 9.
PROBLEM OF RAILWAY REGULATION 427
in promoting the building of roads. In later days, under general in-
corporation laws, there has been practically no restraint upon the
building of roads. This policy must come to an end if we adopt the
program of public or private monopoly, or of a government guaranty ;
for we could not permit private individuals to encroach on the
monopoly, and it would be ruinous to ask the government to stand
ready to guarantee a return on any road that anyone might care to
build.
One form of co-operation from which much may be expected is
pooling. All the gains which the Railroad Administration has made
by eliminating competitive traffic can be obtained by allowing the
roads to pool their traffic. It is presumed that the pooling contract
will be based on freight or passenger rates which have been sanctioned
by public authorities and that the terms of the agreement have been
approved by the regulating body, which would have the power to
cancel the agreement should it appear for any reason not to promote
the public welfare. The railroads allege that great savings can be
made if they can send the freight by the line which is least congested
or which reaches nearest the point of delivery.
The problem of the general rate level is very complex. The rail-
road has a relatively large fixed investment, which makes its net
earnings fluctuate greatly, as the result of moderate changes in the
amount of business. The volume of traffic varies greatly from year
to year, though the general trend in the United States has been
upward. Obviously a rate system to be fair must be based upon an
average of a number of years. The large amount of fixed capital
also brings difficulties in connection with the variety of services per-
formed by the railroads. The general expenses are apportioned to
the various classes of traffic and to the traffic from the various locali-
ties in accordance with the principle of charging what the traffic will
bear. There come to be adjustments between different places or dif-
ferent commodities expressed as differentials. The differential may
be a fixed sum or a certain percentage above or below the other rate.
Any change, such as a general percentage increase in rates, is bound
to upset many of these long-established differentials. The railroad
thus differs from a public utility furnishing but one or a few prod-
ucts, where rates may be charged easily up or down if the earnings
are too small or too large.
The chief need in relation to the adequacy of rates is a definition
by Congress of the amount upon which a road is to be allowed a fair
return, and which road's valuation is to be taken in case more than
one road exists in the territory under discussion. In trunk-line terri-
tory, for example, a given rate level might give the Pennsylvania more
428 CURRENT ECONOMIC PROBLEMS
than adequate earnings and the Baltimore & Ohio less than adequate
earnings. There is no way to escape the fact that a given set of rates
will permit different roads to earn varying returns. The present
valuation being carried on by the Interstate Commerce^ Commission
does not set a definite value for ratemaking. Congress should decide
which one of the many values found is to be the basis, and then the
Interstate Commerce Comission should prescribe the accounting
methods necessary to keep it up to date.
The wage question involves finding methods to prevent the tie-up
of the railroads in case of disagreement and insuring that increases
or decreases in wages shall, if other items of expense do not com-
pensate, cause readjustment in rates. Compulsory arbitration might
help in the solution of the first problem ; but we must remember that
in a democratic country there is no effective way to enforce a decision
adverse to the employees. If the law based rates on costs, then wages
would necessarily be considered by the Interstate Commerce Com-
mission in the adjustment of rates.
To improve service we need adequate rates to make possible the
provision of terminals, trackage, and equipment, and the development
of standards of service. The Interstate Commerce Commission should
be given power to enforce the standards of service. This is a new
field. We have developed machinery to prevent discrimination in the
distribution of coal cars, but have no definition of adequate supply,
and no way to force the roads to furnish such a supply. "Sailing day"
plans for 1. c. 1. freight saves train mileage, but it is doubtful whether
they would be considered as offering adequate service. As yet we
have no definition of what constitutes adequate service for the various
kinds of traffic. The need for such definition is obvious.
The conclusion is that we should return to private operation of
railroads, giving them a chance to act unitedly under the direction of
the Interstate Commerce Commission, unhampered by state regula-
tion. Wage and rate control should be in the same hands. We wish
to get as far as possible the advantages of private initiative along
with any savings resulting from united action supervised by public
authorities. We should avoid any government guaranty or any sad-
dling upon the public of unprofitable roads.
IX
THE PROBLEM OF CAPITALISTIC MONOPOLY
Corners, rings, patents of monopoly, pools, cartels, trusts, holding com-
panies, "Gary dinners." interlocking directorates, "communities of interest."
"gentlemen's agreements," closed shops, codes of "professional ethics" — such
terms serve to emphasize the venerable age, the cosmopolitan character, and
the motley form of the monopoly problem. It is as old as industrial society
and as new as the latest court decision. Other ages have met this "hydra-
headed monster" ; but they have possessed neither a collection as varied as
ours nor such a prize specimen as our "capitalistic monopoly." This for us is
the real monopoly. The "corner" is an aspect of speculation. Copyrights and
patents exist by grace of the state. The "natural" monopolies of such things
as gas, water, and telephone service, and even of forest lands and iron deposits,
present much the same aspects and give rise to much the same problems as the
railroads. But it is otherwise with "capitalistic monopoly," a phenomenon of
modern industrialism, an offshoot of the machine system.
To act with wisdom we must first determine whether so "unnatural" and
so obvious a thing is "inevitable." To do this we must carefully consider the
"conditions of monopolization." But the institution is new ; its life history
does not as yet stand revealed in its entirety ; our e.xperience is limited ; and
our view is too close for perspective. Our answer is, therefore, hesitating.
However, there seem to be three "groups of forces" which have conspired to
produce this phenomenon. First, the machine process must be charged with
partial responsibility. It has made large-scale production possible ; it h.is
caused industries of tremendous size to operate in a "stag of increasing re-
turns"; it has developed in the corporation an impersonal form of business
organization ; it has concentrated in the hands of the pecuniarily' efficient few
huge aggregates of wealth; and in many lines it has reduced the number re-
iponsilDle for production to a small handtul who can Know each other per-
sonally and among whom a group spirit can develop. Even if monopory and
large-scale production are distinct economic phenomena, the problem of "capi-
talistic monopoly" arises only where wealth is concentrated. Second, the high
rate of development in the industrial system cannot completely escape respon-
sibility. New technique is often forced into use before old technique has
paid for itself. The development of demand in our constantly expanding
market has had the mo.st vacillating course. Under competition and inde-
pendent action of rival producers the market has experienced alternate dearth
and glut. These uncertainties, seriously threatening profits, and even sol-
vency, have been greatly increased by the violent and unpredictable rhythm of
the business cycle. Competing producers have thus been compelled "to get
together." Third, "artificial" conditions have contributed their influence to
the transformation. The "concentration of cash" and the "restriction of
credit," the fickleness and special favors of the tariff, and the clever "manipula-
tion" of railway rates have contributed to the general result. Were we able
properly to impute responsibility to these various "forces," we should perhaps
know what to do. Were responsibility entirely upon those last mentioned, the
monopoly problem would resolve itself into such problems as the money trust,
the tariff, and railroad rates. Were sole responsibility upon the second, our
question would become a mere aspect of the problem of the economic cycle.
Only the first directly promises an independent problem. Yet, were the causes
wholly artificial, a removal of them would not solve the problem ; their in-
fluence has been too organic and too wide-reaching for that. There is a
429
430 CURRENT ECONOMIC PROBLEMS
monopoly problem, involving these various factors, yet far more comprehensive
than a mere aggregation of them.
Public attention seems to be directed very largely to some few minor
aspects of this larger problem. It concerns itself with monopoly price, the
use of "unfair competitive methods," and the "power" of big business in
politics. Only vaguely is it seen that the institution of monopoly is intimately
associated with the stratification of society, the concentration of wealth, the
distribution of income, and other aspects of social development. Very little
attention is given to the institutional aspects of monopoly; its influence in the
determination of the kind of a society we would like to realize; its influence
upon the ethics underlying distribution ; the effect it is likely to have upon the
attempt of class- and group-conscious labor to incorporate their interests
into the institutional system ; its effect upon the distribution of opportunity,
and similar questions. But all these are important aspects of the larger
problem.
In our partial attempt to control monopoly we have used very largely the
agencies of the state. The law has given the form of monopoly organization a
merry chase. Perhaps "the complete merger," now the popular style, is a
permanent garb rather than a temporary disguise. In that event, our attentions
may have been justified in putting the problem in terms in which it can be
reached. The application of the Sherman law has doubtless given us the begin-
ning of a "standard of reasonableness" in terms of which the conduct of large
business units can be judged, despite the obvious fact that trusts have waxed
fat on the invigorating tonic of dissolution. By more sharply defining "unfair
competition," the Clayton bill should raise the "plane" of industrial rivalry.
The promises of the Trade Commission are vague and indefinite as yet, though
they bristle with possibilities.
But as yet the real problem of monopoly has not been solved. What
shall we do about it all? It is possible that monopoly is a mere "passing
phase" of a larger industrial movement, born of competition, and with a short
span of life. It may be that legislation and administration can achieve a
"restored" regime of unimpeded competition, even if such a regime never
existed. Or it may be that monopoly is "inevitable," and that all we can do is
to regulate it before it regulates us.
What we most need is a far-sighted vision and patience carefully to cal-
culate anticipated gains and losses. That "competition is wasteful" does not
make out a case for regulated monopoly. The costs of regulation must be
balanced against the costs of waste. But regulation once started is likely
to be carried to unforeseen and perhaps unwarranted lengths, both in the
minuteness of its control and in the number of industries affected. These costs
incident to this extension must find a place in our calculation. Our judgment,
too, must not be too immediate. Our capacity for devlopment may be quite
differently utilized under regimes of monopoly and competition. We know,
for example, that an incentive to monopoly has been a desire to escape the
rigors of changing technique. Is it not, therefore, more than possible that
monopolistic industries will introduce technical improvements much less rap-
idly than competitive industries? Is it not further possible that new technique
may not succeed in getting itself invented? The question must be settled by
a long-time calculation of relative gains and sacrifices. But this is not the
whole, but only the economic aspect of the larger problem of monopoly. It
must be subordinated to the more general question. Are the general social
tendencies inherent in regulated monopoly more compatible with our realizable
social ideals than those implicit in a system of competition?
This is the beginning of the problem. If our decision favors a restoration
of a competitive society, we are face to face with the problem of ways and
means. If we decide in favor of regulated monopoly, we must determine,
perhaps as we go, the extent to which monopoly shall be recognized, the means
and extent of regulation, and the "good of it all." The problem awaits a
progressive solution.
PROBLEM OF CAPITALISTIC MONOPOLY 431
A. IS MONOPOLY INEVITABLE?
197. The Perennial Problem of Monopoly
a) An Early Corner in Grain ^
And Joseph went out from the presence of Pharaoh, and went
throughout all the land of Egypt. And in the seven plenteous years
the earth brought forth by handfuls. And he gathered up all the
food of the seven years which were in the land of Egypt, and laid
up the food in the cities: the food of the field, which was round
about every city, laid he up in the same. And Joseph laid up grain
as the sand of the sea, very much, until he left off numbering; for
it was without number.
And the seven years of plenty, that was in the land of Egypt,
came to an end. And the seven years of famine began to come,
according as Joseph had said : and there was famine in all lands ;
but in all the land of Egypt there was bread. And when all the land
of Egypt was famished, the people cried to Pharaoh for bread : and
Pharaoh said unto all the Egyptians, Go unto Joseph : what he saith
unto you, do. And the famine was over all the face of the earth:
and Joseph opened all the storehouses, and sold unto the Egyptians ;
and the famine was sore in the land of Egypt. And all countries
came unto Egypt to Joseph to buy grain, because the famine was sore
in all the earth.
And there was no bread in all the land ; for the famine was very
sore, so that the land of Egypt and the land of Canaan fainted by
reason of the famine. And Joseph gathered up all the money that
was found in the land of Egypt, and in the land of Canaan, for the
grain which they bought; and Joseph brought the money into
Pharaoh's house. And when the money was all spent in the land
of Egypt, and in the land of Canaan, all the Egyptians came unto
Joseph, and said. Give us bread : for why should we die in thy pres-
ence ? for our money f aileth. And Joseph said. Give your cattle ; and
I will give you for your cattle, if money fail. And they brought
their cattle unto Joseph; and Joseph gave them bread in exchange
for the horses, and for the flocks, and for the herds, and for the asses :
and he fed them with bread in exchange for all their cattle for that
year. And when the year was ended they came unto him the second
year, and said unto him. We will not hide from my lord, how that
our money is all spent ; and the herds of cattle are my lord's ; there is
naught left in the sight of my lord, but our bodies and our lands :
wherefore should we die before thine eyes, both we and our land?
1 From Gen. 41 :46-49, 53-57 ; 47 : 13-22 (800 B.C.) .
432 CURRENT ECONOMIC PROBLEMS
buy us and our land for bread, and we and our land will be servants
unto Pharaoh : and give us seed, that we may live, and not die, and
that the land be not desolate.
So Joseph bought all the land of Egypt for Pharaoh ; for the
Egyptians sold every man his field, because the famine was sore upon
them: and the land became Pharaoh's. And as for the people he
removed them to the cities from one end of the border of Egypt even
to the other end thereof. Only the land of the priests bought he not.
b) A Vindication of Philosophy ^
BY ARISTOTLE
It would be well also to collect the scattered stories of the ways
in which individuals have succeeded in amassing a fortune ; for all
this is useful to persons who value the art of making money. There
is the anecdote of Thales the Milesian and his financial device, which
involves a principle of universal application, but is attributed to him
on account of his reputation for wisdom. He was reproached for his
poverty, which was supposed to show that philosophy was of no use.
According to the story, he knew by his skill in the stars while it was
yet winter, that there would be a great harvest of olives in the com-
ing year ; so, having a little money, he gave deposits for the use of all
the olive presses in Chios and Miletus, which he hired at a low price
because no one bid against him. When the harvest-time came, and
many wanted them all at once and of a sudden, he let them out at any
rate which he pleased, and made a quantity of money. Thus he
showed the world that philosophers can easily be rich if they like, but
that their ambition is of another sort. He is supposed to have given
a striking proof of his wisdom, but, as I was saying, his device for
getting money is of universal application, and is nothing but the
creation of a monopoly. It is an art often practiced by cities when
they are in want of money ; they make a monopoly of provisions.
c) An Early Use of Class Price ^
BY JOHN GOWER
Wouldst thou have closer knowledge of Trick the Taverner?
Thou shalt know him by his piment, his cleree, and his new ypocras,
that help to fatten his purse when our city dames come tripping at
dawn to his tavern as readily as to minister or to market. Then
doth Trick make good profit; for be sure that they will try every
2From The Politics, I, ii 7-10 (357 B.C.) ; translated by B. Jowett.
^Adapted from Mirour de I'Omme (1376-79), 11. 421 ff. Translation in
Coulton, A Mediaeval Garner, pp. 577-78.
PROBLEM OF CAPITALISTIC MONOPOLY 433
vintage in turn, so it be not mere vinegar. Then will Trick persuade
them that they may have Vernage, Greek wine, and Malvesie if they
will but wait; the better to cajole them of their money, he will tell
them of divers sorts — wines of Crete, Ribole, and Roumania, of
Provence, and Monterosso ; so he boasteth to sell Riviera and Mus-
cadel from his cellar, but he hath not a third part of all these; he
nameth them but for fashion's sake, that he may the better entice these
dames to drink. Trust me, he will draw them ten sorts of wine from
one barrel, when once he can get them seated in his chairs. Better
than any master of magic Trick knoweth all the arts of the wine-
trade; all its subtleties and its guile. He is crafty to counterfeit
Rhine wine with the French vintage ; nay, even such as never grew
but by Thames shore, even such will he brisk up and disguise, and
baptize it for good Rhenish in the pitcher : so quantily can he dissem-
ble, that no man is so cautious but Trick will trick him in the end.
d) In the Merrie England of Queen Bess*
BY DAVID HUME
The active reign of Elizabeth had enabled many persons to dis-
tinguish themselves in civil or military employments ; and the queen,
who was not able, from her revenue, to give them any rewards pro-
portional to their services, made extreme use of an expedient em-
ployed by her predecessor. She granted her servants and courtiers
patents for monopolies, and these patents they sold to others, who
were thereby enabled to raise commodities to what price they pleased,
and who put invincible restraints upon all commerce, industry, and
emulation in the arts. It is astonishing to consider the number and
importance of those commodities which were thus assigned over to
patentees. Currants, salt, iron, powder, cards, calfskins, fells, poul-
davies, ox shin-bones, train-oil, lists of cloth, pot-ashes, aniseeds,
vinegar, sea-coals, steel, aqua-vitae, brushes, pots, bottles, saltpetre,
lead, accidences, oil, calamine-stone, oil of blubber, glasses, paper,
starch, tin, sulphur, new drapery, pilchards; transportation of iron
ordnance, of beer, of leather; importation of Spanish wool, of Irish
yarn. These are but a part of the commodities which had been ap-
propriated by monopolists. When this list was read in the House, a
member cried, "Is not bread in the number?" "Bread !" said every-
one, with astonishment. "Yes, I assure you," replied he, "if affairs
go on at this rate, we shall have bread reduced to a monopoly before
next Parliament." These monopolists were so exorbitant in their
^Adapted from The History of England (1759), IV, chap. xliv.
434 CURRENT ECONOMIC PROBLEMS
demands that in some places they raised the price of salt from six-
teen pence a bushel to fourteen or fifteen shillings. Such high profits
naturally begat intruders upon their commerce ; and, in order to
secure themselves against encroachment, the patentees were armed
with high and arbitrary powers from the council, by which they were
enabled to exact money from such as they thought proper to accuse
of interfering with their patent
198. The Perennial Protest against Monopoly
a) A Proverb About Corners^
The liberal soul shall be made fat ;
And he that watereth shall be watered also himself.
He that withholdeth grain, the people shall curse him ;
But blessings shall be upon the head of him that selleth it.
b) The Ethics of Monopoly «
BY MARTIN LUTHER
There are some who buy up altogether the goods or wares of a
certain kind in a city or country, so that they alone have such goods
in their power, and then fix prices, raise and sell as dear as they
will or can. The rule is false and unchristian that anyone sell his
goods as dear as he will or can ; more abominable still is it that any-
one should buy up the goods with this intent. Which same, more-
over, imperial and common law forbids and calls monopoly ; that is,
selfish purchases which are not to be suffered in the land and the
city, and princes and rulers should check and punish it if they wish
to fulfil their duty. For such merchants act just as if the creatures
and goods of God were created and given for them alone, and as
though they might take them from others and dispose of them at
their fancy.
c) The Pests of Monopoly''
BY SIR JOHN CULPEPPER
These, like the frogs of Egypt, have gotten possession of our
dwellings, and we have scarcely a room free from them. They sip
in our cup ; they dip in our dish ; they sit by our fire ; we find them
'^ Prov. II 125-26 (350 B.C.).
6Adapted from the address on "Trade and Usury" (1524), printed in the
Open Court, XI, 27; translated by W. H. Carruth.
"^ Quoted in Hirst, Monopolies, Trusts, and Kartells^ p. 30.
PROBLEM OF CAPITALISTIC MONOPOLY 435
in the dye-vat, washing-bowl, and powdering-tub. They share with
the butler in his box ; they have marked and sealed us" from head to
foot ; they will not bate us a pin.
d) The Inexpediency of Monopoly ®
BY ADAM SMITH
Though some exclusive privileges arise from nature, they are gen-
erally the creatures of the civil law. Such are monopolies and all
privileges of corporations, which, though they might once be con-
ducive to the interest of the country, are now prejudicial to it. The
riches of the country consist in the plenty and cheapness of provisions,
but their effect is to make everything dear. When a number of
butchers have the sole privilege of selling meat, they may agree to
make the price what they please, and we must buy from them whether
it be good or bad. Even this privilege is not of advantage to the
butchers themselves, because the other trades are also formed into
corporations, and if they sell beef dear they must buy bread dear.
But the great loss is to the public, to whom all things are rendered
less comeatable, and all sorts of work worse done ; towns are not well
inhabited, and the suburbs are increased.
e) Monopoly Indefensible ^
A private monopoly is indefensible and intolerable. We there-
fore favor the vigorous enforcement of the criminal as well as the
civil law against trusts and trust officials and demand the enactment
of such additional legislation as may be necessary to make it impos-
sible for a private monopoly to exist in the United States.
199. Monopoly, the Result of Natural Growth^"
BY GEORGE GUNTON
Many people talk about trusts as if they were a sudden creation,
the product of a conspiracy against the public. Nothing could be
farther from the truth than this view. The history of trusts is simply
the history of the continuous and almost imperceptible tendency in
progressive society toward a greater centralization of capital which
^Adapted from Lectures on Justice, Police, Revenue and Arms (1763).
pp. 129-30; edited by Edwin Cannan.
^From the national platform of the Democratic party, adopted at Baltimore,
July 3, 1912.
lOAdapted from Trusts and the Public, pp. 32-34. Copyright by D. Apple-
ton & Co., 1899.
436 CURRENT ECONOMIC PROBLEMS
the most highly developed labor-saving methods of production make
necessary. The impeachment of trusts as economic institutions is
therefore the impeachment of the concentration of capital, without
which, it is needless to say, our great railroad, telegraph, and factory
systems would have been impossible. Very few of the industries
which use the most approved methods and have contributed most to
cheapening the multitude of products can now be conducted with a
capital of less than a million dollars ; many of them require tens and
even hundreds of millions. A hundred or even fifty years ago, a mil-
lionaire might have been regarded with as much apprehension as is a
hundred-millionaire today ; indeed, he would have sustained about the
same relation to the productive needs and methods of the community.
The truth is that in this case, as in the growth of all social institutions,
the new form came because it was necessary. The small English
water-wheel factory on the river bank, in the eighteenth century,
came because the isolated hand-loom and spinning-wheel did not per-
mit the utilization of the most economic methods after the spinning-
jenny and spinning-frame were invented. The steam-driven factory
in thickly populated centers came in the first quarter of the nineteenth
century because the water-wheel shops were incapable of employing
the best methods after the invention of steam and the power-loom
had been completed. If these had not been capable of lessening the
cost of production and so rendering a general benefit to the com-
munity, they could not have succeeded, as there would have been
no demand for their products. So, again, by the middle of the cen-
tury, when machinery had been still further improved, partnership
organization of industry became necessary because single individuals
were not rich enough to furnish plants sufficiently large to employ
profitably the most improved methods.
With the cheapening of products and the increased consumption
which followed the use of these successive improvements, and the
consequent social advance of the community, a revolution in the meth-
ods of distribution and international communication became neces-
sary. Inventions multiplied, which so enlarged the industrial world
as to render corporations necessary in order to obtain the best eco-
nomic results. Modern trusts are but a single step farther in the
same direction. They are simply the organization of corporations in
the same way that corporations were the organization of individual
capitalists.
Trusts, instead of being sudden monopolistic creations that have
been sprung on the community by a few designing conspirators, are
but the last link in an industrial chain more than a century long;
they are no more revolutionary than any one of the previous links,
PROBLEM OF CAPITALISTIC MONOPOLY 437
and less so than some of the earlier ones. Each one of these links
in the great chain of industrial evolution came and stayed only be-
cause it was more profitable than its predecessors to those who em-
ployed it, lessened the cost of production, and served the community
more cheaply. Had it not done this, it could not have sustained itself
in competition with the old methods.
200. Monopoly, the Result of Artificial Conditions'^
BY WOODROW WILSON
Gentlemen say, they have been saying for a long time, that trusts
are inevitable. They say that the particular kind of combinations
that are now controlling our economic development came into exist-
ence naturally and were inevitable ; and that, therefore, we have to
accept them as unavoidable and administer our development through
them. They take the analogy of the railways. The railways were
clearly inevitable if we were to have transportation, but railways
after they are once built stay put. You can't transfer a railroad at
convenience ; and you can't shut up one part of it and work another
part. It is in the nature of what economists, those tedious persons,
call natural monopolies ; simply because the circumstances of their
use are so stiff that you can't alter them.
I admit the popularity of the theory that the trusts have come
about through the natural development of business conditions in the
United States, and that it is a mistake to try to oppose the processes
by which they have been built up, because those processes belong to
the very nature of business in our time, and that therefore the only
thing we can do is to accept them as inevitable arrangements and
make the best out of it that we can by regulation.
I answer, nevertheless, that this attitude rests upon a confusion
of thought. Big business is no doubt to a large extent necessary
and natural. The development of business is inevitable, and, let me
add, is probably desirable. But that is a very different matter from
the development of trusts, because the trusts have not grown. They
have been artificially created ; they have been put together, not by
natural processes, but by the will, the deliberate planning will, of
men who were more powerful than their neighbors in the business
world, and who wished to make their power secure against competi-
tion. The trusts do not belong to the period of infant industries.
They are not the products of the time, that old laborious time, when
the great continent we live on was undeveloped, the young nation
^^Adapted from The New Freedom, pp. 163-69. Copyright by Doubleday,
Page & Co., 1912.
4^8 CURRENT ECONOMIC PROBLEMS
struggling to find itself and get upon its feet amidst older and more
experienced competitors. They belong to a very recent and very
sophisticated age, when men knew what they wanted and knew how
to get it by the favor of the government.
Did you ever look into the way a trust was made? It is very
natural, in one sense, in the same sense in which human greed is
natural. If I haven't efficiency enough to beat my rivals, then the
thing I am inclined to do is to get together with my rivals and say :
"Don't let's cut each other's throats ; let's combine and determine
prices for ourselves; determine the output, and thereby determine
the prices ; and dominate and control the market." That is very
natural. That has been done ever since freebooting was established.
That has been done ever since power was used to establish control.
The reason that the masters of combination have sought to shut out
competition is that the basis of control under competition is brains
and efficiency. I admit that any large corporation built up by the
legitimate processes of business, by economy, by efficiency, is natural ;
and I am not afraid of it, no matter how big it grows. It can stay big
only by doing its work more thoroughly than anybody else. And
there is a point of bigness where you pass the limit of efficiency and
get into the region of clumsiness and unwieldiness. You can make
your combine so extensive that you can't digest it into a single system ;
you can get so many parts that you can't assemble them as you would
an effective piece of machinery. The point of efficiency is overstepped
in the natural process of development oftentimes, and it has been
overstepped many times in the artificial and deliberate formation of
trusts.
A trust is formed in this way : a few gentlemen "promote" it —
that is to say, they get it up, being given enormous fees for their
kindness, which fees are loaded on to the undertaking in the form
of securities of one kind or another. The argument of the promoters
is, not that every one who comes into the combination can carry on
his business more efficiently than he did before ; the argument is : we
will assign to you as your share in the pool twice, three times, four
times, or five times what you could have sold your business for to an
individual competitor who would have to run it on an economic and
competitive basis. We can afford to buy it at such a figure because
we are shutting out competition.
Talk of that as sound business? Talk of that as inevitable? It
is based upon nothing except power. It is not based upon efficiency
It is no wonder that the big trusts are not prospering in proportion
to such competitors as they still have in such parts of their business
as competitors have access to; they are prospering freely only in
PROBLEM OF CAPITALISTIC MONOPOLY 439
those fields to which competition has no access. Read the statistics
of the Steel Trust, if you don't believe it. Read the statistics of
any trust. They are constantly nervous about competition, and they
are constantly buying up new competitors in order to narrow the
field. The United States Steel Corporation is gaining in its supremacy
in the American market only with regard to the cruder manufactures
of iron and steel, but wherever, as in the field of more advanced manu-
facture of iron and steel, it has important competitors, its portion of
the product is not increasing, but is decreasing, and its competitors,
where they have a foothold, are often more efficient than it is.
Why? Why, with unlimited capital and innumerable mines and
plants everywhere in the United States, can't they beat the other
fellows in the market? Partly because they are carrying too much.
Partly because they are unwieldy. Their organization is imperfect.
They bought up inefficient plants along with efficient, and they have
got to carry what they have paid for, even if they have to shut some
of the plants up in order to make any interest on the investments ;
or, rather, not interest on their investments, because that is an in-
correct word, — on their alleged capitalization. Here we have a lot
of giants staggering along under an almost intolerable weight of
artificial burdens, which they have put on their own backs, and con-
stantly looking about lest some little pigmy with a round stone in a
sling may come out and slay them.
B. CONDITIONS OF MONOPOLIZATION
201. The Failure of Competition^-
BY HENRY W. MACROSTY
Modern industry is essentially speculative in character. It has
been said, "It is for the prospective, not for the actually existing,
demand that a producer has chiefly to provide. Our warehouses and
shops overflow with goods that have been produced before being
sold, and with a view to their being sold. They have been produced
to meet the prospective demand, and to measure that accurately is
not in the power of the most able and prudent man."^^ This state-
ment applies not only to goods for consumption, but also to goods,
such as machinery, which are intended to aid production. The com-
munity is interested only in the accommodation of the whole supply
to the total demand, but it is to the interest of each individual manu-
facturer to secure for himself as large a share of that demand as
i^Adapted from Trusts and the State, pp. 103-119. Published by E. P.
Button & Co. and G. Richards & Co., Lortdon, 1901.
13 Mongradien, The Displacement of Labor and Capital (1886), p. 25.
440 CURRENT ECONOMIC PROBLEMS
possible, without regard to the probabiHty of there being an over-
supply. To secure custom he must underbid his competitors ; to
make the low price profitable he must reduce his expenses of produc-
tion. There is thus a permanent stimulus to the improvement of
organization and to the invention of new processes ; but as soon as
these advantages are gained they are immediately lost by competi-
tion, and the enhanced profits are either dissipated in expenses or
handed over to the consumer. The old economists justified compe-
tition on this very ground, that the desire for private gain drove
capitalists to improve their industry, and then compelled them to
part with their profits to the general public, but they arrived at this
only by neglecting all the other aspects of the problem.
The aim of trade is to make profits ; the object of making profits,
according to commercial philosophy, is to make savings. The re-
investment of savings in new industrial equipment is a necessary
condition to industrial progress. Thus industrial development goes
hand in hand with an increase in industrial equipment.
This steady tendency to increase the productive machinery of
the country necessarily intensifies competition. But if "competition
is the life of trade," it is the death of business. The newcomers,
equipped with the newest methods and the latest discoveries, pro-
duce more cheaply than their predecessors, and a race for life fol-
lows, in the course of which more and more goods at lower prices
are thrown on the market. If the low prices stimulate fresh demand,
general benefit ensues, but the rate of production can govern con-
sumption only within narrow limits. Owing to the great capacity
of modern machinery, the operatives employed by the investment
of savings can consume only a very small proportion of their prod-
uct. An outlet must be found either in the discovery of new mar-
kets, in countries yet to be developed, or in increased home con-
sumption. The former involves questions of foreign policy and in-
ternational competition, and must gradually diminish in importance
as a solution. As for the latter, the inequitable distribution of
wealth and the permanent maladjustment of purchasing and pro-
ducing power necessarily create an incalculable disorganization of
industry, and profoundly increases the innate inability of the com-
petitive system to balance demand and supply.
In a limited market it is possible for the producer to forecast the
probable demand and to estimate the capacity of his competitors
to meet it ; but in proportion as the markets widen, both these neces-
sary conditions of success, and especially the latter, become more dif-
ficult of attainment. A farmer in Essex finds it beyond his power
to reckon up the probable produce of a Dakota wheat crop or the
PROBLEM OF CAPITALISTIC MONOPOLY 441
chances of a scarcity in Russia before he decides what acreage he
will lay down in corn, and yet his inability may land him in the
bankruptcy court. Scarcely less difficult is it for the Sheffield manu-
facturer to foretell the probability of, say, a raid on rails by the Car-
negie combination. What is true of normal conditions of trade holds
good with reference to an abnormal demand, and the efforts to meet
the latter generally have far-reaching and destructive consequences.
The inability of the capitalist system to control its own produc-
tivity must increase with an increase in the complexity of the organi
zation. The influence of machinery on production deserves par-
ticular attention. Every invention causes displacement, both of cap-
ital and of labor ; and while its benefits are distributed over the
whole community, its costs must be borne by individual capitalists
and laborers. In America the invention of new labor-saving ma-
chines proceeds so fast that machinery becomes antiquated before
it is worn out, and the workshops are in a constant state of transi-
tion. Usually capital suffers less than labor, because of its greater
fluidity and its ability to recoup itself from the increased productivity
of the inventions. Large businesses suffer less than small, as their
powers of adaptation are greater, and therefore small concerns tend to
go to the wall. But loss there usually is, and one generation of pro-
ducers is sometimes ruined for the benefit of posterity.
To sum up, we see that business under capitalism, working
through competition, shows an inherent inability to equate supply
to demand, which increases as the market widens. The savings of
profits leads to overinvestment in productive appliances, from which
follow overproduction, fall in prices, and depression. The depres-
sion displaces labor, and the process increases the irregularity of
employment. Reduction of profits also compels economies in manu-
facture and transport, the greater employment of improved ma-
chinery, and the invention of new processes. The increased pro-
ductivity of capital causes a still greater reduction in prices and
profits, and increases the tendency toward disorganization. It is
from this situation that combination has been adopted as a means
of escape.
202. The Incentives to Monopoly^*
BY CHESTER W. WRIGHT
We have in modern capitalistic industry tendencies toward a
widening of the market with increased localization and integration
i*Adapted from "The Trust Problem — Prevention versus Allevation,"
lournal of Political Economy, XX (1912), 578-81.
442 CURRENT ECONOMIC PROBLEMS
and a steadily enlarging scale of production accompanied by a grow-
ing fierceness of competition. The larger the concerns, the smaller
their number, the greater their resources for carrying on a fight, the
bigger the prize which goes to the winner, the fiercer becomes the
competition and the more excessive its wastes. Add to this the dif-
ficulties arising from the small margin of profit, the more complicated
and prolonged industrial processes, the wide market, and the large
use of fixed capital — and finally add the extra gain which comes from
the power of monopoly to extort exorbitant prices, and one under-
stands the forces which are fundamentally responsible for the modern
trust movement. The reason for many trusts may be found in more
immediate causes, which, for the very reason that they are more im-
mediate and obvious, have often appeared, to the public eye at least,
as even more important.
It is doubtless true that a considerable number of trusts owe
their origin to the profits which it was expected would accrue to
the promoter who undertook the task of organizing the trust. This
was especially the case in the promotion which went on during the
years 1898 and 1901, when the money market and other conditions
were particularly favorable; but it is not likely that we shall soon
see a recurrence of such an era. There can be no question, how-
ever, that the lax corporation laws, many of which appear to have
been especially designed to meet the promoter's needs, did enable
him to make certain gains and to dispose of the securities put out
at a somewhat higher price than would otherwise have been pos-
sible. Still, it must be borne in mind that the more fundamental
causes for the growth of trusts were really at the bottom of even
these gains.
Most prominent among the second group of more immediate
causes for the growth of trusts — those which I call special privileges
— are railroad favors, tariff duties, and patent rights. In former
years railroad favors of one sort or another were doubtless given to
many of the trusts. From time to time announcements have been
made that these discriminations had been abolished ; but frequently,
as some later special investigation or prosecution revealed the facts, it
has been found that they still exist. However, the evil is undoubtedly
much less frequent than formerly and today is at best but a minor
factor. The tariff is probably of more importance as an aid to the
trusts, though I am inclined to believe that its influence has been con-
siderably exaggerated. Probably its chief effect is in enabling trusts,
most of which would exist in any case, to exact somewhat higher
prices for their products than would otherwise be possible. It should
be noted, however, that it is the over-protective tariff which offers
PROBLEM OF CAPITALISTIC MONOPOLY 443
the chief incentive for the formation of trusts. It is because the
duties are often so much higher than is necessary to maintain the
industry that overproduction ensues and the domestic manufacturers
are led to combine so as to secure the high profits made possible by
the tariff. To enact duties of this character is to do nothing less than
to offer a reward for forming a trust. The importance of patent
rights as a basis for trusts probably deserves more attention than it
has received.
The third group of minor causes for the growth of trusts includes
certain methods of competition, notably factor agreements and dis-
criminating prices. Under such agreements the manufacturer or
wholesaler may sell his product on condition that the price which he
fixes be absolutely maintained, or on condition that the retailer. shall
not deal in the competing product of any rival, or perhaps that he
shall not sell such rival product below a certain price. Any concern
. putting out a product for which there is a considerable demand can
use this system, especially the latter form, against its rivals with
tremendous power and effectiveness. The practice of discriminating
prices is also a powerful weapon for building up and maintaining
monopoly control.
Closely connected with this is the power exercised by control
of credit which is sometimes declared to be an important weapon
of the trust. On this point it is impossible at present to speak
decisively. Information is very difficult to obtain and usually con-
flicting. There is some reason to believe that a large concern with
the close financial alliances which ordinarily accompany it may oc-
casionally find itself in a position where it can control the credit
obtainable by a rival at some crucial moment and through the power
thus obtained may force that rival to capitulate, often at a heavy
loss, as in the case f)i the Pennsylvania Sugar Refining Company.
There may not be a money trust but apparently there are times
when the power of centralized control over large masses of capital
proves of great advantage to a big corporation,
203. Large-Scale Production and Monopoly^^
BY CHARLES J. BULLOCK
In favor of the proposition that the tendency of large-scale pro-
duction is to pass over into monopoly, three general lines of argument
may be distinguished: (a) the contention that a consolidated enter-
prise possesses advantages over independent companies in producing
^^Adapted from "Trust Literature : A Survey and a Criticism," Quarterly
Journal of Economics, XV, 190-210. Copyright, 1901.
444 CURRENT ECONOMIC PROBLEMS
and marketing its goods; (b) the claim that mere mass of capital
confers powers of destructive warfare so great as to deter possible
competition from entering the field; (c) the belief that modern com-
petition between large rival establishments, representing heavy in-
vestments of fixed capital, is injurious to the public, ruinous to the
producers, and in its final outcome self-destructive. As our discus-
sion proceeds it will become evident to the reader that all of these
arguments can be employed, with consistency, only by those who
believe that the competitive regime is to be replaced by an era of
monopoly.
First in this list is the contention that a consolidated concern
is a more efficient agent of production and exchange. Thus it is
claimed that trusts, by filling orders from the nearest plant, can
effect a great saving in cross- freights. Data upon this question are
available in the recent Bulletin of the Department of Labor. Of
the forty-one combinations reporting, twenty-seven failed to answer
this question, nine claimed a saving from this source, and five stated
that there was no gain. Of the nine reporting a saving, the Bulletin
states the amount only in three cases ; and in two of these the item
of cross-freights was combined with other economies, the aggregate
sums being $400,000 and "considerably over $500,000." This, be it
remembered, is the trusts' own showing, and is certainly not an under-
estimate. The reason for these comparatively small results is not
difficult to discover. When the monopolized product is of a bulky
sort, the industry is already localized pretty thoroughly before com-
bination takes place ; and, since most of the former independent estab-
lishments were producing chiefly for their natural local constituencies,
the trust can save little in cross- freights. When, however, the pro-
duct is light, transportation charges become a matter of small moment.
In either case the room for saving in cross-freights is not nearly as
large as has been represented, while often it does not exist.
Then it is urged that a trust can draw upon all the patented
devices of the constituent companies, and employ only those that
are most efficient. But advantages accruing from this fact will in
most cases prove to be of a temporary nature, as trusts that have
tried to base a monopoly upon the control of all available patents
have learned in the past, and will learn in the future. Moreover, a
simple reform in our patent laws will make the best processes avail-
able for all producers for any time that the public finds such a
measure to be necessary for protection against monopoly. Here,
then, we find no natural law working resistlessly towards combi-
nation, but a man-made device which can be regulated as public
policy may dictate.
PROBLEM OF CAPITALISTIC MONOPOLY 445
Again, we are told that a trust can produce more cheaply than
separate concerns, because all the plants utilized can be run at their
full capacity; whereas, under competition, many establishments can
be kept in operation but a part of the time. Some observations may
be made concerning this claim.
In general, it may be denied that, whenever governmental inter-
ference has not produced unhealthy and abnormal conditions, com-
petition has led to such absurdly excessive investments as is com-
monly assumed. We must concede, however, that under normal
conditions some reduction can be made in the number of plants
required to supply the market at ordinary times; but this does not
dispose of the matter. If a trust is to be prepared for supplying
the market promptly in times of rapidly increasing demand, it is
necessary that some surplus productive capacity must exist in periods
of stationary or decreasing demand ; for, as believers in the tendency
to monopoly often remind us, many months, or even one or two
years, are required for the construction of new plants. When this
fact is taken into account, the case will stand as follows: except
where the action of government has produced abnormal conditions,
the capacity of competing establishments does not exceed the require-
ments of the market to any such degree as is commonly assumed;
even a trust must provide for periods of expanding trade ; even then,
not all rival establishments suffer seriously from inability to find
continuous employment for their plants, so that probably the ad-
vantages secured by the trust are of consequence only when the least
fortunate or least efficient independent concerns are made the basis
of comparison.
Again, we are reminded of advantages in buying materials or
selling products. It is urged that a combination can purchase its
raw materials more cheaply than separate concerns. No one doubts
that a large company can often secure better terms than a small
establishment; but it is not so clear that every trust can secure
supplies more cheaply than large independent enterprises, unless
it is true that all combinations can arbitrarily depress the prices
of the materials which they consume. Undoubtedly, this has been
done by some of the trusts, although their partisans deny it; but
such a saving represents no social gain, and sometimes it may be
possible for would-be competitors to profit by the depressed con-
dition of the market for few raw materials.
And, finally, we come to economies in advertising and in solicit-
ing business, where the wastes of competition are certainly serious
and the room for improvement correspondingly great. Those who
deny the tendency to monopoly generally admit that a trust can have
446 CURRENT ECONOMIC PROBLEMS
a material advantage here, while those who affirm the existence
of such a tendency evidently realize that their case is strongest at
this point. Yet an opportunity for saving in these departments
does not always exist, and the extent of the economy is easily ex-
aggerated in other cases. Mr. Nettleton is right when he says:
"But to what extent the trust organizers have counted on prac-
tically cancelling expenditure for these two items, on the ground
that buyers will be obliged to come to the sole manufacturers, they
are likely to be surprised. To an extent which few appreciate, the
buying public has become accustomed to being reminded of its needs
before making purchases. Except in staple and absolutely necessary
commodities, demand is largely created and maintained by advertis-
ing through periodicals, catalogues, or traveling salesmen. Hence,
the trust that expects to save the bulk of this important item must
also expect to lose through diminished sales more than the economy
represents. This is not theory, but the testimony of leading dealers
in many lines."
We must now take into account certain counteracting forces,
upon which some writers rest their belief that competition will ulti-
mately prevail. These economists contend, in the first place, that,
outside the field of the natural monopolies, the growth of a busi-
ness enterprise is limited by the fact that companies of a certain
size will secure "maximum efficiency" of investment, and that be-
yond this point concentration brings no increase in productive ca-
pacity. This position is based upon the belief that a factory of a
certain size will enable machinery to be employed in the most ad-
vantageous manner ; that a reasonable number of such plants will
make possible all needful specialization of production ; that allied and
subsidiary industries can be, and are, carried on by large independent
concerns ; and that the cost and difficulties of supervision increase
rapidly after a business is enlarged beyond a certain size, especially
when it is attempted to unite plants situated in different parts of
the country. For this reason, increased output does not decrease the
burden of fixed charges after a company attains a certain magnitude ;
but, on the contrary, new charges arise. Among such new expenses,
not the least important are the cost of employing the most skilled legal
talent to steer the combination just close enough to the law, the ex-
penses necessary for "legislative" and "educational" purposes, and
the outlays for stifling competition or the continual "buying out" of
would-be rivals.
It is argued that an established monopoly will suffer actual loss
from listless and unprogressive management. As the New York
Journal of Commerce rightly insists, "It is not to be denied that
PROBLEM OF CAPITALISTIC MONOPOLY 447
such concentrations of management will be subject to countervail-
ing offsets from the absence of the stimulus of competition; from
the uncertainty about the management falling into the best pos-
sible hands ; from the discouragement to invention which always
attends monopoly, and from the possibility that the administration
may be intrusted to 'friends' rather than to experts." As Professor
Clark suggests, an established monopoly, secure in the possession
of the markets of a large country "would not need to be forever
pulling out its machines and putting in better," so that, as com-
pared with countries where industry is upon a competitive basis,
such a combination would fall behind in the struggle for interna-
tional trade. In ruthlessly and unceasingly displacing expensive
machinery with newer and better appliances, American manufac-
turers have probably led the world ; but monopolies will inevitably
feel reluctant to continue such an energetic policy of improvement.
As combinations obtain a greater age, they will persist in old and
established methods ; while nepotism and favoritism, tending to-
wards hereditary office-holding will replace the energetic manage-
ment that some of the trusts now display.
Here we may refer to two of the alleged advantages of trusts.
It is said that combinations develop abler management through the
opportunity they afford for a specialization of skill upon the part
of their officials, and that efficiency is increased by a comparison of
the methods and costs of production in the various plants.
When it is contended that the "strength of the trust is that it
gives the opportunity for the exercise of these highest qualities of
industrial leadership," and that it gives us "a process of natural
selection of the very highest order," we may question whether stock
speculation and other causes lying outside the sphere of mere pro-
ductive efficiency have not had more to do with the formation of
recent combinations than demonstrated superiority in business man-
agement. It may be asserted that the establishment of permanent
monopoly will interfere seriously with the future process of selection.
It must be remembered that the able leaders now at the head of the
successful trusts were developed out of a field which afforded the
widest opportunity for creative ability. The supreme qualities req-
uisite for great industrial leadership are not likely to be fostered
by a regime which closes each important branch of manufacture to
new enterprise, and renders hopeless all competition with a single
consolidated company. Will successive generations of bureau chiefs
or heads of departments in long-established corporations be able to
continue the race of masterful leaders, which freedom in originating
448 CURRENT ECONOMIC PROBLEMS
and organizing independent industries has given us in the present
age?
The second argument advanced to prove the tendency to mon-
opoly is the claim that mere mass of capital confers such powers
of destructive warfare as to deter possible competitors from en-
tering the industry, at least until prices have long been held above
the competitive rate. It is said that a large combination can lower
prices below the cost of production in any locality where a small
rival concern i» established, thus driving it out of the field. With-
out doubt the destructive competition waged by combinations is
an important consideration, and it may well enough re-enforce mon-
opoly where other attendant circumstances favor consolidation. But
a monopoly based solely upon this power would be, confessedly, a
temporary affair ; for probably no one would claim that all capitalists
would be intimidated permanently by such circumstances.
The final reason for the belief that combinations must ultimately
prevail is found in the character of modern competition in these
industries which require heavy investments of fixed capital. Under
such conditions the difficulty of withdrawing specialized investments
and the losses that are entailed by a suspension of production make
competition so intense that prices may be forced far below a profitable
level without decreasing the output; and industrial depression in-
evitably follows.
In support of this line of argument, it is said that trusts are
beneficial, because they can "exercise a rational control over indus-
try," and ".adjust production to consumption." Thus it is believed
that commercial crises can be prevented, or, at least, that their worst
effects can be avoided. But such arguments overlook the facts that
a restriction placed upon production by a trust, especially if this
is sufficient to raise prices above the competitive rate, may react
injuriously upon other trades ; and that monopoly profits, accruing
to a small body of capitalists for a long period of time, must con-
stitute a tax upon the body of the people that will affect the dis-
tribution of wealth in such a way as to reduce the consuming power
of the masses. A reduction in purchasing power thus produced
would render excessive the existing investments in staple industries,
and produce crises.
Not only is it doubtful whether monopoly is a wise method of
regulating industry, but it is certain that the evils of competition are
greatly exaggerated in some cases, while in others they are due to un-
healthful conditions for which an interference with industrial free-
dom is responsible. In many other industries where trusts have been
formed, the excessive investment of which writers complain was
PROBLEM OF CAPITALISTIC MONOPOLY 449
caused by the undue stimulus given by high protective duties and by
the restriction of foreign competition. Competition is restricted by
protective duties in most of the industries where combinations are
formed ; these duties increase the severity, and perhaps the frequency,
of the fluctuations from which business suffers ; then trusts, a further
restriction of freedom, are advocated as a remedy for the ills caused
by the initial interference with individual enterprise ; and, finally, in
order to regulate the trusts, an elaborate system of public supervision
is proposed. Would it not be well to make a genuine trial of com-
petition before condemning it for producing evils which are greatly
increased by governmental interference with industrial freedom?
204. Monopoly and Efficiency^'''
BY LOUIS D. BRANDEIS
Earnest argument is constantly made in support of monopoly
by pointing to the wastefulness of competition. Undoubtedly com-
petition involves some waste. What human activity does not? The
wastes of democracy are among the greatest obvious wastes, but
we have compensations in democracy which far outweigh that
waste and make it more efficient than absolutism. So it is with
competition. The margin between that which men naturally do
and which they can do is so great that a system which urges men on
to action, enterprise and initiative is preferable in spite of the wastes
that necessarily attend that process. I say "necessarily" because
there have been and are today wastes incidental to cofnpetition that
are unnecessary. Those are the wastes which attend that compe-
tition which does not develop, but kills. Those wastes the law can
and should eliminate. It may do so by regulating competition.
It is, of course, true that the unit in business may be too small
to be efficient. The larger unit has been a common incident of monop-
oly. But a unit too small for efficiency is by no means a necessary
incident of competition. It is also true that the unit in business may
be too large to be efficient, and this is no uncommon incident of
monopoly. In every business concern there must be a size-limit of
greatest efficiency. What that limit is will differ in different busi-
nesses and under varying conditions in the same business. But
whatever the business or organization there is a point where it would
become too large for efficient and economic management, just as
there is a point where it would be too small to be an efficient instru-
ment. The limit of efficient size is exceeded when the disadvantages
i^Adapted from an article in American Legal News, XXIV (1913)1 8-12.
450 CURRENT ECONOMIC PROBLEMS
attendant upon its size outweigh the advantages, when the centrif-
ugal force exceeds the centripetal. Man's work often outruns the
capacity of the individual man ; and, no matter what the organization,
the capacity of an individual man usually determines the success or
failure of a particular enterprise, not only financially to the owners,
but in service to the community. Organization can do much to make
concerns more efficient. Organization can do much to make larger
units possible and profitable. But the efficiency even of organization
has its bounds ; and organization can never supply the combined
judgment, initiative, enterprise and authority which must come from
the chief executive officers. Nature sets a limit to their possible ac-
complishment. As the Germans say : "Care is taken that the trees
do not scrape the skies."
That mere size does not bring success is illustrated by the records
of our industrial history during the past ten years. This record, if
examined, will show that :
1. Most of the trusts which did not secure monopolistic posi-
tions have failed to show marked success as compared with the inde-
pendent concerns.
This is true of many existing trusts, for instance, of the News-
paper Trust, the Writing Paper Trust, the Upper Leather Trust,
the Sole Leather Trust, the Woolen Trust, the Paper Bag Trust,
the International Mercantile Marine; and those which have failed,
like the Cordage Trust, the Mucilage Trust, the Flour Trust, should
not be forgotten.
2. Most of those trusts which have shown marked success
secured monopolistic positions either by controlling the whole busi-
ness themselves, or by doing so in combination with others. And
their success has been due mainly to their ability to fix prices.
This is true, for instance, of the Standard Oil Trust, the Shoe
Machinery Trust, the Tobacco Trust, the Steel Trust, the Pullman
Car Company.
3. Most of the trusts which did not secure for themselves
monopoly in the particular branch of trade, but controlled the situ-
ation only through price agreements with competitors have been
unable to hold their own share of the market as against the inde-
pendents.
This is true, for instance, of the Sugar Trust, the Steel Trust,
the Rubber Trust.
4. Most of the efficiently managed trusts have found it neces-
sary to limit the size of their own units for production and for
distribution.
PROBLEM OF CAPITALISTIC MONOPOLY 451
This is true, for instance, of the Tobacco Trust, the Standard
Oil Trust, the Steel Trust.
Lack of efficiency is ordinarily manifested either
1. In rising cost of product,
2. In defective quality of goods produced, or
3. In failure to make positive advances in processes and methods.
The third of these manifestations is the most serious of all. In
this respect monopoly works like poison which infects the system
for a long time before it is discovered, and yet a poison so potent
that the best of management can devise no antidote.
Take the case of the Steel Trust. It inherited through the Car-
negie Company the best organization and the most efficient steel
makers in the world. It has had since its organization exceptionally
able management. It has almost inexhaustible resources. It pro-
duces on so large a scale that practically no experimental expense
would be unprofitable if it brought the slightest advance in the
art. Yet : "We are today something like five years behind Germany
in iron and steel metallurgy, and such innovations as are being in-
troduced by our iron and steel manufacturers are most of them merely
following the lead set by foreigners years ago."
The Shoe Machinery Trust, the result of combining directly and
indirectly more than a hundred different concerns, acquired substan-
tially a monopoly of all the essential machinery used in bottoming
boots and shoes. Its energetic managers were conscious of the con-
stant need of improving and developing inventions and spent large
sums in efforts to do so. Nevertheless, in the year 191 o they were
confronted with a competitor so formidable that the Company felt
itself obliged to buy him off, though in violation of the law and at
a cost of about $5,000,000. That competitor, Thomas G. Plant, a
shoe manufacturer who had resented the domination of the trust,
developed an extensive system of shoe machinery, which is believed
to be superior to the Trust's own system, which represents the con-
tinuous development of that Company and its predecessors for nearly
half a century.
But the efficiency of monopolies, even if established, would not
justify their existence unless the community should reap benefit
from the efficiency ; the experience teaches us that whenever trusts
have developed efficiency, their fruits have been absorbed almost
wholly by the Trusts themselves. From such efficiency as they have
developed the community has gained substantially nothing. For in-
stance :
452 CURRENT ECONOMIC PROBLEMS
The Standard Oil Trust, an efficiently managed monopoly, in-
creased the prices of its principal products between 1895 and 1898,
and 1903 to 1906 by 46 per cent.
The Tobacco Trust is an efficiently managed monopoly. Be-
tween 1899 and 1907 the selling price on smoking tobacco rose from
21. 1 cents per pound to 30.1 cents; the profit per pound from 2.8
cents per pound to 9.8 cents. The selling price of plug tobacco rose
from 24.9 cents per pound to 30.4 cents ; the profit per pound from
1.9 cents to 8.7 cents.
The Steel Trust is a corporation of reputed efficiency. The high
prices maintained by it in the industry are matters of common knowl-
edge. In less than ten years it accumulated for its shareholders or
paid out as dividends on stock representing merely water, over
$650,000,000.
C. TYPES OF UNFAIR COMPETITION
205. Competitive Methods in the Tobacco Business^^
BY MEYER JACOBSTEIN
The most familiar as well as the most effective device employed
for stifling competition has been that of "local competition" — under-
selling a competitor in his own limited market while sustaining
prices elsewhere. This device is feasible only for large companies
that can make temporary sacrifices for the possibility of greater
gains in the future. In the early nineties, to check the sale of
"Admiral" cigarettes manufactured by an independent concern,
the American Tobacco Company offered its leading brand, "Sweet
Caporal," at cost, but only in regions where the Admiral was being
successfully marketed. The independent concern surrendered soon
afterward. In 1901, the American Tobacco Company was selling
"American Beauty" cigarettes for $1.50 per thousand, less two per
cent discount for cash, when the revenue tax alone was $1.50 per
thousand. This was done, however, only where an independent
company had succeeded in marketing its most popular brand, the
"North Carolina Bright." New York jobbers found that by purchas-
ing their cigarettes from North Carolina jobbers, after paying a
slight premium in addition to freight charges, they would pay less
for them than by buying direct from the Trust in New York City.
The local competition which helped to build up the Cigarette
Trust was practiced in the sale of other products. During the strug-
i^Adapted from The Tobacco Industry in the United States, pp. 1 17-21.
Copyright by the author. Published in the Columbia Studies Series, 1907.
PROBLEM OF CAPITALISTIC MONOPOLY 453
gle for the plug tobacco market between the Continental and Liggett
and Myers, the former was offering its "Battle Ax" brand for thirteen
cents a pound, which was below the cost of production, since the tax
was six cents and the raw leaf seven cents a pound. After the inde-
pendent concern was absorbed, "Battle Ax" rose to thirty cents a
pound. By similar methods the trust has won extensive markets in
England and Japan.
An instrument frequently employed to make local competition
effective is the "Factors' Agreement," whereby the jobber is offered
special rebates for agreeing to handle Trust goods exclusively, or to
boycott independent brands. While a 23^ per cent commission was
allowed jobbers who did not discriminate against Trust goods, 73^
per cent was given to those who handled Trust goods exclusively.
Frequently orders from concerns carrying in stock independent
goods were not filled. The Factors' Agreement is especially potent
in crushing any new competition in markets already controlled by
the Trust, for the jobber is loath to risk his assured profits, derived
from the sale of established Trust brands, in exchange from the
doubtful income from new, independent goods.
A closely allied device is that known as "Brand Imitation." This
is a most direct form of destructive competition : it consists of selling
at reduced prices brands which are apparently imitations of popu-
lar brands of independent manufacture. An instance of this is
the marketing at a low figure by the Trust of the "Central Union"
smoking tobacco in direct competition with the "Union Leader" of
an independent concern. The Trust distributed its "Central Union"
free to jobbers in order to ruin the "Union Leader." It was not
until the reputation of the independent brand had been seriously
damaged that the courts enjoined the Trust from further free dis-
tribution. Similarly the Trust marketed at a low price a brand in
imitation of the "Qboid" tobacco manufactured by Larus and Broth-
ers. As value of a brand is one of the important assets in the tobacco
trade, these methods are very ruinous to independent manufacturers
who cannot withstand a persistent attack from the Trust.
Another device is the use of a coupon system, whereby the con-
sumer receives a premium certificate equivalent to a 10 per cent re-
bate. The coupon system is especially valuable in the tobacco trade
because it serves as a substitute for the cutting of prices, the latter
being difficult, owing to the existence of conventional and conven-
ient prices, five cents and multiples of five. It is more feasible to
give coupons than to reduce a five-cent cigar to four cents. Since
much of the tobacco trade is transient, the successful operation of
454 CURRENT ECONOMIC PROBLEMS
the premium plan depends upon a wide distribution of stores that
offer the coupons, as through a chain of retail agencies like the
United Cigar Stores.
206. Competitive Methods in the Cash Register Business^^
BY HENRY ROGERS SEAGER
The specifications in the indictment against the National Cash
Register Company, on the basis of which twenty-seven of its officers
were found guilty by a jury in February, 1913,^® indicate in a concrete
way the kind of practices in which some of the trusts engaged. They
were:
1. It bribed the employees of competitors to reveal the secrets
of the competitors' business. By this means it obtained knowledge
of prospective buyers of cash registers, of those who had purchased
them but had not fully paid for them, of the volume of business be-
ing done by the competitors and the places in which it was being
done, of inventions and applications for patents by the competitors,
and of their financial condition and connections.
2. It bribed the employees of truckmen, express companies,
railway, telegraph and telephone companies to reveal information in
regard to the shipping of cash registers by competitors, and in regard
to the communication between the competitors and their agents and
customers.
3. It used its influence with banks and other institutions, some-
times going to the extent of making false statements to injure the
credit of competitors in order to prevent their securing money for
carrying on their business.
4. It required its sales agents to interfere in every way with the
sales of competitive cash registers. The means used included the
making of false statements with regard to the registers themselves,
as well as false statements reflecting injuriously upon the business,
character, and financial credit of its competitors.
5. It offered to sell to prospective purchasers of competitive
cash registers the National's machines at much less than the stand-
ard prices and upon unusually favorable terms.
i^Adapted from The Principles of Economics, pp. 453-55. Copyright by
Henry Holt & Co., 1913.
^^In June, 1915, the Supreme Court of the United States refused to sus-
tain an appeal from the decision of a higher federal court reversing the
decision of the lower court referred to in the text, and acquitting the offi-
cers of the National Cash Register Company. This closes the case against
them. — Editor.
PROBLEM OF CAPITALISTIC MONOPOLY 455
6. It induced persons who had already ordered competitive cash
registers to cancel their orders and purchase from the National, by
making further reductions in the price of National registers equiva-
lent to the amount already paid in on the purchase of the competitive
cash registers. It induced persons who had already bought other
registers to exchange them for the machines of the National, where-
upon it exhibited in the windows of stores where National machines
were for sale these machines with placards containing the word
"Junk," or the words "For Sale at Thirty Cents on the Dollar."
7. It offered for sale to prospective purchasers of other ma-
chines cash registers made in imitation of those others at prices even
lower than manufacturer's cost. These thus offered for sale were
known as "knockers." The manufacture of a particular type of
"knocker" was discontinued as soon as its use was no longer nec-
essary.
8. It sometimes offered for sale "knockers" having weak and
defective mechanism. This practice had two purposes. It enabled
the sales agent to point out the weak and defective mechanism and
to claim that the competitive cash register had the same shortcom-
ings. It also enabled him, in case the customer insisted upon pur-
chasing the "knocker," to persuade the customer to purchase a gen-
uine National machine when the "knocker," as was inevitable, speed-
ily broke down.
9. It instructed its sales agents secretly to weaken and injure
the internal mechanism and to remove and destroy parts of competi-
tive cash registers in actual use by purchasers whenever they could
get their hands on them. The object was evidently to cause the
purchaser of a competitive cash register to become dissatisfied and
to turn to the National to replace it.
10. It threatened competitors and purchasers of competitors'
machines with suits for infringement of the National's patent rights,
when no such rights existed, and no such suit was contemplated.
11. In other cases it began suit against competitors and against
purchasers of competitive cash registers for infringement when it
was well known that there was no ground for such suits and when
there was no intention of pressing the suits beyond the point neces-
sary to harass the competitors.
12. It organized cash register manufacturing concerns andlsales
concerns ostensibly as competitors of itself, but in fact as convenient
instruments for gaining the confidence and obtaining the secrets of
competitors.
456 CURRENT ECONOMIC PROBLEMS
13. It induced, by offers of largely increased compensation, the
agents and employees of competitors to leave the employment of the
competitors to enter that of the National.
14. It applied for patents upon the cash registers of competitors
and upon improvements upon those cash registers merely for the
purpose of harassing the competitors by interference suits and threats
to institute such suits.
207. The "Tieing" Agreement^"
BY W. H. S. STEVENS
Perhaps the most interesting of any of the methods of unfair
competition is the requirement that, in order to obtain certain ar-
ticles, a concern shall lease, sell, purchase, or use certain other ar-
ticles. The successful imposition of such requirements is usually
most destructive to competition ; and not infrequently it may be sup-
pressed altogether. Though conditions of this character show va-
riety, they may be discussed under three heads :
I. The purchase or lease of articles upon which the patents have
expired, as a condition of obtaining patented articles.
The "tieing" clauses in the leases of the United Shoe Machinery
Company furnish an example of this : A "tieing" clause may be
described as a provision that a given machine must be used in con-
junction with another or other machines. Sometimes the Shoe Ma-
chinery Company leases together two patented articles. In certain
other cases the leases have tied to patented machines others upon
which the patents have expired. The effect of the latter type of
clause was described by a witness before a congressional committee :
"At the present time a very large proportion of the important basic
patents have expired, and but for the restrictions imposed upon us
by their leasing system we should today be exercising our undoubted
right to use, without royalty, a large part of the machinery now
employed."
The Crown Cork and Seal Company, of Baltimore, manufactures
more tin caps for bottles than does any other concern in the United
States. The same concern also controls patents upon a certain de-
vice known as the Jumbo capping machine. None of the machines
is sold. They are leased to brewing and bottling establishments
undef agreements which provide that the "said machines shall be
used only in connection with Crown corks purchased by the lessee
20Adapted from "Unfair Competition," Political Science Quarterly, XXIX,
291-99. Copyright, 1914.
PROBLEM OF CAPITALISTIC MONOPOLY 457
directly from the lessor." The patents on the caps expired years
ago. The lease attempts to compel bottlers to purchase all caps from
the Crown Cork and Seal Company.
The theory which underlies the grant of a monopoly in a patent
is that human progress is promoted by the gift to inventors for a
term of years of the exclusive property in their inventions. At the
end of the period it is intended, however, that the inventions shall
become the property of the public. Theoretically any concern may
begin the production of an article previously patented as soon as the
term of the patent expires. Actually it may be unable to do so.
Conditional requirements may so destroy the market that even if the
goods are produced there would be no customers to purchase. This
precise situation seems to have developed through the "tieing" clauses
of the Shoe Machinery Company applying to patents.
2. The use of certain patented articles as a condition of obtain-
ing other patented articles.
The contracts of the Shoe Machinery Company require that a
given patented machine must be used in conjunction with another
patented machine. Under free competition the relative productive
efficiency of various machines produced by various concerns would
determine to a nicety the reward belonging to each patentee. As it
is, a machine more efficient than the United's machine for the work
it is designed to perform might have no market and bring in no
royalties to its patentee. A similar case is that of the Motion Pic-
ture Patents Company, which, by virtue of its film control, has en-
deavored to compel the use of motion pictures containing one or
more of the patents which it controls.
3. The purchasing, selling, or handling of a certain article or
line of articles as the condition of the purchase or handling of an-
other article or line of articles.
The Commissioner of Corporations in his report on the Interna-
tional Harvester Company has used the term "full-line forcing" to
describe "the practice of requiring dealers to order new lines as a
condition of retaining the agency for some brand of the company's
harvesting machines."
A restriction of similar character is charged by the government
in its suit against the American Coal Products and Barrett Manu-
facturing companies. These concerns are supposed to have a very
substantial control of the pitch made from coal tar. Some purchasers
and users of roofing materials have been required to buy one ton of
felt to every two tons of pitch.
458 CURRENT ECONOMIC PROBLEMS
20'8. Monopoly Control of Cost Goods-'
BY W. H. S. STEVENS
Attempts to acquire the control of the machinery necessary to
the manufacture of a particular line of goods are by no means un-
known. Following its organization in 1890 the old American To-
bacco Compc^ny, by securing and maintaining for some time the ex-
clusive control of the most successful cigarette machinery, was en-
abled to strengthen its dominant position in the business. At the
time of its organization it acquired control of the Allison and the
Emery machines, the patents of which belonged to firms entering the
new combination. Soon afterward it made a contract for the ex-
clusive use and control of the Bonsack machines. Thus it acquired
control of the very best machines used in the production of
cigarettes.
In 1913 the government brought suit against the American Can
Company. That concern was charged with acquiring control of the
principal can-making machinery plants of the United States, together
with most of the valuable patents for making that machinery. In
some cases this result was accomplished through long-term contracts
with patentees for controlling the disposition of the machinery manu-
factured under their patents ; in others by the purchase of licenses
which the owners of the patents had issued to the manufacturers of
cans ; in still others by obtaining contracts to sell such machinery
to other parties.
Somewhat different are cases in which control is acquired of the
articles or materials which enter into the manufacturing process.
The greater part of the supply of raw paper used in the manufac-
ture of photographic papers throughout the world is said to be in
the hands of the General Paper Company of Germany. Prior to
1906, when the control of this company was almost complete, the
General Aristo Company, which is controlled by the Eastman Kodak
Company, is alleged to have contracted to purchase the entire supply
of raw paper exported by the General Paper Company to the United
States. This contract, it is claimed, was continued from 1906 to
1910. Testimony before the Industrial Commission is to the effect
that the Photographic Supplies Combination first secured control of
raw paper imported from Germany about the year 1899.
The government has charged the Aluminum Company of Amer-
ica with endeavoring to obtain such a control of the bauxite prop-
erties of the United States as would prevent anyone but itself from
2iAdapted from "Unfair Competition," Political Science Quarterly, XXIX,
469-75. Copyright, 1914.
PROBLEM OF CAPITALISTIC MONOPOLY 459
producing metal aluminum. Prior to 1905, the Aluminum Company
of America possessed valuable bauxite properties, yet it did not ap-
proach control of even 50 per cent of the total bauxite supply of the
United States. In that year, however, the company through the
General Chemical Company acquired the capital stock of the General
Bauxite Company. As part consideration for this contract, the
General Chemical Company agreed that it would not use or sell
bauxite sold to it by the General Bauxite Company for conversion
into metal aluminum, but would use it solely for the manufacture of
alum, alum salts, alumina sulphate, and similar products. In 1909 a
contract was made with the Norton Chemical Company for the pur-
chase of the bauxite properties of the Republic Mining and Manufac-
turing Company, whose capital stock was owned by the Norton
company. In considering these contracts made by the Aluminum
Company of America, it should be borne in mind that this organi-
zation is alleged to control nearly one-half of the stock of the Alum-
inum Castings Company, 37 per cent of the stock of the Aluminum
Goods Manufacturing Company, and to be sole owner of the stock
of the Northern Aluminum Company and the United States Alum-
inum Company, manufacturers of aluminum cooking utensils.
D. THE REGULATION OF MONOPOLY
209. Law and the Forms of Combination-'
BY BRUCE WYMAN
Notwithstanding all the law against agreements in restraint of
trade, the present generation has seen the greatest movement toward
consolidation which is recorded in economic history. But this was
not accomplished without a reckoning with the law. In the face of
adverse law the ingenuity of attorneys, acting for clients who wished
to bring about a community of interests, has been taxed to the
utmost; and at best their schemes have proved only temporary ex-
pedients. In this era of consolidation there has been a change of
base at least four times ; first, the pool — a direct agreement between
the corporations concerned for their joint operation to a certain ex-
tent ; second, the trust — an indirect arrangement between the share-
holders to control the actions of their corporations ; third, the holding
company — a central company to hold the shares of the constituent
companies ; and, fourth, the single corporation, which buys the prop-
erties of the competing corporations outright. Yet, despite these
22Adapted from Control of the Market, pp. 142-64. Copyright by the
author. Published by Moffat, Yard & Co., 191 1.
460 CURRENT ECONOMIC PROBLEMS
various forms, the problem as to how various corporations may be
concentrated under one control is still to a large extent unsolved.
There was never real legal expectation of the success of any
form of pooling. There was too much express authority against
combinations in restraint of trade for that.
Perhaps every member would live up to his agreement ; but there
was no remedy at law if anyone did not. Perhaps the proceeds of
the pooling would be fairly divided ; but the court would not order
an accounting. And experience showed again and again that, with-
out legal obligation, there were always members in any such pool
treacherous enough to break it. Moreover, there was the corpora-
tion law to reckon with which has always held it contrary to policy
for corporations to surrender their independence by entering a pool.
The courts have held that for no purpose, legal or illegal, could cor-
porations be members of a partnership ; that they could not carry on
their business in common.^^
It is further to be noted that when a combination in restraint of
trade is once proved to be such, outlawry is declared. It can bring
no suit against those in it ; neither can they sue it. The courts will
have nothing to do with either association or associates. This is the
penalty, that the loss must lie where it falls ; and this policy is in
itself often one of the strongest of deterrents. Thus any member of
the association may withdraw when it suits his interest to do so, a
result that minimizes the harm that such a combination may effect.
For experience shows that the result is that competition goes on sur-
reptitiously, despite the agreement, since every active member is
strengthening his position in preparation for an ultimate withdrawal.
And at the psychological moment some member, who has accumu-
lated a large stock while production has been curtailed, will sell out
at near to the top price and break the market, thus causing his asso-
ciates irreparable losses.
Such was the state of the law when the trust agreement was dis-
covered by a startled community. The features of this scheme are
well known. All the shares of the capital stock of all the confeder-
ating corporations are transferred to a board of trustees. These issue
trust certificates in lieu of these shares, thus reserving the voting
rights in all the corporations. As a cover for the scheme all of the
corporations remain in existence ; and in form each conducts its own
business without any cross agreements among themselves.
From the point of view of those who had on foot a scheme to
monopolize, this trust device was excellent. It was centralized in
23 Mills V. Upton, 10 Gray 582 ; Mallory v. Hanaur Oil Works, 86 Tenn. 596.
PROBLEM OF CAPITALISTIC MONOPOLY 461
its control and secret in its doings. It left the power of control with
the inner circle, while enabling them to market as many securities
as they pleased. But adverse court decisions robbed the agreement
of its effectiveness.^* It was held against the law governing corpora-
tions in that it was beyond its power for a company thus to surrender
its independence. It was also a void arrangement by the law against
combinations in restraint of trade. The courts looked through the
outer forms into the inner facts. This was fortunate, for from the
point of view of the state the scheme was almost beyond control, as
its accounts could be juggled and responsibiHty for wrongdoing could
not be fixed.
A transition period of a few years followed upon the dissolution
of the trusts. The original owners still had the properties ; and the
common danger held them together, temporarily at least. Mean-
while the lawyers were casting about for some new scheme for com-
bining interests that would have legel sanction. The first schemes
were rather obvious attempts to make use of some established ar-
rangement as a cover for combination. Rather absurd these were,
doomed to early exposure from the outset. What could not be done
directly could not be brought about by indirection. The imperative
need was a device that would stand the test of legality. It is true
that without legal sanction much may be done under a gentleman's
agreement ; but without legality in organization there is no security.
Nor can there be any permanence unless the arrangement is perpetual.
And, further, without security and permanence, there can be no issue
of securities or market for them.
Eventually there was evolved the idea of a holding corporation,
a new central body which should acquire a majority of the stocks of
the constituent companies. The holding company possessed possi-
bilities of manipulation pleasant to contemplate ; the marketable issues
could be doubled by making the stock of the holding corporation twice
that of the constituent companies ; and since the operation of the
business could be concealed between the accounts of the holding com-
pany and the constituent companies, there would be nothing to fear
from the publication of formal statements.
There were obviously l egal difficulties . In most states by the com-
mon law it was beyond the powers of one corporation to hold the stock
of another for the purpose of operation. In some states, however,
statute law or special charter permitted corporations to be organized
to hold the stocks of other corporations. But this was at best a solu-
tion of only one of the difficulties; another remained. Granted that
2* People V. North River Sugar Refining Company, 121 N. Y. 582 ; State v.
Standard Oil Company, 49 Ohio St. 137.
462 CURRENT ECONOMIC PROLBEMS
the corporation was enabled to act without violation of the corpora-
tion law, there was the anti-trust law still to reckon with.
So it came to be recognized that there was a safer way, if one
chose to take it. The approval form among lawyers during the last
few years for making a consolidation of interests is by the formation
of a single gigantic corporation intended to take over by purchase all
the different concerns that are to be brought together. It has been
ruled that "corporations are empowered to purchase, hold, and use
property appropriate to their business. Under such powers it is
obvious that a corporation may purchase the plant and business of
competing individuals and concerns." ^^ But this is not unquestioned
law by any means. A court of equal authority has said, "There is
no magic in a corporate organization which can purge the trust scheme
of its illegality, and it remains as essentially opposed to the principles
of sound public policy as when the trust was in existence. It was
illegal before and is illegal still, and for the same reason."^®
From step to step in this succession there is a movement toward
integration. Now that the end of economic evolution has been
reached in a single corporation, the law against combinations in re-
straint of trade may perhaps cease to operate. Now the state may
impose such special regulation upon these industrial concerns as the
situation requires. The problem is therefore much simplified since
the time of the trusts. It has been reduced to its lowest terms by
the activity of the law in insisting that all combinations of every
stripe should be destroyed. The question then emerges. Shall these
great corporations be destroyed or shall they be regulated? That,
it is submitted, is the trust problem in its latest phase.
210. The Sherman Anti-Trust Act-'
Section i. Every contract, combination in the form of trust or
otherwise, or conspiracy, in restraint of trade or commerce among
the several states, or with foreign nations, is hereby declared to be
illegal. Every person who shall make any such contract or engage in
any such combination or conspiracy, shall be deemed guilty of a mis-
demeanor, and, on conviction thereof, shall be punished by a ffne not
exceeding five thousand dollars, or by imprisonment not exceeding
one year, or by both said punishments, in the discretion of the court.
' 25 Trenton Potteries Company v. Oliphant, 58 N. J. Eq. 507.
^Wistillers and Cattle Feeding Company v. People, 156 111. 448.
27From 26 U. S. Statutes 209 (1900). There are eight sections. The five
sections given here form the essential part.
PROBLEM OF CAPITALISTIC MONOPOLY 463
Section 2. Every person who shall monopolize, or attempt to
monopolize, or combine or conspire with any other person or persons,
to monopolize any part of the trade or commerce among the several
states, or with foreign nations, shall be deemed guilty of a misde-
meanor, and, on conviction thereof, shall be punished by fine not
exceeding five thousand dollars, or by imprisonment not exceeding
one year, or by both said punishments, in the discretion of the court.
Section 3. Every contract, combination in the form of trust or
otherwise, or conspiracy, in restraint of trade or commerce in any
territory of the United States or in the District of Columbia, or in
restraint of trade or commerce between any such territory and
another, or between any such territory or territories and any state or
states or the District of Columbia, or with foreign nations, or between
the District of Columbia and any state or states or foreign nations, is
hereby declared illegal. Every person who shall make any such con-
tract or engage in any such combination or conspiracy shall be deemed
guilty of a misdemeanor, and, on conviction thereof, shall be pun-
ished by fine not exceeding five thousand dollars, or by imprisonment
not exceeding one year, or by both said punishments, in the discre-
tion of the court.
Section 7. Any person who shall be injured in his business or
property by any other person or corporation by reason of anything
forbidden or declared to be unlawful by this act, may sue therefor
in any circuit court of the United States in the district in which the
defendant resides or is found, without respect to the amount in con-
troversy, and shall recover threefold the damages by him sustained,
and the costs of the suit, including a reasonable attorney's fee.
Section 8. That the word "person" or "persons," wherever used
in this act, shall be deemed to include corporations and associations
existing under or authorized by the laws of the United States, the
laws of any of the territories, the laws of any state, or the laws of any
foreign country.
211. The Meaning of Restraint of Traders
In substance, the propositions urged by the government are re-
ducible to this : That the language of the statute embraces every con-
tract, combination, etc., in restraint of trade, and hence its text leaves
28Adapted from the opinion of the court in the case of The Standard Oil
Company of New Jersey v. United States, 221 U. S. i (1911). By this decision
the Standard Oil Company of New Jersey was ordered "dissolved." The sig-
nificance of the decision lies in the distinction made by the court between
"reasonable" and "unreasonable" restraint of trade, and the insistence that the
Sherman act was meant to apply to the latter exclusively. This is the subject
of discussion in the selection given here. The Standard, of course, was found
guilty of "unreasonable" restraint of trade.
464 CURRENT ECONOMIC PROBLEMS
no room for the exercise of judgment, but simply imposes the plain
duty of applying its prohibitions to every case within its literal lan-
guage. The error involved lies in assuming the matter to be decided.
This is true because, as the acts which may come under the classes
stated in the first section and the restraint of trade to which that sec-
tion applies are not specifically enumerated or defined, it is obvious
that judgment must in every case be called into play in order to de-
termine whether a particular act is embraced within the statutory
classes and whether, if the act is within such classes, its nature or
effect causes it to be a restraint of trade within the intendment of
the act. To hold to the contrary would require the conclusion either
that every contract, act, or combination of any kind or nature,
whether it operated a restraint on trade or not, was within the statute,
and thus the statute would be destructive of all right to contract or
agree or combine in any respect whatever as to subjects embraced
in interstate trade or commerce, or if this conclusion were not reached,
then the contention would require it to be held that as the statute did
not define the things to which it related and excluded resort to the
only means to which the acts to which it relates could be ascertained —
the light of reason — the enforcement of the statute was impossible
because of its uncertainty. The merely generic enumeration which
the statute makes of the acts to which it refers and the absence of any
definition of restraint of trade as used in the statute leaves room for
but one conclusion, which is that it was expressly designed not to
unduly limit the application of the act by precise definition, but while
clearly fixing a standard — that is, by defining the ulterior boundaries
which could not be transgressed with impunity — to leave it to be
determined by the light of reason, guided by the principles of law
and the duty to apply and enforce the public policy embodied in the
statute in every given case, whether any particular act or contract
was within the contemplation of the statute.
212. An Appraisal of the Sherman Act^"
BY ALLYN A. YOUNG
The Sherman act is a general statute, declaratory of public policy.
As such it must be judged by ( i ) the soundness of the policy which
it declares, (2) the accuracy and completeness with which it declares
that public policy, and (3) the adequacy of the mechanism which it
provides for making that policy effective.
29Adapted from "The Sherman Act and the New Anti-Trust Legislation,"
Journal of Political Economy, XXIII, 213-20. Copyright by the University
of Chicago, 1918.
PROBLEM OF CAPITALISTIC MONOPOLY 465
1. There can be little doubt that the public policy which the act
was intended to embody is that competition should be maintained,
artificial monopoly destroyed, and its growth prevented. It is clear
from the debates attending its enactment that its hostility toward
large industrial combinations was especially directed against (i)
their supposed power over prices and (2) their aggressive suppres-
sion of competition. Whatever the economic advantages of monopoly
may be, there will be little question of the soundness of the policy
which attempts to deprive it of its power for evil in these two par-
ticulars.'"
2. Is the Sherman act an accurate expression of the public policy
which it seeks to declare? If by accuracy is meant precision, it has
little of it. It was, in its inception, a lawyer's statute, speaking in the
language of the common law. At the time it was evident that it would
be difficult for Congress to come to an agreement on particulars.
Moreover, its general phrases were chosen intentionally, we are told
by one of its framers, in order that the responsibility of determining
its exact scope might be left to the courts. For seven years its in-
terpretation was uncertain. The decisions of the lower court were
conflicting, and the Supreme Court's holdings purely negative. Even
after an utterance from this court, the words "restraint of trade"
still remained to be defined, and in the next thirteen years the work
of definition progressed only so far as the particular cases decided
were typical of the classes of cases possible. The standard of public
policy outlined in the Standard Oil decision was the first general
criterion of the scope of the act. There is little doubt that the pres-
ent interpretation of the statute is in harmony with the purposes
which were in mind at the time of its enactment. There is now no
question that if the purposes of combination are monopoly, they come
within the condemnation of the act. There is no reason to think,
for example, that price agreements and agreements to restrict output,
whether of local or general scope, are not as illegal now as they have
been at any time.
s^Most of the more weighty discussions of the economic advantages of
monopoly have to do with the effect of monopoly upon the aggregate produc-
tion of weahh measured in terms either of subjective satisfaction or of objec-
tive commodity units. Even from this point of view the case for monopoly
is exceedingly dubious and, at best, has a validity that is restricted and con-
ditioned in many ways. Moreover such considerations are relatively unim-
portant compared with matters like the effect of monopoly upon distribution,
upon the scope for individual initiative, upon economic opportunity in general,
and upon a host of social and political relations. In short, it is a question less
of the relative "economy" of monopoly or competition than of the kind of
economic organization best calculated to give us the kind of society we want.
Until our general social ideals are radically changed, it will take more than
economic analysis to prove that it would be sound public policy to permit
monopoly in that part of the industrial field where competition is possible.
466 CURRENT ECONOMIC PROBLEMS
As a general expression of the public policy which it is supposed
to embody the Sherman act is adequate. The difficulty is that it
goes too far. In the first place, it is so worded that it is used as
a weapon against strikes, boycotts, and other concerted efforts to
interfere with the conduct of any business undertaking which ships
its goods across state lines or to other countries. These things may
be undesirable; very likely some of them are. But they are so far
out of line with the other things condemned by the Sherman act,
and in most instances have so little relation to "monopolizing" that
they should be cut from the list of offenses condemned by the act.
In the second place, the application of the Sherman act to railroads
is inconsistent with the standards of public policy embodied in the
Interstate Commerce Act. We regulate railroad rates and services
on the assumption that railroads are natural monopolies, and that
combinations or rate agreements are inevitable. But at the same
time we condemn railroad combinations and rate agreements, and,
as in the New Haven case, bring criminal indictments against the
men responsible for such combinations. From railroads we exact
the observance of two mutually inconsistent standards of morality.
The real evils in railway combinations are matters of corporation
finance. These should be dealt with by statutes appropriate to the
purpose ; and the Sherman act should be so amended as to be rele-
gated to its proper field of preventable industrial monopolizing.
Finally, there comes the question of whether even within the
industrial field we want to prohibit monopoly as well as aggressive
monopolizing. Probably a monopoly achieved merely by the su-
perior efficacy of a formerly competitive business unit (if such were
possible) would not be condemned by the courts as a violation of
the Sherman act. And what is the status of a monopoly built up
merely by the peaceful union of absorbtion of competitive units?
In such a case on which side public policy lies it is hard to determine.
3. Does the Sherman act provide an efficient mechanism for
achieving its own ends? That its criminal features have been rela-
tively inefifective is generally admitted. Furthermore, it has been
found in practice that it is very difficult to secure a criminal convic-
tion from a jury for an offense so general, so abstract, so tainted
with the general and customary imputation of immorality as "re-
straint of trade" or "monopolizing." There is no reason to believe
that it will ever be easy to secure convictions for restraint of trade
in cases where the several steps taken in the creation of the restraint
are unobjectionable except as a part of a general scheme. As it is
the statute provides only an indirect and uncertain way of penalizing
PROBLEM OF CAPITALISTIC MONOPOLY 473
unification and standardization in American industry that has never
existed before. American business men who standardized their
products now hesitate to return to the old competitive struggle.
Combinations were necessary to secure the war-time standardi-
zation. The war-service committees that were organized in each
trade under the United States Chamber of Commerce were the tem-
porary war-time consolidations that substituted some degree of uni-
formity for an every-man-for-himself policy. These ephemeral
industrial pools, formed only for the period of emergency, derived
their binding force and their resulting powers to compel standardiza-
tion from the spirit of national sacrifice. Permanent industrial com-
binations to effect standardization must run the gauntlet of a different
set of social conditions ; they must meet the test of industrial fitness
and the scrutiny of the law.
The existing law runs counter to the great combinations that
would sponsor standardization. The only methods by which thor-
oughgoing standardization can be attained, i.e., by combination, are
declared to be unlawful. The circumstance that the combination
of industry was for the beneficial purpose of lowering costs by large-
scale production would not blind the eyes of the courts to the fact
that the keen competition over staples was thereby restrained. The
very power which arises out of large combinations is itself illegal,
regardless of the mode of its exercise.
The way toward standardization lies between the whirlwind of
ruinous competition and the sharp rocks of the Sherman act. The
breach between economic advantage and the law seems to be widen-
ing, and sooner or later a change must come. The law is the first to
show signs of bending. The Webb-Pomerene bill permits combina-
tion for export business. Since that necessity means perfect har-
mony among all the firms of a domestic industry for the one purpose
of foreign trade, it will be difficult indeed to cause these firms to
fight in the other purpose of domestic business.
As the foreign demand for American goods increases there will
come an increasing tendency toward large-scale production. As we
develop more and more into a manufacturing nation, the industries of
the country will be knit more closely together.
As some American industries thus tend to expand into monopolies
of world-wide scope, foreign combinations of trades will also attain
monopoly size by entering our markets and exchanging their wares
for the products of our monopolies. In this merciless international
competition, the small business unit will lose even the little market that
it has, and the industries of the world will become concentrated into
monopolies that, from manufacturing centers located at the points
474 CURRENT ECONOMIC PROBLEMS
of greatest geographical advantage, will send their standardized
products by swift and cheap carriers to the farthest recesses of the
Orient and the developing jungles of Africa and South America.
Many business men already see the change forecasted in the
industrial barometer, and they are preparing for the time when the
legal dyke will no longer be able to hold back the gathering flood.
In the meantime the prospective dangers of unregulated monopoly
should hasten the preparation of new instruments of social control.
We must draw the fangs of our new-born monopolies before they
use their adult powers to seize control of our political and financial
machinery for their selfish ends. The practic e of standard ization
will create a new fund of wealth, but we must control the forcesT+iat-
bring it forth so that the rtiasses of consumers will share the benefits.
216. Results of Regulating Combinations^^
BY E. DANA DURAND
Few of those who have advocated the policy of permitting com-
binations to exist subject to regulation seems to have given thought
to the magnitude of the task, its difficulties, or its ultimate outcome.
They have had in mind the comparatively few closely knit trusts of
the present time ; the so-called "good trusts" with their alleged
superior efficiency and their more or less reasonable policy toward
the public.
In the first place it would be difficult to limit the number of
trusts under such a policy. It is, of course, conceivable that the
government should undertake to suppress combinations in general
while permitting a few trusts to exist. A limited number might be
tolerated because of the special economic charactertistics of the
industries concerned which tended to make combination particularly
economical. If, however, the people once concede the right of a
monopolistic combination to exist, independently of extraordinary
conditions, a sense of justice should apparently compel them to per-
mit combinations ad libitum. Under no theory of justice could all
the trusts heretofore organized be permitted to continue without
granting permission to organize trusts in every other field.
In the second place, it would seem that if combinations having
power to restrain trade are to be permitted at all, they must be per-
mitted to become as comprehensive as they desire. Why should a
combination not be allowed to take over lOO per cent of the business
in its field quite as readily as 80 or 70 per cent? Few desire
to prohibit combinations controlling only a small proportion of a
^^Adapted from The Trust Problem, pp. 46-59. Copyright by Harvard
University, 1914.
PROBLEM OF CAPITALISTIC MONOPOLY 475
given industry; but if we permit that limit to be overstepped at all,
there is no limit. One can only speculate upon how numerous and
how comprehensive the trusts and pools would become if the policy
were adopted of permitting them freely but subjecting them to regu-
lation. In all probability the number would become very great.
Beyond question every combination, unless prevented by the govern-
ment, would take in just as large a proportion of the trade as could
be persuaded to enter it. In many cases this would mean the entire
trade.
If corporations were freely permitted and no limit placed upon
their magnitude, neither actual nor potential competition would be
an adequate check upon prices and charges for service. Govern-
ment regulation would unquestionably be necessary.
Some have suggested that regulation would be comparatively
simple. Only bad trusts would be interfered with, and the fear of
government intervention would make most of the trusts good. The
government, some seem to think, could let the trust go its own way
until it was proved to have become extortionate or to have used
unfair methods, and could then step in and punish its officers, or sus-
pend its right to do business. But how is the trust manager to know
in advance what prices and what practices will be adjudged so
unreasonable as to call for criminal prosecution ? What advantage
would there be in breaking up a trust, if another trust could be
formed in its place the next day? It would be intolerable to the
users of its products and services to stop its business even tem-
porarily. A good trust may become a bad trust overnight. Shall it
be a lawful organization today and an outlawed wreck tomorrow?
Regulation implies continuity of the combinations. Even if the
government adopted the policy of punishing trust managers as a
penalty for extortionate prices and unfair practices, this would re-
quire as thorough an investigation and as difficult a judgment as to
determine the proper prices and practices for the future.
In its very essence, however, regulation implies, not punishment
of past action, but prescription of future action. This means that
the government, if it undertakes regulation of trusts, will ultimately
have to fix their prices or limit their profits, or both. There is no
way to insure reasonable prices under monopoly control, but to
restrict them. If the government enters upon this policy ought it not
to go a step further and guarantee to the combination a permanent
monopoly, protecting them against competition ? The public is com-
ing to accept the view that justice to investors in public service
industries demands protection against competition. If the investor
in trust securities has had his profits held down by government
476 CURRENT ECONOMIC PROBLEMS
regulation, it is hardly fair to permit those profits to be still further
lowered, perhaps wholly destroyed, by the advent of a competitor.
Whatever might be the outcome of government regulation, there
can be no doubt of the immense difficulty of just and efficient regu-
lation of the prices or the profits of industrial combinations. The
federal government and the states would have to maintain elaborate
and powerful machinery to control the combinations. Consider the
nature of the task which would confront an administrative body. In
the first place, it would have to possess at all times detailed informa-
tion regarding all the concerns under its jurisdiction. The prices of
many commodities are necessarily variable. The cost of material
may change greatly and rapidly. The conditions of demand are
changeable. Grave injury might be done to the public during the
time required for securing information on which to base action if
such information were not already in the possession of the regu-
lating authority.
In the second place, the amount. oi„4giail,.Jiiy^oh^ed__w
enormous. A proper fixing of prices would require complete
knowledge of the costs of production and of the amount of invest-
ment. To make information accurate, the government would have
to prescribe the methods of accounting. It would be impossible to
prescribe uniform methods as is done for the railroads. The bewil-
dering variety of conditions in the different industries would have
to be provided for. Detailed reports, based on these prescribed
methods, would have to be made to the government, and these would
have to be scrutinized and studied with the utmost care. The gov-
ernment would have to employ a vast corps of expert accountants,
statisticians, and other specialists. The difficulties of cost account-
ing are so great that many of the large business concerns have found
it impossible to ascertain the costs of their products on scientific
principles. The business concern can get along without accurate
knowledge of its own costs. The government, however, in fixing
prices, must know all about cost, both operating costs and capital
charges. They are the very things which primarily determine the
reasonableness of prices.
In the third place, the determination of costs and investments
for the purpose of fixing prices would involve immensely difficult
problems of judgment. The judgment of the regulating body would
be constantly challenged and the result would probably be endless
litigation. The proper allowance for depreciation and obsolescence,
the proper apportionment of overhead charges among different prod-
ucts and services, the proper methods of valuing the different
elements in investment — these would have to be passed upon by the
PROBLEM OF CAPITALISTIC MONOPOLY 477
regulating authority. Such problems are difficult enough as they
confront the Interstate Commerce Commission. They would be far
more difficult for a body dealing with multifarious combinations in
widely different industries.
Even if the regulating authority should succeed in working out a
satisfactory determination of costs of production and value of invest-
ment, it would still be beset with troubles in fixing prices or limiting
profits. Demand for goods is variable even in non-competitive
industries. "tJrrchaiiging prices or prices bearing an unchanging
relation to costs would not be practical in mining, manufacturing,
and mercantile business. A combination might at times be justi-
fied in reducing prices below a normal level to stimulate demand
and keep its force employed, or to meet foreign competition. The
government would then have to determine how much prices could
subsequently be advanced in order to ofifset these reductions. In
other words, the government would be dealing with a constantly
changing problem of demand. Particularly difficult would be the
fixing of proper prices for products produced at joint cost. Take
petroleum for example. A wide variety of products are derived
from the one raw material, crude oil. Some of these are in so
little demand that they must be sold for less than the price of the
crude oil istelf. Others are in great demand and can be sold for
high prices. It is impossible to use costs as a basis for determining
prices of the specific products. For a regulating body to determine
the proper relationships of the prices of these joint products is vir-
tually impossible.
One could continue almost indefinitely setting forth the com-
plexities and difficulties of government regulation of the prices and
profits of combinations. A vague form of regulation will not do.
It would be difficult to prove that the public would be any better ofif
under a regime of half -regulated monopoly than under a regime
of competition enforced as well as possible by laws against combi-
nations and monopolies. Combination must be proved decidedly
more efficient than competition before the people will be justified
in trusting trusts under any but the most rigorous government
control.
Government regulation of prices and profits always involves a
large element of waste, of duplication of energy and cost. It means
that two sets of persons are concerning themselves with the same
work. The managers and employees of the corporation must study
cost accounting and conditions of demand in determining price pol-
icy. The officers and employees of the government must follow and
do it all over again. Moreover, the fact that the two sets of persons
have different motives in approaching their work-means friction and
478 CURRENT ECONOMIC PROBLEMS
litigation, and these spell further expense. To superimpose a vast
governmental machinery upon the vast machinery of private busi-
ness is an extravagance which should be avoided if it is possible
to do so.
The policy of government regulation of industry may readily
become a stepping-stone to government ownership and socialism.
The chances are strong that the government of the United States
will take over the telegraphs and telephones in the near future and
the railroads within less than a quarter of a century. H legul ation
by the government proves ineffective in securing reasonable rates,
the general public will demand government ownership . If regulation
proves so effective as to leave only moderate returns to the stock-
holders of the corporations, the stockholders are likely to urge gov-
ernment purchase, which would at least assure them a more certain
income. In either case the excessive cost of government regula-
tion will be urged as a reason for government ownership. In the
same way, if the government undertakes detailed regulation of com-
binations in manufacturing, mining, and trade, there is bound to be
a strong movement for government ownership in these fields also.
Government ownership of this or that industry is not necessarily
a bad thing. Even government ownership of a large proportion of
the industries of the country, even complete socialism, need not
necessarily affright us. It is sufficient to point out that the people
ought not to enter on the path of permitting and regulating com-
binations without considering the advantages and disadvantages of
this, the possible ultimate outcome, as well as those of the immediate
policy itself. If it could be proved that combination is materially
more economical than competition, we should doubtless be wise to
say farewell to competition. Presumably in this case we ought to
test thoroughly the practicability of government regulation of private
monopoly before proceeding further. The people would naturally
first try the plan of government ownership, if at all, in limited fields,
and compare the results with those of regulated monopoly before
undertaking general government ownership. It is by no means
improbable that the ultimate outcome would be socialism. The
future is very likely to see either a regime of general competition —
with, of course, some special exceptions — or a regime of universal
communism. Clearly, then, we should be very sure of our ground
before we take the first step toward possible communism. We
should convince ourselves beyond all doubt that competition is im-
possible ; or that, if possible, it is less efficient than monopoly — not
merely at certain times and in certain places, but generally and per-
manently — before we tolerate widespread combination in the field
of business.
X
THE PROBLEMS OF POPULATION
It is generally agreed to be desirable to use our powers of social control
to eliminate, or greatly reduce, the grosser social evils, such as misery, poverty,
vice, and crime. Perhaps the great majority of us would go farther, and use
such powers in quite a positive way to make society conform more closely
to our ideals. But we differ, as "reformers" have always done, as to methods.
In general we belong to two schools, the one stressing control of "environ-
ment," the other control of "population." The former demands greater equality
in the distribution of income, a bettering of living and working conditions, a
state relief of the stress due to "economic insecurity," and like measures. The
latter variously insists upon the reduction of numbers through "control of
births," the restriction of immigration, and a "scientific breeding" of a "superior
race" from the "eugenically fit." Some of the latter school emphasize quan-
titative, others qualitative, control of numbers.
The quantitative question has been much the more clearly appreciated.
From the blessing "of the seed of Abraham" to England's recent imperative
demand for "war brides," militaristic thought has always associated national
greatness with a large population. A country in the stage of increasing re-
turns places a high value upon sheer quantity of people, invites large families
through its social conventions, and encourages its cities to boast of their
numbers. It is only the presence or the anticipation of diminishing returns
that causes a nation to see truth in the Malthusian spector of pressure of
population upon the means of subsistence.
Half unconsciously, half deliberately, we of the United States have tried
to realize our "national destiny" by exercising control over our numbers. But
our problem has not until recently involved restriction of population. The
movement for "smaller families and better" is one of a few decades, and it has
affected only the more settled stocks. It cannot be said to have exercised as
yet any general influence in restricting numbers. Our policy has been, on the
contrary, one of increasing our population with mechanical rapidity, by sup-
plementing a high, but falling, birth-rate with an extremely high rate of in-
crease through immigration. By maintaining an "open door" we have allowed
the population of the Western world slowly to adapt itself to natural resources
considerably augmented by the addition of America. In the process of restor-
ing an equilibrium throughout America and Europe as a single social entity,
population has flowed to the regions where it has the highest value. The pass-
ing of the "old" and the coming of the "new" immigration shows that the
leveling process in the Western World is well under way, and that Southeast-
ern Europe is being brought within the common scheme of values. If immigra-
tion be left unrestricted, the "problem" will eventually disappear ; but it will
disappear because movement will no longer pay. This will come about when
the lower level of material culture becomes dominant for the entity.
We have increased our population by immigration because we have needed
numbers. Our vast natural resources have demanded for their development
vast quantities of cheap labor. A continuous immigrant stream has supplied
an increasing demand. The result has been the rapid development of a vast
pecuniary system, in which the older stocks have generally been pushed up
into positions of greater responsibility and higher wages. Our standards of
living have been further advanced by the myriads of cheap goods which immi-
grant labor has enabled our mills and mines to turn out.
But, like protection, the results of immigration have not been and could
not have been, limited to the purely industrial results which were anticipated.
Immigration, in connection with such complementary "forces" as protection,
47Q
480 CURRENT ECONOMIC PROBLEMS
the rapid accumulation of capital, the swift adaptation of the machine tech-
nique to a new continent, has contributed to the general transformation of
American society which has come about in the last fifty years. It has played
its part in the overdevelopment of our natural resources, the rapid growth
of our mining and manufacturing, the extension of our pecuniary system,
the evolution of our urban culture, and the institutions, attitudes, and prob-
lems which have been incident to this. Its role in the production of our "pros-
perity"' has been by no means a negligible one. Its social effects are very
closely bound up with the tariff. By accelerating the rate of our development
and by tying up larger and larger proportions of our resources in industries
supplying capricious wants, it has intensified the rhythm of the business cycle.
By blessing the country with an endless stream of "green" labor, it has serious-
ly weakened the bargaining position of native laborers, has retarded the devel-
opment of group solidarity, and has slackened the rate of improvement of
factory conditions. It has caused our national life to remain "in a state of
perpetual transition," and inhibited the formulation of the standards which
a stable society must possess. Through the very plasticity of the immigrant
it has preserved too much of the older institutional system, despite the sweep-
ing transformation of our social life. To this end it has strengthened the hold
of the older individualism ; it has increased the inequalities in wealth ; it has
rendered the strategic position of property stronger; it has added huge in-
crements of illiteracy to the body of citizens ; it has delayed our achivement
of social unity.
Not content with complicating all our social problems and adding a *quota
of new ones, it has presented us a perplexing and baffling immigration prob-
lem. In the past we have solved this in the formula, "Whosoever will, let him
come." Our futile attempts at restriction have involved the contradiction
of making use of a qualitative test, that of literacy, to solve a problem which
we have conceived of only in quantitative terms. But if the era of emigration
is not upon us, and if the great barbarian invasion is not at an end, to control
our growth we must formulate a more elaborate policy. In that task we must
ask ourselves some very pertinent questions. What place is the immigrant to
have in the future American society? Is he ultimately to become one of us,
or is he to constitute a permanent proletariat in a class society? How many
immigrants can we use? What are we to use them for? What policy will
result in securing the right number, of the right kinds, and in the right pro-
portions? Have we elaborated machinery for making the immigrants the
kinds of people we want them to be? Can such machinery be elaborated?
What influences is the newcomer exerting, or destined to exert, upon our
ideals, our standards, our institutions and our programs? And what in the
less immediate future is going to be the good of it all?
As we as a nation become older, our problems little by little lose their
gigantic and crude character. Our solutions must accordingly become more
delicate and exact. With this change in our national life we are beginning
to give more attention to the qualitative side of the population problem. As yet
we have aimed only at "negative" results. We have tried to prevent the mar-
riage and breeding of the "unfit," such as the insane, the feeble-minded, and
those possessed of chronic and hereditary ( ?) diseases. We have made some
attempt to prevent the marriages of those of radically different stocks, such
as whites and blacks. But we have as yet formulated no positive program
aimed at a definite result. We have, with trifling exceptions, allowed men of
any race to come and sojourn with us. To prevent their becoming contributors
to a future American race we have depended only upon such social restraints
as inhere in racial antipathy and in the difference in social and economic posi-
tions between members of different stocks. A permanent control of the qaulity
of population involves both the immigration and the eugenics problems. We
must allow only those whom we desire to come in or to be born. But whom
do we desire? This problem is not the simple one of the breeder of race
horses, draught animals, or fine porkers. There is no single and simple qual-
ity that we are to breed for, such as speed, physical strength, or quantity of
flesh. The answer is contingent upon the answer to the larger and more
difficult question of the kind of .tociety we want to develop.
PROBLEMS OF POPULATION 481
A. THE QUESTION OF NUMBERS
217. Utopia and the Serpent'
BY THOMAS HUXLEY
Suppose a shipload of English colonists to form a settlement in
such a country as Tasmania was in the middle of the last century.
On landing they find themselves in the midst of a state of nature,
widely differing from that left behind them. They proceed to put
an end to this state of things over the area they wish to occupy. They
clear away the native vegetation, and introduce English vegetable and
animal Hfe, and English methods of cultivation. Considered as a
whole the colony is a composite unit introduced into the old state of
nature; and, thenceforward, a competitor in the struggle for exist-
ence. Under the conditions supposed there is no doubt of the result,
if the work of the colonists be carried out intelligently. On the other
hand, if they are slothful, stupid, or careless, there is no doubt that
the old state of nature will have the best of it.
Let us now imagine that some administrative authority, as far
superior to men as men are to their cattle, is set over the colony.
The administrate^^ would, so far as possible, put a stop to the influence
of external competition by thoroughly extirpating the native rivals,
whether man, beast, or plants. And he would select his human agents
with a view to his ideal of a successful colony. Next, in order that no
struggle for means of existence between human agents should weaken
the efficiency of the corporate whole, he would make arrangements by
which each would be provided with those means. In other words,
selection by means of a struggle for existence between man and man
would be excluded. As the same time, the obstacles to the develop-
ment of the full capacities of the colonists would be removed by the
creation of artificial conditions of existence of a more favorable char-
acter. Protection against heat and cold ; drainage and irrigation, as
preventitives of excessive rain and drought ; roads and canals, to
overcome obstacles to locomotion ; mechanical agencies to supplement
the natural strength of men, would all be afforded. With every step
in this progress in civilization, the colonists would become more and
more independent of nature. To attain his ends the administrator
would avail himself of the courage, industry and co-operative intel-
ligence of the settlers ; and it is plain that the interests of the com-
munity would be best served by increasing the proportion of persons
who possess such qualities, in other words, by selection directed
toward an ideal. Thus the administrator might look for the establish-
ment of an earthly paradise, a true garden of Eden, in which all things
^Adapted from "Prolegomena" to Evolution and F*hics (1894), pp. v-vii.
482 CURRENT ECONOMIC PROBLEMS
should work together toward the well-being of the gardeners, in which
men themselves should have been selected with a view to their effi-
ciency as organs for the performance of the functions of a perfected
society.
But this Eden would have its serpent, and a very subtle beast
too, Man shares with the rest of the Hving world the mighty instinct
of reproduction and its consequence, the tendency to multiply with
great rapidity. The better the measures of the administrator achieved
their'object, the more completely the destructive agencies of the state
of nature were defeated, the less would that multiplication be checked.
Thus as soon as the colonists began to multiply, the administrator
would have to face the tendency to the reintroduction of natural
struggle into his artificial fabric, in consequence of the competition,
not merely for the commodities, but for the means of existence. When
the colony reached the limit of possible expansion, the surplus popu-
lation must be disposed of somehow ; or the fierce struggle for exist-
ence must recommence and destroy the artificially created system.
218. Appraisals of Population
a) by an early historian ^ •
And thy seed shall be as the dust of the earth, and thou shalt
spread abroad to the west, and to the east, and to the north, and to
the south ; and in thee and thy seed shall all the nations of the earth
be blessed.
b) by an early poet'
Lo, children are a heritage of Jehovah ;
And the fruit of the womb is his reward.
As arrows in the hands of a mighty man
So are the children of youth.
Happy is the man that hath his quiver full of them.
C) by ARISTOTLE*
There is an inconsistency in equalizing the property and not regu-
lating the number of the citizens. One would have thought that it
was even more necessary to limit population than property ; and that
jie limit should be fixed by calculating the chances of mortality in the
children, and of sterility in married persons. The neglect of this sub-
2From Gen. 28:14 (800 b.c.). _
sFrom Ps. 127:3-5 (200 B.C.)-
^Adapted from The Politics, II, 6 (357 B.C.) ; tr. by B. Jowett.
PROBLEMS OF POPULATION 483
ject, which in existing states is so common, is a never- failing cause of
poverty among the citizens, and poverty is the parent of revokition
and crime.
d) by sir WILLIAM TEMPLE^
The true and natural ground of trade and riches is the number of
people in proportion to the compass of the ground they occupy. This
makes all things necessary to life dear, and forces men to industry
and parsimony. These customs which grow first from necessity be-
come with time to be habitual to the country. And wherever they are
so, that place must grow great in traffic and riches, if not disturbed
by some accident or revolution, by which the people come either to
be scattered or destroyed. When things are once in motion trade
begets trade as fire does fire ; and people go much where people have
already gone.
e) by sir josiah child *
You cry up the Dutch to be a brave people, rich and full of cities,
that they swarm with people as bee-hives with bees ; if a plague come
they are filled up presently and such like ; yet they do all this by invit-
ing all the world to come and live among them. You complain of
Spain, because their inquisition is so high, they'll let nobody come and
live among thpm, and that's the main cause of their weakness and
poverty. Will not a multitude of people strengthen us as well as the
want of it weaken them ? Sure it will.
f) by DANIEL DEFOE ^
Whence is all this poverty of a country ? 'Tis evident 'twas want
of trade and nothing else. Trade encourages manufacture, prompts
[invention, increases labor and pays wages. As the number of people
/increase, the consumption of provisions increases. As the consump-
tion of provisions increases, more lands are cultivated. In a word as
the land is employed the people increase, of course, and the prosperity
of a nation rises and falls just as trade is supported or decayed. 'Tis
their multitude, I say, that all wheels of trade are set on foot, the
lanufacture and produce of the land and the sea are finished, cured
md fitted for the markets abroad ; 'tis by the largeness of their get-
'tings that they are supported.
^Adapted from "An Essay upon the Advancement of Trade in Ireland,"
in Works, III (1673), 2-3.
^Adapted from "England's Great Happiness" (1677), in McCulloch's Select Col-
lection of Early English Tracts on Commerce, p. 263.
^Adapted from "Extracts from a Plan of English Commerce, Being a
Complete Compendium of the Trade of This Nation" (1730) in McCulloch's
Select Collection of Scarce and Valuable Tracts on Commerce, pp. 1 12-13.
484 CURRENT ECONOMIC PROBLEMS
g) by sir JAMES STEUART®
The generative faculty resembles a spring with a loaded weight,
which always exerts itself in proportion to the diminution of resist-
ence; when food has remained some time without augmentation or
diminution the spring is overpowered ; the force of it becomes less
than nothing, inhabitants will diminish at least in proportion to the
over charge. If on the other hand food be increased the spring will
exert itself in proportion as the resistence diminishes; people will
begin to be better fed ; they will multiply, and in proportion as they
increase in numbers, the food will become scarce again.
h) by ARTHUR YOUNG®
In spite of the assertions of all political writers for the last twenty
years, who place the prosperity of a nation in the greatest possible
population, an excessive population without a great amount of work
and without abundant productions is a devouring surplus for a state ;
for this excessive population does not get the benefits of subsistence,
which, without this excess, they would partake of; the amount of
work is not sufficient for the number of hands ; and the price of work
is lowered by the great competition of the laborers, from which fol-
lows indigence to those who cannot find work.
l) BY ADAM FERGUSON^"
The number in which we should wish mankind to exist is limited
only by the extent of place for their residence and of provision for
their subsistence and accommodation ; and it is commonly observed
that the numbers of mankind in every situation do multiply up to the
means of subsistence. To extend these limits is good ; to narrow them
is evil ; but although the increase in numbers may thus be considered
as object of desire, yet it does not follow that we ought to wish the
species thus indefinitely multiplied.
j) BY A "much harmed" NATIVE OF BRITISH INDIA"
I am humble man and great family, large suns and daughters with
magnificent appetites. Much often have I written the great notorious
^Adapted from Principles of Political Economy, Being an Essay on the
Science of Domestic Policy in Free States (1767), p. 20.
^Adapted . from The Farmer's Tour Through the East of England (1771 )
p. 429. V // /.
loAdapted from Principles of Moral and Political Science (1702) II
pp. 409-10. V / :' ^ > »
"A letter from Ram Sylup, a native of India, to an ex-officer of the gov-
ernment, askmg for a position.
PROBLEMS OF POPULATION 485
gentlemens who have terribly failed in goodness; therefore, your
honor will not be considerable angered with me, for because though
not altogether dead for want of money, I am much harmed man and
magnanimously anxious for display of my talents.
It is great sheer pity, all my big education is going horribly cast
aside. Your honor, I am like one man in what your English poet
calls "bqrn blowing unseen" and your honor is the P. S. Department
with its great sercelated departments — building big roads and bridges
which falling down, no matter for that, makes the money — and be-
cause your honor is now completely dismissed for procuring the cash,
yet still much influence is with your honor in the wide place of area
of P. S. Dept.
Your kind honor will pass over the fury of my great petishion. I
am telling you of much troubles, experiments, and much lirned things.
I got much studies in big Dichonharry on grate talents on all things.
But this manifold family which I have generated, God knows every
year she does my wife make incremental successions to the ramifica-
tions of this generation. My age was nineteen when I did begin to
have children and now my age is thirty-four and only one child dead,
and by the Lord there will be no end to this mischief.
B. THE MALTHUSIAN THEORY
219. The Theory of Population'^
BY THOMAS ROBERT MALTHUS
In an inquiry concerning the improvement of society, the mode
of conducting the subject which naturally presents itself is (i) to
investigate the causes which have hitherto impeded the progress of
mankind towards happiness; and (2) to examine the probability of
the total or partial removal of these causes in the future. The prin-
cipal object of this essay is to examine the effects of one great cause
intimately united with the very nature of man. This is the constant
tendency of all animated life to increase beyond the nourishment pro-
vided for it.
Through the animal and vegetable kingdoms Nature has scat-
tered the seeds of life abroad with the most profuse and liberal hand.
If the germs of existence coi^tained in the earth could freely develop
themselves, they would fill millions of worlds in the course of a few
thousand years. Necessity, that imperious, all-pervading law of
nature, restrains them and man alike within prescribed bounds.
^^Adapted from An Essay on the Principle of Population, or a View of
the Past and Present Effects on Humcn Happiness (6th ed. ; 1826), I, 1-24.
\
486 CURRENT ECONOMIC PROBLEMS
The effects of nature's check on man are compHcated. Impelled
to the increase of his species by an equally powerful instinct, reason
interrupts his career, and asks him whether he may not bring beings
into the world, for whom he cannot provide the means of support.
If he hear not this suggestion, the human race will be constantly en-
deavoring to increase beyond the means of subsistence. But as, by
that law of our nature which makes food necessary to the life of man,
population can never actually increase beyond the lowest nourishment
capable of supporting it, a strong check on population, namely, the
difficulty of acquiring food, must be constantly in operation. This
difficulty must fall somewhere, and must necessarily be severely felt
in some or other of the various forms of misery by a large portion
of mankind. This conclusion will sufficiently appear from a review
of the different states of society in which man has existed. But the
subject will be seen in a clearer light, if we endeavor to ascertain what
would be the natural increase in population, if left to exert itself with
perfect freedom.
Many extravagant statements have been made of the length of
the period within which the population of a country can double.
To be perfectly sure we are far within the truth, we will take a slow
rate, and say that population, when unchecked, goes on doubling itself
every twenty-five years, or increases in a geometrical ratio. The rate
according to which the production of the earth may be supposed to
increase, it will not be so easy to determine. However, we may be
perfectly certain that the ratio of their increase in a limited territory
must be of a totally different nature from the ratio of the increase in
population. A thousand millions are just as easy doubled every
twenty-five years by the power of population as a thousand. But the
food will by no means be obtained with the same facility. Man is con-
fined in room. When acre has been added to acre till all the fertile
land is occupied, the yearly increase in food must depend upon the
melioration of the land already in possession. This is a fund, which,
from the nature of all soils, instead of increasing must be gradually
diminishing. But population, could it be supplied with food, would
go on with unexhausted vigor ; and the increase in one period would
furnish a power of increase in the next, and this without any limit.
If it be allowed that by the best possible policy the average produce
could be doubled in the first twenty-five years, it will be allowing a
greater increase than could with reason be expected. In the next
twenty-five years it is impossible to suppose that the produce could
be quadrupled. It would be contrary to our knowledge of the prop-
erties of land.
PROBLEMS OF POPULATION 487
Let us suppose that the yearly additions which might be made to
the former average produce, instead of decreasing as they certainly
would do, were to remain the same ; and that the product of the land
might be increased every twenty-five years, by a quantity equal to
what it at present produces. The most enthusiastic speculator can
not suppose a greater increase than this. Even then the land could
not be made to increase faster than in an arithmetical ratio. Taking
the whole earth, the human species would increase as the numbers i,
2, 4, 8, 16, 2^, 64, 128, 256, and subsistence as i, 2, 3, 4, 5, 6, 7, 8, 9.
In two centuries the population would be to the means of subsistence
as 256 to 9; in three centuries as 4096 to 13, and in two thousand
years the difference would be almost incalculable.
In this supposition no limits whatever are placed to the produce
of the earth. It may increase forever and be greater than any assigna-
ble quantity ; yet still the power of population, being in every period
so much greater, the increase of the human species can only be kept
down to the level of the means of subsistence by the constant opera-
tion of the strong law of necessity, acting as a check upon the greater
power.
But this ultimate check to population, the want of food, is never
the immediate check except in cases of famine. The latter consists
in all those customs, and all those diseases, which seem to be gen-
erated by a scarcity of the means of subsistence ; and all those causes
which tend permanently to weaken the human frame. The checks
may be classed under two general heads — the preventative and the
positive.
The preventative check, peculiar to man, arises from his reason-
ing faculties, which enables him to calculate distant consequences.
He sees the distress which frequently presses upon those who have
large families ; he cannot contemplate his present possessions or earn-
ings, and calculate the amount of each share, when they must be
divided, perhaps, among seven or eight, without feeling a doubt
whether he may be able to support the offspring which probably will
be brought into the world. Other considerations occur. Will he
lower his rank in life, and be obliged to give up in great measure his
former habits? Does any mode of employment present itself by
which he may reasonably hope to maintain a family? Will he not
subject himself to greater difficulties and more severe labor than in his
present state? Will he be able to give his children adequate educa-
tional advantages? Can he face the possibility of exposing his chil-
dren to poverty or charity, by his inability to provide for them ? These
considerations prevent a large number of people from pursuing the
dictates of nature.
488 CURRENT ECONOMIC PROBLEMS
The positive checks to population are extremely various, and in-
clude every cause, whether arising from vice or misery, which in
any degree contributes to shorten the natural duration of human
life. Under this head may be enumerated all unwholesome occupa-
tions, severe labor, exposure to the seasons, extreme poverty, bad
nursing of children, great towns, excesses of all kinds, the whole train
of common diseases, wars, plagues, and famines.
The theory of population is resolvable into three propositions:
(i) Population is necessarily limited by the means of subsistence.
(2) Population invariably increases where the means of subsistence
increase, unless prevented by some very powerful and obvious checks.
(3) These checks which keep population on a level with the means of
subsistence are all resolvable into moral restraint, vice, and misery.
220. Malthusianism a Support of Capitalism^^
BY PIERCY RAVENSTONE
We have new doctrines preached to us. Men, it is now discov-
ered, grow more readily than plants. Human beings overrun the
world with the rapidity of weeds. Hence the hopeless misery. The
earth groans under the weight of numbers. The rich, it is now dis-
covered, give bread to the poor. Labor owes its support to idleness.
Those who produce everything would starve but for the assistance
of those who produce nothing. The numbers of the poor are to be
checked by all possible means : every impediment is to be placed in
the way of their marriages, lest they should multiply too fast for the
capital of the country. The rich, on the contrary, are to be encour-
aged, everything is to be done for their benefit. For though they
produce nothing themselves, their capital is the cause of everything
produced ; it gives fertility to our fields and fecundity to our flocks.
These doctrines are new. It was long the established creed of
every statesman, that in the extent of its population consisted the
strength, the power, and the opulence of every nation; that it was
therefore the duty of every sovereign to increase, by all practicable
means, the number of the people committed to his charge. On what-
ever other points statesmen and legislators might differ, on this they
were all agreed. From Lycurgus to Montesquieu the doctrine under-
went no change. Marriage was everywhere held up as honorable;
children were considered as entitling their fathers to peculiar privilege
and the mark of scorn was imprinted on the selfish being who re-
-'Adapted from A Few Doubts as to the Correctness of Some Opinions
Generally Entertained on the Subjects of Population and Political Economy
(1821), pp. s-24.
PROBLEMS OF POPULATION 489
mained single. Poverty gave no exception ; it rather increased the
obhgation. His country gratefully received in children the contribu-
tion of him who had nothing else to give. The wealth of a nation
consisted in the number and strength of its peasantry. Men did not
dream that riches could be separated from numbers. By these newer
doctrines pestilence and famine are ministers of God, executing his
eternal decrees, and rescuing us from the necessity of overwhelming
wretchedness. The doctrine has robbed Divinity of all the charities
of his nature, leaving to him little else than the functions of an enemy
of mankind.
The great and the rich could not be much offended at discovering
that whilst their rights were augmented, they were entirely absolved
from the performance of those actions which the less enlightened
judgment of other times had classed among the most important and
essential of their duties. To be merciful to our own faults, to believe
our idle expenses meritorious, to set up selfishness as the idol of our
idolatry, and to drive away charity, are duties not very repugnant to
our nature. They demand no sacrifice in their performance. The
temple of virtue will be crowned with votaries, if it be made to lead
to the shrine of self-interest.
Those severer morals which taught that the poor were equally
partakers of the divine nature with the rich ; that they were equally
fashioned in the image and likeness of God ; that their industry being
the cause of all that was produced, and the rich being in reality only
pensioners on their bounty, the latter were only trustees for the good
of society ; that their wealth was given not for their own enjoyment,
but for its better distribution through the different channels of so-
ciety, were not likely long to maintain their hold on the minds of the
wealthy against those sedative doctrines which flattered the passions,
converted faults into good qualities, and made even conscience pander
to vices.
It is an old and dreary system which represents our fellow-
creatures as so many rivals and enemies, which makes us believe that
their happiness is incompatible with our own, which builds our
wealth on their poverty, and teaches that their numbers cannot con-
sist with our comforts and enjoyments ; which would persuade us to
look on the world as a besieged town, where the death of our neigh-
bors is hailed with secret satisfaction since it augments the quantity
of provisions likely to fall to our share. To consider misery and vice
as mere arrangements of the Divinity to prevent the inconvenience of
a too great population of the world, is to adopt predestination in its
worst form. In committing crimes we should only be executing the
will of God ; in alleviating the distresses of others, in feeding the
490 CURRENT ECONOMIC PROBLEMS
hungry and clothing the naked, we should be running counter to the
decrees of Providence.
But before we can adopt these conclusions, it behooves us to
examine on what foundation the system is built. We must remem-
ber that it is the common interests of all members which holds so-
ciety together. Misery is not of God's creation ; vice is not the
minister of His will. I shall show that the increase in numbers in
the human species is wholly uninfluenced by human institutions. It
is by no means so varied in its operation as Mr. Malthus has sup-
posed; it affords no ground for alarm; it calls for no restrictive
measures, since the increase in subsistence is entirely dependent on
the increase in numbers. Every man brings into the world the
means of producing his own sustenance. Wherever the numbers of
the people increase more rapidly than the means of subsistence, the
fault is not with Providence, but in the regulations of society. Cap-
ital is no addition to the wealth of a nation ; it conduces nothing to
the improvement of the industry ; it is merely a new distribution of
the property of society, beneficial to some, wholly because it is
injurious to others.
221. Malthus versus the Malthusians^*
BY LEONARD T. HOBHOUSE
The appearance of the biological theory of progress, of which
we have been hearing much of late, was announced by the terrible
douche of cold water thrown by Malthus on the speculative optimism
of the eighteenth century. The generation preceding the French
Revolution was a time of buoyant and sanguine outlook. There
floated before men the idea of an age of reason when men should
throw off the incubus of the past and resume a life in accordance
with nature in a social order founded ^ a rational consideration
of natural rights. Nature both in the politics and the economics
of the time assumes a half personal and wholly benevolent character
while human restrictions, human conventions, play the part of the
villain in the piece. At this point Malthus intervened by calling
attention to a "natural" law of great significance. This was the
law that human beings multiplied in a geometrical ratio ; that it was
only by the checks of famine, pestilence, and war that they were
prevented from overspreading the earth, and that, to cut the mat-
ter short, whatever the available means of subsistence, mankind
would always, in the absence of prudential checks, multiply up to
the limit at which those means became inadequate. True, the means
i*Adapted from Social Evolution and Political Theory, pp. 13-16. Copy-
right by the Columbia University Press, 191 1.
PROBLEMS OF POPULATION 491
of subsistence might be extended. New countries might be opened
up. New sources of food supply might be discovered. Every such
extension, the Malthusian argued, would only redouble the rate of
multiplication. Checks would cease, men and women would marry
earlier ; very soon population would again be pressing on the means
of subsistence. The advance in civilization told in the same direc-
tion. Population was increasing, must increase. It could be held
in check only by the one great barrier of the subsistence limit
against which the fringe of advancing population must forever beat
in misery. There could be no solution of the social question ; for
in the nature of things there must be a line where the surf of the
advancing tide breaks upon the shore, and that shore was death
from insufficiency of nourishment. You observe that in summariz-
ing the argument I speak partly of Malthus, partly of the Malthus-
ians. Malthus himself, particularly in his second edition, laid stress
on the prudential checks. He cannot fairly be accused of fostering
the pessimistic views often fastened upon him. But for many a
long year after he wrote, the efficacy of the prudential checks ap-
peared to be very slight. It was his first edition that was generally
absorbed and that profoundly influenced social thought for nearly
a century. It was not till the seventies that there came into opera-
tion that general fall in the birth-rate, which has justified Malthus
against the Malthusians, has put the calculations of the future growth
of population on a radically different basis, and has brought about
among other things a complete reconstruction of the biological
argument against progress. I venture to think we may draw a
lesson from the fate of Malthusianism. Mathematical arguments
drawn from the assumption that human beings proceed with the
.statistical regularity of a flock of sheep are exceedingly difficult
to refute in detail, and yet they rest on an insecure foundation.
Man is not merely an animal. He is a rational being. The Mal-
thusian theory was one cause of the defeat of its own prophecies.
It was the belief that population was growing too fast that operated
indirectly to check it. Those who fear that population is now
growing too slowly, may take some comfort from the reflection.
We are not hastily to assume inevitable tendencies in human society,
because the moment society is aware of its tendencies a new fact
is introduced. Man, unlike other animals, is moved by the knowl-
edge of ends, and can and does correct the tendencies whose
results he sees to be disastrous. The alarmist talk of race suicide
may serve its purpose if only by admonishing us of the fate of a
theory based on what appears to be a most convincing biological
calculation.
492 CURRENT ECONOMIC PROBLEMS
222. Population Pressure and War' '
BY EDWARD ALSWORTH ROSS
A century ago Malthus startled the world by demonstrating that
our race naturally multiplies faster than it can increase its food
supply, with the result that population tends ever to press painfully
upon the means of subsistence. So long as mankind reproduces
freely, numbers can be adjusted to resources only by the grinding
of destructive agencies, such as war, famine, poverty and disease.
To be sure, this ghastly train of ills may be escaped if only people
will prudently postpone marriage. Since, however, late marriage
calls for the exercise of more foresight and self-control than can
be looked for in the masses, Malthus painted the future of humanity
with a somberness that gave political economy its early nickname
of "the dismal science."
Malthus is not in the least "refuted" by the fact that, during his
century, the inhabitants of Europe leaped in number from one hun-
dred and eighty-seven millions to four hundred millions, with no
increase but rather diminution of misery. It is true, unprecedented
successes in augmenting the food supply have staved off the over-
population danger. Within a lifetime, not only have the arts of
food raising made giant strides, but, at the world's rim, great virgin
tracts have been brought under the plow, while steam hurries to
the larders of the Old World their surplus produce. But such a
bounty of the gods is not rashly to be capitalized. While there is
no limit to be set to the progress of scientific agriculture, no one
can show where our century is to find its Mississippi Valley, Argen-
tina, Canada, or New Zealand, to fill with herds or farms. The
vaunted plenty of our time adjourns but does not dispel the haunting
vision of a starving race on a crowded planet.
Nevertheless, the clouds that hung low about the future are
breaking. The terrible Malthus failed to anticipate certain influ-
ences which in some places have already so far checked multiplica-
tion as to ameliorate the lot of even the lower and broader social
layers. The sagging of the national birth-rate made its first appear-
ance about fifty years ago in France, thereby giving the other
peoples a chance to thank God they were not as these decadent French.
But the thing has become so general that today no people dares to
point the finger of scorn. In 1878 the fall of the birth-rate began in
England. During the eighties it invaded Belgium, Holland, and
Switzerland. In 1889 it seized with great virulence upon Australia.
i^Adapted from Changing America, pp. 32-49- Copyright by The Century
Company, 1912.
PROBLEMS OF POPULATION 493
Just before the close of the century Finland, Italy, and Hungary fell
into line. In Germany and Austria it is only within four or five
years that the economists have begim to discuss "our diminishing
fecundity." In all Christendom only Russia, the Balkan states and
French Canada show the old-fashioned birth-rates of forty, fifty,
or even fifty-five, per thousand. The tendency in the United States
is best revealed in the diminishing number of children under five
years to each thousand women of child-bearing age. The decline
from i860 to 1890 is 24 per cent.
Owing to the fact that the death-rate has been falling even faster
than the birth-rate, there is, so far, no slackening in the growth of
numbers. Indeed, part of the fall in the birth rate merely reflects
the increasing proportion of aged.
The forces reducing the death-rate are by no means the same as
those cutting down the birth-rate, nor have they the same sphere of
operation. Deaths are fewer because of advances in medicine, bettei
medical education, public hospitals, pure water supply, milk inspec-
tion, housing reform and sanitation. Births are rarer owing to en-
lightenment, the ascent of women, and individualistic democracy.
The former may be introduced quickly, from above. The latter
await the slow action of the school, the press, the ballot, the loosen-
ing of custom.
An abrupt fall in the birth-rate of from 10 to 20 per cent among
the four hundred million bearers of the Occidental torch is a phe-
nomenon so vast and so pregnant as to excite the liveliest specu-
lation. Some lay it to physiological sterility produced by alcohol,
city life and over-civilization. There are, indeed, in som^ quarters,
notably in New England, evidences of a decline in female fertility ;
but, on the whole, the lower birth-rate reflects the smaller size of
families rather than the greater frequency of childless couples.
Others insist that vice, club life, the comfortable celibacy of
cities, and the access of women to the occupations are turning peo-
ple away from wedlock. It is true that the proportion of single
women is increasing with us. Still, few peoples are so much mar-
ried as Americans, and, for all that, their birth-rate has fallen fast
and fallen far. Michigan, which is about as addicted to the mar-
ried state as any white community in the world, has only two-thirds
the fecundity of England and half that of Hungary.
Perhaps the master-force of our time is democracy. The bar-
riers of caste are down so that more and more a man's social stand-
ing depends upon himself'. The lists of life are open to all, and the
passion to "succeed" grows with the value of the prizes to be won.
Never before did so many common people strain to reach a higher
494 CURRENT ECONOMIC PROBLEMS
rung in the social ladder. But prudence bids these eager climbers
avoid whatever will impede one's ascent or imperil one's footing.
Children are incumbrances, so the ambitious dread the handicap of
an early marriage and a large family. Even the unselfish, whose
aim is to assure their children a social position equal to or superior
to their own, will see to if that there are not more children than
they can properly equip.
The effect of democracy is reinforced by the break-up of custom.
As fixed class distinctions fade out, people cease to be guided by the
traditional standard of comfort. It is no longer enough to live as
father and mother lived. Wants and tastes, once confined to the
social elect, spread resistlessly downward and infect the masses.
Here the decencies, there the comforts, yonder the vanities of life
compete with the possible child and bar it from existence.
The great movement that has burst the fetters on woman's mind
and opened to her so many careers exalts her in the marriage part-
nership and causes the heavy price of motherhood to be more con-
sidered by her husband as well as by herself.
However we account for the fall in the birth-rate, there is no
question as to its consequences. The decline registers itself in a
rising plane of comfort, a growth of small savings, and a wider
diffusion of ownership. Owing to the better care enjoyed by the
aged when they do not have to compete for attention with an over-
large brood of wailing infants, there is a striking increase in lon-
gevity. A greater proportion of lives are rounded out to the Psalm-
ist's term. There is also a wonderful saving of life among infants,
for often prolificacy does nothing but fill the churchyards with wee
mounds. When we consider that in 1790 there were in this coun-
try just twice as many children under 16 to adults over 20 as there
are today we understand why the law limits child labor and insists
on keeping children in school.
But the supreme service of forethoughted parenthood is that it
bids fair to deliver us from the overpopulation horror, which was
becoming more imminent with every stride in medicine or public
hygiene. Most of the Western peoples have now an excess of births
over deaths of i per cent a year. If even a third of this increase
should find a footing over sea, then home expansion would still be
such that, at a future date no more remote from us than the found-
ing of Jamestown, Europe would groan under a population of three
billions, while the United States of that day, with twice as many
people as Europe now has, would be to China what China is to the
present United States. Besides its attendant misery and degrada-
tion, population pressure sharpens every form of struggle among
PROBLEMS OF POPULATION 495
men — competition, class strife, and war — and the dream of a moral
redemption of our race would vanish into thin air if the enlightened
peoples had failed to meet the crisis created by the reduction of
mortality.
Once it seemed as if man's propensity to multiply foredoomed
him to live ever in the presence of vast immediate woe. However
smiling the gardens of Daphne, they had ahvays to slope down into
a huge malodorous quagmire of wretchedness. The wheel of Ixion,
the cup of Tanatlus, symbolized humanity striving ever by labor
and ingenunity to relieve itself of a painful burden, only to have
that burden inexorably rolled back upon it by its own fatal fecun-
dity.
Now that cheap travel stirs the social deeps and far-beckoning
opportunity fills the steerages, immigration becomes ever more seri-
ous to the people that hopes to rid itself at least of slums, ''masses"
and "submerged." What is the good of practicing prudence in the
family if hungry strangers may crowd in and occupy at the banquet
table of life the places reserved for its children? Shall it, in order to
relieve the teeming lands of their unemployed, abide in the pit of
wolfish competition and renounce the fair prospect of a growth in
suavity, comfort, and refinement? If not, then the low-pressure
society must not only slam its doors upon the indraught, but must
double-lock them with forts and ironclads, lest they burst open by
assault from some quarter where "cannon food" is cheap.
The rush of developments makes it certain that the vision of a
globe "lapt in universal law" is premature. If the seers of the mid-
century who looked for the speedy triumph of free trade had read
their Malthaus aright, they might have anticipated the tariff barriers
that have risen on all hands within the last thirty years. So, today,
one needs no prophet's mantle to foresee that presently the world
will be cut up with immigration barriers which will never be leveled
until the intelligent accommodation of numbers to resources has
greatly equalized population pressure all over the globe. The French
resent the million and a third aliens that have been squeezed into
hollow and prosperous France by pressure in the neighbor lands.
The English restrict immigration from the Continent. The Germans
feel the thrust from the overstocked Slavic areas. The United
States, Canada, Australia and South Africa are barring out the
Asiatic. Dams against the color races, with spillways of course for
students, merchants, and travelers, will presently enclose the white
man's world. Within this area minor dams will protect the high
wages of the less prolific peoples against the surplus labor of the
more prolific.
496 CURRENT ECONOMIC PROBLEMS
Assuredly, every small-family nation will try to raise such a
dam and every big-family nation will try to break it down. The
outlook for peace and disarmament is, therefore, far from bright.
One needs but compare the population pressures in France. Ger-
many, Russia and Japan to realize that, even today, the real enemy
of the dove of peace is not the eagle of pride or the vulture of greed
but the stork !
C. THE COMING OF THE IMMIGRANT
223. The Immigrant Invasion^ ^
BY FRANK JULIAN WARNE
At the time of the appearance of the comet in 19 lo there was in
progress the most remarkable and in many ways the most wonder-
ful invasion of one country by peoples of foreign countries that the
world had ever seen. In the very month of May, when the comet's
appearance in the heavens was being heralded in the newspapers,
as many as one hundred and fifty thousand representatives of differ-
ent races and countries of the world were entering the immigrant
ports of the United States. They were equal to one hundred and
fifty full regiments of one thousand each ; they were double the
entire fighting strength of the United States Army. More than one
million people from all the countries on the globe were that year
passing in a seemingly never-ending stream into the United States.
They came from the British and the Spanish Americas, from
Europe and from Africa, from Asia and from India, from the
islands of the Pacific and the islands of the^Atlantic. From the
United Kingdom and the Russian Empire, from the Scandinavian
countries and the Netherlands, from the German Empire and the
Dual Kingdom of Austria-Hungary, from Turkey in Europe and
Turkey in Asia, from Italy and China and Japan, they came. There
was not a single geographical or politically organized area of im-
portance from which they did not come. England, Ireland, Scot-
land, Wales, Norway, Sweden, Denmark, Holland, Belgium, Swit-
zerland, France, Spain, Portugal, Roumania, Greece, Armenia, Per-
sia, Syria, Sicily and Sardinia, the Cape Verde and Azores Islands,
the Canary and Balearic Islands, British Honduras, Tasmania, and
New Zealand, the Philippines, Hawaii, the East and the West Indies,
Cuba, Canada, Mexico, and South and Central American countries —
each and all and more were represented.
i^Adapted from The Immigrant Invasions, pp. 1-21. Copyright by Dodd,
Mead & Co., 1913.
PROBLEMS OF POPULATION 497
The sources of this stream of immigration are four great stocks
of the human race — the Aryan, the Semitic, the Sinitic, and the
Sibiric. From the homes of these, as they have scattered them-
selves among the Teutonic, Celtic, Slavonic, Lettic, Italic, Hellenic,
Illyric, Indo-Iranic, Chaldean, Chinese, Japanese, Finnic, and Tar-
taric groups, this stream is pouring. The peoples composing it are
Scandinavians, Dutch, Flemish, Germans, English ; Irish, Welsh,
Scotch ; Bohemians, Dalmatians, Moravians, Croatians, Poles, Slov-
enians, Bulgarians, Russians, Servians, Ruthenians, Montenegrins,
Bosnians, Herzegovinians, Slovaks ; Letts and Lithuanians ; French,
Italians, Portuguese, Roumanians, and Spaniards ; Greeks ; Alban-
ians ; Armenians, Persians, and Gypsies ; Hebrews and vSyrians ;
Chinese ; Japanese and Koreans ; Finns and Magyars ; and Turks.
Besides, we have coming to us Berbers and Arabs from northern
Africa, Bretons from western France, Esthonians from western
Russia, Eskimos from western Alaska, Spanish Americans from
South America. Not even all these exhaust the multitudinous
sources contributing to our foreign-born population.
Unlike the invasions of other centuries and of other countries,
the present-day immigration to the United States is not by organized
armies coming to conquer by the sword. It is made up of detached
individuals, or at most, of family or racial groups, afoot, the sword
not only sheathed but also entirely discarded by those who have
no idea of battling with arms for that which they come to seek.
They do not come as armed horsemen, with their herds of cattle
and skin-canopied wagons. Nor do they present themselves at our
doors in "great red ships," with the ensign of the rover hanging
from the topmast, and clad in chain-mail shirts and with helmets.
More than twenty-eight million have entered the United States
from all parts of the world during the ninety years since 1820! In
the course of the nineteenth century, and the first decade of the
twentieth century, there came more than five million from Germany,
four million from Ireland, more than three million from each of
Austria-Hungary, and Italy, three million from England, Scotland,
and Wales ; nearly two and one-half million from Russia ; nearly
two million from Norway, Denmark, and Sweden ; and about five
hundred thousand from France.
More than twenty-five million immigrants came within the sixty
years since 1850; and more than nineteen million came within the
last thirty years. The ten years ending with 1910 gave us a total
immigration exceeding 8,795,000, nearly five million of those arriv-
ing within the past five years. In the single year 1910 the number
of arrivals exceeded one million by 41,000; in the twelve months
498 CURRENT ECONOMIC PROBLEMS
three years be'fore they had reached 1,285,000, this being the largest
single yearly inflow of foreign born in the history of the country.
Taking the average for the past ten years, we find that there
came annually more than eight hundred and seventy-nine thousand
immigrants ; for every month more than seventy-three thousand ;
for every day, Sundays and holidays included, two thousand four
hundred and forty, and for every time the clock struck the hour,
day and night, one hundred persons born in some foreign country
landed on the shores of the United States.
Truly a wonderful invasion ! A stupendous army ! An army
that has been marching continually all these years — an army whose
ranks, although changing racially, have not been depleted but have
steadily and at times alarmingly increased in numbers as the decades
have gone by. Here is a prenomenon before which we must stand
in awe and amazement when contemplating its consequences to the
human race!
Think you that any such numbers invaded the Roman world
when the Huns poured in from the East? Was Attila's army one-
half, even one-tenth, as large when it overran Gaul and Italy ? Did
the Saxons in the sixth century invade England in any such num-
bers? Or, did William the Conqueror lead any such army in the
Norman invasion of England in the eleventh century? And yet,
upon the peoples of those countries the mark of the invader is seen
to this day. Think you that America alone will escape the conse-
quences ?
Let us look at the volume of this invasion from another angle.
There were in the United States in 19 10 more than 13,500,000 per-
sons who had been born in some foreign country. That is, one out
of every seven of our population came here, not through having
been born here, but through immigration. The largest contribu-
tion was from Germany, the next largest from Russia; then came
Ireland and Italy in a close race for third place, the number of the
former exceeding those from Italy by less than ten thousand. Aus-
tria, including Bohemia and a part of what formerly was Poland,
held fifth place; Canada was in sixth and England in seventh place,
Sweden in eighth, Hungary in ninth, and Norway in tenth.
. These ten countries contributed more than 1 1 ,600,000 of the
13,500,000 or all but 1,900,000 of our foreign-born. Their propor-
tion of the total was about 86 per cent. The other countries or geo-
graphical and political divisions represented in the foreign-born
population of the United States in 19 10 were Scotland, Wales, Den-
mark, Holland, Belgium, Luxemburg, Switzerland, Portugal, Spain,
France, Finland, Roumania, Bulgaria, Servia, Montenegro, Turkey,
PROBLEMS OF POPULATION 499
Greece, Newfoundland, Cuba, West Indies, Mexico, Central Amer-
ica, South America, Japan, China, India, Asia, Africa, Australia,
Atlantic Islands, Pacific Islands, and other countries not specified.
Religiously they are believers in Roman and Greek Catholicism,
Protestantism in its manifold forms and variations, Mohammedan-
ism, Armenianism, Buddhism, Confucianism, Judaism, Shamanism,
Islamism, Shintoism, and hundreds of diversified sects, some with
such strange names as Chiah, Sunni, Parsee, Nestorian, Maronite,
Druse, Osmanlis, Laotse, and so on.
Linguistically they are German, Dutch, Scandinavian, including
ric, Slavic, including Russian, Serbo-Croatian, Polish, and Bohe-
Danish, Norwegian, and Swedish, Flemish, English, Gaelic, Cym-
mian ; French, Italian, Spanish, Roumanian, Portuguese, Rheto-
Roman, Greek, Albanian, Lithuanian, Lettic, Armenian, Persian,
Yiddish, Semitic, Turkish, Finnish, Magyar, Chinese, Japanese,
Korean, Mexican, Spanish American, and other groups distinguished
by the language they speak. Among these are such strange and un-
familiar dialects as Friesian, Thuringian, Franconian, Swabian,
Alsatian, Wallon, Gascon, Languedocian, Rhodanian, Catalan, Gal-
ego, Friulan, Gegish, Toskish, Pamir, Caspian, Syriac, Aramaic,
Shkipetar, and so on.
Some conception of the significance of the numerical strength
of the foreign-born in the United States is gained by means of a
few simple comparisons. They number over three and one-half
millions more than all the negro population of the entire country.
They equal more than twice the total population, and nearly three
times that of the native, of the six New England States; they would
populate the seven states of Minnesota, Iowa, Missouri, the two
Dakotas, Nebraska, and Kansas, with their present density, and still
have an extra 1,880,000; they supply a population 1,300,000 in ex-
cess of the total found today in the South Atlantic division, includ-
ing, besides the District of Columbia, also Delaware, Maryland, the
two Virginias, the two Carolinas, Georgia, and Florida.
Considering the native population only, which includes also the
children boni here of foreign-born parents, our total foreign-born
equals all the natives in the twenty-two states of Maine, New Hamp-
shire, Vermont, Massachusetts, Rhode Island, Connecticut, Dela-
ware, Florida, the two Dakotas, Kansas, Montana, Idaho, Wyom-
ing, Colorado, New Mexico, Arizona, Utah, Nevada, California,
Oregon, and Washington.
500 CURRENT ECONOMIC PROBLEMS
224. Immigration in a Single Year^'
BY F. A. OGG
It is not easy to conceive what our immigration has come to be.
The figures are too stupendous to be grasped by the mind. Let one
who has sat in the magnificent Stadium at Cambridge, as one of the
40,000 spectators at a Harvard- Yale football game, reflect that if
the immigrants entering our ports during the fiscal year 1906 were
brought together, they would make a throng twenty-five and a half
times as large as that which crowds every available foot of space
around the great oval. Let him consider that the number admitted
in this twelvemonth from Norway and Sweden alone would more
than fill the Stadiuip ; that the number from Germany would do
the same ; that the influx from Great Britain would fill it two and
one-half times. That from Russia would fill it more than five times ;
that from Austria-Hungary would fill it more than six times ;
and the contributions from Italy would do it seven times with
people to spare. Let him further call to mind that, on the average,
the Stadium could be packed with the aliens who are landed at Ellis
Island every seventeen days throughout the year.
Then let him consider that the total number of immigrants ad-
mitted in 1906 would nearly serve to populate either the city of
Philadelphia, or the cities of Boston and Baltimore combined ; that,
in fact it would people all Maryland, or all Nebraska, or the whole
region occupied by Arizona, New Mexico, Utah, Idaho, Wyoming,
and Montana. These six states and territories have an aggregate
area of 649,320 square miles, which is nearly 18 per cent of the total
area of the United States.
225. The Current Status of Immigration^^
For three years before the outbreak of the war the United
States drew more than 1,000,000 immigrants annually from foreign
countries, chiefly from Southeastern Europe. For the four years of
the war the average increment from this source was only about
260,000 yearly, against which must be placed an average annual
loss by emigration of over 120,000.
Note the following comparisons: There arrived in 1914, 1,218,-
480 persons from overseas; in 1915, 326,700; in 1916, 298,826; in
1917. 295,403; in 1918, 110,618. There departed from our shores
in 1914, 303,338; in 1915, 204,074; in 1916, 129,765; in 1917, 66,277;
in 1918, 94,585- By subtraction we get the net grain for 1914
" From an article in The World's Work, XIV, 8879-86. Copyright, 1907.
isAdapted frorn Problems of Industrial Readjustment in the United States
pp. 25-28. Copyright by the National Industrial Conference Board, 1910.
PROBLEMS OF POPULATION 501
through immigration of 915,142; in 1915, of 122,626; in 1916, of
169,061 ; in 1917, of 229,126; and in 1918, of 16,033.
In other words the great stream of European immigration to this
country was abruptly cut down by the war to less than one-third of
its normal volume. In this way a theoretical shortage of over
2,000,000 workers was created during the four-year war period.
Obviously it is a question of importance as to whether this flow will
be promptly resumed, whether it will continue restricted, or whether
there will be a great outward movement of workers from this
country to their native lands.
In the opinion of some critics the enormous task of rehabilita-
tion in Europe, coupled with the serious reduction in man-power,
will for a long time preclude the resumption of immigration on any-
thing like the pre-war scale. That the war has heavily reduced the
labor supply of Europe is apparent. The dead alone are estimated
at 7,000,000 ; those disabled at 8,000,000 more. Should the demand
for labor in Europe be normal, such reduction in man power would
mean an acute labor shortage. Against this reduction must be con-
sidered a possible reduction in purchasing power, and consequently
in the demand for commodities. In Russia it seems certain that
there will be no great increase in the demand for employment.
France seems able to utilize all her labor supply and to draw from
other countries. In Great Britain the problem depends not so much
on home consumption as on ability to maintain foreign markets. It
is complicated because of the great increase in the number of women
employed in industry during the war. But on the whole a large
demand for British labor seems a reasonable expectation. In Ger-
many a large demand for labor seems probable if a stable govern-
ment is maintained.
On the whole no immediate resumption of immigration from
Europe on a large scale seems probable. Indeed, some are of the
opinion that an exodus of laborers from the United States in con-
siderable numbers is likely to occur. An estimate made by the
Chamber of Commerce of the United States indicates that at least
a million people are disposed to leave the country. Despite high
wages here and unsettled economic and political conditions abroad
it is an open question whether many foreigners may not, because
of the high wages they have earned and the savings they have
made, seek to return to their native countries where their savings
are at a premium.
Immigration and emigration are also in large measure dependent
upon resumption of normal transatlantic steamship service. This is
not likely for some time. Of far greater consequence is the attitude
502 CURRENT ECONOMIC PROBLEMS
of European governments toward their emigration policies; this is
dependent upon considerations of economic, fiscal, and military
policy still undetermined.
D. IMMIGRATION AND INDUSTRIAL DEVELOPMENT
226. Our Industrial Debt to Immigrants'-'
BY PETER ROBERTS.
The new immigration in one respect differs very markedly from
the old ; the percentage of farmers and farm laborers in this new
stream is sixfold what it was in the old. In the last decade, the
countries of southeasetern Europe have sent us two and a half mil-
lion men, who, in the old country, were tillers of the soil ; but it is
safe to say that the number following that occupation in the new
world is insignificant. They are employed in industrial plants, in
which their labor brings quick returns, and if dissatisfied with
wages and conditions they can, in a day, pull up stakes and go
elsewhere. The new immigration consequently contains more un-
skilled workers than the old.
America, two generations ago, was an agricultural nation ; to-
day it stands in the van of the industrial nations of the earth. This
marvelous development, the astonishment of the civilized world,
could never have taken place, if Europe and Asia had not supplied
the labor force. From 1880 to 1905 the total capital in manufac-
turing plants increased nearly fivefold, the value of the products
increased more than two and a half times, and the labor force about
doubled. America could never have finished its transcontinental
railroads, developed its coal and ore deposits, operated its furnaces
and factories, had it not drawn upon Europe for its labor force ;
for it was impossible to secure "white men" to do this work.
American industry had a place for the stolid, strong, submis-
sive and patient Slav and Finn ; it needed the mercurial Italian and
Roumanian ; there was much coarse, rough, and heavy work to do
in mining and construction camps ; in tunnel and railroad building ;
around smelters and furnaces, etc., and nowhere in the world could
employers get laborers so well adapted to their need, as in the coun-
tries of southeastern Europe.
Louis N. Hammerling, president of the American Association
of Foreign Newspapers, appearing before the Federal Commission
on Immigration, said: (i) Sixty-five per cent of the farmers
owning farms and working as farm laborers are people who came
i»Adapted from The New Immigration, pp. 49-62. Copyright by the Mac-
millan Co., 1912.
PROBLEMS OF POPULATION 503
from Europe during the last thirty years. (2) Of the 890,000
miners, mining the coal to operate the great industries, 630,000
are our people. (3) Of the 580,000 steel and iron workers em-
ployed in the different plants throughout the United States, 69 per
cent, according to the latest statistics of the steel and iron indus-
tries, are our people. (4) Ninety per cent of the labor employed
for the last thirty years in building the railways has been furnished
by our immigrant people, who are now keeping the same in repair.
The census of 1900 showed that 75 per cent of the tailors of the
country were foreign born. The investigation of the Immigration
Commission showed 72.2 per cent of the workers in the clothing
trades foreign-born, and another 22.4 per cent was made up of
the children of foreign-born parents; thus 94.6 per cent of the men
and women who manufacture ready-made garments are of foreign
parentage.
Wherever unskilled work is needed, the foreigner is the one
who does it. He is the toiler, the drudge, the "choreman." In the
slaughtering and meat-packing industry, the foreign-born comprise
about 60 per cent of the labor force, but if you want to locate the
sons of the new immigration in a plant of this character, you must
descend to the pits where the hides are cured, generally located in
dark and damp basements. Go to the fertilizing plant where the
refuse of the slaughter house is assembled, and amid the malodor-
ous smells which combine into one rank stench tabooed by all Eng-
lish-speaking men, you find the foreigner. Go to the soap depart-
ment, where the fats are reduced and the alkalis are mixed — a place
you smell from afar and wish to escape from as soon as possible,
and there the foreigner is found. These disagreeable occupations
"white people" have forsaken, and the sons of the new immigration
do the work uncomplainingly for $1.50 a day.
Wherever digging, excavating, constructing, machine molding,
and mining go on, there we find the foreign-born. The patient,
willing, and constant labor of the Italians made possible the sub-
ways of the great metropolis of the nation ; the Bronx Sewer was
dug by Italians, Austrians, and Russians. These are the workers
who enlarge the Barge Canal and build the Aqueduct to carry an
adequate supply of water to the millions of New York City. In
lumber camps, in mine patches, in railroad construction work, the
foreigner is found. He displaces colored labor in construction
camps in the South ; and, in the West, he does the unskilled labor
unless a legal barrier has been erected to keep him out. The labor
force in the woods of Michigan and Minnesota, of Maine and Ver-
mont, is preponderatingly made up of foreigners.
504 CURRENT ECONOMIC PROBLEMS
The aliens are the backbone of the mining industry. Calumet,
in the northern peninsula of Michigan, is a foreign city of 45,000
souls. There are sixteen different nationalities represented on the
public school teaching force, and the pupils in the high school
represent twenty different races. It is difficult to find an Amer-
ican in the place. If you want to find the native-born, you must
go to Houghton, the capital of the county, where the doctors and
lawyers, engineers and professors, retired capitalists and the leisure
class live, and it is the same in the mining camps all through this
upper peninsula of Michigan. The men who dig the ore,' load it and
clean it, who burn the powder and remove the rock, who crawl
through dog holes and climb numberless ladders, are foreigners.
The only crowd met with in the territory not of foreign parent-
age are the young college graduates, incipient civil engineers, who
put into practice the theories they were taught at college. The same
is true, generally speaking, of the coal-mining industry.
The United States owes much to the man of the new immigra-
tion. No true American will withhold the meed of praise due this
man. The consensus of opinion of superintendents and foremen
who have used these men is that they have played their part with a
devotion, amiability, and steadiness not excelled by men of the old
immigration.
227. The Manna of Cheap Labor-"
BY EDWARD ALS WORTH ROSS
It is not as cargo that the immigrant yields his biggest dividends.
But for him we could not have laid low the many forests, dug up so
much mineral, set going so many factories, or built up such an export
trade as we have. In most of our basic industries the new immi-
grants constitute at least half the labor force. Although millions
have come in there is no sign of supersaturation, no progressive
growth of lack of employment. Somehow new mines have been
opened and new mills started fast enough to swallow them up. Vir-
tually all of them are at work and, what is more, at work in an effi-
cient system, under intelligent direction. Janko produces more than
he did at home, consumes more, and, above all, makes more profit
for his employer than the American he displaces. Thanks. to him
we have bigger outputs, tonnages, trade balances, fortunes, tips, and
alimonies ; also bigger slums, red-light districts, breweries, hospitals,
and death rates.
To the employer of unskilled labor this flow of aliens, many of
them used to dirt floors, a vegetable diet, and child labor, and ignor-
.^J^dapted from "The Old World in the New," Century Magazine,
LaaXVII, 29. Copyright, 1913.
PROBLEMS OF POPULATION 505
ant of underclothing, newspapers, and trade unions, is like a rain of
manna. For, as regards foreign competition, his own position is a
Gibraltar. Our tariff has been designed to protect him. Thus as
long as he stays in his home market, the American mill owner is
shielded from foreign competition, while the common labor he re-
quires is cheapened for him by the endless inflow of the neediest,
meekest laborers to be found within the white race. If in time they
become ambitious and demanding, there are plenty of "greenies"
he can use to teach them a lesson. The "Hunkies" pay their "bit"
to the foreman for the job, are driven through the twelve-hour day,
and in time are scrapped with as little concern as one throws away
a thread-worn bolt. A plate mill which had experienced no tech-
nical improvement in ten years doubled its production per man by
driving the workers. No wonder then that in the forty years the
American capitalist has had Aladdin's lamp to rub, his profits from
mill and steel works, from packing-house and glass factory, have
created a sensational "prosperity" of which a constantly diminish-
ing part leaks down to the wage-earners. Nevertheless, the system
which allows the manufacturer to buy at a semi-European wage
much of the labor that he converts into goods to sell at an American
price has been maintained as "the protection of American labor!"
E. IMMIGRATION AND LABOR CONDITIONS
228. The Elevation of the Native Laborer-'
BY WILLIAM S. KOSSITEK
It must not be overlooked that society in the United States has
been so constructed as to depend upon the continued arrival of
large numbers of foreigners. In consequence, labor conditions pre-
vailing in this nation differ radically from those which prevail in
most of the countries of Europe, where all ecomonic requirements
are met by natives. In England, in France, or in Germany, for
example, the man who sweeps the streets, the laborer upon ])ublic
works or in mines, and the woman who cooks or performs other
domestic duties, are as truly native as the ruler of the nation or the
statesmen who guide its destinies. In the United States, the man
who sweeps the streets, who labors upon public works, in mines or
on railroads, and the woman engaged in domestic service, if white,
are almost all of foreign birth. The native cook has learned to
regard such callings as menial and hence as lowering to self-respect.
Having accepted the education and oportunity which the Republic
21 Adapted from "A Common-Sense View of the Immigration Problem,"
North American Review, CLXXXVIII, 368-71. Copyright, 1908.
5o6 CURRENT ECONOMIC PROBLEMS
offers them, native Americans appear to consider that they are un-
true to themselves if they do not avoid humble occupations and
seek those regarded as an advance in the social scale. There is,
therefore, a constant movement away from the lower callings toward
the higher ; and occupants for the places thus vacated are recruited
from foreigners. They in their turn become imbued with the
American idea, acquire confidence and develop ambition, and their
children abandon to newer arrivals the callings which supported
their parents. Evidence of this continued movement upward is seen
in the unwillingness, not only of the native stock but of the chil-
dren of the foreign element, to continue in the servant or so-called
menial classes, and in the determination on the part of young women
to become shopgirls, telephone-operators, typewriters and shop and
factory operatives, oftentimes at the penalty of severe privation,
rather than to go out to service.
This tendency creates the problem of a constant shortage of
workers in the humbler callings. These callings in themselves are
as necessary in a republic as in an empire. Therefore workers in
such occupations must in the future, as in the past, continue to be
recruited from abroad, or else a large number of native Americans,
and children of foreign parents, must be contented to labor un-
complainingly in the lower walks of life. It is possible that the
former condition may continue indefinitely, but it unquestionably
tends toward instability, for a nation which permanently meets by
importation its demand for workers is, in a sense, artificially con-
structed.
When the young United States started upon a career of inde-
pendence, the inhabitants concentrated their efTorts upon the de-
velopment of national resources. They prayed for wealth, and
Providence gave them the immigrant as the means of securing it.
After the lapse of a century, our success surpasses the wildest
dreams of our ancestors ; the United States has grown marvelously
in numbers, and has obtained a prosperity unprecedented in the
history of the world.
It is unlikely that our portals, thus far ever open to the aliens of
all Europe, will be closed to them until it has been conclusively
shown that the existence of the nation is imperiled by their coming,
or until large numbers of worthy and industrious American citizens
are obviously deprived of their means of 'livelihood by the arriving
throngs of foreigners. At the present time there is nothing which
points to the realization of these conditions ; and, until there is, dis-
cussion concerning the restriction is in reality idle. Therefore let us
be practical, nursing no delusions, and face conditions as they are.
PROBLEMS OF POPULATION 507
We have always needed the immigrant to aid us in amassing
wealth, and we shall need him in the future, for the United States
has now become the great labor mart of the world.
229. The Industrial Menace of the Immigrant"
BY EDWARD ALSWORTH ROSS
The facts assembled by the Immigration Commission shatter
the rosy theory that foreign labor is drawn into an industry only
when native labor is not to be had. The Slavs and Magyars were
introduced into Pennsylvania forty-odd years ago by mine operators
looking for more tractable miners. Agents were sent abroad to
gather up labor, and frequently foreigners were brought in when a
strike was on. The first instance seems to have occurred at Drifton
in 1870 and resulted in the importation of two shiploads of Hun-
garians. In 1904, during a strike in the coal-fields, near Birming-
ham, Alabama, many southern Europeans were brought in. In 1908
"the large companies imported a number of immigrants," so that
the strike was broken and unionism destroyed in that region. Dur-
ing the 1907 strike in the iron mines of northern Minnesota, "one
of the larger companies imported large numbers of Montenegrins
and other Southeastern races as strike-breakers."
The hegira of the English-speaking soft-coal miners shows what
must happen when low-standard men undercut high-standard men.
The miners of Pennsylvania and West Virginia, finding their unions
wrecked and their lot growing worse under the floods of men from
southern and eastern Europe, migrated in great numbers to the Mid-
dle West and the Southwest. But of late the coal fields of the Mid^
die West have been invaded by multitudes of Italians, Croatians,
and Lithuanians, so that even here American and Americanized
miners have their backs to the wall. As for the displaced trade-
unionists who sought asylum in the mines of Oklahoma and Kansas,
the pouring in of raw immigrants has weakened their bargaining
power, and many have gone on to make a last stand in the mines of
New Mexico and Colorado.
Each exodus left behind an inert element which accepted the
harder conditions that came in with the immigrants, and a strong
element that rose to better conditions in the mines and in other occu-
pations. As for the displaced, the Iliad of their woes has never been
sung — the loss of homes, the shattering of hopes, the untimely set-
ting to work of children, the struggle for a new foothold, and the
22Adapted from "The Old World in the New," Century Magazine,
LXXXVII, pp. 29-33. Copyright, 1913.
5o8 CURRENT ECONOMIC PROBLEMS
turning of thousands of self-respecting men into day laborers, odd-
job men, down-and-outers, and "hobos."
During the last fifteen years the flood of gold has brought in a
spring-tide of prices. Since 1896 the retail cost to Americans of
their fifteen principal articles of food has risen 70 per cent. Wages
should have risen in like degree if the workman is to maintain his
old standard, to say nothing of keeping his place in a social proces-
sion which is continually mounting to higher economic levels. But
the workingman has been falling behind in the procession. In the
soft-coal fields of Pennsylvania, where the Slav dominates, the coal-
worker receives 42 cents a day less than the coal-worker in the
mines of the Middle West and Southwest, where he does not domi-
nate. In meat-packing, iron and steel, cotton manufacture, and other
foreignized industries the inertia of wages has been very marked.
The presence of the immigrant has prevented a wage advance which
otherwise must have occurred.
What a college man saw in a copper mine in the Southwest gives
in a nutshell the logic of low wages. The American miners getting
$2.75 a day are abruptly displaced without a strike by a train load
of five hundred raw Italians brought in by the company and put to
work at from $1.50 to $2.00 a day. For the Americans there is
nothing to do but to "go down the road." At first the Italians live
on bread and beer, never wash, wear the same filthy clothes night
and day, and are despised. After two or three years they want to
live better, wear decent clothes, and be respected. They ask for
more wages, the bosses bring in another train load from the steer-
age, and the partly Americanized Italians follow the American
miners "down the road."
"The best we get in the mill now is greenhorns," said the super-
intendent of a tube mill. "When they first come, they put their heart
into it and give a full day's work. But after a while they begin to
shirk and do as little as they dare." It is during this early innocence
that the immigrant accepts conditions that he ought to spurn. The
same mill had to break up the practice of selling jobs by foremen.
On the Great Northern Railroad the bosses mulcted each Greek
laborer a dollar a month for interpreter. The "bird of passage"
who comes here to get ahead rather than to live, not only accepts his
seven-day week and the twelve-hour day, but often demands them.
Big earnings blind him to the cost of overwork. It is the American
or the half -Americanized foreigner who rebels against the eighty-
four-hour schedule.
When capital plays lord of the manor, the Old World furnishes
the serfs. In some coal districts of West Virginia the land, streets.
PROBLEMS OF POPULATION 509
paths, roads, and miners' cabins, the store, the school, and the
church are all owned by the coal company. The company pays the
teacher, and no priest or clergyman objectionable to it may remain
on its domain. One may not step off the railroad's right of way,
pass through the streets, visit mine or cabin, without permission.
There is no place where miners meeting to discuss their grievances
may not be dispersed as trespassers. Any miner who talks against
his boss or complains is promptly dismissed and ejected from the
35,000 acres of company land. Hired sluggers, known as the
"wrecking-gang," beat up or even murder the organizer who tries
to reach the miners. It is needless to say that the miners are all
negroes or foreigners.
After an industry has been foreignized, the notiQn becomes fixed
in the minds of the bosses that without the immigrants the industry
would come to a standstill. "If it wasn't for the Slavs," say the
superintendents of Mesaba mines, "we couldn't get out this ore at
all, and Pittsburgh would be smokeless. You can't get on American
to work here unless he runs a locomotive or a steam shovel. We've
tried it; brought 'em in carloads at a time, and they left."
"Wouldn't they stay for $3.00 a day ?" I suggested.
"No, it's not a matter of pay. Somehow Americans nowadays
aren't any good for hard or dirty work."
Hard work ! And I think of Americans I have seen in their last
asylum of the native-born, the far West, slaving with ax and hook,
hewing logs for a cabin, ripping out boulders for a road, digging
irrigation ditches, drilling the granite, or timbering the drift —
Americans shying at open-pit, steam-shovel mining !
The secret is that with the insweep of the unintelligible bunk-
house foreigner there grows up a driving and cursing of labor that
no self-respecting American will endure. Nor can he bear to be
despised as the foreigner is. It is not the work or the pay that he
minds, but the stigma. That is why, when a labor force has come
to be mostly Slav, it will be all Slav. But if the supply of raw Slavs
were cut off, the standards and status of the laborers would rise, and
the Americans would come into the industry.
Does the man the immigrant displaces rise or sink? The theory
that the immigrant pushes him up is not without some color of truth.
In Cleveland the American and German displaced iron-mill workers
seem to have been absorbed in other growing industries. They are
engineers and firemen, bricklayers, carpenters, structural iron work-
ers, steamfitters, plumbers, and printers. Leaving pick and wheel-
barrow to Italian and Slav, the Irish are now meter-readers, wire-
stringers, conductors, motormen, porters, caretakers, night watch-
510 CURRENT ECONOMIC PROBLEMS
men, and elevator men. I find no sign that either the displaced work-
men or his sons have suffered from the advent of Pole and Magyar.
On the other hand, in Pittsburgh and vicinity, the new immigration
has been like a flood sweeping away the jobs, homes, and standards
of great numbers, and obliging them to save themselves by accepting
poorer employment or fleeing to the West. The cause of the differ-
ence is that Pittsburgh held to the basic industries, while in Cleveland
numerous high-grade manufacturers started up which absorbed the
displaced workmen into the upper part of the laboring force.
Unless there is some collateral growth of skill-demanding indus-
tries, the new immigrants bring disaster to many of the workingmen
they undercut. The expansion of the industry will create some new
jobs, but not enough to reabsorb the Americans displaced. Thus
in the iron mines of Minnesota, out of the seventy-five men kept
busy by one steam shovel, only thirteen get $2.50 a day or more, and
$2.50 is the least that will maintain a family on the American stand-
ard. It is plain that the advent of sixty-two cheap emigrants might
displace sixty-two Americans, while it would create only thirteen
decent- wage jobs for them. Scarcely any industry can grow fast
enough to reabsorb into skilled or semi-skilled positions the displaced
workmen.
Employers observe a tendency for employment to become more
fluctuating and seasonal because of access to an elastic supply of
aliens, without family or local attachments, ready to go anywhere
or to do anything. In certain centers immigrant laborers form, as
it were, visible living pools from which the employer can dip as he
needs. Why should he smooth out his work evenly throughout the
year in order to keep a labor force composed of family men when
he can always take "ginnies" without trouble and drop them with-
out compunction? Railroad shops are coming to hire and to "fire"
men as they need them instead of relying upon the experienced
regular employees. In a concern that employs 30,000 men the rate
of change is 100 per cent a year and is increasing. Labor leaders
notic^e that employment is becoming more fluctuating, that there are
fewer steady jobs, and the proportion of men who are justified in
founding a home diminishes.
230. Immigration and Unionism^^
BY W. JETT LAUCK
A significant result of the extensive employment of southern and
eastern Europeans in mining and manufacturing is seen in the
23Adapted from "The Real Significance of Recent Immigration," North
American Review, CXCV, 2008-9. Copyright, 1912.
PROBLEMS OF POPULATION 511
general weakening and, in some instances, in the entire demoraliza-
tion of the labor organizations which were in existence before the
arrival of the races of recent immigration. This condition of
afifairs has been due to the inability of the labor-unions to absorb
within a short time the constantly increasing number of new arrivals.^
The southern and eastern Europeans, as already pointed out, be-
cause of their tractability, their lack of industrial experience and
training, and their necessitous condition on applying for work, have
been willing to accept, without protest, existing conditions of em-
ployment. Their desire to earn as large an amount as possible
within a limited time has also rendered the recent immigrant averse
to entering into strikes which involved a loss of time and a decrease
in earnings. The same kind of thriftiness has led the immigrant
wage-earner to refuse to maintain his membership in the labor-
unions for an extended period and has consequently prevented the
complete unionization of certain occupations in some cases, and, in
others, the accumulation of a defense fund by the labor organiza-
tions. The high degree of illiteracy among recent immigrants and
the inability of the greater number of them to speak English have
also caused their organization into unions by the native Americans
and older immigrants to be a matter of large expense. The diffi-
culty of the situation, from the standpoint of the labor organizations,
is further increased by the conscious policy of the employers of
mixing races in certain departments or divisions of industries and
thus decreasing the opportunities for any concerted action because
of a diversity of language in the operating forces. In mining oper-
ations, by way of illustration, in many sections, no one race is per-
mitted to secure a controlling number in the operating forces of a
single mine or mining occupation because of the fear that a common
language would enable them to be readily organized for the purpose
of seeking redress for real or fancied grievances.
F. RESTRICTION OF IMMIGRATION
231. A Protest against Immigration'-*
Resolved, That the unprecedented movement of the very poor
to America from Europe in the last three years has resulted in
wholly changing the previous social, political, and economic aspects
of the immigration question. The enormous accessions to the ranks
of our competing wage-workers, being to a great extent unemployed,
2* These resolutions were adopted by the Executive Board of the United
Garment Workers in America after an unsuccessful strike in New York in
1905. The members of this trade are very largely Russian Jews.
512 CURRENT ECONOMICPROBLEMS
or only partly employed at uncertain wages, are lowering the stand-
ard of living among the masses of the working people of this coun-
try, without giving promise to uplift the great body of immigrants
themselves. The overstocking of the labor market has become a
menace to many trade-unions, especially those of the less skilled
workers. Little or no benefit can possibly accrue to an increasing
proportion of the great numbers yet coming ; they are unfitted to
battle intelligently for their rights in this republic, to whose present
burdens they but add others still greater. The fate of the majority
of the foreign wage-workers now here has served to demonstrate on
the largest possible scale that immigration is no solution of the world-
wide problem of poverty.
Resolved, That we warn the poor of the earth against coming to
America with false hopes ; it is our duty to inform them that the
economic situation in this country is changing with the same rapidity
as the methods of industry and commerce.
2S
232. An Immigration Program
As a result of the investigation the Commission is of the opin-
ion that in legislation emphasis should be laid on the following prin-
ciples :
1. While the American people welcome the oppressed of other
lands, care should be taken that immigration be such in quantity
and quality as not to make too difficult the process of assimilation.
2. Further general legislation concerning the admission of im-
migrants should be based primarily upon economic or business con-
siderations touching the prosperity and economic well-being of our
people.
3. The measure of the healthy development of a country is not
the extent of its investment of capital, its output of products, or its
imports and exports, unless there is a corresponding economic oppor-
tunity afforded to the citizen dependent upon employment for his
material, mental, and moral development.
4. A slow expansion of industry which permits the adaptation
and assimilation of the incoming labor supply is preferable to a very
rapid industrial expansion which results in the immigration of labor-
ers of low standards and efficiency, who imperil the American stand-
ard of wages and conditions of employment.
The investigations of the Commission show an oversupply of
unskilled labor in the basic industries of the country as a whole,
25Adapted from A Brief Statement of the Conclusions and Recommenda-
tions of the Immigration Commission (1910), pp. 37-40.
PROBLEMS OF POPULATION 513
and therefore demand legislation which will at the present time re-
strict the further admission of such unskilled labor. It is desirable
in making these restrictions that :
a) A sufficient number be debarred to produce a marked effect
upon the present supply of unskilled labor.
b) That aliens excluded should be those who come to this coun-
try with no intention to become American citizens, but merely to
save and return to their own country.
c) The aliens excluded should be those who would least readily
be assimilated.
The following methods of restricting immigration have been
suggested :
a) The exclusion of those unable to read or write in some lan-
guage.
bj The limitation of the number of each race arriving each year
to a certain percentage of the average of that race arriving during
a given period of years.
cj The exclusion of unskilled laborers unaccompanied by wives
or families.
d) The limitation of the number of immigrants arriving an-
nually at any port.
e) The material increase in the amount of money required to
be in the possession of the immigrant at the port of arrival.
f) The material increase in the head tax.
g) The levy of the head tax so as to make a marked discrim-
ination in favor of men with families.
A majority of the Commission favor the reading and writing
test as the most feasible single method of restricting undesirable
immigration,
233. The Pro and Con of the Literacy Test
a) The Necessity for the Educational Test^^
BY P. F. HALL
If we are to apply some further method of selection to immi-
grants what shall it be ? It must be a definite test. For one trouble
with the present law is that it is so vague and elastic that it can be
interpreted to suit the temper of any of the higher officials who
may happen to be charged with its execution. While there are
many exceptions, those persons who can not read in their own lan-
guage are, in general, those who are also ignorant of a trade, who
2GAdapted from an article in the Annals of the American Academy of
Political and Social Science, XXIV, 183. Copyright, 1904.
514 CURRENT ECONOMIC PROBLEMS
bring little money with them, who settle in the city slums, who
have a low standard of living and little ambition to seek a better,
and who do not assimilate rapidly or appreciate our institutions. It
is not claimed that an illiteracy test is a test of moral character,
but it would undoubtedly exclude a good many persons who now
fill our prisons and almshouses, and would lessen the burden on
our schools and machinery of justice. In a country having uni-
versal suffrage, it is also an indispensable requirement for citizen-
ship, and citizenship in its broadest sense means much more than
the right of the ballot. The illiteracy test has passed the Senate
three times and the House four times in the last eight years. The
test has already been adopted by the Commonwealth of Australia
and by British Columbia, and would certainly have been adopted
here long since but for the opposition of the transportation com-
panies.
b) Pauperism and Illiteracy"
BY KATE H. CLAGHORN
The general conclusions to be drawn with regard to the newer
element in immigration seem to be, first, that among them the un-
skilled worker gets along better than the skilled, and the illiterate
than the literate. This is not to say that skill and education in them-
selves are a handicap in the industrial contest, or that all racial
groups with a large proportion of illiterate, unskilled labor get along
better than those having a high degree of literacy and a larger pro-
portion of skill.
Industrial success in this country depends upon adjustment to
conditions here. Some groups seem to find suitable openings for
skill and education. But on the whole there is more chance for the
newcomer into any social aggregation if he is willing to begin at
the bottom, and in this country, in particular, there is less demand
for skilled labor from outside, owing to the fact that the present
inhabitants are willing to follow these lines of work themselves, but
are unwilling to occupy themselves in unskilled labor. On the other
hand the skill, and especially the education, of the newer European
mmigrant has. been directed along lines that do not suit American
conditions. In the evolutionary phrasing, undifferentiated social
elements can more easily adapt themselves, by specializing, to fit a
new environment, than can the elements which have been already
differentiated to fit a former environment.
27Adapted from an article in the Annals of the American Academy of
Political and Social Science, XXIV, 197-98. Copyright, 1904.
PROBLEMS OF POPULATION 515
Any restriction of immigration, then, that is based on an edu-
cational qualification, would be meaningless with respect to the
growth of pauperism. Such a qualification would, among the newer
immigrants at least, let in the class which though small is the most
difficult to provide for, and would keep out the class that can best
provide for itself.
c) From the Men at the Gate^^
BY LOUIS S. AMONDSON
We've dug your million ditches, We've given honest labor,
We've built your endless roads, And liked our humble lot ;
We've fetched your wood and water, Our children learn the letters
And bent beneath the loads. Their fathers haven't got.
We've done the lowly labor We've fled from persecution
Despised by your own breed; And served you in your need,
And now you won't admit us But now you would debar us
Because we cannot read. Because we can not read.
Most crooks are educated, Good friends, if we are brothers,
And to the manner born; Why do you raise this test?
Their white hands show no callous, Will talk, then, till your acres
They look on us with scorn. And feed your people best?
Mere learning is not virtue, Your children trained as idlers,
The word is not the deed. Some workers you must need
Disdain, then, not your toilers Don't bar our only refuge
Because they can not read. Because we can not read.
Your farms are half deserted,
Up goes the price of bread;
Your boasted education
Turns men to clerks instead.
We bring our picks and shovels
To meet your greatest need;
Don't shut the gate upon us
Because we can not read.
d) Our Immigration Policy^^
BY WOODROW WILSON
In two particulars of vital consequence this bill embodies a
radical departure from the traditional and long-established policy
of this country, a policy in which our people have conceived the very
character of their government to be expressed, the very mission
and spirit of the nation in respect of its relations to the peoples
of the world outside their borders. It seeks to all but close entirely
28From The Square Deal, XII (1913), 165-66.
29Adapted from the Message of the President of the United States Veto-
ing H. R. 6060, 63d Cong., 3d sess., Document 1527, 3-4 (1915). This bill pro-
vided for the so-called "literary test" for admission of aliens into this country.
The "Burnett-Smith Immigration Act" was passed by Congress, over the veto
of the President, on February 5, 1917. It became operative on May 5, 1917.
5i6 CURRENT ECONOMIC PROBLEMS
the gates of asylum which have always been open to those who
could find nowhere else the right and opportunity of constitutional
agitation for what they conceived to be the natural and inalienable
rights of men; and to exclude those to whom the opportunities of
elementary education have been denied, without regard to their
character, their purposes, or their natural capacity.
Restrictions like these adopted earlier in our history as a nation,
would very materially have altered the course and cooled the human
ardor of our politics. The right of political asylum has brought
to this country many a man of noble character and elevated purpose
who was marked as an outlaw in his own less fortunate land, and
who has yet become an ornament to our citizenship and to our public
councils. The children and the compatriots of these illustrious
Americans must stand amazed to see the representatives of their
nation now resolved, in the fulness of our national strength and at
the maturity of our great institutions, to risk turning men back from
our shores without test of quality or purpose. It is difficult for me
to believe that the full effect of this feature of the bill was realized
when it was framed and adopted, and it is impossible for me to
assent to it in the form in which it is here cast.
The literacy test and the tests and restrictions which accompany
it constitutes an even more radical change in the policy of the nation.
Hitherto we have generously kept our doors open to all who were
not unfitted by disease or incapacity for self-support or such per-
sonal records or antecedents as were likely to make them a menace
to our peace and order or to the wholesome and essential relation-
ships of life. In this bill it is proposed to turn away from tests of
character and of quality and impose tests which exclude and re-
strict; for the new tests here embodied are not tests of quality or of
character or personal fitness, but tests of opportunity. Those who
come seeking opportunity are not to be admitted unless they have
already had one of the chief opportunities they seek, the opportunity
of education.
G. THE FUTURE OF THE IMMIGRANT
234. The Immigrant an Industrial Peasant^"
BY H. G. WELLS
Will the reader please remember that I've been just a few weeks
in the states altogether, and value my impressions at that! And
will he, nevertheless, read of doubts that won't diminish. I doubt
'^Adapted frora The Future in America, 142-47. Copyright by Harper &
Bros, 1906.
PROBLEMS OF POPULATION 517
very much if America is going to assimilate all that she is taking
in now ; much more do I doubt that she will assimilate the still
greater inflow of the coming years. I believe she is going to find
infinite difficulties in that task. By "assimilate" I mean make intel-
ligently co-operative citizens of these people. She will, I have no
doubt whatever, impose upon them a bare use of the English lan-
guage, and give them votes and certain patriotic persuasions, but
I believe that if things go on as they are going the great mass of
them will remain a very low class — will remain largely illiterate
industrialized peasants. They are decent-minded peasant people,
orderly, industrious people, rather dirty in their habits, and with a
low standard of life. Wherever they accumulate in numbers they
present to my eye a social phase far below the level of either Eng-
land, France, north Italy, or Switzerland. And, frankly, I do not
find the American nation has either in its schools — which are as
backward in some States as they are forward in others — in its press,
in its religious bodies or its general tone, any organized means or
effectual influences for raising these huge masses of humanity to
the requirements of an ideal modern civilization. They are, to my
mind, "biting off more than they can chew" in this matter.
Bear in mind always that this is just one questioning individual's
impression. It seems to me that the immigrant arrives an artless,
rather uncivilized, pious, goodhearted peasant, with a disposition
towards submissive industry and rude effectual moral habits. Amer-
ica, it is alleged, makes a man of him. It seems to me that all too
often she makes an infuriated toiler of him, tempts him with dol-
lars and speeds him up with competition, hardens him, coarsens his
manners, and, worst crime of all, lures and forces him to sell his
children into toil. The home of the immigrant in America looks
to me worse than the home he came from in Italy. It is just as
dirty, it is far less simple and beautiful, the food is no more whole-
some, the moral atmosphere far less wholesome; and as a conse-
quence, the child of the immigrant is a worse man than his father.
I am fully aware of the generosity, the nobility of sentiment,
which underlies the American objection to any hindrance to immi-
gration. But either that general sentiment should be carried out
to a logical completeness and gigantic and costly machinery organ-
ized to educate and civilize these people as they come in, or it should
be chastened to resist the inflow to numbers assimilable under
existing conditions. At present, if we disregard sentiment, if we
deny the alleged need of gross flattery whenever one writes of
America for Americans, and state the bare facts of the case, they
5i8 CURRENT ECONOMIC PROBLEMS
amount to this: that America, in the urgent process of individual-
istic industrial development, in its feverish haste to get through
with its material possibilities, is importing a large portion of the
peasantry of central and eastern Europe, and converting it into a
practically illiterate industrial proletariat. In doing this it is doing
a something that, however different in spirit, differs from the slave
trade of its early history only in the narrower gap between em-
ployer and laborer. In the "colored" population America has al-
ready ten million descendants of unassimilated and perhaps unas-
similable labor immigrants. These people are not only half civilized
and ignorant, but they have infected the white population about
them with a kindred ignprance. For there can be no doubt that if
an Englishman or Scotchman of the year 1500 were to return to
earth and seek his most retrograde and decivilized descendants, he
would find them at la"St among the white and colored population
south of Washington. I have a foreboding that in this mixed flood
of workers that pours into America by the million today, in this
torrent of ignorance, against which that heroic being, the schoolmarm,
battles at present all unaided by men, there is to be found the pos-
sibility of another dreadful separation of class and kind, a separation
perhaps not so profound but far more universal. One sees the pos-
sibility of a rich industrial and mercantile aristocracy of western
European origin, dominating a darker-haired, darker-eyed, unedu-
cated proletariat from central and eastern Europe. The immigrants
are being given votes, I know, but that does not free them, it only
enslaves the country. The negroes were given votes.
These are all mitigations of the outlook, but still the dark shadow
of disastrous possibility remains. The immigrant comes in to weaken
and confuse the counsels of labor, to serve the purposes of corrup-
tion, to complicate any economic and social development, above all to
retard enormously the development of that national consciousness
and will on which the hope of the future depends.
235. The Problem of Americanization^^
BY HENRY W. FARNAM
We must Americanize our population. The Civil War abolished
slavery but left us as its legacy a block of 10,000,000 black freedmen,
mostly illiterate. These people had to be educated and made worthy
of citizenship. At the same time the demand for labor in the North
led to great and increasing immigration. As a result, our conti-
siprom "The Balance Wheels of America," Yale Review, VIII, 261-62.
Copyright, 1919.
PROBLEMS OF POPULATION 519
nental population grew in forty years from about 38,000,000 with a
density of 13 per square mile, to over 93,000,000 with a density of
30.9 per square mile in 1910, while it exceeds 100,000,000 at the
present time. At the outbreak of the world-war our numbers were
nearly half as large again as those of the German Empire, and were
equal to the combined numbers of the United Kingdom, France,
Belgium, and the Netherlands.
But if we analyze the population we find that it has been recruited
to a large extent by immigration. From 1870 to 1 910, over 20,000,000
immigrants entered the country. Thirty-five per cent of our popula-
tion in 1910 were either of foreign birth or foreign parentage. A
large percentage of foreign born is nothing new in our history, but
the source of supply has undergone a marked change during recent
decades. In the decade ending in 1880, 73.7 per cent of the immi-
grants came from Northwestern Europe, and 7.1 from Southern
and Eastern Europe. In the last decade these figures were almost
reversed, and only 21.8 came from Northeastern, while 71.9 came
from Southeastern Europe.
Whether the people of these regions as individuals are better or
worse than the immigrants of forty years ago need not be discussed.
The outstanding fact is that, whatever may be the physical, moral,
and intellectual qualities of the newcomers, an increasing percentage
of them are unfamiliar with the English language and with the institu-
tions of self-government which have developed in Western European
states. They are on the whole less well educated. Some light is
thrown on this phase of the matter by the statistics of illiteracy. In
1895, 42,302 immigrants over fourteen years of age out of a total
of 279,948, or about 15 per cent, were unable to read or write. This
number had increased by 1914 to 260,152 illiterates out of a total of
1,218,480, or about 21 per cent. The illiterates who entered our
country in 1914 were nearly as numerous as the total number of immi-
grants nineteen years earlier. In the course of the ten years preced-
ing the European war we took in 2,339,400 immigrants over fourteen
years of age who were unable to read or write, after debarring from
entrance for one reason or another 173,900, In the very nature of
things, therefore, these late arrivals are an element more difficult to
assimilate than those who furnished the bulk of the immigration
before the Civil War.
We have in the Americanization of these newcomers a vast prob-
lem which we have thus far imperfectly solved. We have an equally
important problem in the education of the native-born. Our expendi-
ture on the common schools has increased from about $9 per pupil
in 1871 to $30 in 191 5 ; but the large number of illiterates still found
520 CURRENT ECONOMIC PROBLEMS
in parts of our country shows either that we have not spent enough
or that we have not spent our money wisely. This is no place to say
in detail what should be done. Indeed, it would be presumptous to
assume that we can pronounce upon ways and means now. Every
step must be taken carefully and experimentally. The leading things
to aim at are to give the children a more adequate conception of the
Americal ideals of American institutions, and to inculcate habits of
uprightness, industry, thrift, and thoroughness as elements of na-
tional power.
236. Industry and Americanization^-
BY ESTHER EVERETT LAPE
We can never forget that the initiative in the status of the im-
migrant in this country is economic. We admitted men and women
not only with no question as to their citizenship but with no reference
to it. We neither knew nor cared whether they ever intended to be-
come citizens or to adopt our language. We needed them in our
mines and factories ; big employers wanted them and sent for them ;
and we let them in, taking some pride in the haste with which we ex-
amined them mentally, proved their fitness or unfitness, and hurried
them through the line at Ellis Island to the waiting employer.
The obvious result is that Americanization is and must for years
continue to be a main charge upon American business. Some form
of industry reaches every immigrant that comes here, and it is often
the only American thing that does reach him. Whatever else the im-
migrant has or has not in the country, he has an American job. The
employer has a continuous day-in-and-day-out chance at him which
no other American institution has. Besides this, the Americaniza-
tion opportunities of the night school, the library, the church, the
settlement are limited indeed.
Collectively speaking, however — for there is, of course, no direct
moral charge upon the individual in this respect — American employ-
ers have the responsibility as well as the opportunity. A few years
ago this peculiar situation was revealed by an attempt to get adult
immigrants into night schools for the study of English and prepara-
tion of citizenship. Year after year the great automobile factories
and construction plants had been importing the labor they needed,
importing it much faster than the conservative city of Detroit could
assimilate it. Every institution of the city was thoroughly provin-
cial, developed along the most conservative lines, for Americans only.
As a result the most progressive industrial city of America was 75 per
32Adapted from "Americanization," Columbia University Quarterly, XX
(1918), 65-70.
PROBLEMS OF POPULATION 521
cent immigrant with civic institutions used by about 30 per cent of
the city's population. No wonder an editor saw in the attempt to get
immigrants into night schools and the employers' support of the cam-
paign the dumping of a large and unjustifiable burden upon the self-
respecting tax-paying citizen, who was not profiting by immigrant
labor. After all they had been brought there frankly as an economic
asset. It really made very little difference whether they, as indivi-
duals, stayed on the job, or whether their places were taken by others
— except that here and there an enlightened industrial captain was
beginning to see that men who did not speak English and were not
citizens were a potential cause of labor troubles, that "migratory im-
migrants" were making the labor supply unstable, and that stability
of the labor supply is an essential factor in production.
As in any movement where bulk and quantity are the desiderata,
a huge percentage of waste was admitted by employers as quite
normal. The country had a fixed idea that the immigrant was here
to do the rough work, and that the millions of them so engaged con-
stituted an industrial reserve not subject to the same circumstances
as the great mass of American laborers. A few years ago an officer
of an important coal and iron company in Colorado deprecated a sug-
gestion to treat with the "hunkies" as futile and absurd. What he
said in effect was this : We are not dealing with American workmen ;
we are dealing with muscle and brawn to which American jobs have
been given. They were brought here for that. If there is any diffi-
culty, the answer is a new set of laborers.
The attitude, represented by the Detroit editor and the Colorado
mine operator, is passing. The war situation has made us conscious
of the need for Americanization. As a result of the general interest
stimulated during the last few years, particularly by the Immigration
Committee of the United States Chamber of Commerce, thousands
of employers throughout the country have undertaken to find out the
social and citizenship condition of their workmen, their ability to
speak English, the industrial intention, what they do with their sav-
ings, and, in short, their whole intention in America. Many of these
firms realize and frankly state that the Americanization of their
workmen has ceased to be an interesting and humanitarian avocation
and has become not only good business but necessary business. It is
no longer a secret that both our railroads and our strategic industries
are largely manned by aliens, many of whom indeed are friendly,
many others men of whose loyalty or disposition we know nothing.
Out of all this confusion, out of the possibility of disaster, there
is coming to the American employer a very healthy recognition that
Americanization is, even industrially speaking, a prime essential.
522 CURRENT ECONOMIC PROBLEMS
Industry cannot do the whole task. But for a long time to come it
will have to do more than its share. Its share is the instruction of
immigrant men and women in American industrial standards, in-
dustrial relations, and industrial ideals. The industry that employs
immigrants owes America the task of making them thorough-going
American workmen ; and until employers and American trade-unions,
with their native membership, alike accept that bond, immigrant
workmen, whether in war or in peace, are an industrial menace to
America.
Aside from this industrial responsibility, the American industry
employing immigrants must always be, both for the community and
the national government, the chief executive agent outside the public
schools and perhaps above it. It possesses most of a man's working
hours. It determines his place of residence, his manner of life, his
savings. It has a dozen opportunities in the mere routine of the day
to get an American message through to him. When the industrial
Americanization has been made a part of the firm's accounting, when
it is reckoned as a part of the cost of production, the routine of
American industry will produce Americanized workmen.
237. The Economics of Immigration^^
BY FRANK A. FETTER
The current objections to immigration are mainly based on the
alleged evil effects to the political, social, and moral standards of
the community. It is often asserted that present immigration is
inferior in racial quality to that of the past. Whatever be the truth
and error mingled in these views, we are not now discussing them.
Our view is wholly impersonal and without race prejudice. If the
present immigration were all of the Anglo-Saxon race, were able
to speak, read, and write English, and had the same political senti-
ments and capacities as the earlier population, the validity of our
present conclusions would be unaffected.
When our policy of unrestricted immigration is thus opposed to
the interests of the mass of the people, its continuation in a democracy
where universal manhood suffrage prevails is possible only because
of a remarkable complexity of ideas, sentiments, and interests,
neutralizing each other and paralyzing action. The American sen-
timent in favor of the open door to the oppressed of all lands is a
part of our national heritage. The wish to share with others the
blessings of freedom and of economic plenty is the product of many
^^Adapted from "Population or Prosperity," American Economic Review,
III (No. 1, Supplement), 13-16. Copyright, 1912.
PROBLEMS OF POPULATION 523
generations of American experience. The policy had mainly an^
economic basis ; land was here a free good on the margin of a vast
frontier. Most citizens benefited by a growing population. But the
open door policy is vain to relieve the condition of the masses of'
other lands. Emigration from overcrowded countries, with the rarest
exceptions, leaves no permanent gaps. Natural increase quickly fills
the ranks of an impoverished peasantry. Lands whose people are in
economic misery must improve their own industrial organization, ele-
vate their standards of living, and limit their numbers. If they go
on breeding multitudes which find an unhindered outlet in continuous
migration to more fortunate lands, they can at last but drag others
down to their own unhappy economic level.
The pride of immigrants and of their children, sometimes to the
second and third generations, is another strong force opposing re-
striction. Immigrants, having become citizens, are proud of the race
of their origin, and resent restriction as a reflection upon themselves
and their people. , ^
A strong commercial motive operates in the most influential class )
of employers in favor of the continuance of immigration. From the /
beginning of our history, proprietors and employers have looked/
with friendly eyes upon the supplies of comparatively cheap labor I
coming from abroad. Large numbers of immigrants or of their \
children have been able soon, in the conditions of the times, to become \
proprietors and employers. Thus was hastened the peopling of the j
wilderness. The interest of these classes harmonized to a certain /
point with the public interest ; but likewise it was in some respects in I
conflict with the abiding welfare of the whole nation. It encouraged/
much defective immigration from Europe.
The immigration from Europe has furnished an ever-changing
group of workers moderating the rate of wages which employers
otherwise would have had to pay. The continual influx of cheap!
labor has aided in imparting values to all industrial opportunities.!
A large part of these gains have been in the trade, manufactures,!
and real estate of cities, as these have taken and retained an ever
growing share of the immigrants. Successive waves of immigration,
composed of different races, have been ready to fill the ranks of the
unskilled workers at meager wages. This continuous inflow has in \
many industries come to be looked upon as an indispensable part of ^
the labor supply. Conditions of trade, methods of manufacturing,
prices, profits, and the capital value of the enterprises have become
adjusted to the fact. Hence results one of those illusions cherished
by the practical world when it identifiesits. owiiDrofits with the
public welfare. Without immigratigjififis said, the supply of labor
524 CURRENT ECONOMIC PROBLEMS
would not be equal to the demand. It would not at the present wages.
Supply and demancTHave reference to a certain price. At a higher
wage the amount of labor offered and the amount demanded will
come to an equality. This would temporarily curtail profits, and
other prices would, after readjustment, be in a different ratio to
wages. Such a prospect is most displeasing to the commercial world,
ijuick to see disaster in a disturbance of profits, slow to see popular
prosperity in rising wages.
The labor supply coming from countries of denser population and
with low standards of living creates, in some occupations, an ab-
normally low level of wages and prices. Children cannot be born in
American homes and raised on the American standard of living
cheaply enough to maintain at such low wages a continuous supply
of laborers. Many industries and branches of industry in America
are thus parasitical. A condition essentially pathological has come
to be looked upon as normal. It is the commercial ideal which im-
poses itself upon the minds of men in other circles.
What tremendous forces are combined in favor of a policy of
unrestricted immigration: sentiment and business, generosity, self-
ishness, laborers, employers. All men are prone to view immigra-
tion in its details, not in its entirety. They see this or that indi-
vidual or class advantage, not the larger national welfare. The inter-
ests of capitalists and of the newly arriving immigrants are abundantly
considered ; the interests of the mass of the people now here are over-
looked.
34
238. The Influence of the Immigrant on America
BY WALTER E. WEYL
When we seek to discover what is the exact influence of the
immigrant upon his new environment, we are met with difficulties
almost insurmountable. Social phenomena are difficult to isolate.
The immigrant is not merely an immigrant. He is also a wage-earner,
a city-dweller, perhaps, also an illiterate. Wage-earning, city-dwell-
ing, and illiteracy are all contributing influences. Your immigrant
is a citizen of a new factory, of the great industrial state, within, yet
almost overshadowing the political state. Into each of our problems
— wages and labor, illiteracy, crime, vice, insanity, pauperism, democ-
racy — the immigrant enters.
There is in all the world no more difficult, no more utterly be-
wildering problem than this of the intermingling of races. Already
s^Adapted from "New Americans," Harper's Monthly Magazine, CXXIX,
616-17, 620-22. Copyright, 1914.
PROBLEMS OF POPULATION 525
twenty million immigrants have come to stay. To interpret this
pouring of new, strange millions into the old, to trace its results
upon the manners, the morals, the emotional and intellectual reac-
tions of the Americans, is like searching out the yellow waters of
the Missouri in the vast floods of the lower Mississippi. Our immi-
grating races are many, and they meet diverse kinds of native Ameri-
cans on varying planes and at innumerable contact points. So com-
plex is the resulting pattern, so multifarious are the threads inter-
woven into so many perplexing combinations, that we struggle in
vain to unweave the weaving.
When we compare the America of today with the America of
half a century ago, certain differences stand out sharply. America
today is far richer. It is also more stratified. Our social gamut
has been widened. There are more vivid contrasts, more startling
differences, in education and in the general chances of life. We are
less rural and more urban, losing the virtues and the vices, the excel-
lences and the stupidities of country life, and gaining those of the
city. We are massing in our cities armies of the poor to take the
places of country ne'er-do-wells. We are more sophisticated. We
are more lax and less narrow. We have lost our early frugal sim-
plicity, and have become extravagant. We have, in short, created
a new type of the American, who lives in the city, who reads news-
papers and even books, bathes frequently, travels occasionally ; a
man fluent intellectually and physically restless, ready but not pro-
found, intent upon success, not without idealism, but somewhat dis-
illusioned, pleasure-loving, hard-working, humorous. At the same
time there grows a sense of a social maladjustment, a sense of fail-
ure in America to live up to expectations, and an intensifying desire
to right a not clearly perceived wrong. There develops a vigorous,
if somewhat vague and untrained, moral impulse based on social
rather than individual ethics, unaesthetic, democratic, headlong.
Although this development might have come about in part at
least without immigration, the process has been enormously accel-
erated by the arrival on our shores of millions of Europeans. These
men came to make a living, and they made not only their own but
other men's fortunes. They hastened the dissolution of old condi-
tions ; they undermined old standards by introducing new ; their very
traditions facilitated the growth of that traditionless quality of the
American mind which hastened our material transformation.
Because of his position at the bottom of a stratified society the
immigrant does not exert any large direct influence. His indirect
influence, on the other hand, is increased rather than diminished by
his position at the bottom of the structure. When he moves, all
526 CURRENT ECONOMIC PROBLEMS
superincumbent groups must of necessity shift their positions. This
indirect influence is manifold. The immigration of enormous num-
bers of unskilled "interchangeable" laborers, who can be moved
about like pawns, standardizes our industries, facilitates the growth
of stupendous business units, and generally promotes plasticity. The
immigrant by his very readiness to be used speeds us up ; he accel-
erates the whole tempo of our idustrial life. He changes completely
the "balance of power" in industry, politics, and social life generally.
The feverish speed of our labor, which is so largely pathological, is
an index of this. The arrival of ever fresh multitudes adds to the
difficulties of securing a democratic control of either industry or
politics. The presence of the unskilled, unlettered immigrant ex-
cites the cupidity of men who wish to make money quickly and do
not care how. It makes an essentially kind-hearted people callous.
Why save the lives of "wops" ? What does it matter if our industry
kills a few thousands more or less, when, if we wish, we can get mil-
lions a year from inexhaustible Europe ? Immigration acts to destroy
our brakes. It keeps us, as a nation, transitional.
Of course this transitional quality was due partly to our virgin
continent. There was always room in the West. Immigration, how-
ever, intensified and protracted the development. Each race had to
fight for its place. Natives were displaced by Irish, who were dis-
placed in turn by Germans, Russians, Italians, Portuguese, Greeks,
Syrians. Whole trades were destroyed by one nation and conquered
by another. The old homes of displaced nations were inhabited by
new peoples ; the old peoples were shoved up or down, but, in any
case, out. Cities, factories, neighborhoods changed with startling
rapidity. Connecticut schools, once attended by descendants of the
Pilgrims, became overfilled with dark-eyed Italian lads and tow-
headed Slavs. Protestant churches were stranded in Catholic or Jew-
ish neighborhoods. America changed rapidly, feverishly. The rush
and recklessness of our lives were increased by the mild, law-abiding
people who came to us from abroad.
There was a time when all these qualities had their good features.
So long as we had elbow room in the West, so long as we were young
and growing, with a big continent to make our mistakes in, even
recklessness was a virtue. But today America is no longer elastic;
the road from bottom to top is not so short and not so unimpeded
as it once was. We cannot any longer be sure that the immigrant
will find his proper place in eastern mills or on western farms with-
out injury to others — or to himself.
The time has passed when we believed that mere numbers was
all. Today, despite the whole network of Americanizing agencies,
PROBLEMS OF POPULATION
527
we have teeming, polyglot slums, and the clash of race with race in
sweatshop and factory, mine and lumber camp. We have a mixture
of ideals, a confusion of standards, a conglomeration of clashing
views on life. We, the many-nationed nation of America, bring the
Puritan tradition, a trifle anaemic and thin, a little the worse for
disuse. The immigrant brings a Babel of traditions, an all too plastic
mind, a willingness to copy our virtues and our vices, to imitate us
for better or for worse. All of which hampers and delays the forma-
tion of national consciousness.
From whatever point we view the new America, we cannot help
seeing how intimately the changes have been bound up with our
immigration, especially that of recent years. The widening of the
social gamut becomes more significant when we recall that with un-
restricted immigration our poorest citizens are periodically recruited
from the poor of the poorest countries of Europe. Our differences
in education are sharply accentuated by our enormous development
of university and high schools at one end, and by the increasing
illiteracy of our immigrants at the other.
America today is in transition. We have moved rapidly from
one industrial world to another, and this progress has been aided and
stimulated by immigration. The psychological change, however,
which should have kept pace with this industrial transformation, has
been slower and less complete. It has been retarded by the very
rapidity of our immigration. The immigrant is a challenge to our
highest idealism, but the task of Americanizing the extra millions of
newcomers has hindered progress in the task of democratizing
America.
H. THE QUALITY OF POPULATION
239. The Breeding of Men^^
BY PLATO
"Then tell me, Glaucon, how is this result to be attained? For I
know that you keep in your house both sporting dogs and a great
number of game birds. I conjure you, therefore, to inform me
whether you have paid any attention to the breeding of these animals."
"In what respect?"
"In the first place, though all are well bred, are there not some
which are, or grow to be, superior to the rest?"
"There are."
"Do you then breed from all alike, or are you anxious to breed
as far as possible from the best ?"
s^Adapted from The Republic, v. 459-60 (385 B.C.).
528 CURRENT ECONOMIC PROBLEMS
"From the best." "^
"And if you were to pursue a different course, do you think that
your breed of birds and dogs would degenerate very much ?"
"I do."
"Good heavens ! my dear friend," I exclaimed, "what very first-
rate men our rulers ought to be, if the analogy holds with respect to
the human race."
"Well, it certainly does."
"The best of both sexes ought to be brought together as often as
possible, and the worst as seldom as possible, and the issue of the
former unions ought to be reared, and that of the latter abandoned,
if the flock is to attain first-rate excellence."
"You are perfectly right."
"Then we shall have to ordain certain festivals at which we shall
bring together the brides and bridegrooms, and we must have sacri-
fices performed, and hymns composed by our poets in strains appro-
priate to the occasion ; but the number of marriages we shall place
under the control of the magistrates, in order that they may, as far
as they can, keep the population at the same point, taking into con-
sideration the effects of war and disease, and all such agents, that
our city may, to the best of our power, be prevented from becoming
either too great or too small."
36
240. Derby Day and Social Reform
BY MARTIN CONWAY
Sir : Which is wrong — the breeder of race horses or Mr. Lloyd-
George? Would racing men do better with their animals if they
adopted all the methods which Parliament has imposed upon us in
recent years as the right way to improve the efficiency of the human
race? How would it be if they swept up the whole equine progeny
of the country, each generation as it came, and applied social reform
to it — if they provided it with stables sanitarily inspected, if they
caused all its units pass under the hands of certified trainers, if
they pensioned off the old hacks, and provided bank holidays for the
young, and, finally, if they left the whole question of the breeding
of the beasts to chance? If English racing-men adopted our govern-
mental system, is it not certain that English race horses would be
beaten everywhere by horses bred by selection ? Yet no one suggests
any interference with the breeding of the human race. It is only
royal marriages that have to be publicly approved. My suggestion
that the same kind of interference should be applied to the mar-
2^A letter published in the London Times, May 26, 1909.
PROBLEMS OF POPULATION 529
riages of peers has not exactly "caught on." In their case the hered-
itary principle is accepted but not scientifically applied.
Not only does Parliament in its so-called wisdom fail to apply
science to the production of hereditary legislators, but in all recent
social legislation it has actually penalized the fitter classes in society
in the interests of the less fit. The least fit in the country are the
old people who have failed to provide any savings against their old
age, and that large class of cheats who manage to pretend that they
are in that case. An as yet uncounted number of millions sterling
is now to be taken year after year from the fitter classes and doled
out to these unfittest. No one can tell how many children that would
have been born to these fitter parents will now have to go unborn.
The old people used to be supported by their relations, who presum-
ably inherited a like unfitness ; those relatives, now indirectly en-
dowed, can now produce more children in place of the fitter children
whose entry into the world has been blocked. All so-called social
legislation tends to act in the same way. The birth rate of the fitter
is diminishing year by year and we calmly sit by and watch the con-
sequent degeneration of our race with idle hands. We take the
human rubbish that emerges and give it compulsory education, hous-
ing acts, inspection of all sorts and at all seasons, at the expense of
the fitter class, and imagine that better results will ensue than if we
left the whole business alone. Are we right? Or are the horse
breeders right? They have demonstrably improved the race of
horses, and with great rapidity. The old system of "let alone" also
improved, though more slowly, the race of men. It is only the mod-
ern system of penalizing the fit for the sake of the unfit that seems
to be put in action simultaneously with, if it does not cause, and ob-
served race-degeneration.
241. Eugenics and the Social Utopia^^
BY GEORGE P. MUDGE
With regard to man, it is now clear that what medicine, social
reform, legislation, and philanthropy have failed to accomplish can
be achieved by biology. Tell the student of genetics what type of
nation we desire, within the limits of the characters which the nation
already possesses, and confer upon him adequate powers, and he
will evolve it. It is not too much to say that if he were instructed
to evolve a "fit" nation — that is, one of self-restrained and self-sup-
porting individuals — in the course of a few generations there would
^■'^Adapted from a review of Bateson's Mendel's Principles of Heredity,
in The Eugenics Review, I (1909), 137.
530 CURRENT ECONOMIC PROBLEMS
be neither workhouses, hospitals, unemployables, congenital crimi-
nals, or drunkards.
Students of eugenics will turn with interest to the concluding
pages of Professor Bateson's book ; there he deals with the sociolog-
ical application of the science of genetics. We commend every ad-
vocate of social panaceas and of legislative interference with natural
processes to read this part of the book. In a few well-chosen sen-
tences he gives expression to the judgment of every biologist, alike
of the present and the past, who has given to social problems ade-
quate and unbiased thought. For nothing is more evident to the
naturalist than that we cannot convert inherent vice mto innate vir-
tue, nor change leaden instincts into golden conduct, nor transform
a "sow's ear into a silken purse," by any known social process. Our
vast and costly schemes of free compulsory education, of county
council scholarships and evening classes, which are among these
social processes supposed to possess the magic virtue of trans-
forming the world into a fairyland, may be a delusion and a danger.
So, too, may be all the other well-intentioned but costly panaceas
that harass, and tax, and eventually destroy the fit in order to at-
tempt — for they can never achieve — the salvation of the unfit.
242. Immigration and Eugenics^^
BY WALTER E. WEYL
We must not forget that these men and women who file through
the narrow gates at Ellis Island, hopeful, confused, with bundles
of misconceptions as heavy as the great sacks upon their backs — we
must not forget that these simple, rough-handed people are the an-
cestors of our descendants, the fathers and mothers of our children.
So it has been from the beginning. For a century a swelling
human stream has poured across the ocean, fleeing from poverty in
Europe to a chance in America. One race after another has knocked
at our doors, been given admittance, has married us and begot our
children. We could not have told by looking at them whether they
were to be good or bad progenitors, for racially the cabin is not
above the steerage, and dirt, like poverty and ignorance, is but skin
deep. A few hours and the stain of travel has left the immigrant's
cheek ; a few years and he loses the odor of alien soils ; a genera-
tion or two, and those outlanders are irrevocably our race, our
nation, our stock.
88Adapted from "New Americans," Harper's Monthly Magazine, CXXIX,
615-16. Copyright, 1914.
PROBLEMS OF POPULATION 531
That stock a little over a century ago was almost pure British.
Despite the presence of Germans, Dutch, French, and Negroes, the
American was essentially an Englishman once removed, an Eng-
lishman stuffed with English traditions, prejudices, and stubborn-
nesses, reading English books, speaJ<ing English dialects, practicing
English law and English evasions of law, and hating England with a
truly English hatred. Even after immigration poured in upon us,
the English stock was strong enough to impress upon the immi-
grating races its language, laws, and customs. Nevertheless, the in-
coming millions profoundly altered our racial structure. Today over
thirty-two million Americans are either foreign-born or of foreign
parentage. America has become the most composite of nations.
We cannot help seeing that such a vast transfusion of blood
must powerfully affect the character of the American, What the
influence is to be, however, whether for better or for worse, is a
question most baffling. Our optimists conceive the future American
the child of this infinite intermarrying, as a glorified, synthetic per-
son, replete with the best qualities of all the component races. He
is to combine the sturdiness of the Bulgarian peasant, the poetry of
the Pole, the vivid artistic perception of the Italian, the Jew's in-
tensity, the German's thoroughness, the Irishman's verve, the ten-
acity of the Englishman, with the initiative and versatility of the
American. The pessimist, on the other hand, fears the worst.
America, he believes, is committing the unpardonable sin ; is con-
tracting a mesalliance, grotesque and gigantic. We are diluting our
blood with the blood of lesser breeds. We are suffering adultera-
tion. The stamp upon the coin — the flag, the language, the national
sense — remains, but the silver is replaced by lead.
All of which is singularly unconvincing. In our own families,
the children do not always inherit the best qualities of father and
mother, and we have no assurance that the children of mixed
races have this selective gift and rise superior to their parent stocks.
Nor do we know that they fall below. We hear much about "pure"
races and "mongrel" races. But is there in all the world a pure race?
The Jew, once supposed to be of Levitical pureness, is now known to
be racially unorthodox. The Englishman is not pure Anglo-Saxon,
the German is not Teutonic, the Russian is not Slav. To be mongrel
may be a virtue or a vice. We do not know. The problem is too
subtle, too elusive, and we have no approved receipts in this vast
eugenic Kitchen. Intermarrying will go on whether we like it or
loathe it, for love laughs at racial barriers and the maidens of one
nation look fair to the youth of another. Let the kettle boil, and let
us hope for the best.
532 CURRENT ECONOMIC PROBLEMS
243. The Rationale of Eugenics^®
BY JAMES A. FIELD
A review of what has been accompHshed in the field of eugenics
during the last decade clearly reveals that most of the solid writing
and of the really scientific and useful work has come from the
biologists. The competent student of economic and social questions
has rendered little aid. Perhaps until now his abstention from the
discussion has been wise. Experts were not needed to repeat the
memorable suggestion that a civilization which should acquire con-
trol over the qualities of the human breed might thereby control
human welfare also. That suggestion, vital in itself, has been
readily enough kept alive by the conviction of the inexpert that any-
thing is the better for tinkering; meanwhile, the biologists have been
coming more and more to the conclusion that whoever can deter-
mine marriage selection in the present will determine, within large
limits, the physique and intellect of the future, and will become in a
new sense the maker of history. But in proportion as the biologist
foreshadows the physical possibilities of heredity and selection, the
want grows for wisdom with which to utilize them. What sort of
history, then, is best worth the making? What sort of history does
it lie within our power to bring to pass? Is this momentous mar-
riage selection, from motives half rationtal, half mystical, in their
veneration of the continuance of life, to prevail in spite of popular
ignorance and passion? Or, leaving this question of practicability
for experience to decide, is it after all sensible to burden the present
generation with concern for generations of the future whose needs
we can hardly foretell ; and, in subservience to the science of the day,
to repudiate instinct older than all human experience by "falling in
love intelligently" ? We have need of a social philosophy to tell us
how far eugenic reforms are reasonable and worth while.
Even in its broadly biological aspects eugenics is involved in the
long-standing demarkation dispute over the respective jurisdictions
of man's artificial control and the unmodified course of natural evo-
lution. Less than twenty years ago one of the greatest of biologists,
writing on this very subject, declared in no uncertain terms his dis-
belief in the practice of artificial selection as a means of human bet-
terment. Knowledge has grown, no doubt, since Evolution and
Ethics was written, and new discoveries have gone far to discredit
Huxley's belittlement of the potency of human selective agencies.
The details of the biological mechanism by which changes are ef-
fected have become far better known. More dubious is the question
s9Adapted from "The Progress of Eugenics," Quarterly Journal of
Economics, XXVI, 61-67. Copyright, 191 1.
PROBLEMS OF POPULATION 533
how much advance has been made toward a wise guidance of such
agencies. For Huxley, there was "no hope that mere human beings
will ever possess enough intelligence to select the fittest." Possibly
the social consciousness of a people is an abler guide than he recog-
nized. Perhaps, although the fittest state of society is beyond our
perception, we may achieve by means of eugenic selection a succes-
sion of experimental changes which seem to us for the better. But
still the order of nature decrees that eugenic experiments made in
haste are repented at leisure. The eugenist who modifies the race
type in the present predetermines for better or worse the mental and
physical endowment of distant posterity. In the final analysis, eu-
genics, like other attempts at lasting reform, must m.ove with the
stream of processes which preceded human intervention and limit it
still. While in such a stream a steered course may well be better
than mere drifting, the eugenist in action must always proceed with
the caution of one who reckons with the inscrutable.
If the task of eugenics were to establish a new aristocracy of
inborn ability, the prospect of success would be less obscure. The
historical institutions of ruling castes and hereditary nobilities have
shown that the special capacity which in one generation after an-
other can seize upon and retain for itself special opportunity has
long been competent to raise the family line of its possessors above
their less favored fellowmen. Now modern biology, from a new
standpoint and with new significance, reasserts the privilege of birth.
It is not surprising, therefore, that writers arguing for the eugenic
selection which shall perpetuate and intensify exceptional ability,
have virtualy proposed an aristocratic social order of a novel kind.
But every preferment of the abler members of a community is tanta-
mount to a degradation of the less gifted. To create an exclusive
caste founded on eugenic superiority would be to intensify the un-
happiness of such persons as are already inferior. The principle of
the survival of the fittest normally involves wholesale sacrifices of
the unfit; but such unmitigated rigor of selection does not commend
itself as a humane method of social amelioration. Nor is the temper
of the times favorable to aristocracies of any sort. It calls for a
general betterment of the whole mass of mankind.
Can eugenics bring to pass this universal improvement? Prob-
ably many a devoted follower of the cause has assumed that if its
benefits can be realized by any they might be extended to all. Such
was the vision of Greg: "Every damaged and inferior tempera-
ment might be eliminated, and every special and superior one be
selected and enthroned, till the human race, both in its manhood and
its womanhood, became one glorious fellowship of saints, sages, and
534 CURRENT ECONOMIC PROBLEMS
athletes; till we were all Blondins, all Shakespeares, Pericles, Soc-
rates, Columbuses, and Fenelons." But to hold such opinions is to
ignore the relativity of success and to miss the very meaning of em-
inence. In a world of Blondins a tightrope walker would command
no profit or applause. A world of great teachers would lack pupils
to be taught. The unknown continent which everyone had found
could hardly immortalize its multitudinous discoverers. Nor could
any one master-dramatist make mankind his audience so long as all
clamored with equal right for hearing. Unfortunately, too often we
overlook, in our projects for reform, the comparative character of
individual attainments and individual happiness. We bemoan the
rarity of greatness, forgetting how largely the exceptional individ-
uals whom we call great are great because they are exceptional. If,
then we are to elevate the whole community, we must work with a
standard free from the element of invidiousness ; for no social re-
form can achieve a general improvement of men's positions relative
to the positions of their fellow-men.
Apparently, then eugenic selection is concerned not with the con-
ditions of eminence but with the conditions of efficiency. It must
work for the internal efficiency which we roughly call sanity and a
good constitution, and for the external efficiency which enables an
individual, regardless of the comparative efficiency of other individ-
uals, to make steady progress in forcing his non-human surround-
ings into conformity with his needs. Doubtless the distinctions here
applied are definite. For instance, the personal advantages of
health and strength are diminished if equal physical vigor becomes
the possession of all. Unusual prowess in exploiting external phy-
sical resources has notoriously been among the most potent causes of
inequality. Yet, in a civilization which already ministers by pallia-
tives to ill health , and in which the distributed burden of caring for
the incompetent almost certainly drags more heavily on those who
are stronger than would the potential competition which incompe-
tency now holds in check — in such a civilization, the promise of
gain to come from the eradication of feeble-mindedness, or insanity
or the proneness to consumption would outweigh any new stress of
circumstance which it would involve. And with this alleviation of
the miseries from within might come augmented economic effi-
ciency, not of the few but of the many; a general and continuous
advance in those characteristics of body and mind which make for
man's larger control of heretofore reluctant gifts of nature.
If this sketching of the possibilities is even roughly true, it calls
again for the verdict of the biologist. But it is by no means only the
biologist whose judgment is required. Again and again, in the
PROBLEMS OF POPULATION 535
light of biological discoveries a more adequate answer must be
sought to that crucial question, the significance of which the biol-
ogists have mostly failed to comprehend : Granted that by rational
marriage selection certain recombinations of human characteristics
can be effected at will, what eugenic policy promises the maximum
increase of human welfare? To aid in answering this question the
economist is needed. For health and strength and intellect work
out the good or ill fortunes of their possessors according to the ways
of economic civilization, and not by process of brute struggle for
existence. Eugenics is not mere biology. The problems of eugenics
are problems of human society.
■ I. THE POPULATION PROBLEM OF TODAY
■^ Hi.
-Ti<^ 244. Population Pressure in Japan*"
BY WALTER E. WEYL
Of all Japanese problems that of population is the least discussed,
the least understood, and the most important. Everything in Japan
turns on this question ; every phase of policy, every hope, ambition,
effort is unconsciously affected. Japanese emigration, Japanese expan-
sion, Japanese domestic and foreign relations, Japanese groping toward
industrialism — all find their agent and cause in great part in this
blind outpouring of infants. The flood of babies, upbuilding or
devastating as we look at it, is the most significant fact in modern
Japan.
Somewhere about the year 1700 the Japanese population reached
the point where under the economic conditions then existing it was
unable to advance. Thereafter for a hundred and fifty years it fluc-
tuated between twenty-four and twenty-seven millions, these totals,
however, not including the noble class and the beggars. The country
was full up ; there was standing room only. There was no more rice or
millet or fish to feed the new babies although the land was cultivated
to the last acre and the seas were scoured. Babies were born but
they died. Population was held down by disease, pestilence and star-
vation. Gradually, too, the people learned ways to lessen births.
Among nobles and well-to-do- merchants late marriages came into
vogue, and in the large cities skilled physicians practiced birth pre-
vention. By the middle of the nineteenth century an equilibrium
had long since been established between birth-rate and death-rate.
The birth-rate was probably lower than in any country in Europe.
*oAdapted from "Japan's Menacing Birth-Rate," Asia, XVIII, 129-32.
Copyright, 1918.
536 CURRENT ECONOMIC PROBLEMS
Then came Perry, the breaker down of Japanese isolation, the
restoration, the new factories, the growing world-power of Japan.
Figuratively it was Perry who called forth the millions of Japanese
babies. The unconcealed guns of the commodore created commerce
and an industrial system, and out of these arose astonishing cities
of factory workers. Japan drifted into the full tide of a giddy in-
dustrialism, which meant wealth for the few, a strenuous poverty
for the many, congestion, speed, and babies. As the factories grew
and as the new cities overflowed into adjacent rice paddies, babies —
the future factory workers and docile clerks — poured forth unceas-
ingly from the farms. As in other countries, new to industrialism,
the birth-rate outstripped custom and expectation.
In Japan the birth-rate was stimulated by patriotic and religious
motives, which heavily emphasized the duty of parenthood. In. Tact
the whole political and social philosophy of Japan favored the
abstemious and therefore fecund type. Japan's thought ignored the
material needs and desires which have held the population of the
Western World in check. Life was cheap ; children cost little, and,
since they could early be employed, paid for themselves. Even today,
when industrialism has taken a firmer root, one cannot look about
at the frail Httle houses, the cheap cotton clothes, and the inexpensive
food and furnishings with which Japanese workers seem content with-
out realizing how weak are here the instincts which in our Western
countries tend to set a limit to the population.
Once the lid was off the new industrial system demanded millions
of cheap workers. The millions were born. Since 1870 the growth
of the population has been portentous. In 1874 there were less than
34,000,000 men in Japan proper ; today there are more than 56,000,-
000. This is a fairly high rate of increase. What is most significant,
however, is that the rate of increase is itself increasing. In 1886
there were 28.8 births per thousand; in 191 1 there were 33.7. The
death-rate remains stationary ; the birth-rate steadily grows. Be-
cause of this growing birth-rate the crowded population of Japan is
increasing at the rate of three-quarters of a million per year. Where
is room to be found for these new millions ?
In agriculture, where the average farm of today is already less
than three acres ? It is to the fields that man looks instinctively for
his support. It is so in Japan as elsewhere. Unfortunately there
is a rigid and harsh law in agriculture, a law of nature and not of
man. It is the law of decreasing returns. The law decrees that
beyond a certain point every added laborer employed and every dollar
invested on a farm bring in a smaller return than the former laborer
employed or the former dollars invested.
PROBLEMS OF POPULATION 537
The visual impression that one gets of the Japanese countryside is
that the fields are already overcrowded. The country seems one
long, straggling, inchoate village. The clustering men, the ubiquitous
women and children seem to have crowded the domestic animals from
off the land. In many parts of the country this is literally true.
A horse or a cow takes up too much room for its support. Since
farms are dear and fodder expensive, the tiny farms in the more
densely populated parts of Japan swarm with men and are bare of
domestic animals.
When we grasp the smallness of Japan and the size of its popula-
tion, we understand why the land is so crowded. Japan proper is
a narrow and diminutive country. Its area of roughly 150,000 square
miles is somewhat smaller than that of California, while its popula-
tion is twenty times as great. Moreover, Japan is chiefly a country
of moutains and its arable land amounts to only some 25,000 square
miles. It follows that Japan is the classic land of intensive agricul-
ture. Its dwarf farms are really not farms at all in our sense of the
word, but gardens. They are merely little squares of land, now cov-
ered with water, now filled with mud drying in the sun, and now
vividly green with rice plants. The living to be made out of these
pretty farms is of the meagerest. The farming is the most meticulous
in the world. Every inch of ground is most carefully cultivated,
every possible saving sedulously made. By dint of hard labor and
hard scrimping the Japanese manage to secure some sort of living
from their three acres. While the yield per acre is great ; the yield
per farm or per family is extremely small.
In a majority of cases this petty farmer does not even own his
own farm. The lot of the tenant is even worse than that of the
small proprietor. For him there is very little surplus and next to no
opportunity to acquire property of his own. Land values are high.
Good lands sell for about $800 per acre. The price of the upland
farms is about half as much. The pressure of population upon the
small farm area raises land values to a point where it is extremely
difficult for a tenant to become a proprietor.
But for the rural trades, and especially the silk industry, many
of these little farmers could not live at all. It is the American de-
mand for raw silk that saves the smaller Japanese farmers from being
crushed. In all over 1,700,000 Japanese rural families devote them-
selves to this and other occupations, and thus eke out the scanty re-
turns from agriculture. Of the farming families almost a third have
some occupation subsidiary to farming.
Thus the Japanese farmer, assiduous, economical, and hard-
pressed, has managed in the past to hold his own. In fact he has
538 CURRENT ECONOMIC PROBLEMS
more than held his own. By means of better farming methods, gov-
ermental guidance, and favorable changes in agricultural world-con-
ditions the Japanese farmer has bettered his conditions. Yet this
improvement cannot go on indefinitely. Nor will the small farmer
forever be contented with his meager earnings. In Japan, as else-
where, the city offers social and intellectual pleasures not obtain-
able on the farm. So powerful is the attraction of even the slums
of the great cities that the exodus from the farms becomes greater
every year.
Finally there is little chance of improvement in intensive cul-
tivation. Intensive cultivation is the most wasteful farming in the
world ; while it saves material it is excessively lavish of human labor,
the most valuable commodity of all. Japan seems, therefore, to have
reached the stage where the pressure of a growing population upon
the farmland of the country will become increasingly intense. The
movement from the country to the city will be sharply intensified.
The new children will be met at manhood with the alternative of
finding a place in Japanese factories, workshop, and offices, or else
of taking ship and emigrating.
In Japan itself, however, there seem to be few misgivings con-
cerning the population problem. The steadily rising birth-rate is
hailed by all classes as a healthy sign of development. In part, no
doubt, this optimism is due to the general hopefulness of the people.
Japan's recent military successes have inspired in the people a vast
self-confidence. Her industrial successes have had a similar effect. Her
factories are multiplying, her commerce is expanding, her merchant
marine is increasing by leaps and bounds. Japan's attitude toward
the population is like that of England a hundred years ago. Japan
still believes the more babies the better. The high birth-rate seems
to fit in, with the main trends of thought in the empire. It suits the
militarists, who believe that Japan to become a world-power must
have a population of one hundred millions, to exercise the outward
pressure which will move frontiers and change the face of the world.
To have empire, say the imperials, we must have children. We must
have children, say the capitalists, to have cheap labor and successful
industries. Let us have children, cry all the Japanese people, to main-
tain our institutions, our religion based upon ancestor worship, our
family piety, our ancient rule of simple living and hard work.
The majority of men, and still more of women, upon whom the
brunt of this pressure falls, are as yet unrepresented in these discus-
sions. The fathers of most Japanese babies are voteless and speech-
less ; they do not discuss social problems. Yet they, too, if they were
consulted, would doubtless agree that large families were of benefit
PROBLEMS OF POPULATION 539
to the emperor and the empire, and theories or no theories they con-
tinue to breed. Because of this population pressure, Japan today is
beset by perplexing difficulties, by divided counsels, by an unin-
formed discontent, which pushes her forward into all sorts of ad-
ventures. She is in the shadow of a great trial.
As England profited by her birth-rate a hundred years ago, so
Japan may do in the twentieth century. But the situation is not en-
tirely the same. England then possessed a far smaller population
than Japan now possesses ; she had greater agricultural and infinitely
more valuable mineral resources ; she was a pioneer in industrialism,
whereas Japan is only the latest recruit. Moreover, England, during
the period of her highest birth-rate, was able to send her surplus
population not only to her own empty colonies but also to the United
States. Japanese emigration, on the other hand, is thwarted and
checked.
Japan must meet the problem of adjusting her political and eco-
nomic development to her increasing birth-rate. She must meet this
problem under difficulties greater and more perplexing than those
which have faced the other nations in their great trial.
245. The Threat of Emigration"
BY FRANCES A. KELLOR
America today faces a situation unparalleled in its history. Hun-
dreds of thousands of immigrants are clamoring to leave its shores,
held back only by passport restrictions and food scarcity abroad.
Whether these men will be replaced by others is not known. The
land which once held the imagination of all wanderers is now dis-
tanced by prospective republics and by South America and Canada.
Active preparations are being made by immigrants for leaving the
country as soon as passport regulations are lifted, the peace terms are
known, and food conditions abroad will permit. The estimates vary
between one and three millions. Whatever the number, today
throughout the country men are saving money to return, ticket agents
are doing a landslide business in reserving space, and steamship of-
fices are thronged with men clamoring to go back. Strong appeals
are being made to immigrants to go back and help rebuild the home-
land, and recognition in position and leadership are being held out.
The half-naked Slav in the steel mill dreams of the day when he will
help direct the afifairs of his nation, when with his savings, there
reckoned as wealth, he will become a leader, and he dreams not in
vain. To lose a million workers upon whom America depends to
*iAdapted from "Immigration in Reconstruction," North American
Review, CV, 199, 202-4. Copyright, 191 9.
540 CURRENT ECONOMIC PROBLEMS
fulfil her obligations abroad and to hold the lines in her basic indus-
tries is no small task. To exchange them for battle-scarred and tired
workers requires careful adjustment. To return the man with license
replaced by liberty, with the sense of destruction replaced by con-
struction, with revolution stilled by evolution in exchange for the
lawless hordes now arising in Europe is no small responsibility. To
handle this vast migration of peoples with the least possible loss of
man power, of waste of savings and resources, and of stability and
purpose is worthy of America's best thought and effort, and it has
received but a passing thought from the nation.
America has no policy as to whether it will attempt to retain them
and if so what the methods will be, or whether it will bid them God-
speed, adding as much as possible to their equipment to help them in
the new task. Every immigrant who goes back could have been made
a missionary of the American spirit, an advocate of American busi-
ness, a salesman of American goods, as well as a champion of demo-
cracy. Instead, the indifference and neglect with which they have
been treated has given many no real love for the American brand of
democracy. Today, allies though they are, they are being exploited
by steamship ticket agents who are selling them tickets on vessels
whose sailings are unknown, and no provision is being made for their
care at the seaports. They will arrive on the coast with their savings,
with their faces turned eastward with the hope of seeing those from
whom they have not heard during the war, and America will permit
them to be exploited as they leave just as she did when they first
came to her. Every such tale told on the other side dims the glory
of the Americans who fought in France.
These men and women will go back because of loyalty to the suf-
fering home country, to see what has happened, to settle up family
matters, to help the home country and to work out democratic ideals
of government in a country free at last. They will be men of position
and leadership in their homeland. It is of vital significance what
America gives them to take back with them and what their last im-
pressions are. These depend primarily upon what their experience
and life and treatment in this country have been.
The nation has no single policy which reaches all of its immigrants
and which surely equip them to interpret America to their native
homes. It has no official program or organization for safeguarding
them while here or of insuring a safe and sympathetic departure. It
has none of the courtesy of a host ; it has not the powers of the despot.
If America were to decide tomorrow that she would make efforts to
keep her immigrants and interest them in America, along what lines
would she proceed ?
PROBLEMS OF POPULATION 541
246. War and a Population Policy*^
BY JAMES A. FIELD
The suggestions of the following paragraphs are not put forward
as prophecies, but rather to indicate some of the possibilities which
may have to be dealt with when the great conflict comes to an end
and the processes of readjustment begin.
The direct effect of the war upon the populations of the belligerent
nations are but too terribly apparent. Not only have deaths and
incapacitating casualties run into the millions ; not only is there this
enormous loss of numbers — the wastage has been so concentrated
among males of fighting age as to work a serious distortion of the
population structure. Economically, the proportion of producer to
consumers has been reduced. Biologically, the balance of the two
sexes is disturbed in the reproductive years of life and the capacity
of monogamic increase is correspondingly impaired. Even though
birth-rates may nevertheless rally at the close of the struggle, this
disproportion of ages and sexes cannot thereby be corrected. It will
leave its disfiguring and disabling effects for decades to come.
Nor will the present population alone bear the scars. If there is any
significance in heredity, and any truth in the contention that modem
warfare accomplishes an adverse selection through the slaughter of
the physically bravest and best, then the new generation, and through
it posterity, must be the continuance of an impoverished breed. This,
too, is a damage that mere volume of births can hardly mend. The
two inches of average stature which the French people is said to have
lost in the Napoleonic wars were lost in spite of a tolerably vigorous
revival of the birth-rate after those devastating campaigns. Though
we may question whether the selective agency of war operates with
such obvious effect upon the human characteristics of body and mind
that most concern us, we cannot well doubt that lasting modifications
of our racial endowment are now in process on the battlefields of
Europe, It does not follow that deterioration will be at once manifest
when the next generation succeeds to leadership in Western civiliza-
tion. Indeed, it is more to be feared that civilization may conform
itself imperceptibly to the lowered standards of a depleted stock.
In any event, history that might have been is now cut off with the
lives of those whose unborn descendants would have made it.
With the return of peace we are likely to see the beginnings of
new public policies with reference to problems of population. For
this there is historical precedent as well as inherent probability. The
*2 Adopted from "Problem of Population After the War," American
Economic Review, VII (Suppl.), 222,-27- Copyright, 1917.
542 CURRENT ECONOMIC PROBLEMS
wars of 1866-71, which left a unified German Empire confronting the
shaken military power of France, gave a special incentive to the
fostering care of the population at home and abroad which has
marked the state policy of imperial Germany. The Malthusian doc-
trine, itself an indirect product of the French Revolution, and long a
dominant influence in French economics, almost abruptly lost its
vogue in France when first the menace of a unified Germany and
then the humiliation of actual defeat gave rise to the more militaristic
views which characterize the French attitude on population today.
More recently the growth of the English eugenics movement follow-
ing the Boer War has afforded a fresh reminder that population
policies are often tested by fighting.
In the past the concern of nations for questions of population has
been based on a conviction that the balance of population is the bal-
ance of power. Superiority of numbers was, of course, not all; it
was also felt that the requisite national wealth should be forthcoming.
Doubtless, so long as the requisite military equipment is available,,
the military importance of great numbers of men is hard to exag-
gerate. But the technique of modern warfare demonstrates how little
can be accomplished hereafter by men alone. War is more and more
a supreme development of industry and finance. Nations which pre-
pare for war must shape their policies accordingly. Quite possibly
the economic power to wage a successful war will not be found great-
est where there has been the greatest increase of population.
At this point the program of military preparedness encounters the
standard of living. We are familiar with the notion that a man's
standard of living is defined by the wants he insists upon satisfying
before he is willing to enlarge his family. If, now, he is compelled
to make contributions to the state treasury for military purposes, this
public demand upon him takes precedence over even the preferred
items of his private wants, and tends by so much more to reduce the
part of his resources which might be devoted to provision for chil-
dren. No nation, therefore, that has to reckon with the voluntarily
small family can expect to add indefinitely to the burdens of taxation
without encountering a still further restriction of births. Efforts to
achieve preponderance of armaments and organization may threaten
the loss of preponderance in men.
In war time standards of living change and their effects on the
birth-rate are modified. Motives of patriotism lead to a cutting
down of the scale of personal expenditure, the more easily because at
such times a universal rivalry in acts of patriotic devotion supplies
an equivalent for the various emulative conventionalities of ordinary
life. Moreover, by challenging the nation's power to survive, war
PROBLEMS OF POPULATION 543
seems to intensify the demand for children. Possibly a change of
attitude is foreshadowed by the present revulsion of feeling against
bearing children for slaughter. However, all these considerations are
aspects of the psychology of war. They accompany phases of social
life which are happily exceptional. It is in the longer intervals of
peace, when standards of living operate more normally, that popula-
tions are replenished, war chests are filled, and the debts of old wars
are paid off.
Aside from all questions of future military establishments it has
yet to be seen if the stupendous debts that are now rolling up can be
carried and eventually repaid without serious disturbances in what
has been the prevailing rate and manner of the increase in popula-
tion. The economic choices of Englishmen and Frenchmen and Ger-
mans for years to come will have been already exercised for them
vicariously to an oppressive degree. This is the natural consequence
of deficit financing in times of war. How disturbing may be the
effects upon habits of consumption, and, through standards of liv-
ing, upon population, can only be conjectured. This whole vague
but momentous issue lends new interest to the question of how the
burdens of war taxation are to be distributed in the coming years
among economic and social classes.
The problem of the differential birth-rate is likely to assume a
special importance in the United States after the war. Our well-to-
do, and highly conventionalized classes are closely influenced in their
manner of life by the ways of the corresponding classes abroad. If
the war unsettles economic class distinctions in Europe, we may
expect an indirect unsettlement here. But we have our own disturb-
ances as v/ell. The munitions contractor and the whole group which
he typifies will confront us again with the familiar and troublesome
social ferment of a noitveau riche class arising from the commerce of
war time. So long as birth-rates are sensible to emulative standards
of living, the balance of increase among different classes will hardly
pass unshaken through such an economic readjustment. We must
prepare for a fresh crop of small families with large fortunes, and
for a revival of restiveness on the part of those persons who see in
that phenomenon disregard for an indispensable condition of national
welfare.
In current discussion of questions of eugenics and birth control,
a most helpful part has been taken by women. To the intelligent
woman the importance of such questions is self-evident. She looks
upon them sanely, frankly, and earnestly. She finds herself less em-
barrassed by self -consciousness in such discussions than do most men,
because she is more conscious of the race interests which are at stake.
544 CURRENT ECONOMIC PROBLEMS
If a period of reaction should follow the war, with the effect of exag-
gerating masculine virtues and reducing the opportunities for in-
fluence permitted to women, progress in dealing with fundamental
problems of population would be seriously set back.
Our national consciousness has been quickened by the events of
the last two years. Unfortunately national interference in our popu-
lation questions has heretofore been too typically negative. It has
manifested itself in minor restrictions of immigration and in the
enactment and sporadic enforcement of censorious blue laws designed
to compel parenthood through ignorance. But a changed attitude
may come with our desire for a thorough-going national prepared-
ness and with the awakening sense of our obligations, as a nation in a
world of nations.
Precisely what form a national population policy might best take
in this country remains problematical. Probably it would provide for
the adequate segregation and care of hereditary defectives. Possibly
it would include a system of maternity benefits. Certainly it should
recognize that parenthood is affected with a public interest, and that
those parents who accept and perform their function with a due sense
of its social responsibilities must in fairness be safeguarded and sus-
tained in the performance by the community which is a beneficiary of
their conduct. Such a program might necessarily grope its way
slowly at first. Yet, if an enlightened spirit of nationalism shall but
lead us to make a beginning, then at least one good thing will have
come out of the war.
XI
THE PROBLEMS OF ECONOMIC INSECURITY
That "fortune is fickle," that "life is insecure," and that "no one knows
what a day may bring forth," are among the oldest and the best attested
generalizations from human experience. The problems associated with insuf-
ficiency of food, accident, sickness, and old age — with sowing where one never
reaps — we have, quite proverbially, always had with us. But under modern
industrial conditions, in a developing system, such questions are so closely
related to the whole complex of life that it is necessary for us, collectively as
well as individually, to "take thought for the morrow."
The machine system, production on a large scale, pecuniary competition,
dependence on distant and future markets, the rapid development of technique,
the delicate organization of the "industrial machine" and the scheme of prices,
the currents which carry the shock of disturbance throughout the system, the
alternation of business optimism and pessimism, the violent rhythm of the
economic cycle, the onward sweep into an unknown future — all of these things
prevent us from adequately guarding against what the morrow has in store.
The insecurity of capital is attested by failures to find purchasers for goods,
by falling dividends, by business failures, by the sudden disappearance of
capital values. But these things were discussed in connection with the eco-
nomic cycle. It is the insecurity of the laborer which concerns us here.
To grasp the problem as a whole we must appreciate the peculiar position
of the laborer in the machine system. This can best come from contrasting,
say, the villein on the manor with the modern industrial "hand." Custom
granted to the former the use of the same land year after year, exacted from
him a fi.xed rent, forbade his dispossession, and made his position permanent.
He and the land formed an inseparable industrial unit : there was always some-
thing for him to work with; what he produced he had. The problem of want
might indeed confront him ; but it was associated with a raid of an alien feudal
lord upon his manor or the failure of the elements to grant a full yield from
the earth. The group to which he belonged was established upon a "personal"
basis, and was possessed of a spirit of solidarity. He possessed as long as they
possessed.
In modern industrial society, on the contrary, there is no permanent asso-
ciation of the laborer with the instruments of production. He secures equip-
ment with which to work by means of a "contract," expressed in pecuniary
terms, and running for a stipulated period. He owns no equities in the prop-
erty with which he works. When the contract expires, it need not be renewed.
No other property owner is compelled to make a new contract with him. The
bait of higher wages, drawing him from place to place, is likely to prevent
his identification with a group animated by a spirit of solidarity. He has the
tremendous advantages which come from freedom of movement and the
chance to take advantage of the best opportunity which presents itself. He has
the disadvantages which attend short-time contracts. These last are out-
growths of two sets of conditions; first, those affecting employment, causing
it to increase or decrease, and to pay higher or lower wages ; and second, his
own industrial powers, which may be partially impaired or even totally col-
lapse, from accident or sickness to which he is exposed. When they are gone,
as they will eventually be in old age, he has no respectable surety of support.
545
546 CURRENT ECONOMIC PROBLEMS
This larger problem involves several minor problems, very closely con-
nected, and yet possessed each of its peculiar aspects. Unemployment, per-
haps the most difficult of these, is closely associated with the short-time con-
tract. With changing business conditions, the employer, who is dependent upon
pecuniary returns, may find it impossible to renew old contracts. Changes in
technique, the disappearance of his market, and a thousand other causes may
contribute to this result. It is rendered more serious by the ebb and flow in
the demand for labor, which is closely associated with the rhythm of the
business cycle. Unfortunately the supply of labor, unlike currency, is not
possessed of the necessary elasticity to meet the changing conditions. The
risks are too unpredictable for insurance to become more than a palliative.
The solution of the larger problem is, in general, associated with that of the
other problems of the cycle.
Industrial accidents occur because we have not yet learned absolutely to
control the dangerous natural forces which we have pent up in our machines,
and because we have not learned properly and exactly to adjust our move-
ments to these huge engines of production — and destruction. In general their
causes are resident in the system as a whole and cannot be directly imputed
to "individuals." Unfortunately, however, their consequences may be quite
concentrated. They are no respecters of persons, and are as likely as not to
rob of their productive abilities laborers who have families dependent upon
them. The problem involves : first, a prevention of industrial accidents, at-
tended as they are with great losses of productive power ; and second, the
devising of some legal measure to compensate the injured and innocent party
for his loss.
Sickness and old age are serious social problems. The former, through
the absence of the laborer and the breaks in the productive process which his
absence entails, piles up huge economic costs. Unless assistance be rendered
at the time of stress, sickness may lead to a great loss of productive power
and in many cases to permanent dependence. Provision for old age, under
short-time labor contracts, is difficult and rarely is adequate. But, even if
individually made, there is grave doubt whether the saving involved does not
deplete the income to such an extent as seriously to cripple efficiency. At any
rate the feeling of insecurity is likely to hinder the laborer's performance of his
work. A scheme of insurance should be able greatly to reduce the wastes
incident to both of these universal occurrences. What is needed is a long-
time calculation, based on the whole life of the laborer, not a series of short-
time calculations such as labor-contracts make necessary.
Finally there is the problem of insecurity due to wages too low to yield
a decent standard of living. There is just now a disposition to try to solve
this problem by the establishment of "minimum-wage scales." The problem
IS one of the most difficult in the field of economics. If the "natural," or com-
petitive, wage is to be set aside as too low, what standard can be found to
determine the proper wage? Will there not be evasion of laws prescribing
"artificial" wages? To prevent this, will not the government be compelled
to regulate prices, service, hiring and discharge, accounting systems, discipline,
etc? Will not the experience of the government in attempting to prevent
rebates be duplicated? What will be the influence of regulation on the in-
vestment of capital in the industries involved? To what lengths, and to the
adoption of what new social schemes, will this policy carry us? Can the
project be made to succeed without a supplementary control of the supply of
labor? Would it not be better to try to solve the question through an attempt
to decrease the numbers of the lower class, and through technical education?
It seems, from the study which we made above of "artificial price determina-
tion," that prices seriously at variance with competitive prices cannot be
enforced. Such an attempt would have far greater chances of success if
accompanied by efiforts to restrict the supply or increase the efficiency of labor.
A conscious "control of births," a restriction of immigration, vocational guid-
ance, and compulsory technical training should do much to make the minimum
PROBLEMS OF ECONOMIC INSECURITY 547
wage effective. If we can wait for slowly changing conditions to produce
results, and if we do not force a single proposal to carry the whole burden of
raising low wages, eventually we should expect success.
The problem of economic insecurity occurs in its most aggravating form
among unskilled and unorganized laborers. State aid will help them; but it
will not free them from the necessity of working out their own salvation.
Skilled and organized laborers should be able to solve their own problem
through their effective device of collective bargaining.
A. INSECURITY UNDER MODERN INDUSTRIALISM
247. Competition and Personal Insecurity^
BY THOMAS KIRKUP
Perhaps the most painful feature of the workingman's lot is the
insecurity of his position. During the long periods of depression
work is scarce and precarious, and he must go where he has a chance
of finding it. At all times the changes in the labor market are so
great and unexpected that he can hardly calculate upon a settled ex-
istence. Continual fluctuations of trade force him to move. He has
no control, or only a very partial control, over the economic and
social conditions under which he must work. A settled home, a
piece of land for a garden, a fixed outlook for his family, and a
reasonable prospect of a happy and comfortable old age, untroubled
by the horror of losing such savings as he may have made, through
want of employment, and of ending his days in a workhouse — these
for a large proportion of the workmen in the industrial centers are
unattainable blessings. Yet they are unquestionably such as every
decent and honorable working man has a right to expect.
This condition of insecurity under the existing system of com-
petition, however, is by no means a special evil of the workman.
It is the common lot of all who are involved in it, and, not the least,
of the capitalists who are exposed to ruin by it. The conditions of
industry are not only beyond the control of the workmen who serve
under the capitalistic system. They are beyond the effective con-
trol also of the individual capitalists whose function it is to direct
them, so that competition frequently degenerates into disorder, and
into an exterminating war carried on with all the weapons permit-
ted by the law, and with many not permitted by law — underselling,
adulteration, fraud, bribery, oppression of labor. In times when in-
dustry is expanding, this may not be so apparent, but when trade
becomes dull, stationary, or retrograde, the struggle grows painful,
and to many of the competitors disastrous. In this struggle many
^Adapted from An Inquiry into Socialism, pp. 68-74. Copyright by Long-
mans, Green & Co., 1907.
548 CURRENT ECONOMIC PROBLEMS
capitalists are ruined, dragging down with them numbers of work-
men who have no control of their economic position, and are help-
less under the calamity.
This insecurity is essentially connected with the speculative char-
acter of the competitive business. As production is so often carried
on for a market of unknown and incalculable extent, and for prices
which, even if obtained, cannot be accurately foreseen, uncertainty
must very greatly prevail, and the speculative spirit must power-
fully affect the general course of business. This spirit of specula-
tion culminates in the great Exchanges, disturbs legitimate trade,
and not infrequently throws into insecurity, panic, and disorder the
industrial operations of the country, sometimes of the civilized world.
In the history of the capitalistic system nothing is so extraor-
dinary as the rapid development of mechanical power. It is only
natural, when the prizes of success are so enormous and the penal-
ties of failure so severe, that human ingenuity and energy should
be wonderfully quickened. This development of industrial power
still continues in every country where modern methods have been
introduced. But there is a serious evil connected with it. This is
the fact that labor, which is one of the greatest factors of produc-
tion, is thrown out of employment through this excessive develop-
ment of machinery. But as the laborers form the bulk of the
population and should be by far the largest purchasers, the very
force which tends to over-fill the markets tends also to restrict the
purchasing power of the majority of the community. Thus industry
under the competitive system runs and must run in a vicious circle.
All the phenomena of competitive anarchy find their worst de-
velopment in the great commercial and industrial crises which con-
tinually recur, and now threaten to become not only universal but
chronic. It is unnecessary to recount the familiar phenomena of an
industrial crisis. We have a multitude of competing capitalists of
every class with a market which may be as wide as the world. Each
has a vague prospect of vast possibilities of gain before him, and
when trade is favorable each is anxious to make the most of his
opportunities. Machinery is improved, establishments are enlarged
and better organized, production grows lively, vigorous, and rapid
in an ever increasing ratio till it becomes an impetuous and feverish
rush. Before long the over-filled markets are unable to take off the
enormous supply. Goods will not sell. Embarrassments set in,
followed by forced sales at any price. Inflation and over-confidence
give place to insecurity and panic. Then comes the crash result-
ing in ruin to thousands of capitalists and in widespread depression
and stagnation. Hundreds of thousands of workmen are thrown
PROBLEMS OF ECONOMIC INSECURITY 549
out of employment. All the classes that depend on the operations
of capital, that is to say the entire society, suffer more or less from
the prevailing depression. And we have the fearful spectacle of
starving multitudes in the midst of overflowing markets and store-
houses ; superabundant food and clothing and all the other means
of subsistence, comfort and culture, but inaccessible even to those
who are most anxious to work ; vast numbers of men ruined through
the very effectiveness and perfection of the productive forces which
they have themselves created. The workers starve because they
have produced too much and too well ; through the action of mechan-
ical forces which have been created, but are not duly controlled by
man.
So long as these productive forces are wielded in such a chaotic
way by private capitalists competing for a world-market, without
adequate knowledge of its needs, without arrangement with each
other, without system and prevision, so long must such disorder last.
The capitalist, too, suffers fearfully, but it is the workman that must
usually bear the heaviest burden of privation and wretchedness.
248. Machinery and the Demand for Labor-
BY JOHN A. HOBSON
The motive which induces capitalist employers to introduce into
an industry machinery which shall either save labor, by doing the
work which labor did before, or assist labor by making it more
efficient, is a desire to reduce the expense of production. A new
machine either displaces an old machine, or it undertakes a process
of industry formerly done by hand labor without machinery.
When a new process is first taken over by machinery the ex-
penses of making and working the machines, as compared with the
expense of turning out a given product by hand labor, will involve
a net diminution of employment. Proof of this is the introduction
of the new machinery ; otherwise no economy would be effected.
Neither in economic theory nor in industrial practice is there any
justification for the belief that the net result of improved machinery
is a maintenance or an increase of employment within the particular
trade, or even within the group of the interdependent trades en-
gaged in producing or supplying a class of commodities. Still less
support is there for this belief as applied to the trade of a par-
ticular locality or national area. While the introduction of new
^Adapted from The Evolution of Modern Capitalism (new and revised
edition), pp. 317-34. Published by Charles Scribner's Sons, 1906.
550 CURRENT ECONOMIC PROBLEMS
labor-saving machinery in type-setting and printing has been fol-
lowed by so large an expansion of business as to employ increased
numbers of workers, recent improvements in most British textile
mills, cotton, woolen and hemp mills, have been followed by an ab-
solute reduction of employment. Statistics point to the conclusion that
the further a nation advances in the application of labor-saving ma-
chinery to the production of goods which satisfy the primary needs
of the population, the smaller the proportion of the total employed
class engaged in these productive processes. The best available sta-
tistics indicate that the proportion of employment afforded by the
staple manufacturers as a whole diminishes after modern machine
methods are well established, and that the tendency is strongest in
those manufacturers engaged in supplying ordinary classes of tex-
tile, metal, and other goods in the home markets.
In order to judge the net effect of labor-saving machinery upon
the volume of employment, a wider view is necessary. If the first
effect is to cheapen goods, we need not look to the expansion of
demand for this class of goods to absorb the labor which it is the
object of the machine to displace. We must look to the expansion
of demand for other sorts of goods due to the application of the
elements of income saved by the fall of prices in the first class of
goods. For instance, if cotton goods are cheaper owing to im-
proved methods of production, the chief result may be to increase
the demand for furniture.
This wider outlook enables us to conclude that though the effect
of machinery may be a reduction of employment in a special trade or
group of trades, the general result must be to maintain the same
aggregate volume of employment as before, provided the income
liberated from a particular demand is applied to other demands for
commodities. If, as may be objected, there is a simultaneous ten-
dency to reduce the prices of most articles of ordinary consumption,
by applying machine methods of production, the normal result would
be to stimulate new wants, and so to create new channels of produc-
tion yielding employment to displaced labor. That this is the fact in
the world of industry no one can seriously doubt.
If the improvements of machine methods were regular, gradual,
and continuous in the several industries, no considerable effect in
reducing the volume of employment would occur. But where in-
dustrial improvements are sudden, irregular, and incalculable, na-
tural adjustment is not possible. It is this irregular action which
has proved so injurious to large bodies of laborers whose employ-
ment is subjected to a sudden and large shrinkage. From time to
time great numbers of skilled workers find the value of their per-
PROBLEMS OF ECONOMIC INSECURITY 551
sonal skill cancelled, and are driven either to acquire a new skill
or to compete in the unskilled market. Yet history certainly shows
that the fuller application of great inventions has been slow, allow-
ing ample time for adjustment. In most cases where distress has
been caused, the directly operative influence has not been intro-
duction of machinery, but sudden change of fashion. The sud-
denly executed freaks of protective tariffs have also been a source
of disturbance. So far as the displacement has been due to ma-
chinery sufficient warning has been given to check the further flow
of labor into such industries and to divert it into other businesses.
Moreover the changes which are taking place in certain machine
industries favor the increasing adaptability of labor. Many machine
processes are either common to many industries, or are so narrowly
distinguished that a fairly intelligent workman accustomed to one
can soon learn another.
Whether machinery, apart from the changes due to its intro-
duction, favors regularity or irregularity of employment, is a ques-
tion to which a tolerably definite answer can be given. When the
employer has charge of enormous quantities of fixed capital, his
individual interest is strongly in favor of full and regular employ-
ment of labor. On the other hand great fluctuations in price occur
in those commodities which require for their production a large
proportion of fixed capital. These fluctuations in prices are ac-
companied by corresponding fluctuations in wages and irregularity
of employment. Why this contradiction? It is that in the several
units of machine production we have admirable order and adjust-
ment of parts. In the aggregate of machine production we have
less organization and more speculation. Industry has not yet adapted
itself to the changes in the environment produced by machinery.
That is all. Modern machinery has enormously expanded the size
of markets, the scale of competition, the complexity of demand, and
production is no longer for a small, local, present demand, but for
a large, world, future demand. Hence machinery is the direct cause
of the fluctuations which bring irregularity of employment.
But there is another force which makes for an increase of specu-
lative production. It has been seen that the proportion of the
workers engaged in producing comforts and luxuries is growing,
while the proportion of those producing the prime necessities of life
is declining. Hence the effect of machinery is to drive ever and
ever larger numbers of workers from the less to the more unsteady
employments. Moreover, there is a marked tendency for the de-
mand for luxuries to become more irregular and less amenable to
calculation, and a corresponding irregularity is imposed upon the
552 CURRENT ECONOMIC PROBLEMS
trades producing them. This is true of many season and fashion
trades. The irregularity of these trades prevents them from reap-
ing the full advantages of the economies of machinery. A larger
proportion of town workers is constantly passing into trades in
which changes in taste and fashion are largely operative.
Thus there are three modes in which modern capitalist methods
of production cause temporary employment :
1. Continual increments of labor-saving machinery displace
laborers, compelling them to remain unemployed until they have
adapted themselves to the new situation.
2. Miscalculation, to which machine-industries with a wide un-
stable market are particularly prone, bring about periodic depres-
sions of trade, throwing out of employment large bodies of work-
ers.
3. Economies of machine production drive an increasing pro-
portion of laborers into trades supplying commodities, the demand
for which is more irregular, and in which the fluctuation in the de-
mand for labor must be greater.
249. Economic Insecurity and Insurance^
BY WILLIAM F. WILLOUGHBY
In a broad sense all forms of insurance may be described as social
insurance, since social ends are attained by them. As the term is
now employed, however, it is usually restricted to those forms of
insurance having to do with contingencies affecting individuals as
opposed to those affecting property. It looks to the conferring of
pecuniary benefits in all those cases where for any reason the capacity
of the individual to provide for the support of himself and those
dependent upon him is lessened or destroyed. Stated in another way,
social insurance sets to itself the task of meeting the problem of the
economic insecurity of labor.
What are the contingencies causing this economic insecurity
against which provision must be made in some way? On examina-
tion we find that a man's ability to support himself, and to make due
provision for those dependent upon him, is lessened or cut off:
(i) by his meeting with an accident incapacitating him, temporarily
or permanently, partially or completely, from labor; (2) by his
falling sick; (3) by his becoming permanently disabled for labor
as a result of old age or failing powers ; (4) by his death, leaving
^Adapted from "The Problem of Social Insurance: An Analysis," Ameri-
can Labor Legislation Review, III (1913), 159-60.
PROBLEMS OF ECONOMIC INSECURITY 553
a widow, children, or others without adequate means for their sup-
port; and (5) by his inability to secure remunerative work.
To meet each of these contingencies resort has been had to the
principles of insurance. Social insurance is thus a term that has
been coined to serve as a collective designation of: (i) Insurance
against accidents; (2) insurance against sickness; (3) insurance
against old age and invalidity ; (4) insurance against death, or, as it
is more usually called, life insurance; and (5) insurance against un-
employment.
Could a just and workable plan of insurance covering these
several points be worked out, the problem of the economic security
of labor, one of the greatest with which society now has to deal,
would be solved. Is there any social problem more fundamental or
more deserving of unremitting effort?
Our first analysis thus resolves the problem of social insurance
into these five branches. This division is made not merely in order
to bring out the content or orbit of social insurance. It is funda-
mental, since each of these branches of insurance has its own special
features and problems. Insurance, notwithstanding the simplicity
of the ideas underlying it as a device, is an exceedingly technical
science. Particularly is this true where the human factor has to be
dealt with. Still more is it complicated where a departure is con-
templated from the system of purely voluntary, unencouraged, un-
aided use of the device on the part of individuals, and resort is
proposed to the force of social encouragement, control and con-
pulsion. Each of these five branches of social insurance thus has its
own special problems and considerations ; they are united only in
respect to their ultimate social end.
These special problems can, in each case, be distinguished, for
purposes of consideration, into three distinct classes : (a) the social,
(b) the administrative, and (c) the technical. Of these the first is
the most fundamental. Under this head falls the great question of
upon whom shall fall the burden of making the contributions re-
quired for the support of the system. No real progress can be made
until we, the public, have reached a conclusion regarding the problem
of justice that is here involved. As a matter purely of right, of
justice, of bringing about the widest possible distribution of welfare,
how shall the financial burden entailed by the system be distributed ?
In seeking to reach an answer to this question we find that the choice
lies between placing the burden in whole or in part upon either:
(i) the beneficiary, or workman, (2) the employer, (3) the industry
in which the workman is employed, or (4) the state.
554 CURRENT ECONOMIC PROBLEMS
B. UNEMPLOYMENT
250. Character and Types of Unemployment*
BY W. H. BEVERIDGE
To grasp the problem of unemployment and free ourselves from
popular but erroneous notions on the subject, we must first get a
clear impression of the nature of the industrial system.
The popular conception is -of industry as rigidly limited — a sphere
of cast iron in which men struggle for living room; in which the
greater the room taken by any one man the less must there be for
others; in which the greater the number of men the worse must
be the case for all. The true conception is a sphere made of elastic
material, capable of expansion and being in fact continually forced
to expand by the struggling of those within. Each individual ap-
pears to be and, no doubt, to some extent is, pressing upon the room
of his neighbors; the whole mass presses upward upon the limits
within which it is for the moment confined ; the result of a particu-
larly violent struggle of one man for the room of others may be
to enlarge appreciably the room for all.
This expansion of industry cannot readily be made visible, and is
nowhere recorded in direct and comprehensive figures. It is and
must always remain something of a mystery. It does not take place
evenly. It is perhaps not a thing to be counted on forever. The
sphere may at last lose its elasticity and cease to respond further to
the increasing pressure from within. That, if it ever happens, will
mean over-population, a diminishing return to labor, a falling stand-
ard of life, and, unless the growth of numbers be arrested, a grad-
ual but certain return to barbarism for the immense majority of
people. For the present it is sufficient to say that the time has not
come ; it is not within sight ; it can barely be imagined. For the
present the sphere of industry retains its elasticity. It expands, not
indeed steadily, but still sufficiently for the people. It absorbs the
generations as they come. It yields each fresh man on the whole
more living and working room than fell to the lot of those who went
before.
Yet with all this comes the perpetual cry of some who find no
living and working room at all. The number of the unemployed
never falls to zero. Many who recognize the indisputable facts of
the expansion of industry and the rising standard of life are pronp
to deny directly or implicitly the existence of an unemployment
■^Adapted from Unemployment: A Problem of Industry, ^^. 11-14. Copy-
right by Longmans, Green & Co., 1908.
PROBLEMS OF ECONOMIC INSECURITY 555
problem at all. If there are not too many workmen in a country,
every man who wants to work must be able to obtain it. If any man
fails to find room while all around him fresh room is opening up,
he must be either unfit or unwilling to do so. He must be "unem-
ployable," incompetent, lazy, sick, or infirm.
Yet unemployment is not to be explained away as the idleness of
the unemployable. As little can it be treated as a collection of acci-
dents to individual working people, or individual firms. It is too
widespread and too enduring for that. While the final absorption of
the growing population in the growing industry is accepted as being
for the country still happilly the rule, it is no less necessary to admit
the existence of facts modifying the completeness of this absorp-
tion at certain times and places — indeed, at all times and places.
There is no general want of adjustment between the increase of
the people and the expansion of industr}', between the rate of sup-
ply of fresh labor and the normal growth of the demand for it.
There are specific imperfections of adjustment which are the causes
of unemployment.
One of these has long been recognized. While industry, as a
whole, grows, specific trades may decay, or change in methods and
organization. The men who have learned to live by those trades
may find their peculiar and hard-won skill a drug on the market and
themselves permanently displaced from their chosen occupations,
while lacking both the youth and the knowledge to make their way in
new occupations.
A second type of maladjustment between the demand for and
the supply of labor is found in actual fluctuations in industrial activ-
ity. Many trades, perhaps most trades, pass regularly each year
through an alternation of busy and slack seasons, determined by
climate or social habits, or a combination of both. Building is slack
in winter and busy in spring and summer. Printers find least to do
in the August holidays and most in the season just before Christmas.
Behind and apart from these seasonal vicissitudes of special
trades, and aflfecting, though in various degrees, nearly all trades at
about the same time, is a cyclical fluctuation in which periods of
general depression alternate at regular intervals with periods of fev-
erish activity. At such times of depression the industrial system
does appear to suffer a temporary loss of elasticity ; it fails for a
while to keep pace with the steady growth of population ; it gives —
in a phase of falling wages and lowered standards — an object lesson
of what might be expected if the supply of labor should ever come
permanently to outstrip the demand.
556 CURRENT ECONOMIC PROBLEMS
These two elements in the problem of unemployment have long
been familiar. A third, apparently far more important than either
of the occasional transformations of industrial structure or the pe-
riodic fluctuations of industrial activity, is only just beginning to
receive attention. This is the requirement in each trade of reserves
of labor to meet the fluctuations of work incidental even to years of
prosperity. The men forming these reserves are constantly passing
in and out of employment. They tend, moreover, to be- always more
numerous than can find employment together at any one time. This
tendency springs directly from one of the fundamental facts of
industry — the dissipation of the demand for labor in each trade be-
tween many separate employers and centers of employment. Its
result may be described as the normal glutting of the labor market.
The counterpart of such glutting is the idleness at every moment of
some or others of those engaged.
The three factors just mentioned — changes of industrial struc-
ture, fluctuations of industrial activity, and the reserve of labor rep-
resent, not indeed all, but at least the principal economic factors in
unemployment.
251. An Ideal System of Labor Exchanges^
BY JOHN B. ANDREWS
It is apparent that our labor market is unorganized and that there
is a tremendous waste of time and energy in the irregular and hap-
hazard employment of workers. This waste we are beginning to
appreciate, but methods for overcoming it in America have thus far
proved inadequate.
The first and simplest method of bringing workmen and work
together is by unsystematic private search. A man without work
starts from home and drops in at every sign of "Help Wanted." This
sign is the symbol of inefficiency in the organization of the labor
market. The haphazard practice of tramping the streets in search
of employment is no method at all. It insures success neither to the
idle worker nor to the employer. On the contrary by its very lack of
system it needlessly swells the tide of unemployment and often leads
to vagrancy and crime.
It is impossible to reckon the cost to the community of this
methodless method. Beyond the tremendous waste of time, there is
the waste incurred in putting men into the wrong jobs. The law
^Adapted from "A National System of Labor Exchanges," New Republic,
I (No. 8, Suppl.), 1-5. Copyright, 1914.
PROBLEMS OF ECONOMIC INSECURITY 557
of chance decrees that, under such lack of care, misfits must be the
rule.
A second common method is through the medium of advertising.
About 2,000 newspapers in New York state carry every year some
800,000 columns of "Help Wanted" and "Situation Wanted" adver-
tising, at a cost of about $20,000,000 — an expenditure of about $5
for every worker in the state. If the money spent brought com-
mensurate results there would be less ground for complaint. But
unnecessary duplication of work and expenses by employer and
employee is inevitable. In addition to expense, newspaper adver-
tising possesses inherent possibilities of fraud not easy to detect.
The victimized employee seldom seeks legal redress.
Philanthropic employment bureaus fail mainly because the taint
of charity justly or unjustly clings to them. For the most part they
have become bureaus for placing the handicapped. Self-reliant work-
men are accustomed to shun such agencies, and employers do not gen-
erally apply there for efficient labor.
Private employment agencies, doing business for profit, have
sprung up in all large cities. No fewer than eight hundred of them
have been licensed in New York City alone. While many of them
operate with a reasonable degree of efficiency, their general character
is picturesquely if not elegantly indicated by their soubriquet, "em-
ployment sharks." Among the worst evils laid at the door of the
private agencies are charging extortionate fees, "splitting fees with
employers who after a few days discharge a workman, sending ap-
plicants to places where there is no work, and general misrepresenta-
tion of conditions."
Public employment bureaus in America date from 1890 when
Ohio authorized the first state system. Today there are seventy or
eighty such bureaus, maintained by nineteen states and a dozen or
more municipalities. These offices charge no fees, maintain a neutral
attitude in time of labor disturbances, and fill positions at a cost
ranging from four cents to two dollars apiece. Notwithstanding the
work of a few, these public bureaus are still far from furnishing an
adequate medium for the exchange of information on opportunities
of employment. Fewer than half of the states are represented. Many
of the managers are political place-holders of worse than mediocre
attainments. Some of the offices exist only on paper. A uniform
method of record-keeping has yet to be adopted. Statistics are non-
comparable and frequently unreliable. There is practically no ex-
change of information between various offices in a state or between
states.
558 CURRENT ECONOMIC PROBLEMS
Although there are many causes of unemployment other than the
malorganization of the labor market, these cannot be successfully
attacked without a basis in comprehensive, conscientiously collected
information such as cannot be furnished by our present machinery
for dealing with the problem. Our paucity of information is a great
hindrance to progress. Any scientific law-making on the programs
of social insurance and of vocational guidance must be grounded on
facts or relative employment and unemployment of the workers
tabulated by trades, by sexes, and by ages. Without a nation-wide
system of labor exchanges no basis can exist for anticipating in an
accurate manner the ebbs and flows of the demand for labor. With-
out concentration of the information now collected and now separ-
ately held in thousands of organizations throughout the land, the pos-
sibility of looking into the future, or of profiting by the past, is out
of the question.
It was a growing realization of the foregoing facts which inevit-
ably led to the demand for a federal system of public employment
bureaus. Such a system would cover the whole country. It would
supplement and assist the work of state and municipal exchanges,
dovetailing them with its own organization into an efficient whole.
Country-wide co-operation and exchange of information would then
be an accomplished fact instead of merely a hope. Statistics for the
study of unemployment and for the progressive development of new
tactics on the campaign against it would be coextensive with national
boundaries and comparable between different parts of the nation.
The regulation of private agencies would be a natural function of
the bureau, and the troublesome interstate problem would be solved
by an interstate remedy. Finally the greater resources at the dis-
posal of the federal government would provide better facilities for
carrying on the work and would command the services of more able
social engineers.
To combine into an effective organization the results of the ripest
experience, a national bureau of employment should comprise three
main divisions : (i ) the central office at Washington ; (2) a number
of district clearing-houses; and (3) the local labor exchanges. Let
us briefly sketch the special functions of each.
The central office would have the task of organizing the entire
system. Its first activity would be the establishment and conducting
of public labor exchanges. These should be built up with careful
regard to existing state and municipal bureaus and in as many parts
of the country as circumstances require and finances permit. The
PROBLEMS OF ECONOMIC INSECURITY 559
number of exchanges need not be constant, but can be varied in ac-
cordance with the needs of the labor market.
A second duty would be that of co-operating and encouraging,
assisting, and to some extent regulating all the public employment
offices conducted by other subdivisions throughout the country —
state, county, town, or village. Here is the great field for the stand-
ardizing activities of a federal bureau. The scattered public agencies
must be brought into co-operation with each other and with the
federal system. It could devise a standard record system, encourage
its adoption by the various agencies, and assist them in installing it.
It could encourage the adoption of a uniform method of doing busi-
ness and appraising results.
A third duty would be the division of the country into districts
and the inauguration therein of district clearing houses. The fourth
duty would be to carry on a campaign of the fullest possible publicity
on the condition and fluctuation of the country's labor market. The
fifth and last important function of a federal employment bureau
is the troublesome one of regulating private employment agencies.
The district clearing-houses already mentioned are quite distinct
from the local labor exchanges and should not be confused with them.
The clearing-house finds no positions. Its functions are to exchange
information between the local exchanges and between other cor-
respondents in its district, to receive daily reports from all public
exchanges within its jurisdiction and reports from private agencies
at least weekly, and to compile and publish these data for the district.
It also carries on an interchange of information with the clearing-
houses in other districts. It is the channel through which all the
officers of its district would keep in constant touch with the national
headquarters.
The functions of the ultimate units in this system, the local labor
exchanges, may all be summed up in the words "bringing together
workmen of all kinds seeking employment and employers seeking
workmen. The good superintendent of an employment office will
not wait behind his counter for employers and employees to hunt
him up ; he will take active steps in the process. He will build up a
clientele among both parties to the labor contract.
Thus the jurisdiction of the projected federal bureau would ex-
tend throughout the country. In addition to its regulative activities,
it would operate exchanges, build up a clearing-house system for
employment information, and publish and distribute that information
wisely. In short it would do "everything possible to aid in securing
the fullest application of the labor force of the country."
560 CURRENT ECONOMIC PROBLEMS
252. United States Employment Service®
BY WOODROW WILSON
For more than a year it has been our pride that not our armies and
navies only but our whole people is engaged in a righteous war. We
have said repeatedly that industry plays as essential and honorable
a role in this great struggle as do our military armaments. We all
recognize the truth of this, but we must also see its necessary implica-
tions — namely, that industry, doing a vital task for the nation, must
receive the support and assistance of the nation. We must recognize
that it is a natural demand — almost a right — of anyone serving his
country, whether employer or employe, to know that his service is
being used in the most effective manner possible. In the case of labor
this wholesome desire has been not a little thwarted owing to the
changed conditions which war has created in the labor market.
There has been much confusion as to essential products. There
has been ignorance of conditions — men have gone hundreds of miles
in search of a job and wages which they might have found at their
doors. Employers holding government contracts of the highest
importance have competed for workers with holders of similar con-
tracts, and even with the government itself, and have conducted
expensive campaigns for recruiting labor in sections where the supply
of labor was already exhausted. California draws its unskilled labor
from as far east as Buffalo, and New York from as far west as the
Mississippi. Thus, labor has been induced to move fruitlessly from
one place to another, congesting the railways and losing both time
and money.
Such a condition is unfair alike to employer and employe, but
most of all to the nation itself, whose existence is threatened by any
decrease in its productive power. It is obvious that this situation
can be clarified and equalized by a central agency — the United States
Employment Service of the Department of Labor, with the counsel
of the War Labor Policies Board as the voice of all the industrial
agencies of the government. Such a central agency must have sole
direction of all recruiting of civilian workers in war work and, in tak-
ing over this great responsibility, must at the same time have power to
assure to essential industry an adequate supply of labor, even to the
extent of withdrawing workers from nonessential production. It
must also protect labor from insincere and thoughtless appeals made
to it under the plea of patriotism, and assure it that, when it is asked
to volunteer in some priority industry, the need is real.
«Frorn the President's announcement of the United States Employment
Service, June 17, 1918.
PROBLEMS OF ECONOMIC INSECURITY 561
Therefore, I, Woodrow Wilson, president of the United States of
America, solemnly urge all employers engaged in war work to refrain
after August i, 1918, from recruiting unskilled labor in any manner
except through this central agency. I urge labor to respond as
loyally as heretofore to any calls issued by this agency for voluntary
enlistment in essential industry. And I ask them both alike to
remember that no sacrifice will have been in vain, if we are able to
prove beyond all question that the highest and best form of efficiency
is the spontaneous co-operation of a free people.
253. Cyclical Distribution of Government Orders^
BY SIDNEY AND BEATRICE WEBB
Without securing an approximate uniformity, one year with an-
other, in the aggregate demand for labor in the community as a
whole, it is clear that unemployment on a large scale cannot be pre-
vented. The only possible way in which that uniformity can be se-
cured is the use of the government orders as a counterpoise to the
uncontrollable fluctuations in the other orders. If this involved the
stopping of all government orders in good years and doing all the
government work in bad years, the proposal would be an imprac-
ticable one, because the government business must go on contin-
uously, whatever the state of the labor market. But the desired
result can be achieved by rearranging, within the decade, no more
than 3 or 4, or even 6 or 8 per cent of the work that would otherwise
have been done evenly year by year. It is impossible to believe that
so relatively small a readjustment is not possible.
It may be asked how this policy differs from that of relief works
now so universally condemned. In reality the two policies are poles
asunder. What gives to relief works their evil character, whether
or not they are of any real public utility, and whatever rate of wages
is paid, is that the men employed are taken on because they are un-
employed. Accordingly, relief works are of the nature of relief,
not prevention. They do not prevent the occurrence of unemploy-
ment; they do not prevent that breach of continuity in the work-
man's industrial life which is so harmful to him. They merely
come in, by way of succor, after the breach of continuity has oc-
curred. By having to take on only those men who have already
been thrown out of work, and taking them on because they have been
thrown out of work, the managers of relief works find themselves
necessarily saddled with a heterogeneous crowd of workmen, who
■'^Adapted from The Prevention of Destitution, pp. 1 14-18. Copyright by
Longmans, Green & Co., 191 1.
562 CURRENT ECONOMIC PROBLEMS
are not individually picked out for employment because their specific
services are required, in exactly due proportions to each other ; but
are taken en bloc, whatever their several qualifications and ante-
cedents, just because they happen, at that particular time and place,
to be together unemployed. It is characteristic of any enterprise
of remunerative character that it involves a high degree of organi-
zation, division of labor, the employment of the various grades and
kinds of workers required in a certain exact proportion one to an-
other, and so on. The result is not being able, on relief work, to pick
exactly the men having the skill and antecedents that are required,
and of having, instead, to take on a heterogeneous crowd, is that no
industrial enterprise of any highly organized character can possibly
be undertaken, and the work accordingly can hardly ever be remuner-
ative, or form part of normal productive industry.
But it is not so much in the extravagant cost, or in the waste-
fulness, or in the lack of real utility that the evil of relief work lies.
It is in their bad effect upon the character of the men whom they
are intended to succor. The taking on of the heterogeneous crowd,
not to work each of them at his own trade, for his own standard rate,
but to labor at some common occupation that can simultaneously find
employment for them all ; which is known to have been undertaken
merely to give them employment, from which they cannot practi-
cally be dismissed; and where they receive wages at a rate arbi-
trarily fixed, to a view of what they can live on rather than to the
market rate for any particular kind of labor, inevitably has an ad-
verse psychological reaction on the men themselves and on the fore-
men over them.
Contrast this with the proposal to give the government orders
for works and services unevenly, and more in the lean years, rather
than unevenly year by year. The mere fact that, on the index number
of unemployment beginning to rise, the government puts in hand
slightly more building work than would otherwise have been the
case, orders rather more printing, somewhat increases its ship-
building, raises this year the amount of its orders for blankets and
sail-cloth above the normal, and temporarily accelerates the rate at
which the telegraph wires are being laid underground, and the tele-
phone is being extended to every village, would not mean the taking
on of any crowd of unemployed workmen anywhere.
What it would mean in the first place, would be that various
building firms and printing establishments all over the country would
find themselves relieved from the necessity of turning off men ; some
shipbuilding yards would be able to abstain from the necessity of
reducing hands; the mills producing blankets and sail-cloth would
PROBLEMS OF ECONOMIC INSECURITY 563
not need to go on short time ; and the contractors for telegraph and
telephone extensions would find themselves continuing in employ-
ment, and placing on the government work members of their staffs
whom they would otherwise have had to dismiss. All this preven-
tion of discontinuity in the employment and wages of tens of thou-
sands of workmen all over the country, and, for that matter, also in
the profits of hundreds of employers, would automatically result in
preventing much other discontinuity elsewhere. Even the gramo-
phone makers might find themselves continuously, instead of inter-
mittently, employed!
Where employers, by reason of the enlarged government orders,
had actually to engage additional men they would do so, not with
a view of "employing the unemployed," not even of confining them-
selves to the men who were at the moment actually out of situations,
but deliberately, in order to attract to their service, it might be from
some other employer's service, exactly the kinds and grades of work-
men, individually selected on their merits, as being the most skilful
and the most regular workmen who could then and there be found,
in exactly the due proportion one to another that the expansion of
the particular business required.
There would in this way be no adverse psychological effect on
the workmen, any more than on the foreman who selected them and
supervised their efforts or in the employer who saw to it that the
normal discipline of his establishment was maintained. Instead it
would not even occur to any of them that there was anything "arti-
ficial" or abnormal in the government order for sail-cloth or other
commodities.
254. The Relief of Unemployment*
We therefore recommend :
1. That the Federal Bureau of Labor Statistics and the State
Industrial Commission be given sufficient appropriations to enable
the creation of a complete statistical "barometer of trade."
2. That organizers more competent for such a task than the
present Committee undertake the study of the underlying economic
causes of industrial dislocations which produce abnormal unemploy-
ment.
3. That a more widespread education of the people in the mean-
ing and effects of financial crises and industrial depressions and in
the fluctuations of prices, trade activity, and business prospects be
^Adapted from How to Meet Hard Times (pp. 125-27), a report prepared
by the Mayor's Committee on Unemploymetit, New York City, 1917.
564 CURRENT ECONOMIC PROBLEMS
made the means of preventing needless panics on the part of the
consumers, and of encouraging expenditure on a normal scale.
4. That manufacturers prepare against the necessity of closing
down or seriously curtailing production at times of depression by
developing a production policy which, taking account of fluctuations
in demand, (a) plans for the utilization of slack times to introduce
new staple lines, {h) retards deliveries in good times, as far as pos-
sible, so as to have work on hand when the demand slackens, (c)
diverts permanent additions to buildings, equipment and machinery,
and other capital investments, important repairs and additions to
stock from busy times to times of depression, {d) distributes such
employment as there is, if production must be reduced, over as large
as possible a proportion of the force by means of short time, without,
however, depressing the earnings of individual employes materially
below the minimum necessary to support family life.
5. That when trade crises threaten, the large financial and busi-
ness interests co-operate to the fullest possible extent with one an-
other and with the Federal Reserve Board to maintain stability of
credit and to allay needless alarm, by widespread publicity as to the
reassuring elements in the existing business conditions.
6. That banks and credit institutions, during periods of indus-
trial expansion, distinguish carefully between healthy home industries
reasonably sure of a permanent market, which deserve every en-
couragement, and industries of a more speculative and ephemeral
character which should be induced to maintain their capital expendi-
tures within the narrowest limits.
7. That the city of New York, with all due regard to the other
factors that must be taken into consideration, attempt to make its
expenditures for permanent improvements as far as possible inverse
in total volume to the general rate of employment in the city.
8. That similarly the federal and state governments be induced
to plan public expenditures upon permanent improvements over a
period of years, withholding work which is not urgent at times of
trade prosperity and speeding it at times of depression.
9. That, however serious such an emergency, a sincere effort
be made by the public authorities and voluntary agencies of relief to
classify those in need of assistance in terms of capacity for self-help,
possession of resources, station in life, family responsibilities, age,
health, etc.
10. That registration at a public or private employment bureau
be uniformly adopted as an obligatory test of unemployment, and a
condition precedent to payment of out-of-work benefits and relief
by gift or loan.
PROBLEMS OF ECONOMIC INSECURITY 565
11. That there be created either as a function of a "department
of pubHc welfare" or otherwise an office charged with the threefold
task of (a) maintaining a current survey of the state of unemploy-
ment in the city; {b) keeping an up-to-date register of the city's
relief resources which can be relied upon as elements in a city- wide
co-operative system of relief should an emergency occur; (c) dis-
tributing information to social workers and others to whom persons
in need are most likely to apply for advice, enabling them to direct
these to the agencies most likely to be able to help them.
12. That at a time of abnormal unemployment the public author-
ities and the press encourage the benevolent public to support existing
agencies equipped to relieve distress rather than create new funds.
13. That the incorporation of city, state and national co-opera-
tive associations for thrift and credit purposes be encouraged.
14. That the federal government take appropriate steps to or-
ganize the employment market through a nation-wide system of
public employment bureaus, assuring the complete mobilization of
employment opportunities and the available labor supply.
15. That measures be taken by the federal government at the
present time to accumulate an insurance fund, and to devise the most
effective means of inaugurating a workable system of unemployment
insurance.
16. That relief employment approximate employment under
normal conditions as nearly as possible, as regards the utility of the
work done, the assignment of tasks suited to the needs of the workers,
and the output expected of him in relation to the wages paid and to
the degree of efficiency possible ; it need not afford opportunities for
specific industrial training, though this is desirable.
17. That relief employment, as far as possible, be organized only
by such agencies as are already in intimate touch with the persons
whom it is intended to aid; that relief employment wages be paid
at an hourly rate sufficient to cover the minimum cost of living.
18. That the cultivation of vacant lots be taken into considera-
tion as a useful method of relief employment if the necessity for
it arise.
19. That the amount of relief given be adequate to insure that
the total family resources cover the minimum cost of living.
20. That smaller neighborhood organizations be more extensively
utilized by the larger relief societies as distributors of their relief
grants.
21. That at times of abnormal unemployment organizations en-
gaging in any form of relief to the unemployed register all families
and individuals assisted in a central confidential exchange.
566 CURRENT ECONOMIC PROBLEMS
22. That relief in kind be made only supplementary to other
forms of relief when found expedient to insure adequacy of the total
amount of help given the individual ; and that in the allocation of aid
the needs of the family, not those of the person unemployed alone,
be taken into account.
23. That shelter for persons made homeless through unemploy-
ment, but not permanently belonging to the vagrant class, be provided
separately from institutions for the care of the latter ; and that in no
case homeless minors be provided with shelter in institutions housing
a miscellany of adult persons of every description.
24. That the period of unemployment in the case of minors be
utilized for educational purposes by the provision of suitable training,
attendance at which for a certain number of hours might be made
compulsory for all unemployed youths and girls up to the age of
eighteen.
25. That, in order to reduce the supply of juvenile labor at times
of general unemployment, school attendance beyond the age limit
of legal compulsion be encouraged by the provision of scholarships.
C. INDUSTRIAL ACCIDENT
255. The Machine Process and Industrial Accident®
■« BY E. H. DOWNEY
Work accidents in the United States, according to the best at-
tainable estimates, annually cause more than 35,000 deaths and about
2,000,000 injuries, whereof probably 500,000 produce disability last-
mg more than one week. To employ a telling comparison frequently
made, the industrial casualties of a single year in this country alone
equal the average annual casualties of the American Civil War,
plus all those of the Philippine War, increased by all those of the
Russo-Japanese War. As many men are killed each fortnight in the
ordinary course of work as went down with the "Titanic." This
single spectacular catastrophe appalled the civilized world and com-
pelled governmental action in two hemispheres ; while the ceaseless,
day-by-day destruction of the industrial juggernaut excites so little
attention that few states take the trouble to record the deaths and
injuries.
The point especially to be emphasized in this connection is that
the appalling waste of life revealed by the above cited estimates is,
in great part, unavoidable. Doubtless the number of work acci-
'Adapted from History of Work Accident Indemnity in Iowa, pp. 1-5.
Published by the State Historical Society of Iowa, 1912.
PROBLEMS OF ECONOMIC INSECURITY 567
dents may be considerably reduced in the United States, as it has
been reduced in Europe, by preventive measures. Yet when all pos-
sible precautions have been taken modern industry will continue to
exact a fearful toll of life and limb. Even in the German Empire,
which leads the world in accident prevention, there were reported in
191 1, the last year for which statistics are available, 662,321 work
accidents, whereof 9,687 terminated fatally and 142,965 caused dis-
ability for more than thirteen weeks. Scientific accident prevention
in Germany has produced a lower accident rate and a much lower
rate of fatal accidents than obtains in the United States, but it has
left the total casualty list of industry deplorably large. Indeed, the
number of work injuries in Germany, as elsewhere, is increasing,
both absolutely and relatively to the numbers employed, as indus-
trial development goes forward. The ugly fact is that work acci-
dents, in the main, arc due to causes inherent in mechanical industry
on the one hand, and in the hereditary traits of human character on
the other hand.
In the first place, a high degree of hazard inheres in present-day
methods of production. Modern technology makes use of the most
subtle and resistless forces of nature — forces whose powers of de-
struction when they escape control are fully commensurate with
their beneficent potency when kept in command. Moreover, these
forces operate not the simple hand tools of other days, but a maze of
complicated machinery which the individual workman can neither
comprehend nor control, but to the movements of which his own
motions must closely conform in rate, range, and direction. Nor is
the worker's danger confined to the task in which he is himself
engaged, nor to the appliances within his vision. A multitude of
separate operations are combined into one comprehensive mechanical
process, the successful consummation of "which requires the co-opera-
tion of thousands of operatives and of countless pieces of apparatus
in such close interdependence that a hidden defect of even a minor
part, or a momentary lapse of memory or of attention by a single
individual may imperil the lives of hundreds. A tower man misin-
terprets an order, or a brittle rail gives way, and a train loaded with
human freight dashes to destruction. A miner tamps his "shot"
with slack and dust explosion wipes out a score of lives. A steel
beam yields to a pressure that it was calculated to bear and a rising
skyscraper collapses in consequence, burying a small army of work-
men in the ruins.
In the second place, human nature, inherited from generations
that knew not the machine, is imperfectly fitted for the strain put
upon it by mechanical industry. Safely to perform their work the
568 CURRENT ECONOMIC PROBLEMS
operatives of a modern mill, mine, or railway should think consistently
in terms of those mechanical laws to which alone present-day indus-
trial processes are amenable. They should respond automatically to
the most varied mechanical exigencies, and should be as insensible to
fatigue and as unvarying in behavior as the machines they operate.
Manifestly these are qualities which normal human beings do not
possess in anything like the requisite degree. The common man is
neither an automaton nor an animated slide-rule. His movements
fall into a natural rhythm, indeed, but the beat is both less rapid and
more irregular than the rhythm of most machines — with the conse-
quence that he fails to remove his hand before the die descends or
allows himself to be struck by the recoiling lever. It requires an
appreciable time for the red light or the warning gong to penetrate his
consciousness, and his response is apt to be tardy or in the wrong
direction. Fatigue, also, overcomes him, slowing his movements,
lengthening his reaction time, and diminishing his muscular accuracy
• — thereby trebly enhancing his liability to accident.
The machine technology, in fact, covers so small a fraction of
the life-history of mankind that its discipline has not yet produced a
mechanically standardized race, even in those communities and classes
that are industrially most advanced. And so there is a great number
of work injuries due to the "negligence of the injured workman" —
due, that is to say, to the shortcomings of human nature as measured
by the standards of the mechanician. This maladjustment is ag-
gravated by the never-ceasing extension of machine methods to new
fields of industry, and the continued influx of children, women, and
untrained peasants into mechanical employments. Accordingly, the
proportion of accidents attributable to want of knowledge, skill,
strength, or care on the part of operatives appears everywhere to
be increasing.
There is, then, no prospect that the "carnage of peace" will be
terminated, as the carnage of war may be, within the predictable
future. An industrial community must face the patent fact that
work injuries on a tremendous scale are a permanent feature of
modern life. Every mechanical employment has a predictable haz-
ard ; of a thousand men who climb to dizzy heights in erecting steel
structures a certain number will fall to death, and of a thousand
girls who feed metal strips into stamping machines a certain number
will have their fingers crushed. So regularly do such injuries occur
that every machine-made commodity may be said to have a definite
cost in human blood and tears — a life for so many tons of coal, a
lacerated hand for so many laundered shirts.
PROBLEMS OF ECONOMIC INSECURITY 569
256. Casualties in War and Industry^"
How many Pennsylvanians will be returned disabled from war
after a given period ? How will that number of war disabled compare
with the number of workers injured in the industries of Pennsylvania
during a given period ?
The answer to the first question can only be estimated, using as a
basis the experience of countries engaged in the war over a period
of years. The answer to the second question can be determined from
the records of industrial accident reports submitted over a given
period to the Pennsylvania Department of Labor and Industry.
The experience of Canada in the present war gives an unusual
opportunity to forecast the number of disabling casualties that may
be expected among Pennsylvania's soldiers. The population of Penn-
sylvania is approximately the same as the population of the entire
Dominion of Canada, about 8,000,000. It is believed that Pennsyl-
vania will ultimately raise an army of approximately the same size
as Canada, between 400,000 and 500,000. It is therefore within the
limits of possibility that the disabled soldiers, returned to Pennsyl-
vania after a given period of warfare, will be in the same proportion
as to number and types of disability as have been returned to Canada
during an equal period.
The army of employees remaining in Pennsylvania may be con-
sidered as six times as great in number as the army Pennsylvania will
ultimately put in the field. The casualties suffered by that army
of Pennsylvania workers — estimated to average continuously 3,000,-
000 during the two years and a half from January i, 191 6, to July i,
1918 — amounted to 577,053, including 7,575 fatalities. The number
of industrial workers injured in two and one-half years in Pennsyl-
vania is greater than the army that either Canada or Pennsylvania is
sending against Germany.
In other words, if the number — not the percentage of the total
engaged — of Pennsylvanians injured in the war equals in two and
one-half years the number injured in the industries of Pennsyl-
vania during the same period, every man in an army of 500,000 will
be injured once and more than 75,000 men will be twice wounded
during the same period.
Canada, after four years of war, has had approximately 50,000
men returned as unfit for further military service. This number does
not include men who were sick or wounded and who recuperated.
A vital factor in oilr comparison is the number of men returned as
^^Adapted from "Comparative Casualties in War and Industry," Bulletin
of the Pennsylvania Department of Labor and Industry, V (No. 2. 1918), 121-25.
570 CURRENT ECONOMIC PROBLEMS
unfit because of disease. In England evidence shows that out of
every one thousand cases of disablement, 547 are cases of disease and
453 are cases of wounds and injuries. If this ratio holds true for the
disabled soldiers returned as unfit to Canada and to Pennsylvania, it
indicates that only about one-half of the men invalided from war are
suflfering from wounds. Yet every man in the list of industrial acci-
dents reported is actually wounded.
Approximately 1,200 of the 50,000 disabled soldiers returned to
Canada are "amputation cases." For the same period in the indus-
tries of Pennsylvania there have been 3,798 industrial "amputation
cases." After almost four years of war Canada's experience shows
that less than fifty soldiers have been blinded. In the shorter period
of only two years and one-half there have been 1,157 eyes lost in the
industries of Pennsylvania; twenty-nine workers have been totally
blinded.
257. Some Sample Accidents"
An engineer at a power house fell asleep and allowed his fire
to go out. Upon awakening, he secured some waste, saturated it
with kerosene and lighted the fire. Despite twenty-five years' ex-
perience, he thoughtlessly failed to open the damper when he re-
kindled the fire. When the door was suddenly opend the flames shot
outward and ignited his clothing, inflicting burns that caused his
death three days later.
Recently an employee of an electric company was engaged in
taking a cable off a reel and placing it on the drum of an electric
hoisting engine. This operation required the man to hold the cable
in one hand. When he was so engaged, his glove caught between
the cable and the drum, pulling him over the latter and causing his
head to strike the floor. He was injured so badly that he died the
next day.
An employee of an engineering company was placing a temporary
door frame in an elevator hatch. He was down on his knees placing
a wooden block at the lower corner of the frame. He failed to notice
that the elevator was above him. While he was in this stooping po-
sition, the operator, without giving a signal, started to lower the
elevator. In its descent the repair man's head was caught between,
the floor and the bottom of the car and he was killed instantly.
An. employee of a manufacturing establishment spilled some
gasoline on his clothes while filling a can from a storage tank. While
iiAdapted from the Bulletin of the Pennsylvania Department of Labor
and Industry, IV (No. 7, 1917), 12-18.
PROBLEMS OF ECONOMIC INSECURITY 571
his clothes were in this condition he attempted to Hght a cigarette.
An explosion followed, and the man was badly burned about the
chest and abdomen.
Although rules prohibited the oiling of machinery while in motion,
an employee in a manufacturing plant placed a ladder against the
moving line shaft and attempted to oil the bearings. His blouse
caught on the shafting and he was whirled around and crushed
against the rafters.
An employee of a steel company went behind a scrap pan in
the pouring pit to take a nap. A pan from the adjacent pit was
hooked up by the crane man and transferred to the side of the other
pan, and on being lowered it dropped on the man's head killing
him instantly. It had been the practice of some of the men to sleep
behind these pans. In this instance it was impossible for the crane
man to see the man, as he was lying on the opposite side of the pan.
A laborer at an open hearth went out on the railroad track, where
a draft of four cars was standing, and sat down on a rail in the
shade of the end car to rest. While he was sitting there, a draft
of six cars was pushed in on the siding and bumped into the four
cars already there. The man was run over and instantly killed.
A man was handling freight. A splinter penetrated the sole of
his shoe and entered his foot. He did not report the injury for nine
days. By this time septic poisoning had resulted. Five days later
he died.
Recently an employee of an electric manufacturing company
was making repairs to a fan support under a ceiling. He was using
the traveling crane as a base for his scaffolding, and he had placed
several planks across between girders which were about six feet
apart. The planks he selected were 6 inches by 2 inches, and care-
lessly he used one with a knot which extended half across the
plank. When he stepped on the plank it broke under his weight
and he fell to the floor, sustaining injuries from which he died.
Considerable grease had collected upon the large calender rolls
of a paper manufacturing company. A man was cleaning them with
a gasoline blow torch, as was customary. He had occasion to go
underneath the machine, and he thoughtlessly set a lighted torch on
the edge of the machine. It fell on him when he was underneath
the gears. His clothing caught fire and he was burned so badly that
he died the next day.
572 CURRENT ECONOMIC PROBLEMS
258. Imputation of Responsibility for Accidents'^
a) Safety First
Employees, before they attempt to make couplings or to uncouple,
will examine and see that the cars or engines to be coupled or un-
coupled, couplers, drawheads, and other appliances connected there-
with, ties, rails, tracks, and roadbeds, are in good safe condition.
They must exercise great care in coupling and uncoupling cars. In
all cases sufficient time must be taken to avoid accident or personal
injury.
b) Efficiency First
Entirely too much time is being lost, especially on local trains,
due to train and enginemen not taking advantage of conditions in
order to gain time doing work, switching and unloading and loading
freight. Neither must you wait until train stops to get men in
position. It is also of the utmost importance that enginemen be
alive, prompt to take signals, and make quick moves. In this
respect it is only necessary to call your attention to the old adage,
which is a true one, that when train or enginemen do not make good
on local trains it thoroughly demonstrates those men are detrimental
to the service as well as their own personal interests, and such men,
instead of being assigned to other runs, should be dispensed with.
I am calling your attention to these matters with a view of invigorat-
ing energy and ambition, in order that your families who are depend-
ent on you to make a success shall not some day point the finger of
scorn at you, and that the public may not be able to say you lost your
position due to lack of energy and interest in your own personal
welfare, for which you can consistently place the responsibility on
no one but yourself.
259. Industrial Accidents and the Theory of Negligence^'
BY LEE K. FRANKEL AND MILES M. DAWSON
Let US consider the principles which, only a quarter century ago,
determined the right of a workman to recover compensation from
his employer. Thoes principles still apply, with some modification,
^2 The first of the two selections given here is an excerpt from an official
bulletin of a railway company; the second is an excerpt from a letter of instruc-
tion to employees issued by the same company. The first suggests that there
may be truth in the frequently repeated statement that "the most effective way
for railroad employees to practice sabotage is to live up to the rules of the
company."
^^Adapted from Workingmen's Insurance in Europe, pp. 5-7. Copyright
by the Russell Sage Foundation, 1910.
PROBLEMS OF ECONOMIC INSECURITY 573
in all the states of the United States, and have but recently been
discarded in part by the federal government itself. The elementary
theory of "the law of negligence," as it is usually called, in its rela-
tion to the liability of employers for financial loss to workmen and
their families, was originally the same in all civilized countries. The
development of the law of liability has not been identical in every
country, but nowhere, probably, has the principle been pushed so far
as in the United States. The doctrine has, however, been modified
somewhat by decisions of the courts and by act of our legislatures.
The underlying principle of the law of negligence is that the
employer is liable only in case he is at fault; that is, he must have
been neglectful in some respect and this negligence must have been
the proximate and sole cause of the accident. In that case it declares
that he alone must bear the financial burden of compensation.
Liability of the employer for his own negligence is qualified as
follows :
First, it is not enough that he was the chief cause.
If the employe himself has been negligent and if this in any
degree contributed to the accident, the employer is not held. This is
known as the principle of "contributory negligence." The idea is
that the courts, not being" able to separate results flowing from these
two causes and to determine how much was due to one and how much
to the other, will refuse to grant compensation if the employe's negli-
gence contributed to the accident even though only in a slight degree.
Second, the accident must not have been a consequence of the
ordinary risks of the occupation.
If it can be shown or the conclusion fairly be deducted that the
employe assumed this particular risk as a condition of his contract
of employment, or as the ordinary risk of his occupation of which
he knew or was bound to know, the employer is not held. If the
employe was aware that certain danger existed and notwithstanding
continued to work, this action on his part would bar recovery. As
a corollary to this, the courts have held very generally that the em-
ploye must be presumed to know what are the ordinary dangers of
his occupation, and even what are the unusual dangers connected
with continuing to perform the duties of that occupation, when the
place where it is carried on, or the machinery or tools with which it
is carried on, are defective.
This is called the principle of "assumption of risk." Some courts
have gone so far as to hold that, even though the employer is required
by law to keep the machinery, tools, and the place in which the work
is done in a certain condition of safety, and that although by failing
to do so he has rendered himself liable to a penalty, the workman,
574 CURRENT ECONOMIC PROBLEMS
notwithstanding, will not be able to recover if he has known of these
defects and has nevertheless continued to work. The same courts
have also held that the fact that he has called the defects to the
attention of his employer and asked that they be remedied, will not
render the employe liable if the workman, notwithstanding that the
defects have not been remedied, continues to work. In fact, calling
the defects to the attention of others prejudices his claim in that it
is proof positive that he knows of them.
Third, the accident must have been the result of the employer's
own negligence and not that of another employe or employes.
If the workman has been injured because one or more of the
employes working with him were negligent, the employer will not be
held. This proceeds from the idea that each workman whose negli-
gence has caused the injury should himself be held financially re-
sponsible ; and since in most cases he is in fact financially irrespon-
sible and could not respond to a judgment, the result of the applica-
tion of this rule is that the persons injured are not compensated at
all. This is directly contrary to the rule which applies when the
injury is to one not an employe ; in that case the employer, under the
general doctrine of principal and agent, is held liable.
The principle stated above is known in practice as the "fellow-
servant" rule. It has been carried so far by some courts that it is
difficult to see how a corporation employer could be held responsible
at all, no matter what officer or other employe was negligent. Even
an officer is an agent or employe, and therefore a fellow-servant with
all other employes, although the courts have usually not so held.
Except in the case of executive officers, however, the rule has been
applied so sweepingly that, for instance, a scrubwoman washing out
railway coaches might be held to be a fellow-servant with the super-
intendent of the road, and, therefore, without a good claim against
the company for negligence attributable to him.
The "fellow-servant" rule grew up in the courts out of the
simplicity of the common law, which in its origin did not know
employers and employes in the modern industrial or commercial
sense, but only "masters" and "servants." The law did not hold
the master liable, even on the ground of negligence. It certainly
would have refused to require him to compensate one servant for the
negligence of another. This principle manifestly has little or no
suitability for the uses of a commercial and highly organized indus-
trial community, in which much the larger part of the services per-
formed by employes is not for the direct enjoyment of the employer
but is part of the aggregate cost of products or services sold by him
to the public at a price to cover all the costs. In recent years the
PROBLEMS OF ECONOMIC INSECURITY 575
"fellow-servant" rule has been much relaxed, first by the courts
and later by legislatures. In many states an employe who super-
vises the work and controls the workman is held to be a "vice-
principal" and to represent the employer, so that his negligence is
treated as if it were the negligence of the employer.
Under the rules of law just outlined, a very large proportion of
the accidents which occur in the industries of the country go uncom-
pensated. In some cases, on the other hand, the employer is held
for substantial amounts, and occasionally very large verdicts are
recovered, but only a small percentage of the cases is the com-
pensation adequate.
260. The Incidence of Work Accidents^*
BY E. H. DOWNEY
Work accidents, in the nature of the case, are sustained prin-
cipally by wage-earners, who are substantially propertyless as a mat-
ter of course, who have no savings to speak of, and whose incomes,
for the most part, are too small to leave any adequate margin for
accident insurance. The almost total absence of property or savings
among wageworkers is abundantly demonstrated by tax returns
and the records of savings banks and life insurance companies.
But wages statistics are yet more conclusive to the same effect. A
recent investigator of this subject. Professor Scott Nearing of the
University of Pennsylvania, concludes that one-half of the adult
male wageworkers of the United States receive less than $500 a
year; that three- fourths of them get less than $600, and that only 10
per cent are in receipt of more than $800 annually. As to women
wageworkers, three-fifths are receiving less than $325 yearly ; nine-
tenths are paid less than $500, and only one in twenty is paid more
than $600. These estimates are well substantiated by the findings of
other investigators. More than half of the workmen injured in the
Pittsburgh district in 1907 were earning less than $15 weekly (mak-
ing no allowance for unemployment) at the time of injury. Of the
men sustaining industrial injuries in Minnesota in 1909-10, 47 per
cent were receiving less than $12.50 and 78 per cent were receiving
less than $15 weekly.
It needs no argument to show that families in receipt of incomes
such as these can have neither property, savings accounts nor in-
surance. And this conclusion, finally, is corroborated by investiga-
i*Adapted from History of Work Accident Indemnity in Iowa, pp. 6-8.
Published by the State Historical Society of Iowa, 1912.
576 CURRENT ECONOMIC PROBLEMS
tions into the insurance actually carried by wage workers. Of 132
married men killed in Pittsburgh, only 6 had insurance in substan-
tial amount and only 25 out of 214 left savings, insurance, and
trade-union and fraternal benefits to the amount of $500 each. In
New York state 175 workingmen who suffered fatal or permanently
disabling accidents had insurance in the aggregate sum of $18,635.
Nor are these extreme instances selected to make out a case. The
average value of 13,488,124 "industrial insurance" policies in force
in 1902 was only $135. The unvarnished fact is that the wage-
earner neither does, nor can, provide for the contingencies of sick-
ness, accident, and unemployment.
To the wageworker, then, even when no one but himself is de-
pendent on his earnings, the loss of a few weeks' wages means se-
rious privation, and permanent incapacity means beggary. But
quite half the victims of work accidents are married men, and a
majority of even the unmarried contribute to the support of others.
For example, of 467 fatal accidents in Allegheny County, Pennsyl-
vania, 258 were sustained by married men and 129 others by reg-
ular contributors to the support of relatives ; whereas only 80 of the
467 dead were wholly without dependents. Of 285 fatal accidents
investigated in Cuyahoga County, Ohio, 176 were suffered by heads
of families. Of 1,476 men killed on the job in New York state, 679
were the sole supporters of 1,775 dependents, 167 were the principal
supporters of 520 dependents and 252 contributed to the support of
668 relatives — leaving but 378, or 35 per cent of the whole number
of deceased, entirely without economic responsibilities. In Wiscon-
sin 43 per cent of the injured workmen whose conjugal conditions
could be learned by the State Bureau of Labor were married.
A serious work accident, therefore, commonly deprives a neces-
sitous family of its sole, or chief, or at least a very important, source
of income. The inevitable result, in the absence of systematic acci-
dent indemnity, is poverty, and the long train of social evils that
spring from poverty. It is not only that victims of unindemnified
work accidents suffer prolonged incapacity and often needless death
from want of means to obtain proper care, not only that families are
compelled to reduce a standard of living already low, and that women
and children are forced into employments unsuited to their age and
sex, with resultant physical and moral deterioration ; but it is that the
ever-present fear of undeserved want goes far to impair that spirit of
hopefulness and enterprise upon which industrial efficiency so largely
depends.
PROBLEMS OF ECONOMIC INSECURITY 577
261. The Necessity of Employer's Liability ^^
BY ADNA F. WEBER
It must be clear, upon reflection, that the conditions under which
modern industry is carried on preclude the possibility of explaining
every accident by somebody's negligence. This much was dimly
understood when various countries took the first step of shifting the
onus probandi from employee to employer. If, now, the employees
are not to blame for the innumerable injuries to which they are sub-
ject, why should they be made to bear the financial burden of those
injuries? Why should not that burden be distributed over the com-
munity instead of being concentrated upon a certain number of
families who, in any event, will have to bear the physical and mental
suffering involved in the death, crippling, or maiming of men? The
risk of fire is undeniably greater in a gunpowder mill than in a
brewery, but the owner of the mill does not bear the burden by con-
tenting himself with lower profits than the brewer's ; he simply pays
for the greater risk by higher rates of fire insurance and passes the
cost on to the consuming public in a higher price for his product. If
the additional expense imposed upon a gunpowder manufacturer
through the more frequent losses by fire can be thus recouped from
consumers, why should not the expense of indemnifying his work-
men for accidents be likewise made a part of the cost of production,
and thereby be transferred to the community at large? Only one
thing will prevent such shifting of the burden, and that is the ability
of competitors to put their goods on the market without incurring
like charges. Hence the law must require all competitors in a given
trade to make the same compensation for the same injuries. This is
what Europe has done; by compelling employers to compensate in-
jured employees according to a fixed scale, it has taxed the com-
munity, through higher prices of goods, for the support of its injured
members.
Many minds bred in the philosophy of individualism will undoubt-
edly see in such legislation nothing but injustice to the employer. In
reality such legislation is in strict conformance with the innermost
spirit of English and American common law. It recognizes the exist-
ence of undeserved distress among workingmen and undertakes to
alleviate their suffering by giving them a claim upon some person
who is pecuniarily responsible. And that is precisely the principle
embodied in the time-honored common-law rule that the principal
is liable for the acts of his agent.
I'^Adapted from an article published in the Political Science Quarterly,
XVII, 279-81. Copyright, 1902.
578 CURRENT ECONOMIC PROBLEMS
The course of reasoning thus followed to justify the principal-
and-agent theory of liability also justified the workmen's compensa-
tion acts adopted by all the leading countries of Europe, which require
the employer to assume all the risks of the employment which he calls
into being. But while the employer makes the primary payment, just
as he pays for the wear and tear of his machinery or the loss of his
plant by fire, the consumers ultimately pay the cost. The alternative
to such a general distribution of the financial burdens of industrial
through the public charities.
accidents is the present method, by which the entire burden is put
primarily upon the poorest classes, and when it crushes them, to the
damage of the community, is at last tardily assumed by the latter
D. SICKNESS AND HEALTH
262. The Nation's Physical Fitness^*'
In an instructive chapter the second report of the Provost Marshal
General summarizes the data relating to the physical qualifications
of the men examined for military service under the selective draft law
during the period from December 15, 1917, to September 11, 1918.
Inasmuch as the data pertain to 3,208,446 men physically examined, it
is evident that they furnish an unparalleled source of information re-
garding the physical condition of the nation's manhood.
It is interesting to note that out of these 3,208,446 registrants
physically examined by the local boards, 70.41 per cent were found
fully qualified for all military duty. These men were re-examined by
the camp surgeons for induction into military service, and an average
of 8.1 per cent of them were rejected. These physical examinations
and re-examinations therefore revealed the fact that only 64.71 per
cent of the registrants in the age-group twenty-one to thirty-one were
fully qualified for all military duty.
It is further noted that there were rejected as having defects such
as to render them unfit for military duty 21.68 per cent of registrants
from urban regions; and 16.89 P^^* cent of registrants from rural
regions. Likewise 17.32 per cent of negro registrants were rejected
and 16.08 per cent of whites. From alien communities 17.14 per cent
of registrants were rejected, and from native communities 13.64 pei
cent of registrants. This seems to indicate that rural registrants
were in better physical condition than the urban, the white than the
colored, and the native than the foreign-born.
i«Adapted from an abstract of the second report of the Provost Marshal
General, published in Public Health Reports, XXXIV (1919), 624, 633-34.
PROBLEMS OF ECONOMIC INSECURITY 579
Undoubtedly the physical examinations of so many men in this
age group taken evenly from all sections of the country constitute a
fair index of the health of the general population. This is especially
true since the local board examinations were checked up by the
examinations of the camp surgeons. In considering these findings
and before applying the ratios to the general population the age of the
registrants examined must not be forgotten. Physical unfitness
undoubtedly increases with age. The report gives an important clue
to the increasing ratio of physical unfitness in comparing the men in
the age-group twenty-one with those in the age-group twenty-one to
thirty-one. Those in the younger age-group gave 76.89 per cent
physically fit for all military duty as compared with 69.17 per cent
given by the older age-group. Only 9.93 per cent of the men in the
younger group were found wholly unfit as compared with 17.47 per
cent of the older age-group.
Making due allowance for error and differences due to sex, age,
and sections of the country, an application of these findings to the
country as a whole leads to the conclusion that the health of the
nation is far below what it ought to be. This is especially true when
one considers that only 65 per cent of our young men are found
physically lit for military service and over 21 per cent are disquali-
fied for all military duties, even of the limited class.
These conditions are not confined to any one section of the coun-
try. There is no great difference in the ratios for the North, South,
East, or West, urban or rural, native or foreign-born. In fact some
of our previously formed conclusions as to the healthfulness of the
several sections of the United States have to be somewhat revised.
Thus we face the striking fact that when the rejections made by the
camp surgeons are included less than 52 per cent of the registrants in
the state of Washington are in the condition of health required of all
accepted for all military duties as compared with over 73 per cent in
this condition for the state (^ Arkansas, and this despite the fact that
Washington enjoys the lowest death-rate of any state in the union.
Again, taking some of the findings from New England usually con-
sidered one of the most healthful sections of the country, we observe
that in Massachusetts less than 53 per cent of the residents are up
to the required standard in health, in Vermont less than 52 per cent,
and in Maine less than 62 per cent, whereas the southern section of
the United States shows that Oklahoma furnished over yy per cent
fit for all military duties, Arkansas over 73 per cent, and Alabama
over 66 per cent.
The figures from all sections of the country are sufficiently ap-
palling to show that it is of the greatest importance for the whole
58o CURRENT ECONOMIC PROBLEMS
nation to realize that it is high time to search out the causes of the'
physical unfitness and find the proper remedies. It is the supreme
duty of all agencies, national, state, and local, to work together to
these ends.
263. The Industrial Cost of Sickness^^
BY JOSEPH p. CHAMBERLAIN
It is important that we should consider the many shreds of
information which may be pieced together to show the extent and
need of sickness insurance in the United States. No figures exist
from which we may estimate accurately the probable amount of loss
caused by sickness in this country, but a committee of experts acting
for the American Association for Labor Legislation has estimated
that annually there are 248,750,000 days of sickness among workmen
in the United States, costing $792,892,860. The United States Bureau
of Labor reports that every workman in the steel industry has the
expectation of nine days lost by sickness in a year as against four
days lost by accident, a significant proportion when we realize that
it does not cover the cases of men forced by sickness to quit entirely,
and that only the sick leave their work.
The burden is not borne entirely by the working people. Sums
which would undoubtedly amount to considerable in the aggregate
are paid by employers as wages to sick employees and to the differ-
ent insurance funds in which both employer and employee are in-
terested. The extent of the contribution of private charity may be
guessed by the statement of the New York Association for Improv-
ing the Condition of the Poor, that 40 per cent of the persons helped
by it in 1912 became dependent on account of sickness, a proportion
which, according to most authorities, is rather higher than the aver-
age. The contribution of the state and the public, through the sup-
port of hospitals and dispensaries, is a larger figure. Studies of social
conditions in New York City show thafethe dispensary and the hos-
pital are the principal resources in sickness of the poorest paid classes
of workmen.
These sums, large though they must be in the aggregate, leave
the huge bulk of the cost of sickness on the shoulders of the work-
men themselves, and to lessen in individual cases its crushing weight,
often increased by the cost of burial, a widely extended system of
sickness and burial insurance has grown up. There are a variety
of carriers of this insurance: (i) Industrial and assessment, sick-
ness and burial insurance companies and associations; (2) estab-
"Adapted from "The Practicability of Compulsory Sickness Insurance in
America," American Labor Legislation Review, IV (1914), 52-53.
PROBLEMS OF ECONOMIC INSECURITY 583
is made by the use of stamps and the employer is authorized to deduct
the employee's contribution from his weekly wage.
There are five benefits to be given : ( i ) Medical benefit. This
includes medical attention and the necessary drugs when one is ill,
and may be extended to the dependents of the injured person when
the authorities have the means and deem it advisable. (2) Sana-
torium benefit. This entitles a member who has tuberculosis or a
similar disease to be treated in a sanatorium when it is heeded. This
benefit also may be extended to the dependents of the injured person.
A definite amount, i shilling 4 pence, is available for each member
annually for the payment of this benefit. This amount must not be
exceeded unless the local authorities and the Treasury vote extra aid.
(3) Sickness benefit. This is a cash payment made weekly to the
insured person or his dependents and continues for 26 weeks. In
the case of men it is 10 shillings a week for the first 13 weeks and 5
shillings for the second 13 weeks; in the case of women 7 shillings
6 pence for the first 13 weeks and 5 shillings for the second 13 weeks.
If the financial condition of the society permits, the benefits for the
second 13 weeks may be increased. (4) Disability benefit. This is
a weekly payment of 5 shillings to a member who is temporarily or
permanently disabled as the result of sickness or accident not in any
way connected with his work. It lasts "so long as he is rendered unfit
by the disease or disablement." (5) Maternity benefit. This is a
lump sum of 30 shillings paid upon the birth of a child, either when
the mother herself is insured or when she is the wife of an insured
man. In addition to these, other benefits may be granted, if the finan-
cial condition of the society permits it. The benefits are decreased
when the person is in arrears with his contribution, when he is under
age and not married, and when he is past 50 at the time of becoming
insured.
If a person is not so employed as to become a regular member,
he may join a society as a voluntary contributor. The rate at which
he pays is determined by his age at entrance. Adequate provision is
made to allow the transfer of a member from the voluntary to the
employed rate and vice versa. Since there is no contribution from
the employer in the case of a voluntary member, this amount must be
paid by the member. The contribution from Parliament is the same
as in the case of the regular member, and the benefits he receives are
the same.
A deposit contributor is one who cannot obtain admission to an
approved society either as an employed or a voluntary contributor.
He deposits his savings in the postofiice in a manner similar to our
Postal Savings Bank system. From his deposit, after it is subsidized
584 CURRENT ECONOMIC PROBLEMS
by Parliament, the proper amount is deducted to entitle him to medi-
cal and sanatorium benefits. For the other benefits he can merely
withdraw the remainder of his subsidized deposit.
There are two separate organizations for the administration of
benefits. A local health committee is established for each county
and county borough. This committee in conjunction with the local
authorities already existing administers the medical and sanatorium
benefits. The other benefits are administered by approved societies.
The reason for this division of labor is that friendly societies, hav-
ing millions of members, already give benefits of various sorts. It is
intended not to interfere with the other activities of these societies,
but to have them establish separate branches to administer the re-
maining health insurance benefits. Any society which does this may
become an approved society, provided it is not carried on for profit
and is subject to the control of its members. The approval rests
with the insurance commissioners.
Many details of the scheme are fully set forth in the bill, but
many others are left to the insurance commissioners. Their rules
and regulations are, of course, subject to the approval of Parliament.
Strange as this delegation of legislative power seems, there is little
doubt that it will contribute much to the initial success of the scheme.
The commission will be able to adapt many of its regulations to
exigencies as they arise and thus correct at once many of the defects
which are bound to appear upon the launching of this mighty scheme.
266. Health Insurance for the United States"^"
BY B. S. WARREN AND EDGAR SYDENSTRICKER
The case for a health insurance system for the United States or
for the several states and the general outlines of an effective system
can be indicated in the following summary statement :
1. The fact that health insurance has been so generally adopted
in European countries as a solution of the problem of the wage-
earner's health suggests its serious consideration in this country as a
measure for the relief and prevention of sickness,
2. At present each of the 30,000,000 wage-earners in the United
States loses about nine days each year on account of sickness.
Estimating the loss in wages at $2 per day and the cost of medical
attention at $1 per day, the total loss to the wage-earners of the nation
is approximately three-quarters of a billion dollars annually.
3. In addition to conditions which affect the health of the popu-
lation as a whole, some of the more important economic factors which
■^ .rA^^P^.^^ ^""^"^ //^o/fA Insurance: Its Relation to the Public Health pp.
06-68 {Public Health Bulletin No. 76, 1916).
PROBLEMS OF ECONOMIC INSECURITY 585
increase the health hazard of the wage-working population are : (a)
occupational hazards ; (bj irregularity of employment ; (c) unhealth-
ful conditions of living (d) employment of women under modern con-
ditions of work, particularly of married women; and (e) economic
disadvantages at which a large proportion of wage- workers and their
families are placed as the result of low wages and insufficient annual
income.
4. Underlying all the economic factors is the fact of poverty
and the partnership of poverty and disease.
5. Three groups — employers, the public, and employees — are
responsible for conditions causing sickness among wageworkers and
their families.
6. With few exceptions, the responsibility of employers for the
health of employees is limited to places of employment and working
conditions.
7. The public is responsible for community conditions or con-
ditions common to all classes of citizens.
8. The greatest share of responsibility rests upon the individual
unable to meet this responsibility, especially the unskilled, low-paid
wage-earner. Under present conditions a large proportion are
workers.
9. The inability of the wage worker to meet the cost of sickness
places a serious handicap upon the medical profession in its efforts
for the relief and prevention of disease.
10. There is an increasing need for a more effective method of
dealing with the problem of the wage-earner's health — one which
will place the burden of responsibility where it belongs and stimulate
the co-operation of all concerned in its solution.
11. Health insurance is the most feasible method because (a)
it distributes the cost of sickness among those responsible for con-
ditions causing sickness and lightens the burden upon the individual ;
(b) it gives a financial incentive for the prevention of sickness to
those who are responsible for the conditions causing sickness.
12. Health insurance in its most highly developed form (a)
provides for adequate cash and medical benefits to all wage-earners
in time of sickness; (b) distributes the cost among employers, the
public, and wage-earners ; (c) becomes an effective health measure
by stimulating the co-operative effort of the three responsible groups
and by linking their efforts with those of governmental health
agencies ; (d) correlates all the forces in the prevention of disease ;
and (e) affords a better basis for the co-operation of the medical
profession.
586 CURRENT ECONOMIC PROBLEMS
13. Under an efficient health insurance system a contribution of
approximately 50 cents per week per insured person (25 cents by
employees, 20 cents by employers, and 5 cents by the government)
should enable the insured persons to receive (a) $7 per week when
disabled by sickness or accident for as much as twenty-six weeks
in a year; (b) adequate medical and surgical care during disability;
(c) medical and surgical care of wife of insured person during con-
finement; (d) a death benefit of $100.
14. A governmental system of health insurance can be adapted
to American conditions, and when adapted will prove to be a health
measure of extraordinary value.
The fact that under such a system the employee has such a large
measure of ownership and control will remove all elements of pater-
nalism. He will regard the benefits as rights, not charities. Ade-
quate medical relief will be placed within the reach of even the lowest
paid worker and provide for him and his family during sickness.
It will give to those responsible for conditions causing sickness a
financial incentive to prevent disease.
Its administration must be closely co-ordinated with public-
health agencies if it is to attain the greatest degree of success as
a preventive measure.
E. THE STANDARD OF LIVING
267. The Nature of the Standard of Living-^
BY FRANK HATCH STREIGHTOFF
"How can these people endure it ?" asked the fair boarder, clos-
ing her novel and languidly sinking into the depths of her hammock.
"Mr. Farmer drudges from four a. m. till dark, and never a visible
result ! He's never been to the theater ! Why, he hasn't even read
The Balance of Power. I don't call that living — it may be existing."
Such words are heard every day in rural summer resorts. Corre-
sponding sentiments are entertained by many a farmer who cannot
see how his guests are held by the chaotic buzz of the metropolis.
The people of one city block "couldn't be hired" to move to certain
other squares; yet the respectable inhabitants of these latter dis-
tricts "wouldn't be buried from Z Street." It is really amusing to
notice how the words "live" and "exist" are contrasted, but the dis-
tinction is merely the expression of the fact that "consciously or un-
consciously every man whose means, or wealth, or resources are
more limited than this wants — and this is practically the case with
2iAdapted from The Standard of Living among the Industrial People of
America, pp. 1-4. Copyright by Hart, Schaffner & Marx, 191 1.
PROBLEMS OF ECONOMIC INSECURITY 587
human beings generally — has a scale of wants in his mind when he
arranges these means. On the basis of this scale he satisfies what are
his most urgent wants and leaves the less urgent ones unsatisfied. "--
In other words, every man has his own "standard of living."
Satisfactorily to define the standard of living is extremely diffi-
cult. Bullock writes, "Each class of people in any society is accus-
tomed to enjoy a greater or less amount of the comforts or luxuries
of life. The amount of comforts or luxuries customarily enjoyed
forms the standard of living of that class."-^ That is to say, the
standard of living, as the expression is usually understood, consists
simply of what men do actually enjoy. On the other hand there
are always felt but unsated wants that prompt men to struggle ;
those reasonable unfilled desires are the motive powers to progress.
Few indeed are the women who do not confidently whisper to their
friends, "We cannot do that now, for we are rather poor this year."
There is an "ideal" standard of living which is always in advance
of achieved satisfaction.
The definition given here is valuable in suggesting two impor-
tant truths. First, it properly emphasizes comforts and luxuries. In
everyday affairs effort is often directed more to securing superflu-
ities than in providing necessities. In the second place, the extent
and content of the unsated wants in a man's ideal standard is largely
determined by actual satisfactions.
Each individual has his own more or less rational concept of
what is essential to the maintenance of his own social position ; and
he knows exactly what this position is, whether he be the bank clerk
who delights in race horses, or the man who shares the same desk
and plays on the Sunday-school ball team. The one demands
"smart" raiment and amusement at highly nervous tension, the other
wants respectable, serviceable clothes and healthy sport. They live
in different worlds, they have individual criteria: so each man has
his own standard of living. But it will be noted that bank clerks as
a class have some wants in contrast to the mechanics, for instance.
The clerks must enter their offices clean-shaven, the mechanics like
a good scrub after work; the former wear kid gloves arid fresh
linen, the latter are more comfortable in woolen gloves and flannel
shirts. These contrasts and comparisions can be extended until the
standard of each group can be determined with considerable pre-
cision. Thus the class standard of living may be compared to a
composite photograph ; certain features are emphasized, while others
22Smart, Introduction to the Theory of Value, p. 22.
^^Introduction to the Study of Economics, p. 126.
588 CURRENT ECONOMIC PROBLEMS
are faint or blurred according to the proportion of the individuals
possessing the character. On the other hand, development of the
individual is so largely influenced by his environment that his notions
are, in the main, those of his class.
But class is not the only factor in the development of the indi-
vidual's ideal standard of living. Aside from its large determining
influence in the matter of class membership, income has an import-
ant part to play ; purchasing power limits the quantity and quality
of obtainable satisfactions. The higher the indvidual climbs on the
ladder of success, the wider is his view ; the more he sees, the more
he seeks.
Another determinant of the standard of living is the progress of
civilization. The modern carpenter has far more comfort than
Richard II dreamed of, simply because progress has put new things
within his reach, but the carpenter knows that there are many, many
things which he cannot have. Thus there is constant, though ir-
regular rise of the standard of living as civilization becomes more
complex.
268. The War and the Standard of Living-*
BY W. F. OGBURN
The facts of the increased cost of living, upon which wage in-
creases during the war were based, were determined from extensive
surveys made by various agencies, such as United States Bureau
of Labor Statistics, the National War Labor Board, the National
Industrial Conference Board^ the Shipbuilding Labor Adjustment
Board, the Railroad Wage Commission, the University of Washing-
ton, and others. Of these studies by far the most important are
those by the Bureau of Labor Statistics. From all these studies we
know fairly certainly that the cost of living based upon all the items
of the family budget, including food, rent, fuel and light, clothing
and sundries, has increased for the country as a whole about 55 per
cent from the pre-war period, as measured by the year 1914, to
June, 1918. We also know that the increase has been fairly uniform
over the country as a whole, the greatest variation being in rent.
Up to August, 19 1 8, the increase had been about 65 per cent, this
figure being the average increase over 1914, in fifteen shipbuilding
centers, as measured by the United States Bureau of Labor Statistics.
At the present time a fair estimate of the increase in the cost of living
would probably be 70 per cent. This figure I think can be interpreted
^■'Adapted from "Standard of Living as a Basis of Wage Adjustment,"
Proceedings of the Academy of Political Science, VIII, 102-4, 107-8. Copy-
right, 1919.
PROBLEMS OF ECONOMIC INSECURITY 589
as meaning that unless wages have increased over this period 70 per
cent, there has been a fall in the standard of living.
We do not have available so far as I know the figures to
show whether wages have increased 70 per cent over 1914 or not.
"The general economic theory of wages and prices is that wages do
not increase as rapidly as prices, and that during the period of rising
prices real wages are lowered. The conditions upon which such a
general economic theory is based have been modified during the
present war by several forces all tending to raise wages more than
usually occurs during a period of rising prices. These forces have
been the shortage of men, due to the cutting-off of immigration, the
drafting of men into the military forces, the demand of stimulated
industry, the degree of social control of wages by the government,
and the extension of credit.
What, of course, is true, is that in some industries wages have
risen more than the cost of living has risen and in others they have
not, while in some occupations wages have just about kept pace with
prices. Thus in the steel and iron industries wages have increased
more than the cost of living. The National War Labor Board has in
a number of its decisions increased wages more than the cost of living
has increased. The awards of the National War Labor Board in
the street-car cases and a number of the decisions of the Shipbuilding
Labor Adjustment Commission affecting trades engaged in ship-
building have placed wage rates at very nearly the increase in the
cost of living. In the building trades and in the printing trades wages
have not increased as much as the cost of living.
The only figures I have secured on increases in real wages are
the following : I have been able to get the increases in union wage
rates since 1914 up to May 15, 1918, in nineteen trades in about twelve
cities. Expressing these rates in terms of their purchasing power
and calling the result real wage rates, then the bricklayers' real wage
rates have fallen 21 per cent, carpenters' real wage rates have fallen
18 per cent, cement finishers' have fallen 20 per cent, granite cutters'
have fallen 18 per cent, hod carriers' have fallen 9 per cent, painters'
have fallen 14 per cent, plasterers' have fallen 25 per cent, plasterer
laborers' have fallen 20 per cent. The blacksmiths' wage rates have
risen 5 per cent, the boilermakers' have fallen 5 per cent, the machin-
ists' have risen 10 per cent, the iron molders' 5 per cent. The real
wages of plumbers and gas fitters have fallen 20 per cent, of stone
cutters 18 per cent, of structural iron workers 14 per cent. Com-'
positors' real wage rates have fallen 25 per cent, electrotypers' and
stenographers' have fallen 27 yer cent. These changes are based
upon union wage rates and not on earnings.
590 CURRENT ECONOMIC PROBLEMS
I have been able to get figures on the increase in earnings in six
important industries. The earnings have been found by dividing the
total payroll by the number of wage-earners on the pay-roll for the
week prior to December 31, 1914, and to October i, 1918. Express-
ing these earnings in terms of their purchasing power and calling the
result real wages, the real wages in the boot and shoe industry have
increased 23.5 per cent, in the cotton finishing industry they have
increased 6 per cent, in cotton manufacturing they have increased 13
per cent, in the manufacturing of hosiery and underwear the in-
crease has been 1 1 per cent, in the silk industry the increase has been
5 per cent, in woolen manufacturing they have increased 9 per cent,
and in the iron and steel industry real wages have increased 45 per
cenr.
For common labor I found that in the government employment
offices of 130 cities the last common labor placed prior to August i,
1918, averaged 36.6 cents per hour. If in December, 1914, such
common labor was receiving 23 cents per hour, then real wages for
common labor have risen, and if common wages were placed at more
than 23 cents per hour then real wages for common labor have
fallen.
The foregoing figures do not of course show whether real wages
as a whole have risen or fallen, but they furnish some indication of
what has happened to a large percentage of American workers.
A national policy in regard to wages should determine and declare
minimum standards of living below which families ought not to be
permitted to fall, and wages should be kept at such a level as to permit
such a standard of living. This is an issue now discussed in British
social politics under the term "the national minimum." We in the
United States shall in the near future probably be setting minimum
living wages for families as well as for women, by one agency or
another. The question of proper standards of living has been the sub-
ject of some research by the cost-of-living department of the National
War Labor Board. This department has drawn up for the con-
sideration of the board two levels, one of which is called the mini-
mum-comfort budget and the other the minimum-of-subsistence
budget. After considerable investigation a minimum-comfort
budget was drawn in detail for June, 1918, for a man, wife, and three
children living in a large eastern city. The income necessary to live
according to this plane of living was at that time $1,760 a year.
The minimum-comfort standard has been used relatively little
in setting wages, chiefly during the past year. On the other hand
there has been a great deal of research upon the question of the mini-
mum of subsistence. Thus in 1907 Dr. Chapin estimated that prob-
PROBLEMS OF ECONOMIC INSECURITY 591
ably an income between $800 and $900 a year would furnish a family
of five with the bare physical necessities. In 1914, the New York
Factory Investigating Commission set such a budget for a family
living in New York City at $876. Today we are forced to think in
terms of a price level much higher and we have not yet become ac-
customed to the new price terms. So it is altogether a proper question
to ask what would these two authoritative minimum-of-subsistence
budgets cost at the present level of prices. In June, 1918, these two
budgets were brought up to date by translating the prices of the
various budget items of the pre-war period into the new price level
as measured by the percentages of increase of the various items. By
this method Dr. Chapin's budget would have cost $1,390 and the
budget of the New York Factory Investigating Commission $1,360.
Independently at that time also a minimum-of-subsistence budget
was drawn up from data from 600 family budgets collected by the
United States Bureau of Labor Statistics, which set the minimum of
subsistence budget at $1,380. Still another method of estimating the
minimum wage was also used. It was found in New York in June,
1918, that the dietaries which yielded enough calories and grams of
protein and which were actually in use cost approximately $615 for
a family of five counted as 3.4 equivalent adult males. As we know
that at the plane of bare subsistence food costs about 44 per cent
of the total budget, it is possible to estimate the total budget. Accord-
ing to this approximation the minimum living wage would be $1,390.
It seems fairly evident then that in New York in June, 1918,
the minimum living wage was between $1,350 and $1,400. From
June to December the cost of living has increased probably 10 per
cent. This would mean that at the present time the minimum living
wage necessary for a family of five in New York City is about $1,500.
What it should be in other parts of the country we do not know.
F. THE MINIMUM WAGE
269. The Promise of a Minimum Wage-^
BY A. N. HOLCOMBE
The immediate direct effect of the establishment of a minimum
standard-of-living wage would be to put an end to the employ-
ment of normal adult workers at lower rates. Not every wage-
worker who has been employed at lower rates would necessarily
be deprived of employment, nor would the wage of every such
25Adapted from an article in the American Economic Review, II, 33-37-
Copyright, 1912.
592 CURRENT ECONOMIC PROBLEMS
wage-earner necessarily be increased in the standard minimum rate.
Some employes would receive the increase, and some would lose
their employment. The actual effect would depend partly upon the
efficiency of the wage-earners concerned, and partly upon the char-
acter of the demand for their services. In industries like depart-
ment stores and steam laundries, which serve local markets and are
free from outside competition, probably the increase of wages could
be paid to all employes below the minimum without so increasing
the cost of production as to produce a material decline in the de-
mand. But in industries serving a wider market and subject to out-
side competition, such as cotton mills and shoe factories, the estab-
lishment of a legal minimum wage might reduce employment rather
than increase wages. The outcome would depend largely upon the
extent of the necessary increase and the rapidity with which it
should be put in force. Some sweated industries might be alto-
gether capable of maintaining themselves. But such as these the
country would be better without.
The greatest difficulty arises in the cases where work-people of
distinctly different standards of living come into competition with
one another. Unless the groups are of equal efficiency, the attempt
to establish a single standard for all might result in securing the
industry to the most efficient group and excluding the others from
all employment therein. To attempt to establish an American stand-
ard-of-living wage for alien races of distinctly lower standards and
lower efficiency would probably result in the exclusion of many
aliens from employment in the country. It would also result in the
exclusion of most of the negroes from the occupations in which the
wage should be adjusted to the efficiency of the native whites. A
legal minimum wage would probably be of advantage in promoting
a better distribution of such immigrants among our various industries.
The indirect economic effects of the establishment of a minimum
standard-of -living wage may be mentioned summarily.
First, the establishment by legislation of such a wage would make
available to the poorest and most helpless of the laboring population
a share in the advantages obtained by the better-to-do and stronger
through voluntary association. An advantage would be the greater
security for the protection of the interests of the public against the
abuse of irresponsible power in the interests of special classes.
Secondly, the line would be more sharply drawn between the
unemployable and the merely unemployed. It would also tend to
restrict the influx of the unemployable from abroad, thus at once
checking the increase of inferior labor and raising the average effi-
ciency of the domestic supply.
PROBLEMS OF ECONOMIC INSECTRITY 593
Thirdly, there would result a restriction of the field of competi-
tion between workpeople. The wage-earner whose chief recom-
mendation is his willingness to work for a pittance would lose the
advantage of his submissiveness, and skill and strength would be-
come of greater importance in obtaining employment.
Fourthly, there would result a restriction of the field of com-
petition between employers. The employer whose chief stock in
trade is his shrewdness in driving hard bargains would lose his ad-
vantage. The peculiar qualities of the best type of business men
would be of greater importance in the achievement of success.
270. The Case for Wage Boards-^
BY CONSTANCE SMITH
Many of the objections ordinarily advanced against wages boards,
or, indeed, against any proposal to regulate wages, are little more
than a restatement of the arguments employed to defeat the passing
of the earlier factory acts. They rely for support on the principle,
more or less disguised, of laissez faire. But there are some, more
strictly addressed to the practical proposal now before the country,
to which it seems desirable to give such brief consideration as space
permits.
First, there is the fear frequently expressed, that wages boards
would increase unemployment, by pushing out of the labor market
the less competent worker, who is unfit to earn even the minimum
rate, and by giving the coup de grace to weak and tottering indus-
tries. The existing wages boards legislation of Victoria, makes
special provision for the case of the old and slow worker. But
granted that there are individuals of this class who will be unable,
under the new conditions, to find employment, even at special rates,
there still remains the question whether it is not wiser, on purely
economic grounds, to face boldly the necessity of maintaining for a
while a certain number of persons physically or mentally incapable of
fully maintaining themselves, rather than of condemning to "half
employment" an infinitely greater number of people who, given a
fair chance, are perfectly able to earn their own living.
But sound economists who have carefully studied the subject
do not hold that under a wages board system we should have a
"net" reduction of employment. Since the first result of the estab-
lishment of such a system will be an increased wages bill, involving
the transference of a fresh portion of wealth to the pockets of
28Adapted from The Case for Wages Boards, pp. 75-86. Published by the
National Anti-Sweating League, London, 191 1.
594 CURRENT ECONOMIC PROBLEMS
certain classes of workers, there must at once follow an increased
purchasing power on the part of those workers and a raising of the
general standard of consumption in the community. Workers will
not only buy more, but better articles, and this movement must in-
evitably tend both to greater volume and greater regularity of em-
ployment.
With regard to those industries which are so deficient in capital
or in organization that they can only maintain a precarious foothold
in the competitive area by underpayment of the workers they em-
ploy, it is clear that the community would be better off for their
disappearance.
Would the cost of production, and consequently the price of the
article to the consumer, be greatly raised by the establishment of
minimum rates? Daily experience shows that, in a considerable
number of industries, there is a margin which could safely be drawn
upon for the leveling-up purposes of a minimum rate. Cases are
not infrequently found, for instance, in trades employing women's
labor at a sweated wage, where vigorous representation on behalf
of the workers, acting upon a wholesome fear of publicity on the
part of the employing firm, has produced a considerable increase,
amounting on occasion to something like a doubling of the rate of
pay. It must be remembered, further, that the cash margin is not
the only one at the disposal of employers of labor. Human nature
is lazy, and most people need some stimulus to enterprise. The
economy which is now too often effected by taking a penny or a
halfpenny off the wages of the employes, would, were that method
made impracticable by a wages board determination, be otherwise
contrived ; by the introduction of improved machinery, by better
organization, by checking the reckless waste which, where a vast
quantity of very cheap articles are made by indifferent workers
laboring desperately against time, swallows up a considerable amount
of profit every year, and by abolition of the ruinous practice of selling
under cost price in the case of certain of the articles manufactured,
in order to make a market for the rest. Further, all industrial ex-
perience teaches that with the improvement of the workman comes
improvement also in his work, even where this is highly organized.
Nor is cost of production necessarily lowest where the wages are low
and the hours long.
Apprehension is often expressed lest the minimum wage, once
established in an industry, should become the maximum in that in-
dustry ; and assertions that this actually occurs have not been want-
ing. Again, there is much testimony from Victoria to support the
contrary view. Opening, almost at haphazard, the latest Report of
PROBLEMS OF ECONOMIC INSECURITY 595
the Victorian Chief Inspector of Factories, we find, under the head-
ing of the Aerated Water Trade Board, "The Determination is
well complied with, the wages of many of the men and boys being
above the minimum." A similar state of things is found to obtain
at home in industries where minimum rates have been fixed by means
of collective bargaining or arbitration under the board of trade.
Here, too, the more skilled, industrious, and capable worker is able
to earn a higher wage than that calculated on the average capacity
of the average man or woman.
The last objection to be considered is what may be called the
moral objection. Many of those who have not been brought into
personal contact witji sweated workers, and with the conditions
under which sweated industry is carried on, deprecate the setting up
of any machinery which appears to limit the opportunity for free
bargaining between employer and employed. They are afraid that
such machinery may destroy the spirit of enterprise, and that the
assumption of responsibility in the matter of wages by the state
will tend to weaken the personal relation between masters and men.
To such objectors the best reply is an invitation to study the situa-
tion at close quarters and at first hand. They cannot then fail to
perceive that the outstanding features in the present position of the
sweated worker, especially when that worker is a woman, are ab-
solute inability to bargain freely and total lack of independence.
Such a worker must take the work offered, at any terms that may be
proposed, under penalty of an immediate drop into the abyss of
destitution. The spirit of enterprise is rarely found to animate those
who are working excessive hours for a bare pittance. As to the
"personal relationship," it is useless to devise schemes for preserv-
ing it ; for good or evil, it is practically a thing of the past. More
and more, industry and commerce, like battleships, tend toward the
"all big" type. Everywhere, the business that was formerly the
affair of an individual or a family is now the result of the activities
of an association or a limited company acting through Its salaried
servants.
In a great number of cases the employer is practically powerless,
even now, to deal personally with his employes. In time to come,
as he becomes increasingly the instrument of great impersonal forces,
financial and social, behind him, all capacity for such individual
dealing will be taken from him. It is only by accepting, under the
sanction of the state, the regulation of wages in those industries
where it has hitherto gone unregulated, with such results in the
shape of economic chaos and human degredation as we have been
considering, that the best employer can save himself from being
596 CURRENT ECONOMIC PROBLEMS
ultimately dragged down to the level of the worst. For him, as for
his workers, an act establishing wages boards would be a genuine
measure of protection.
271. The Futility of the Minimum Wage"
BY J. LAURENCE LAUGHLIN
The hysterical agitation for a minimum wage (today urged chiefly
for women) has in it no conception of a relation between wages and
producing power. It is unsound for several reasons which touch
the very interests of the laborers themselves.
It introduces a new and unjustifiable basis of wages — that wages
shall be paid on the basis of what it costs the recipient to live. If
it is urged, for instance, that a woman cannot live on $5.00 a week
but can live on $8.00 and hence her minimum wage should be $8.00,
the whole case has not been considered. If we accept — what we
should not accept — the principle that wages should be related to the
cost of living, and if it is accepted that the woman should live on
$8.00 a week, on what grounds should she ever receive more than
$8.00 a week? On what grounds could any one get $18.00 a week?
At present $18.00 is paid on the ground that it is earned, that is,
on the basis of a relation between wages and producing power. No
other basis can stand for a moment in the actual work of industry.
Men go into business to gain profit ; if, in their opinion, the employe
is not worth $8.00 a week, she will not be retained, no matter what it
costs to live. If she is worth to the business $18.00, that will be the
wage. No law can force anyone to remain in a business that does
not pay.
The theory of a minimum wage based on the cost of living is
flatly inconsistent with the facts of daily Hfe and preparation for any
occupation. At what age or point is a beginner,^ or apprentice, to
receive the full legal wage ? Is no boy, or apprentice, to be allowed
to receive a partial reward till he is a full-fledged adult workman?
How about the woman, who, in the economic role of domestic labor,
knits stockings in odd hours in order to add a little to the family
income — shall she receive nothing if not the full legal wage? Shall
the boy, or even a young lawyer just entering an office, be forbidden
to receive the small stipend of the preparatory period?
Suppose it were required by law to pay shopgirls $8.00 a week
instead of $5.00 on the ground that the insufficient $5.00 leads to
vice : then, since no ordinary business would pay $8.00 unless it were
-Aaapted from "A Monopoly of Labor," Atlantic Monthly, CXII, 451-53.
Copyright, 1913.
PROBLEMS OF ECONOMIC INSECURITY 597
earned, those who did not earn $8.00 would inevitably be dropped
from employment without even the help of $5.00 to save them. If
$5.00 is no protection from vice, how much less is no wage at all?
This proposal of a minimum wage is directly opposed in practice to
the very self-interest of the girls themselves.
It is crass to try to remedy wages which are admittedly too low
by fixing a legal minimum wage, which can never be enforced unless
private business establishments are to be regarded as state institu-
tions. In a state factory, wages may possibly be determined by law,
but not in open competitive business conditions, where the supply
of labor has as much influence on wages as the demand. If the
supply of women wage-earners converges on only certain kinds of
work, wages will be lowered by the very large supply of the workers.
There is no exit by this door of legal enactment as to the amount of
wages.
The true and immediate remedy is the creation of ready means
by which the industrial capacity of the wage-earning women will be
increased. The wrong situation — of which low wages, possible
starvation, and the temptation to vice are only symptoms — is due
primarily to the fact that women thrown on their own resources
labor. The remedy lies in the creation of places of instruction where
know no trade and crowd each other in the market for unskilled
any woman (no matter how poor) shall be taught a trade and have
skill given to her by which she can obtain a living wage.
The remedy lies in preventing a congestion of unskilled feminine
labor by industrial education. There is no other rational or per-
manent or human way out of the present wretched situation, if we
have the real interest of the workers at heart — and are not interested
chiefly in getting some cheap political notoriety.
This conclusion applies to men as well as to women. Is not a
skilled carpenter worth more than a blunderer? In any business,
does not everyone agree that it is fair to give a very energetic, live,
active, skilful salesman more than a stupid? If he is skilled he
earns more, because he brings in more business. That being settled
we do not fix his wages on what it costs him to live. He has a right
to spend his income as he pleases. Hence if we were to adopt the
theory of the minimum wage we should be adopting a new theory
of wages, which would justify the refusal to pay higher wages based
on efficiency.
The only real permanent aid to low wages is to increase the pro-
ductivity and skill of the persons at the bottom. Instead of talking
of such injurious palliatives as minimum wages, create institutions
at once where those persons can be given a trade or training for a
598 CURRENT ECONOMIC PROBLEMS
gainful occupation. The cry for a minimum wage is evidence of the
industrial incapacity, the lack of producing power, in masses of our
people. The concrete ways of increasing the productive power of
each man and woman are not unknown. Moreover, the captain of
industry can introduce carefully worked-out plans for helping his
operatives to rise in life; to better conditions by welfare work; to
encourage savings and thrift; to introduce the stimulus of profit-
sharing; and, above all, establish civil-service methods devised to
pick out and promote the promising youth so that the path from the
bottom to the top is open to every employee. Under unrestricted
competition, there will be seen the inevitable results of "natural
monopoly" by which superiority comes to its own and wages are in
some proportion to productive power.
272. A Minimum Wage for Immigrants-^
BY PAUL U. KELLOGG
My plea is to draft into our immigration law the provision that
no immigrant who arrives here after a specified date shall be per-
mitted to hire out to a corporate employer at less than a living wage,
say $2.50 or $3.00 a day — until five years has elapsed, and he has
become a naturalized citizen. When he is a voter, he can sell his
American workright for a song if he must and will, but until them he
shall not barter it away for less than the minimum cash prize, which
shall be determined as a subsistence basis for American family live-
lihood.
It would be neither the intent nor the result of such legislation
to pay newcoming foreigners $3.00 a day. No corporation would
hire Angelo Lucca and Alexis Spivak at $3.00 as long as they could
get John Smith and Michael Murphy and Karl Schneider for less.
It would be the intent and result of such legislation to exclude Lucca
and Spivak and other "greeners" from our congregate industries,
which beckon to them now. It would leave village and farm and
country open to them as now. Meanwhile, as the available labor
supply fell off in our factory centers, the wages paid Smith, Murphy,
Schneider, and the rest of our unskilled labor would creep up toward
the federal minimum.
First a word as to the constitutionality of such a plan. It would
be an interference with freedom of contract ; but the contract would
28Adapted from "Immigration and the Minimum Wage," Annals of the
American Academy of Political and Social Science, XLVIII, 75-77. Copyright,
1913.
PROBLEMS OF ECONOMIC INSECURITY 599
lie between an alien and a corporation ; between a non-citizen and a
creature of the state. I have the advice of constitutional lawyers
that so far as the alien workman goes the plan would hold as an
extension of our laws regulating immigration. On the other hand,
the corporation-tax laws afford a precedent from setting off the cor-
porate employer and regulating his dealings.
For three special reasons my belief is that the general enforce-
ment of such a law would be comparatively simple. Sworn state-
ments as to wage payments could be added to the data now required
from corporations under the federal tax law. This would be an
end desirable in itself. In the second place every resident worker
would report every violation that affected his self-interest or threat-
ened his job. For my third reason I would turn to no less a counsel
than Mark Twain's Pudd'n Head Wilson. With employment re-
port cards half a dozen clerks in a central office in Washington
could keep tab on the whole situation by means of finger prints.
Finger prints could be taken of each immigrant on entry ; they could
be duplicated at any mill gate or mine entry by the employer, filed
and compared rapidly at the Washington bureau.
As compared with joint minimum %age boards affecting men
and women alike, as do those of Australia and England, the plan
would have the advantage of not being democratic. The workers
themselves would not take part in its administration. The plan
would have the signal advantage of being national, so that progres-
sive commonwealths need not penalize their manufacturers in com-
peting with laggard states.
As compared with the literary test, the plan would not shut
America off as a haven of refuge and would not, while it was under
discussion, range the racial societies and the internationalists along-
side the steamship companies and the exploiters of immigrant labor.
It would have an even more profound influence on the condition of
Iffe and labor.
What are the positive benefits to be expected from such a pro-
gram?
1. It would gradually, but irresistibly, cut down the common
labor supply in our industrial centers.
2. Once the unlimited supply of green labor was lessened in
these industrial centers, a more normal equilibrium would be struck
between common labor and the wages of common labor. Now it is
like selling potatoes when everybody's bin is full.
3. It would tend to stave off further congestion in the centers
of industrial employment and give us a breathing spell to conquer
our housing problems and seat our school children.
6oo CURRENT ECONOMIC PROBLEMS
4. It would shunt increasing numbers of immigrants to the
rural districts and stimulate patriotic societies to settle their fellow-
countrymen on the land.
5. It would tend to cut down the accident rate in industries
where "greeners" endanger the lives of their fellows.
6. It would cut down the crowd of men waiting for jobs at mill
gates and street corners, correspondingly spread out rush and sea-
sonal work, and help along toward the time when a man's vocation
might mean a year-long income for him.
7. It would give resident labor in the cities a chance to organize
at the lower levels and develop the discipline of self-government.
8. It would put a new and constructive pressure on employers
to cut down by invention the bulk of unskilled occupations, the
most wasteful and humanly destructive of all work.
273. The Progress of the Minimum Wage'^
Since 1912, when the first minimum-wage law in the United
States was enacted in Massachusetts, fourteen states and Congress for
the District of Columbia have adopted legislation the aim of which
is to fix the lowest wage which may legally be paid to women and
child workers. The states in question are Arizona, Arkansas, Cali-
fornia, Colorado, Kansas, Massachusetts, Minnesota, Nebraska,
North Dakota, Oregon, Texas, Utah, Washington, and Wisconsin.
These laws are of two types. Three states — Arizona, Arkansas, and Utah
— have specified the minimum rate in the statutes. In all the other
states the laws lay down only the general principles that wages shall
be sufficient to meet the "necessary cost of proper living," or some
similar standard, and leave to a commission the duty of determining
wage rates which conform to the principle.
The constitutionality of the minimum wage legislation was estab-
lished in 191 7 through an even decision of the United States Supreme
Court,^" which left in force a previous favorable decision by the
Oregon Supreme Court.^^ Since this decision several other laws
have been upheld by state supreme courts.
All the laws except those of Arizona, North Dakota, Texas, and
the District of Columbia apply to all industries. In Arizona a specific
list of establishments is covered, most important of which are fac-
29Adapted from "Minimum Wage Legislation in the United States,"
American Labor Legislation Review, IX (1919), (advance proof sheets).
^^Stettler v. O'Hara, 2,7 Sup. 475.
^^Stettler v. O'Hara, 69 Ore. 519, 139 Pac. 743.
PROBLEMS OF ECONOMIC INSECURITY 6oi
tories, laundries, stores, restaurants, and offices. The District of
Columbia and North Dakota and Texas acts exempt domestic serv-
ants; the acts of North Dakota and Texas, agricultural laborers; and
the Texas act, students working their way through school, and miners.
The three flat rate laws cover only females ; the remainder cover
women and minors, who are defined as persons under eighteen, except
in Minnesota and Wisconsin, where the protection is extended to all
under twenty-one, and in Texas where it is limited to those under
fifteen. None of the laws applies to adult males,
Arkansas and Utah set a minimum wage of $1.25 a day for all
experienced females. In Arizona the act fixes a minimum of $10
a week for all females. The other states have in the main adopted
as the standard the principle of the "living wage." The phrase used
in a number of laws is that wages must be sufficient "to cover the
necessary cost of living and to maintain the health and welfare" of
the worker. All the states having commission regulation of wages,
except Texas, permit the payment of lower wage rates to "learners"
and "apprentices," and, generally by some form of special license,
all allow lower rates to women less capable than the average worker
because of age or physical defect.
The commissions which determine wage standards are made up of
from three to five persons appointed by the governor. The members
are often required to be representatives of employers, female em-
ployes, and the public. In Colorado and Wisconsin the wage-fixing
body is the state industrial commission. In California, Kansas, North
Dakota, Oregon, Washington, and Wisconsin, the commissions may
fix certain standards of hours and working conditions as well as
minimum wages ; in Texas merely standard working conditions.
Elsewhere they deal only with wages.
The first step in the determination of wages for a given occupa-
tion is investigation of existing wage scales. For this purpose the
commission is given power to enter the employer's premises, to ex-
amine books and wage records, to subpoena witnesses, and to ad-
minister oaths. The commission may act on its own initiative. It
IS often required to act on complaint of a specified number of em-
ployes.
The creation of a subordinate advisory board or conference in the
occupation, to recommend minimum rates to the commission, is also
provided for, except in Texas., This body is made up of an equal
number of representatives of employers and employes from the in-
dustry under consideration, representatives of "the public" (except
in Wisconsin), and frequently a member of the commission as chair-
man.
6o2 CURRENT ECONOMIC PROBLEMS
In Colorado, Massachusetts, and Minnesota its members must be
elected, whenever possible, by the employers and employes concerned.
When women's wages are under consideration the creation of a wage
board is in some states required and in some optional with the com-
mission, but rates for minors are fixed by the commission direct.
The commission may accept the decision of the subordinate board,
may refer it back for further consideration, or form another board
for further recommendation.
After a wage rate has been fixed, most of the laws authorize re-
investigation and revision of the award on petition of the employers
or employes affected. A court review of wage rulings is, as a rule,
specifically provided for, but in most instances it can be on questions
of law only and not of fact.
Every state provided for enforcement of the wage standards
established, with the exception of Arizona, where apparently there
is no enforcing authority. In the states where the commission method
of determining standards is used, enforcement is in charge of the
commission itself. In Arkansas and Utah it is in the hands of the
agency enforcing the other labor laws of the state. In California,
Colorado, Texas, Washington, and Wisconsin, the commission can,
seemingly, take action against violation of wage rulings only on com-
plaint. In Massachusetts and Nebraska employers paying less than
the minimum wage are punishable merely by publication of their
names, but a fine may be imposed on newspapers refusing to publish
such names. Elsewhere violation may be punishable by fine or im-
prisonment or both. Discrimination by employers against employes
who testify regarding wages, and in Colorado, District of Columbia,
and Massachusetts, against those who serve on a wage board, is pun-
ishable by a fine. Employes receiving less than the legal minimum
may bring suit for the unpaid wage balance together with the costs
of the suit.
274. Compulsory Arbitration in Theory and Practice^-
BY JAMES EDWARD LE ROSSIGNOL AND WILLIAM DOWNIE STEWART
There is a pretty well-defined theory in justification of compul-
sory arbitration in the minds of those who favor that method of
settling industrial disputes. The competitive system, in this view,
has resulted in two great evils ; sweating and strikes. Under sweat-
ing the workers receive less than enough to secure a decent subsist-
ence for a human being, and the strike is a form of private war in
32Adapted from State Socialism in New Zealand, pp. 238-47. Copyright
by Thomas Y. Crowell & Co., 1910.
PROBLEMS OF ECONOMIC INSECURITY 603
which the strongest win, not those who have justice on their side,
and which causes great inconvenience to the pubHc, who are a third
party in every strike. All this evil and injustice should be done
away with by an appeal to a court.
On the surface the theory appears to be highly reasonable, but
when put into practice serious, if not fatal, difficulties arise. One of
these has to do with the discovery of specific principles of justice ;
the other with the enforcement of awards supposedly just.
The theory of fair wages that appears to prevail is the doctrine
of the living wage, stated both in its negative and its positive form.
Stated negatively, the theory holds that extremely low wages, such
as are found under the sweating system, are not fair wages, be-
cause insufficient to afford a decent living according to the colonial
standard. Stated positively, a fair wage is a wage which is suf-
ficient to give the worker a decent living according to the colonial
standard.
Other difficulties arise when the theories are applied to actual
cases. For example, a w^ge which would be quite sufficient for a
single man might be inadequate for a married man, and should vary
with the size of his family and their ability to contribute to their
support. Again, a living wage for a skilled worker must be higher
than that for a common laborer, since his standard of living is higher.
This arises from the fact that skilled laborers are scarce, but this
introduces another complicating factor, the supply of labor, which,
in densely populated countries, threatens to destroy, not only the
theory, but the possibility of a living wage.
These and other complications prevent the creation of a body
of legal principles defining and explaining the nature of fair or
reasonable wages, but do not prevent the court from bearing in
mind the desirability of keeping the customary standards of colonial
life from falling, and the equal or greater desirability of raising
those standards as much as possible. The doctrine of a living wage,
then, is not an established legal principle, but an ideal toward which
people may strive.
In practice, the awards appear to be based on two main prin-
ciples ; first the desire and intention of the court to secure a living
wage to all able-bodied workers ; second, the desire of the court to
make a workable award, that is, to grant as much as possible to the
workers without giving them more than the industry can stand.
In doing this regard must be had to the prosperity of a given in-
dustry as a whole, if not to the profit of individual employers. It
is usually taken for granted that no reduction will be made in the
customary wages in any industry, and, in times of depression, this
6o4 CURRENT ECONOMIC PROBLEMS
might be regarded as a third regulative principle. Again, it is the
custom of the unions, in formulating their disputes, to demand more
than they expect to get, knowing that, in the worst case, they will
lose nothing. So frequently has this been done that one might
almost lay down a fourth regulative principle, the principle of split-
ting the difference.
The rigidity of system which is characteristic of the railway
rates seems to be taking possession of the regulation of wages also.
When the awards were few in number, it was easy to make a change
without any serious disturbance in industry ; but now that they are
numerous and their scope has been widely extended, it is difficult
to make a change in one without making many other changes, for
the sake of adjusting conditions of labor to the changing conditions
of business.
Another stumbling-block in the way of advance in wages is the
inefficient or marginal or no-profit employer, who, hanging on the
ragged edge of ruin, opposes the raising of wages on the ground
that the slightest concession would plunge him into bankruptcy. His
protests have their effect on the Arbitration Court, which tries to
do justice to all the parties and fears to make any change for fear
of hurting somebody. But the organized workers, caring nothing
for the interests of any particular employer, demand improved con-
ditions of labor, even though the inefficient employer be eliminated
and all production be carried on by a few capable employers doing
business on a large scale and able to pay the highest wages. This is
not to say that even the most efficient employers could afford to pay
wages much in excess of those now prevailing.
From such a statement as this it is but a step to the position that
wages are determined chiefly by economic laws, and that the Arbi-
tration Court can cause, at most, very slight deviations from the
valuations of the market.
It is not easy to show that compulsory arbitration has greatly
benefited the workers of the Dominion. Sweating has been abol-
ished, but it is a question whether it would not have disappeared
m the years of prosperity without the help of the Arbitration Court.
Strikes have been prevented, but New Zealand never suffered much
from strikes, and it is possible that the workers might have gained
as much, or more, by dealing directly with their employers as by the
mediation of the court.
It is a common opinion in New Zealand that the increase in the
cost of hvmg has been due largely to the high wages and favorable
conditions of labor fixed by the Arbitration Court, but so wide-
spread a result cannot have been due chiefly to local causes
PROBLEMS OF ECONOMIC INSECURITY 605
Manufacturers complain that the awards have been so favorable
to the workers as to make it difficult to compete with British and
foreign manufacturers, and demand that either the arbitration system
be abolished or that they be given increased protection by increased
duties on imported goods. It is claimed that the growth of manu-
factures has not kept pace with the growth of population and the
importation of manufactures from abroad.
There is such agreement among manufacturers as to the effect
of compulsory arbitration in increasing the cost of production that
their statements cannot be lightly dismissed, especially as many un-
biased writers concur in the opinion.
Unquestionably, manufacturers, with the exception of the great
industries which wprk up raw materials for market, are not doing
any too well, but it is not likely that compulsory arbitration is the
chief cause of this. The high wages which manufacturers have to
pay are due chiefly to industrial conditions which always prevail
in a new, thinly populated country with great natural resources
awaiting development.
G. THE HAZARDS OF THE CHILD
275. The Hazard of Birth^^
BY CHARLES J. HASTINGS ' •
To produce a fitter race we must begin with the germ plasm from
which it is developed. Eugenists tell us that the moment conception
takes place the door of parental gifts is closed. Obviously, then, if
we are to develop a fit race there must not be a missing link. Where
nature ends nurture must begin. We have no say as regards the man
timber out of which our ancestors were made. But we have a say
and are responsible for the man timber out of which our descend-
ants will be fashioned.
Every child has a right to be well bom, born of parents who are
physically and mentally sound. It should develop from a germ plasm
which is free from any taint that might militate against it. If our
campaign against the unduly high infant death-rate is to be efficient
obviously it must begin just after conception has taken place. The
necessity for this is apparent when we realize that more than one-
third of the infants that die in the first year die during the first
month, and from 60 to 70 per cent of these die during the first week.
Consequently, if these lives are to be saved it must be by prenatal
care. Here the grim monster reaps his harvest, ofttimes by a dual
83Adapted from "Democracy and Public Health Administration," Ameri-
can Journal of Public Health, IX (1919). 174-75-
6o6 CURRENT ECONOMIC PROBLEMS
action, directed both against the mother and the child. If we would
save the baby, we must save and protect the baby's mother.
It is well known that the infant nursed at the mother's breast
has ten chances to one for life and efficient development that the
artificially fed child has. Consequently our prenatal care must em-
brace not only the efficient piloting of the mother through her preg-
nancy, and confinement but also care that we make it possible for her
to nurse her baby.
The fact that the infant depends entirely on the mother's blood
for nutrition makes it all the more imperative that the blood be kept
in the best possible condition, which can only be accomplished by the
efficient safeguarding of the mother's health. Where efficient pre-
natal care has been established, there has been a marked increase in
the number of mothers nursing their babies, and the infant mortality
during the first month has been reduced more than 50 per cent.
Obviously, then, prenatal care will not only secure a better and
more vigorous race of infants, to start life with, but it will also save
the lives of many mothers that are needlessly sacrificed at present.
276. The Hazard of the War^*
BY S. JOSEPHINE BAKER
During a war no part of the civilian population suffers so severely
as do the children. This suffering seems to be in inverse proportion
to their ages. In this country the increase in the rate of wages has
not kept pace with the increase in the price of food. In addition to
the conservation of food which we have been asked to practice, the
families of a large part of our population have been deprived of many
types of nourishing food. This has l^t its mark in the under-
nourished bodies of many of our children. General reports throughout
the country have shown that undernourishment in children has in-
creased rapidly during the last four years. Up to 1914 it had re-
mained practically stationary for some time. When we began to
ship food abroad and the prices began to increase in this country, it
was the children who were the first to feel the effects. In 1914 in
New York City 5 per cent of the children of school age were under-
nourished. In 1917, 21 per cent showed such definite signs of mal-
nutrition as to demand immediate attention. Wherever' the subject
has been given serious thought, whether in cities or rural communi-
ties, much the same Tconditions have been found to exist.
s*Adapted from "Reconstruction and the Child," AmeHcan Journal of
Public Health, IX (1919), 185 ff.
PROBLEMS OF ECONOMIC INSECURITY 607
We are only beginning to get reports regarding the women in
industry as far as it affects infant life. Even without exact statistics,
however, we must consider that many women have gone into in-
dustry before marriage, some have worked during the period of preg-
nancy, and some while their children were still infants. This enor-
mous change in the habits and status of women cannot fail to have
an effect upon child life. Left unregulated it may, indeed, be a
menace to our future welfare.
The increased cost of milk has had a definitely bad effect on the
health of the child of pre-school age. We all acknowledge that milk
is an essential food for the growing child and that nothing else can
take its place, yet it is rapidly becoming an almost unobtainable luxury
for the majority of our children past infancy. . It is not enough to
say that economic conditions cause this increase in price. Children
must have milk. Unless a satisfactory solution of this problem can
be reached soon, it is probable that we must seriously consider muni-
cipal control of the production and distribution of milk.
It would seem to be time to develop a broad program for con-
servation of child life in this country. It is realized that our people
must be educated and compulsory education has become a part of the
law of the land. So efficient has been the school system that in the
United States at the present time it is estimated that only 7 per cent
of the people are illiterate. No such program for the conservation of
health has ever been promulgated. But when we face the facts of
our excessive infant mortality, the high death-rate of children under
five years of age, the knowledge that 75 per cent of the children of
school age have physical defects which might be prevented or easily
removed, we may reasonably demand a program for the conservation
of children which is as universal as our program of public education.
Undernourishment is just as great a menace to the future of the
country as illiteracy.
The health and welfare of children are the factors which always
determine the vigor and stability of a race. Yet it has been tradi-
tional in this country that human life is our cheapest possession.
It has always been more difficult for us to part with our property
than with our lives. The small ratio of our national and local budgets
which have been appropriated to health work has been a disgrace.
The countries of Europe are dealing with questions of health as
a national problem. Their work in child welfare, therefore, is direct.
In England there is at least one public health visitor or nurse for
each five hundred children in the country. In France they are starting
a nation-wide system of child conservation.
6o8 CURRENT ECONOMIC PROBLEMS
Europe has lost its child population through decrease in the birth-
rate and in many of the countries through an increase in the death-
rate. The latter has been met in part by the extension of child wel-
fare work. In this country we have not yet had to face the tremend-
ous loss in our population through the falling birth-rate. The Reg-
istrar-General of England estimates that this reduction in the birth-
rate has amounted to the loss of 12,500,000 potential lives in Europe
since the war began. Possibly because we have not had this problem
to contend with, we have not yet awakened to our continued negli-
gence with regard to the waste of life at its beginning. The official
figures to date seem to show that the total number of men of our
armies who were killed in action or who died from wounds or disease
during the nineteen months we participated in the war was about
53,000. During the same period 475,000 children five years of age
died in this country. Yet we know that the greater proportion of this
number could have been saved. For every soldier who has lost his
life abroad nine children under five years of age have lost their
lives here.
35
277. The Hazard of the Coming of Industrialism
BY RUTH MC INTIRE
The story of factory conditions in Japan reads very much like the
descriptions of early industrial expansion on England, and for that
matter in the United States. In 191 1, Japan's first and only national
factory law was passed. Under its provisions children under twelve
are forbidden to work, and children under fifteen may not work later
than ten at night or before four in the morning, nor for more than ten
nights in succession, nor where poisonous gases are generated, nor
for more than twelve hours a day except when "necessary" truly a
mild measure. Yet the manufacturers begged for a period of five
years in which to adjust themselves to these sweeping reforms, and in
1916 when the law was due to take effect the capitalists again asked
for postponement.
The population of Japan is predominantly rural. Into its relatively
peaceful, sane life there has burst the industrial wakening, which has
received even greater impetus since the beginning of the war. Conse-
quently the factory workers of which the majority are women are in
great part recruited from the rural population. It is common for
girls to be contracted for by their parents at an early age. At twelve
or thirteen, on leaving the primary school, these small girls are sent
into the large cities, where they are barely able to earn a living,
si^Adapted from "East Is West," American Child, I (1919), 34-36.
PROBLEMS OF ECONOMIC INSECURITY 609
though they work from daybreak until six, or until nine or ten at
night, when the pressure is heavy. The cotton mills run two shifts of
twelve hours each. The dust, the heat, and the lack of- ventilation are
described as appalling. Added to these conditions the girls are
commonly housed in dormitories in the mill itself and their rent and
food must be paid to the mill owners. It is easy to understand why in
one factory in Osaka there was reported a daily accident toll of 50
out of 1,100 employees. Out of the 1,350 girls examined and weighed
the loss of weight of those employed on the night shift was about i^
pounds weekly. In no case did those girls regain what they had lost
while on the day shift.
. Of the 200,000 new girls entering the factories yearly it is esti-
mated that 13,000 return because of serious illness, chiefly tuber-
culosis, before the year is over. Statements agree in putting the aver-
age life of cotton mill operatives at from five to six years after enter-
ing the mills.
In spite of these conditions girls are glad to enter the factories
as a welcome change from domestic service. Children from poor
families, ten to fifteen years old, are engaged in the homes of the
middle and upper classes as baby-tenders — which reminds one of
the system prevailing in the poorer quarters of some of our larger
cities where children are hired out of school hours to tend babies
while the mother is at work. In the country children help in light
farming and in caring for the babies, very much as in all rural com-
munities, while the boys of fifteen and up help their parents in the
fields. Agriculture is so largely done by hand that every possible
worker must be used.
The silk industry is now turning from an essentially home in-
dustry, in which the worms were carefully reared and fed in small
crops, to a factory industry. It is evident that in Japan as here the
factories bring their own accompaniment of sweated home work.
For instance the manufacture of snap fasteners, which started in
Tokyo after the war began, is partly a home industry, in which women
and children are employed. In the factory the women operate the
presses, while children feed the fasteners into the power machines
and assemble the parts. The fasteners are commonly "carded" in
the homes of the laborers, who operate on a piecework system.
Education, until 1908, was compulsory only from six to ten years
of age. This period has now been extended to cover six years. Con-
sequently the educational period is calculated to terminate with the
age of entering industry.
6io CURRENT ECONOMIC PROBLEMS
.36
278. The Hazard of Industry^
BY JOHN CURTIS UNDERWOOD
We have forgotten how to sing: our laughter is a godless thing:
listless and loud and shrill and sly.
We have forgotten how to smile. Our lips, our voices too are vile.
We are all dead before we die.
Our mothers' mothers made us so : the father that we never know in
blindness and in wantonness
Caused us to come to question you. What is it that you others do,
that profit so by our distress?
Yet you and your children softly sleep. We and our mothers vigil
keep. You cheated us of all delight.
Ere our sick spirits came to birth : you made our fair and fruitful
earth a nest of pestilence and blight.
Your black machines are never still, and hard, relentless as your will,
they card us like the cotton waste.
And flesh and blood more cheap than they, they seize and eat and
shred away, to feed the fever of your haste.
For we are waste and shoddy here, we know no God, no faith but fear,
no happiness, no hope but sleep.
Half-imbecile and half-obscene we sit and tend each tense machine,
too sick to sigh, too tired to weep,
Until the tortured end of day, when fevered faces turn away, to see
the stars from blackness leap.
279. The Hazard of the Family Income"
For the great body of our workers the wage system is ill adapted
to the provision of opportunity for the next generation. Under it
the chances of the child to develop the strongest of the many latent
talents with which he is endowed, to enjoy development in mind and
body which will fit him for future usefulness, and to choose wisely
a place for himself in the industrial system is far smaller than it
should be. Even among people in moderate circumstances the
capacities of children are neither fully developed nor fully utilized.
Among native laborers the art of conserving the resources of child-
»«A poem entitled "Mill Children," in Processionals. Copyright by
Mitchell Kennerley, 1915.
8"An editorial (1916).
PROBLEMS OF ECONOMIC INSECURITY 6ii
hood is not adequately understood. Among the foreign-born igno-
rance and lack of means usually defeat the will which would make
adequate provision for the child's future.
Among the working classes parents usually know little of the
industrial system which is to require the services of their children.
They have no way of telling what are "blind-alley" occupations and
what opportunities lead to advancement. They cannot determine
what the influence of various juvenile occupations are in developing
the industrial resources of the child or in robbing him prematurely
of vigor of mind and body. They cannot pass intelligent judgment
upon the social institutions, such as schools, religious organizations,
dancing halls, and moving-picture shows, which claim the attention of
the child for recreation or culture. Even if they understood quite
well the whole system, industrial and social, it is not theirs to de-
termine the capacities of the child, or to formulate a program which
gives him the best preparation for the highest function in life to
which his capacities entitle him. The Old World habits of thought
and the simple agrarian standards of parents breaks down their
authority in making for the child important decisions at ages at which
the child is not old enough to decide for himself. So it is that
parental responsibility is impotent under modern industrial conditions
to make proper provision for the child's adult years.
But means as well as ability may keep the parent from properly
providing for his child. To give the advantages necessary to future
usefulness to the child imposes a double immediate cost on the parent.
It forces upon them expenses incidejjt to education of an individual
who might be self-supporting; it also imposes the loss of the wage
which the child could earn. Opportunities for children depend to
a considerable extent upon the realization by parents of the necessity
of making provision for their offspring, and upon their willingness
to make the necessary self-sacrifices. But they depend even more
upon the financial ability of the family to give children the necessary
leisure, an opportunity that is only available provided that the father
earns a sufficient amount or the mother engages in outside activities,
usually to the neglect of important domestic duties.
In this connection we must note that under the peculiar arrange-
ments of our social system, with the single exception of the meager
compulsory education requirement, the responsibility for the conser-
vation of the resources of children rests wholly upon the parents.
Under our social system the opportunity of children to obtain train-
ing in excess of this minimum depends upon the financial ability of
the parents. Thus a very slender thread is depended upon to con-
6i2 CURRENT ECONOMIC PROBLEMS
nect latent resources with the opportunities which await those re-
sources developed. If the father's income is not above the average,
if the mother, because of a large family, illness, or other cause, is
not able to assume part of the financial burden, opportunity is denied
to any but the exceptional child. That small opportunity, too, is
in danger of being swept away by any one of many of the chances
which may befall one in our industrial world. If unemployment be-
falls, whether because of the father's unreliable habits or the mere
exigencies of market conditions, the child's opportunity is usually
gone. If industrial accident befall him, if the processes of "speeding
up" cause him prematurely to lose his usefulness, if industrial old-
age creeps upon him, it is the child who suffers. Yes, and society
suffers, too, through a failure to profit by what the child might
offer. Surely the industrial opportunity for the child should be made
to rest upon a foundation at least as secure as that which mediaeval
agriculture or chattel slavery could offer,
280. The Hazard of the Courts^^
A bill was filed in the United States District Court for the Western
District of North Carolina by a father in his own behalf and as next
friend of his two minor sons, one under the age of fourteen years and
the other between the ages of fourteen and sixteen years, employes
in a cotton mill at Charlotte, North Carolina, to enjoin the enforce-
ment of the act of Congress intended to prohibit interstate commerce
in the products of child labor.
The District Court held the act unconstitutional and entered a
decree enjoining its enforcement. This appeal brings the case here.
The controlling question for decision is : Is it within the authority
of Congress in regulating commerce among the states to prohibit the
transportation in interstate commerce of manufactured goods, the
product of a factory in which, within thirty days previous to their
removal therefrom, children under the age of fourteen have been
employed or permitted to work, or children between the ages of four-
teen and sixteen years have been employed or permitted to work
more than eight hours in a day, or more than six days in any week,
or after the hour of seven o'clock p.m. or before the hour of six
o'clock A.M.
■''^Adapted from the opinion of the court in Hammar v. Dagenhart, 247
U. S. 251 (1918). By a vote of five to four the court held the first child-labor
act unconstitutional. Congress thereupon placed a prohibitive tax upon
products of child labor as a "rider" to the "Revenue Act" of February 24, 1919.
The constitutionality of this act has not yet been passed upon by the United
States Supreme Court.
PROBLEMS OF ECONOMIC INSECURITY 613
The power essential to the passage of this act, the government
contends, is found in the commerce clause of the Constitution which
authorizes Congress to regulate commerce with foreign nations and
among the states.
In each of these instances (referring to the cases cited by the
attorney for the United States) the use of interstate transportation
was necessary to the accomplishment of harmful results. This ele-
ment is wanting in the present case. The thing intended to be ac-
complished by this statute is the denial of the facilities of interstate
commerce to those manufacturers in the states who employ children
within the prohibited ages. The act in its effect does not regulate
transportation among the states, but aims to standardize the ages at
which children may be employed in mining and manufacturing within
the states. The goods shipped are of themselves harmless. The act
permits them to be freely shipped after thirty days from the time
of their removal from the factory. When offered for shipment, and
before transportation begins, the labor of their production is over,
and the mere fact that they were intended for interstate commerce
transportation does not make their production subject to federal con-
trol under the commerce power.
Commerce "consists of intercourse and traffic and includes the
transportation of persons and property." The making of goods and
the mining of coal are not commerce, nor does the fact that these
things are to be afterward shipped or used in interstate commerce
make their production a part thereof. Over interstate transportation,
or its incidents, the regulatory power of Congress is ample, but the
production of arti'^'es, intended for interstate commerce, is a mat-
ter of local regulation.
It is further contended that the authority of Congress may be
exerted to control interstate commerce in the shipment of child-made
goods because of the effect of the circulation of such goods in other
states where the evil of this class of labor has been recognized by local
legislation. There is no power vested in Congress to require the states
to exercise their police power so as to prevent possible unfair com-
petition. Many causes may co-operate to give one state, by reason of
local laws or conditions, an economic advantage over others. The
commerce clause was not intended to give Congress a general author-
ity to equalize such conditions.
In interpreting the Constitution it must never be forgotten that
the nation is made up of states to which are intrusted the powers of
local government. And to them and to the people the powers not
expressly delegated to the national government are reserved. The
power of the states to regulate their purely internal affairs by such
6i4 CURRENT ECONOMIC PROBLEMS
laws as seem wise to the local authority is inherent and has never
been- surrendered to the general government. To sustain this statute
would not be in our judgment a recognition of the lawful exertion of
the congressional authority over interstate commerce, but would sanc-
tion an invasion by the federal power of the control of a matter
purely local in its character, and over which no authority has been
delegated to Congress in conferring the power to regulate commerce
among the states.
We have neither authority nor disposition to question the motives
of Congress in enacting this legislation. The purposes intended must
be attained consistently with constitutional limitations and not by
an invasion of the powers of the states. This court has no more
important function than that which devolves upon it the obligation to
preserve inviolate the constitutional limitations upon the exercise of
authority, federal and state, to the end that each may continue to dis-
charge, harmoniously with the other, the duties intrusted to it by the
Constitution.
In our view the necessary effect of this act is, by means of a pro-
hibition against the movement in interstate commerce of ordinary
commercial commodities, to regulate the hours of labor of children in
factories and mines within the states, a purely state authority. Thus
the act in a twofold sense is repugnant to the Constitution. It not
only transcends the authority delegated to Congress over commerce
but also exerts a power as to a purely local matter to which the fed-
eral authority does not extend. The far-reaching result of upholding
the act cannot be more plainly indicated than by pointing out that if
Congress can thus regulate matters intrusted to local authority by
prohibition of the movement of commodities in interstate commerce,
all freedom of commerce will be at an end, and the powers of the
states over local matters may be eliminated, and thus our system of
government be practically destroyed.
XII
THE PROBLEMS OF UNIONISM AND THE
WAGE CONTRACT
You have doubtless heard the statement, "In America there is no class-
conscious proletariat; for the American laborer sees in himself a capitalist
in embryo." When our country possessed an open frontier, undeveloped nat-
ural resources, opportunities for the ready acquisition of property, and a rising
standard of living, a vigorous protest against conventional social arrangements
was not to be expected. But with the passing of the frontier, the restriction of
opportunity, and the increasing tendency toward social stratification, sentiments
are changing. As laborers are convinced in increasing numbers that they are
permanently of the "proletariat," they express themselves more vigorously
against a "system" that makes inequalities possible. This, however, hardly
threatens a "class conflict" in the immediate future; our class and group lines
run in too many directions and cut each other at too many angles for that.
The "social unrest" is much more closely associated with group than
with class interests. There are many groups of large capitalists and of skilled
laborers. There exist accordingly many types of "capitalism" and even more
of "unionism." Small capitalists and unskilled laborers alike are without con-
sciously developed group feelings and vehicles for the expression of these
feelings. It is those who are best off, those who appeal least to our sympathies,
whose strength lies in union. However, since these labor groups are every-
where in contact with much the same type of "capitalist groups," they have
much the same prejudices, sentiments, and theories. Fighting as they are, each
for self, they are creating a common body of labor theory, and their respective
interests are impelling them to a certain amount of common activity. The like
is true of the capitalists.
A study of the appraisals placed upon unionism by men whose relations
to it are very different, show fundamental differences as to the value of such
an institution. Perhaps nothing connected with "the labor movement" is
harder to understand — or more necessary to an appreciation of the problems
of trade unionism — than the theories and attitudes — the viewpoints if you
will — of capitalists and laborers. They are as conflicting and contradictory
to an outsider as they are obvious and axiomatic to those who hold them.
The capitalist, concerned with the "business" side of industry, easily acquires
an understanding of the importance of basic institutions. He accordingly
thinks in terms of legality, assumes the schemes of values surrounding him
to be absolute, surrounds "property." "contract," and their complements with
an air of sanctity, regards "the constitution" as supreme, and puts his full trust
in the integrity of the courts. In determining the relations of employer and
employees, he relies upon the efficacy of free competition and individual bar-
gaining, insists upon his right to prescribe the conditions of employment, and
believes quite firmly that identical legal rights guarantee equality of treatment
to the two parties.
The laborer, concerned with the technical side of the process, acquires
a common-sense philosophy of force; he believes in fatalism; he thinks that
the employer has a more strategic position in bargaining than he possesses ;
he is convinced that capital concentrated under corporate ownership can be
fought only by "united" labor. Unity in the labor group, accordingly, is the
one thing that is necessary to an improvement in conditions. To secure it he
thinks it necessary to insist uncompromisingly upon the "principle of uniform-
6is
6i6 CURRENT ECONOMIC PROBLEMS
ity"; upon a control of apprenticeship, of hiring and discharge, of technique,
of materials— in short of all that is necessary to secure in the larger sense the
absolutely necessary "closed shop" ; and particularly upon collective barganimg.
This attitude serves to make quite intelligible such peculiar phenomena as
restriction of output, taboos upon non-union materials, and the intense hatred
of "scabs." , .. r t.
Industrial conflict, which is the most spectacular side of the trade-union
movement, is to be explained very largely in terms of "collective bargaining."
The opposing parties make use of quite similar weapons : the strike, for
example, finds its counterpart in the lockout, and the boycott in the blacklist.
Each of these, curiously enough, resolves itself into the collective exercise of
a right which in the individual case is legally recognized. It is not surprising
that law, lacking an adequate social philosophy, and accustomed to discover
society by aggregating individuals, should have been put to some sore shifts
in dealing with these collective weapons. The use of these is usually a part of
a protracted campaign prosecuted for many years, using a varied strategy,
and employing many different instruments.
In the ten years preceding the war the strategic position of the employers
had been greatly strengthened, that of the laborers correspondingly weakened.
This is partly due to the greater staying power of capital. In part it is due to
the close correspondence between the interests of the employers and the natural
development of an individualistic social system. This is evident in the under-
mining of the powers of unionism by a long succession of court decisions. But
to a considerable extent it is due to the effectiveness of employers' associations.
Because of their smaller numbers, employers better than laborers can make
use of devices which lack full legal approval. The blacklist, for instance, can
be effectively used where its very publicity prohibits the use of the boycott.
Likewise, through "spies," employers can get advance information of the
strategy of an anticipated industrial conflict. It is beyond the power of unions
to get any such information. The association has, through careful study,
reduced strike-breaking almost to an exact science. The employers have lib-
erally used funds to "educate" the public to the evils of those practices of the
unions which are most inimical to them. Immigration, too, has stood them
in good stead.
Among its other acts of commission the war has checked this tendency.
It has even replaced weakness by strength to such an extent as to give unionism
a strategic position far in advance of the wildest dreams of a few years ago.
This has come primarily, of course, from the higher pecuniary and social value
set upon labor by the great demand for "man power" and the consequent
relative dearth. But it has been aided by an increase in knowledge of labor
aims and conditions and an improvement in conditions which the demand for
increased production has engendered. Arrested immigration, too, has made
its contribution to the result. As a consequence organized labor has greater
control over the conditions of the wage bargain than ever before.
As yet "unionism" in America is an exclusive organization. Its appeal has
been to the skilled. If its intent has been good, it has had little success in
appealing to the semi-skilled and the unskilled. Despite the great increase in
numbers which the war has brought to it, the unions which make up the
American Federation of Labor fall short of representing a majority of Ameri-
can workingmen. Outside of its ranks labor is attempting to acquire power by
the use of such subtle and harassing methods as "the intermittent strike" and
"sabotage." These devices of "revolutionary unionism" are making their way
into some very respectable unions. It need not be said that back of these
methods is an attitude which insists upon the supposed interests of a small
group even at the expense of society as a whole. A more significant innova-
tion is the attempt of labor to "go into politics." This has been most evident
in the^crisis which led to the passage of the Adamson Act. Attempts at a "labor
party" are and for some time will doubtless continue to be sporadic.
Our study of its most conspicuous features must not allow us to overlook
the importance of unionism as an agency of control. The information, theories,
PROBLEMS OF UNIONISM AND WAGE CONTRACT 617
and prejudices which the laborers acquire from their unions influence pro-
foundly their thought and action upon non-industrial as well as upon industrial
matters. The unions can eliminate from the lives of their members much of
economic insecurity, can do much to establish better working conditions, and
can set models for the state to use in improving the conditions of unorganized
labor. It is more than possible that eventually they can, through the trade
agreement, create permanent positions and equities in property for labor, and
that these will, under the guise of having been established under free contract,
be recognized by law. Our gravest concern is lest, in seeking the interests of
the group, the interests of society be completely lost sight of.
A. GROUP AND CLASS CONSCIOUSNESS
VZ81. Bourgeoisie and Proletariat^
BY WERNER SOMBART
Capitalism is based on the private ownership of all commodities,
and therefore also of those which are required for production — raw
material, machinery, factories, land. Historic development has
brought it about that production in these days is on a large scale;
that is to say, it is carried on by the combination of many laborers
under uniform direction. Thus, a thousand men are united to work
a mine or a machine factory, and hundreds to spin or weave in some
big establishment. But the same development has also brought it
about that those who work together in this way have not the same
rights with regard to the means of production. Some own these
means of production, and therefore become the directing factors in
the work of production, and also owners of the commoditieg pro-
duced. The others, who form the great mass of the workers, are
shut out of possession of the means of production. Hence it fol-
lows that, in order to live, they are forced to put their labor power
at the disposal of those who do possess the means of production, in
return for a money payment. This comes about by way of a wage
contract, wherein the laborer, who possesses naught but his labor,
agrees with the owner of the means of production, who is on that
account the director of production, to undertake to render a certain
amount of work in return for a certain amount of pay.
When we remember that all production depends on the combina-
tion of labor and the material means of production, then the capitalist
system of production differs in the first instance from other systems
in that the two factors of production are represented by two separate
groups, which must meet and combine if a useful product is to ensue.
In this the capitalist system differs, from, let us say, the craft organiza-
tion of industry, where the laborers were at the same time the owners
^Adapted from Socialism and the Social Movement, pp. 3-8. Published by
E. P. Dutton & Co., 1908.
6i8 CURRENT ECONOMIC PROBLEMS
of the means of production. But it differs likewise from slavery in
that in the capitalist system the combination of the two groups comes
about by free contract in what is known as the wages contract.
The capitalist organization of society is characterized by the race
for profit and by a peculiar form of mental activity in individuals
which I call "economic rationalism." All economic activities are at
bottom directed toward the increase of the money which is put into
production, or, in technical language, towards the profitable invest-
ment of capital. To this end, all the thoughts of the capitalists or
owners of the means of production, or of agents paid by them, are
occupied day and night in an almost feverish restlessness in order to
bring about the most practical and rational shaping of economic and
technical processes.
The social class which stands for the interests of the capitalist
system is the bourgeoisie, or middle class. It is made up, in the first
place, of capitalist undertakers, and in the second, of a large number
of people whose interests are similar to those of the capitalist under-
takers. I am thinking of the following elements : (i) All those who
are economically independent (or who would like to be so), and are
intent on profit-making, and who, moreover, desire a free legal system
favorable to profit-making. That would include many shopkeepers,
property-owners, agents, stock-jobbers, and so on, and also the more
modern of peasant proprietors. (2) All those who are not eco-
nomically independent, but are associated with the capitalist under-
taker in his activities, mostly- as his representatives, and who, as a
rule, participate in his economic success. That would include paid
directors of companies, managers, foremen in large businesses, and
people like them.
The class at the opposite pole to this — the one cannot be thought
of without the other — I have called the proletariat. In order to get
a true conception of this class, we must free ourselves from the picture
of a ragged crowd which the term brought to mind before we read
Karl Marx. The term "proletariat" is now used in a technical sense
to describe that portion of the population which is in the service of
capitalist undertakers in return for wages, and elements akin to them.
The free wage-earners form the bulk of this class — all such per-
sons as are employed in capitalist undertakings, leaving out, of
course, those mentioned above as belonging to the bourgeoisie because
their interests are bound up with the capitalist system.
I have already pointed out that in order to get a true conception
of the proletariat we must give up the idea of a ragged crowd. In-
deed, the life of the proletarian is not always intolerable. Absolute
distress is in no way a special characteristic of the class, though, to be
PROBLEMS OF UNIONISM AND WAGE CONTRACT 619
sure, there are within it innumerable instances of want. But few
proletarians are as badly off as the Russian peasant, or the Chinese
coolie, or the Irish tenant, none of whom belong to the proletariat.
Many a wage-earner, even in Europe, earns more than a university
teacher, and in America the average income of this class falls not
much below the maximum salary of an extraordinary professor in
Prussia.
/ 282. The Historical Basis of Trade-Unionism-
BY SIDNEY AND BEATRICE WEBB
The trade-union arose, not from any particular institution, but
from every opportunity for the meeting together of wage-earners
of the same trade. Adam Smith remarked that "people of the same
trade seldom meet together, even for merriment and diversion, but
the conversation ends in a conspiracy against the public, or in some
contrivance to raise prices." And there is actual evidence of the rise
of one of the oldest trade-unions out of a gathering of the journey-
men "to take a social pint of porter together." More often it is a
tumultuous strike out of which grows a permanent organization.
Instances are on record in which a number of laborers who have
become accustomed to visit public houses have become the nucleus of
organization. More than once the journeymen in a particular trade
declared that, "It has been an ancient custom in the kingdom of Great
Britain for divers Artists to meet together and unite themselves into
societies to promote Amity and true Christian Charity," and estab-
lish a sick and funeral club, which invariably has proceeded to dis-
cuss the rate of wages, and insensibly has passed into a trade union
with friendly benefits. If the trade is one in which the members
travel the result has been a national trade-union.
But this does not explain why the continuous organizations of
wageworkers came as late as the eighteenth century? The essential
cause of this was the revolution in industry which came at this time.
When such unions arose, the great mass of the workers had ceased to
be independent producers, and had passed into the condition of life-
long wage-earners. Such unions came after "the definite separation
between the functions of the capitalist and the workman, or between
the direction of industrial operations and their execution in detail."
It is often assumed that the divorce of the manual worker from
the ownership of his tools resulted from the introduction of ma-
chinery and the factory system. Were this true, we should not find
2Adapted from The History of Trade Unionism, pp. 21-37. Copyright by
Longmans, Green & Co., 1894.
620 CURRENT ECONOMIC PROBLEMS
trade-unions earlier than factories. Yet such combinations in Eng-
land preceded the factory system by half a century, and occurred in
trades carried on exclusively by hand labor. Some crafts lent them-
selves to an advantageous division of labor. Among these there is
particularly to be mentioned that of tailoring. Because of the special
skill required for tailoring for rich customers, the most proficient
tailors were separated from the rest of the journeymen, and became
practically a separate social class. This differentiation was pro-
moted by the increasing need of capital for successfully beginning
business in the better quarters of the metropolis. By 1700 we find
the typical journeyman tailor in London a lifelong wageworker. It
is not surprising, therefore, that one of the earliest instances of perma-
nent trade-unionism occurred in that trade. Another instance is that
of the woolen workers in the West of England. Again, it is not
peculiar that in the year 1790 the Sheffield employers found them-
selves obliged to take concerted action against the "scissors-grinders
and other workmen who have entered into unlawful combination to
raise the price of labor." But the cardinal examples of the connection
of trade-unionism with the divorce of the worker from the instru-
ments of production is seen in the rapid rise of trade combinations on
the introduction of the factory system.
It is easy to understand how the massing together in factories
of regiments of men, all engaged in the same trade, facilitated and
promoted the formation of workmen's societies. But the rise of
permanent trade combinations is to be ascribed to the definite separa-
tion between the functions of the capitalist entrepreneur and the
manual worker. It has become a commonplace of trade-unionism
that only in those industries in which the worker has ceased to be
concerned in the profits of buying and selling can eflfective and
stable trade organizations be maintained.
V 283. The Organization of the Ill-paid Classes^*
BY CHARLES H. COO LEY
It is quite apparent that an organized and intelligent class-con-
sciousness in the hand-working people is one of the primary needs
of a democratic society. In so far as this part of the people is lacking
in a knowledge of its situation and in the practice of orderly self-
assertion, a real freedom will also be lacking, and we shall have some
kind of subjection in its place; freedom being impossible without
^Adapted from Social Organization, pp. 284-89. Copyright by Charles
Scribner's Sons, 1909.
PROBLEMS OF UNIONISM AND WAGE CONTRACT 621
group organization. That industrial classes exist cannot be well
denied, and existing they ought to be conscious and self-directing.
The most obvious need of class-consciousness is for self-assertion
against the pressure of other classes, and this is both most necessary
and most difficult with those who lack wealth and the command over
organized forces which it implies. In a free society, especially, the
Lord helps those who help themselves ; and those who are weak in
money must be strong in union, and must also exert themselves to
make good any deficiency in leadership that comes from ability desert-
ing to more favored classes.
That the dominant power of wealth has an oppressive action, for
the most part involuntary, upon the people below, will hardly be
denied by any competent student. The industrial progress of our
time is accompanied by sufferings that are involved with the progress.
These sufferings fall mostly upon the poorer classes, while the rich
get a larger share of the increased product which the progress brings.
Labor unions have arisen out of the urgent need of self-defense,
not so much against deliberate aggression as against brutal con-
fusion and neglect. The industrial population has been tossed about
on the swirl of economic change like so much sawdust on a river,
sometimes prosperous, sometimes miserable, never secure, and living
largely under degrading, inhuman conditions. Against this state of
things the higher class of artisans have made a partly successful
struggle through co-operation in associations, which, however, include
much less than half of those who might be expected to take advantage
of them. That they are an effective means of class self-assertion is
evident from the antagonism they have aroused.
Besides their primary function of group-bargaining, unions are
performing a variety of services hardly less important to their mem-
bers and to society. In the way of influencing legislation they have
probably done more than all other agencies together to combat child-
labor, excessive hours, and other inhuman and degrading kinds of
work, also to provide for safeguards against accident, for proper
sanitation, for factories and the like. In this field their work is as
much defensive as aggressive, since employing interests, on the other
side, are constantly influencing legislation and administration to their
own advantage.
Their functions as spheres of fellowship and self -development is
equally vital and less understood. To have a we-feeling, to live
shoulder to shoulder with one's fellows, is the only human life; we
all need it to keep us from selfishness, sensuality, and despair, and the
hand-worker needs it even more than the rest of us. Usually with-
out pecuniary resources and insecure of his job and his home, he is,
62 2 CURRENT ECONOMIC PROBLEMS
in isolation, miserably weak and in a way to be cowed. The union
makes him a part of a whole, one of a fellowship. Moreover, the life
of labor unions and other class associations, through the training
which it gives in democratic organizations and discipline, is perhaps
the chief guarantee of the healthy political development of the hand-
working class. That their members get this training will be evident
to anyone who studies their working, and it is not apparent that they
would get it in any other way.
In general no sort of persons mean better than hand-laboring
men. They are simple, honest people, as a rule, with that bent toward
integrity which is fostered by working in wood and iron and often
lost in the subtleties of business. Moreover, their experience is such
as to develop a sense of the brotherhood of man and a desire to realize
it in institutions. Not having enjoyed the artificial support of ac-
cumulated property, they have the more reason to know the de-
pendence of each on his fellows. Occasionally outbreaks of violence
alarm us and call for prompt enforcement of law, but are not a
serious menace to society, because general sentiment and all estab-
lished interests are against them ; while the subtle, respectable, sys-
tematic corruption by the rich and powerful threatens the very being
of democracy.
The most deplorable fact about labor unions is that they embrace
so small a proportion of those who need their benefits. How far
into the shifting masses of unskilled labor effective organization can
extend only time will show.
Y 284. Types of Unionism*
BY ROBERT F. HOXIE
A penetrating study of the union situation past and present seems
to warrant the recognition of functional types quite distinct in their
general characteristics. It is true that these functional types do not
in practice represent exactly and exclusively the ideals and activities
of any particular union organization or group. That is to say, no
union organization functions strictly and consistently according to
type. Yet as representing fairly distinct alternative programs of
union action and as guides to the essential character and significance
of the diverse organizations and groups included in the heterogeneous
union complex, these functional types apparently do exist and are
of the most vital concern to the student of unionism. There are
seemingly four of these distinct types, two of which present dual
variations.
^Adapted from "Trade-Unionism in the United States: General Char-
acter and Types," Journal of Political Economy, XXII (1914), 211-16.
PROBLEMS OF UNIONISM AND WAGE CONTRACT 623
The first and perhaps most clearly recognizable functicmal type ^^ \
may be termed business unionism. Business unionism appears most . ''^
characteristically in the programs of local and national craft and *^'" ,,
compound craft organizations. It is essentially trade-conscious rather
than class-conscious. That is to say, it expresses the viewpoint and-"' '
interests of the workers in a craft or industry rather than those of
the working class as a whole. It aims chiefly at more here and now
for the organized workers of the craft or industry, in terms mainly of
higher wages, shorter hours, and better working conditions, regard-
less for the most part of the welfare of the workers outside the par-
ticular organic group, and regardless in general of political and social
considerations except in so far as these bear directly upon its own
economic ends. It is conservative in the sense that it professes belief
in natural rights and accepts as inevitable, if not as just, the existing
capitalistic organization and the wage system as well as existing prop-
erty rights and the binding force of contract. It regards unionism
mainly as a bargaining institution and seeks its ends chiefly through
collective bargaining supported by such methods as experience from
time to time indicates to be effective in sustaining and increasing its
bargaining power. Thus it is likely to be exclusive, that is, to limit its
membership by means of the apprenticeship system and high initiation
fees and dues, to the more skilled workers in the craft or industry or
even to a portion of these. In method, business unionism is pre-
vailingly temperate and economic. It favors voluntary arbitration,
deprecates strikes, and avoids political action, but it will refuse arbi-
tration and resort to strikes and politics when such action seems best
calculated to support its bargaining efforts and increase its bargain-
ing power. This type of unionism is perhaps best represented in the
programs of the railway brotherhoods. ^
The second union functional type seems best designated by the
terms friendly or uplift unionism. Uplift unionism, as its name indi-V--''
cates, is characteristically idealistic in its viewpoint. It may be trade-
conscious or broadly class-conscious, and at times even claims to think
and act in the interest of society as a whole. Essentially it is con-
servative and law-abiding. It aspires chiefly to elevate the moral,
intellectual, and social life of the worker, to improve the conditions
under which he works, to raise his material standards of living, give
him a sense of personal worth and dignity, secure for him the leisure
for culture, and insure him and his family against the loss of a decent
livelihood by reason of unemployment, accident, disease, or old age.
In method, this type of unionism employs collective bargaining but
stresses mutual insurance, and drifts easily into political action and
the advocacy of co-operative enterprises, profit-sharing, and other
n ■
624 CURRENT ECONOMIC PROBLEMS
idealistic plans for social regeneration. The nearest approach in
practice to uplift unionism is perhaps to be found in the program of
the Knights of Labor.
As a third distinct functional type, we have what most appropri-
.K ately may be called revolutionary unionism. Revolutionary union-
i^ ism, as the term implies, is extremely radical both in viewpoint and
in action. It is distinctly class-conscious rather than trade-conscious.
That is to say, it asserts the complete harmony of interests of all
^ wage workers as against the representatives of the employing class
N, i .and seeks to unite the former, skilled and unskilled together, into one
I ^ ' homogeneous fighting organization. It repudiates, or tends to re-
* pudiate, the existing institutional order and especially individual
ownership of productive means, and the wage system. It looks upon
the prevailing codes of right and rights, moral and legal, as in general
fabrications of the employing class designed to secure the subjection
and to further the exploitation of the workers. In government it
aspires to be democratic, striving to make literal application of the
phrase vox popiili, vox Dei.
Of this revolutionary type of unionism there are apparently two
distinct varieties. The first finds its ultimate ideal in the socialistic
state and its ultimate means in invoking class politcal action. For
the present it does not entirely repudiate collective bargaining or the
binding force of contract, but it regards these as temporary expedients.
It would not now amalgamate unionist and socialist organizations,
but would have them practically identical in membership and entirely
harmonious in action. In short, it looks upon unionism and socialism
as the two wings of the working-class movement. The second variety
repudiates altogether socialism, political action, collective bargaining,
and contract. SociaHsm is to it but another form of oppression,
political action a practical delusion, collective bargaining and contract
schemes of the oppressor for preventing the united and immediate
action of the workers. It looks forward to a society based upon free
industrial association, and finds its legitimate means in agitation
rather than in methods which look to immediate betterment. Direct
action and sabotage are its ' accredited weapons, and violence its
habitual resort. These varieties of the revolutionary type may be
termed respectively socialistic and quasi-anarchistic unionism. The
former is perhaps most nearly represented in the United States by
^ 5^ the Western Federation of Miners, the latter by the Industrial Work-
r* ers of the World.
f Finally in the union complex it seems possible to distinguish a
mode of action sufficiently definite in its character and genesis to
warrant the designation predatory unionism. This type, if it be
PROBLEMS OF UNIONISM AND WAGE CONTRACT 625
truly such, cannot be set apart on the basis of any ultimate social
ideals or theory. It may be essentially conservative or radical, trade-
conscious or class-conscious. It appears to aim solely at immediate
ends, and its methods are wholly pragmatic. In short, its distin-
guishing characteristic is the ruthless pursuit of the thing in hand
by whatever means seem most appropriate at the time regardless
of ethical and legal codes or the effect upon those outside its own
membership. It may employ business, friendly, or revolutionary
methods. Generally its operations are secret and apparently it .sticks
at nothing.
Of this assumed union type also there appears to be two varieties.
The first may be termed hold-up unionism. This variety is usually
to be found in large industrial centers masquerading as business
unionism. In outward appearance it is conservative ; it professes a
belief in harmony of interests between employer and employee; it
claims to respect the force of contract ; it operates openly through col-
lective bargaining, and professes regard for law and order. In reality
it has no abiding principles and no real concern for the rights or wel-
fare of outsiders. Prevailingly it is exclusive and monopolistic. Gen-
erally it is boss-ridden and corrupt, the membership for the most part
being content to foHow blindly the instructions of the leaders so long
as they "deliver the goods." Frequently it enters with the employers
of the group into a double-sided monopoly intended to eliminate both
capitalistic and labor competition and to squeeze the consuming pub-
lic. With the favored employers it bargains not only for the sale of
its labor but for the destruction of the business of rival employers
and the exclusion of rival workmen from the craft or industry. On
the whole its methods are a mixture of open bargaining coupled with
secret bribery and violence. This variety of unionism has been
exemplified most frequently among the building trades organizations
under the leadership of men like the late notorious "Skinny" Madden.
The second variety of predatory labor organization may be called,
for want of a better name, guerilla unionism. This variety resembles
the first in the absence of fixed principles and in the ruthless pursuit
of immediate ends by means of secret and violent methods. It is to be
distinguished from hold-up unionism, however, by the fact that it
operates always directly against its employers, never in combination
with them, and that it cannot be bought off. It is secret, violent, and
ruthless, seemingly because it despairs of attaining what it considers
to be legitimate ends by business, uplift, or revolutionary methods.
This union variant has been illustrated recently in the campaign of
destruction carried on by the Bridge and Structural Iron Workers.
626 CURRENT ECONOMIC PROBLEMS
285. The Extent of Trade-Unionism^
BY LEO WOLMAN
The problem of determining the extent of trade-unionism in a
country can be attacked first by registering the absohite membership
of labor organizations and then by calculating the ratio of the mem-
bership to the industrial population of the country. Because of the
present disorganization in the collection of this form of labor sta-
tistics in the United States, the first step necessitates laborious com-
pilation from a large number of scattered sources. The material
in the Census of Occupations of 19 lo makes a rough estimate of the
size of the working class feasible.
The total membership ^f trade-unions in the United States in
1910 was 2,1 16,317 ; in the same year the total number of persons gain-
fully employed in industry was 38,134,712. The members of trade-
unions, therefore, constituted in the last census year 5.5 per cent
of the industrial population of the United States. This percentage,
however, appreciably underestimates the strength of the trade-union
movement because of the inclusion in the aggregate of persons gain-
fully engaged in industry of members of the employing and salaried
classes. These groups numbered 10,939,808. Accordingly the wage-
earning group in 19K can be said to have numbered 27,194,904 per-
sons ; and of this numbi r y.y per cent were members of labor organi-
zations.
Adherents of the labor movement would maintain that this last
index, including as it does agricultural laborers, domestic servants,
and clerks, was still not fairly indicative of the strength of trade-
unionism. They would use as a basis for the calculation of the per-
centage of organization that group of wage-earners which the modern
trade-union makes definite and sustained efiforts to organize. Fur-
thermore practically every trade-union has established a wage limit
below which it will not admit workmen. The average lower-age
limit may be roughly stated at twenty years. When all persons en-
gaged in industry as agricultural laborers, in domestic and personal
service, in clerical occupations, and all persons below the age of
twenty be combined and the total for this group be subtracted from
the larger total a resulting group of 11,490,944 persons, who may be
characterized as constituting a potential trade-union membership, is
obtained. With this as a basis the degree of organization is found
to be 18.4 per cent. Accordingly, the most conservative survey of the
situation would indicate that in the United States in 1910, 92.3 per
cent of the wage-earners were unorganized ; whereas the more liberal
^Adapted from an article with the foregoing caption in the Annals of the
American Academy of Political and Social Science, LXIX, 118-26. Copyright,
1917.
PROBLEMS OF UNIONISM AND WAGE CONTRACT 627
estimate would show that 81.6 per cent of those persons who are sus-
ceptible of organization were without the trade-union.
The foregoing statement must be qualified in one important re-
spect. A large factor in the relative extent of trade-unionism is the
territorial distribution of the working force of the nation. The in-
fluence upon the growth of labor organizations of the urbanization
and concentration of industry is well known. It is the prevalence of
thinly settled communities and work in small estabHshments which
explains the surprisingly low percentage of organization. If, there-
fore, it were possible to calculate the extent of organization among
workers living in cities of 10,000 and over, the available data on the
subject lead one to believe that the percentage would be much higher
than for the country as a whole.
Trade-unionism has in this country made little progress in organ-
izing woman labor. The temporary character of the labor of women,
their youth, and the fact that in the great majority of instances their
wages are designed to supplement the family income have all consti-
tuted serious obstacles to their organization. Accordingly, of the
8,075,000 women "gainfully employed" in the United States in 19 10,
73,800 or only 0.9 per cent were members of labor organizations. If
deductions, similar to those made above, are made of the women
engaged in employing and salaried positions, in agriculture, in do-
mestic and personal service, in professional service, and as clerical
workers, a residuum of 1,819,741 women, having an organization of
only 4.1 per cent, is obtained. It is probable that since 1910 the pro-
portion of organized female labor has increased rapidly.
A summary of the situation in 19 10 would indicate that the small
percentage of organizations is due primarily to four factors: (i)
The great bulk of the unorganized workers live in small towns and
rural districts where their inaccessibility and dispersion make organi-
zation both difficult and, if not undesirable, at least not pressing. (2)
Of almost equal importance as a problem of organization is the
unskilled worker. By reason of the large supply of unskilled labor
and the ease with which it m.ay be replaced, organization of the
unskilled has, up to the present at least, made little progress. (3) A
somewhat greater success in organizing the unskilled laborers seems
to have been attained by the use of the industrial form of organiza-
tion than by the trade-union. It should be noted, however, that,
although the majority of American unions are nominally occupational
organizations, many are rapidly assuming the character of industrial
unions. (4) Finally, the concentration of ownership combined with
a hostility to labor organizations has constituted in most cases an
insurmountable barrier to the labor organizer.
628 CURRENT ECONOMIC PROBLEMS
' B. VIEWPOINTS AND UNIONISM
286. The Viewpoint of the Trade-Unionists^
BY ROBERT F. HOXIE
Among the main charges brought against the unionist by the
employer are these : first, that he refuses to recognize the generally
conceded rights of the employing class ; secondly, that he does not
recognize the sacredness of contract ; thirdly, that while he is strug-
gling to obtain higher wages and shorter hours of work, he per-
sistently attempts to reduce the efficiency of labor and the extent
of the output. Assuming these charges to be substantially correct,
let us in the case of each seek without prejudice to discover the
real grounds of the laborer's attitude and action.
I. The "rights" which the employer claims, and which the
unionist is supposed to deny, may perhaps be summarily expressed
in the phrase, "the right of the employer to manage his own busi-
ness." To the employer it is a common-sense proposition that his
business is his own. To him this is not a subject of argument. It
is a plain matter of fact and carries with it the obvious rights of
management unhampered by the authority of outside individuals.
But to the laborer it is different.
The laborer, like all the rest of us, is the product of heredity
and environment. That is to say, he is not rational in the sense
that his response to any given mental stimulus is invariable. On
the contrary, like the rest of us, he is a bundle of notions, preju-
dices, beliefs, unconscious preconceptions and postulates, the pro-
duct of his peculiar heredity and environment. These unconscious
and subconscious psychic elements necessarily mix with and color
his immediate activity. What is or has been outside his ancestral
and personal environment must be either altogether incomprehen-
sible to him, or else must be conceived as quite like or analogous
to that which has already been mentally assimilated. He cannot
comprehend what he has not experienced.
Now, it is well known that the environment of the laborer
under the modern capitalistic system has tended to become predom-
inantly one of physical force. He has been practically cut off from
all knowledge of market and managerial activities. The ideals, mo-
tives, and cares of property-ownership are becoming foreign to
him. More and more, in his world, spiritual forces are giving way
to the apparent government and sanction of blind physical causa-
tion. In the factory and the mine spiritual, ethical, customary,
"Adapted from "The Trade-Union Point of View," Journal of Political
Economy, XV (1907), 345-56.
PROBLEMS OF UNIONISM AND WAGE CONTRACT 629
and legal forces and authorities are altogether in the background.
Everything to the worker, even his own activity, is the outcome
of physical force, apparently undirected and unchecked by the
spiritual element. The blast shatters the rock, and whatever of
flesh and blood is in range is also torn in pieces. The presence
and the majesty of the law and contract are altogether ineffective
in the face of physical forces let loose by the explosion. In like
manner the knife cuts, the weight crushes, the wheel mangles the
man and the material with equal inevitableness. No sanction, re-
ligious, moral, customary, or legal, is there. Even outside the strictly
mechanical occupations the machine and the machine process are
coming to dominate the worker, and the growth in size of the indus-
trial unit renders his economic relationships ever more impersonal
— withdraws farther from his knowledge the directing and con-
trolling spiritual forces. The laborer thus environed inevitably
tends to look upon physical force as the only efficient cause and the
only legitimizing sanction. He tends to become mentally blind to
spiritual, legal, contractual, and customary forces and their effects.
To the laborer, as the product of this environment, the pro-
prietary and managerial claims of the employer tend to become, of
necessity, simply incomprehensible. The only kind of production
which he can recognize is the material outcome of physical force —
the physical good. Value unattached to and incommensurable with
the physical product or means of production is to him merely an in-
vention of the employing class to cover up unjust appropriation.
He knows and can know nothing about the capitalized value of
managerial ability or market connections. To him, then, the im-
portant point is : By what physical force are these things made
what they are? It is a matter of simple observation that the em-
ployer exerts no direct or appreciable physical force in connection
with the productive process. Therefore, in the eyes of the laborer,
he simply cannot have any natural rights of proprietorship and
management based on productive activity.
In the same way all other grounds on which ownership and the
managerial rights of the employer are based have become incon-
clusive to the laborer. Appropriation, gift, inheritance, saving, con-
tract, in themselves do not produce any physical effect on the only
goods which he can recognize. Therefore they cannot be used to
prove property in any just or natural sense. They hold in practice
simply because back of them is the physical force of the police
and army established and maintained by the middle class to protect
its proprietary usurpations. Thus the whole claim of the em-
ployer to the right to manage his own business to suit himself
630 CURRENT ECONOMIC PROBLEMS
has become and is becoming in a way incomprehensible to the laborer
on grounds of natural equity. At the same time, by virtue of habit
and the sanction of physical force as a productive agent, he sees him-
self ever more clearly the rightful proprietor of his job and of the
products of it. All this is the natural and inevitable outcome of the
conditions under which he lives and toils.
2. The unionist laborer does not recognize the sacredness of
contract. This is, if anything, a more serious charge than the pre-
ceding one.
As a matter of fact, the laborer is so circumstanced that obli-
gations of contract with the employer must appear secondary in im-
portance to his obligations to fellow-workers. This is not difficult
to show. Ever since the establishment of the money-wage system,
the everyday experience of the laborer has been teaching him the
supreme importance of mutuality in his relations with his immediate
fellow-workers. The money payment, related not to the physical
result of his efforts, but to its economic importance, has been blot-
ting out for him any direct connection between effort and reward.
Experience has taught him to look upon his labor as one thing in
its effects and another thing in its reward. As a thing to be re-
warded he has learned to consider it a commodity in the market.
As such he knows that it is paid for at competitive rates. He has
learned that, if he undercuts his fellow, prompt retaliation follows,
to the detriment of both, and he has learned that combination with
his fellow results in better immediate conditions for both.
The worker does not, of course, look far beyond the immediate
results. In severing the obvious connection between his task and
the complete product, in removing from him all knowledge of the
general conduct and condition of the business, in paying to him
a fixed wage regardless of the outcome of the particular venture,
and in paying him a wage never much in excess of his habitual
standard of living, the factory and wage system have accustomed
him to a hand-to-mouth existence, have barred him from all the
training effects of property-ownership, and have atrophied his
faculties of responsibility and foresight. Moreover, it is not to be
expected that today's empty stomach will be comforted by tomor-
row's hypothetical bread, least of all by bread which is likely to
comfort the stomach of another. Is it any wonder, then, that the
laborer does not and that he cannot follow the economist in his
complicated arguments to prove that, in the long run and on the
whole, the keenest competition among laborers brings the highest
rewards ?
PROBLEMS OF UNIONISM AND WAGE CONTRACT 631
Proneness to breach of contract, therefore, is seen to be a na-
tural and evitable outcome of his Hfe and working conditions.
3. The third charge against the unionist which we have under-
taken to examine states that while he is struggling for increase
of wages he is at the same time attempting to reduce the efficiency of
labor and the amount of the output. In other words, while he is call-
ing upon the employer for more of the means of life he is doing much
to block the efforts of the employer to increase those means.
There is no doubt that this charge is to a great extent true. In
reasoning upon this matter the employer, viewing competitive so-
ciety as a whole, assumes that actual or prospective increase in the
goods' output means the bidding-up of wages by employers anxious
to invest profitably increasing social income. It follows that in com-
petitive society laborers as a whole stand to gain with improvements
in industrial effort and process. In the case of the individual com-
petitive establishment it is clear that the maximum income is ordin-
arily to be sought in the highest possible efficiency, resulting in in-
creased industrial output. At least this is true where there are numer-
ous establishments of fairly equal capacity producing competitively
from the same market. Under such circumstances the increased
output of any one establishment due to "speeding up" will ordinarily
have but a slight, if any, appreciable effect on price. Each individual
entrepreneur, therefore, is justified in assuming a fixed price for his
product and in reckoning on increase of income from increase of
efficiency and industrial product. Apparently it rarely occurs to the
employer that this analysis is not complete. Having assumed that
definite laws determine the manner in which income is shared among
the productive factors, he apparently concludes, somewhat naively,
that just as the laborers in society will in the aggregate profit by
increase in the social income, so also will the laborers in any individual
establishment profit by increase in its income.
To this mode of reasoning, and to the conclusions reached
through it, the unionist takes very decided exceptions. To the
statement that labor as a whole stands to gain through any increase
in the social dividend he returns the obvious answer that labor as a
whole is a mere academic conception ; that labor as a whole may
gain while the individual laborer starves. His concern is with his
own wage-rate and that of his immediate fellow-workers. He has
learned the lesson of co-operation within his trade, but he is not
yet class-conscious. In answer to the argument based on the in-
dividual competitive establishment he asserts that the conditions
which determine the income of the establishment are not the same
as those which govern the wage-rate. Consequently, increase in the
632 CURRENT ECONOMIC PROBLEMS
income of the establishment is no guarantee of increase of the wage-
rate of the worker in it. Conversely, increase in the wage-rate may
occur without increase in the income of the establishment. Indeed, in
consequence of this non-identity of the conditions governing estab-
lishment income and wage-rate, increase in the gross income of the
establishment is often accompanied by decrease in the wage-rate, and
the wage-rate is often increased by means which positively decrease
the gross income of the establishment.
The laborer's statements in this instance are without doubt well
founded. The clue to the whole situation is, of course, found in the
fact that the wage-rate of any class of laborers is not determined by
the conditions which exist in the particular establishment in which
they work, but by the conditions which prevail in their trade or "non-
competing group." With this commonplace economic argument in
mind, the reasonableness of the unionist's opposition to speeding up,
and of his persistent efforts to hamper production, at once appears.
287. Articles of Faith
a) An Economic Creed ''
The National Association of Manufacturers of the United States
of America does hereby declare that the following principles shall
govern the Association in its work in connection with the problems
of labor :
1. Fair dealing is the fundamental and basic principle on which
relations between employes and employers should rest.
2. The National Association of Manufacturers is not opposed
to organizations of labor as such, but it is unalterably opposed to
boycotts, black-lists and other illegal acts of interference with the
personal liberty of employer and employe.
3. No person should be refused employment or in any way dis-
criminated against on account of membership or non-membership
in any labor organization, and there should be no discriminating
against or interference with any employe who is not a member of a
labor organization by members of such organizations.
4. With due regard to contracts, it is the right of the employe
to leave his employment whenever he sees fit, and it is the right of
the employer to discharge any employe when he sees fit.
5. Employers must be free to employ their work people at wages
mutually satisfactory, without interference or dictation on the part
of individuals or organizations not directly parties to such contracts.
7 Resolutions adopted at the Eighth Annual Convention of the National
Association of Manufacturers, New Orleans, April, 1903.
PROBLEMS OF UNIONISM AND WAGE CONTRACT 633
6. Employers must be unmolested and unhampered in the man-
agement of their business, in determining the amount and quality of
their product, and in the use of any methods or systems of pay which
are just and equitable.
7. In the interest of employes and employers of the country,
no limitation should be placed upon the opportunities of any person
to learn any trade to which he or she may be adapted.
8. The National Association of Manufacturers disapproves abso-
lutely of strikes and lockouts, and favors an equitable adjustment of
all differences between employers and employes by any amicable
method that will preserve the rights of both parties.
« 9. Employes have the right to contract for their services in a
collective capacity, but any contract that contains a stipulation that
employment should be denied to men not parties to the contract
is an invasion of the constitutional rights of the American work-
man, is against public policy, and is in violation of the conspiracy
laws. This Association declares its unalterable antagonism to the
closed shop and insists that the doors of no industry be closed against
American workmen because of their membership or non-membership
in any labor organization.
10. The National Association of Manufacturers pledges itself to
oppose any and all legislation not in accord with the foregoing declara-
tion.
b) A Political Creed ^
Whereas, The National Association of Manufacturers, in con-
vention assembled in New Orleans, in 1903, adopted, declared and
promulgated certain principles governing the work of the associa-
tion in connection with problems of labor; and
Whereas, The past decade has demonstrated the truth of these
declared principles ; and
Whereas, During the past ten years new and different problems
have also emerged, affecting our governmental, economic and indus-
trial society, upon which we deem it our duty at this time to express
our attitude and stand ; therefore
Resolved, That in addition to the principles heretofore enunciated
and declared at our convention in New Orleans in 1903, we, in con-
vention assembled, declare and promulgate, in addition, the following
declaration of principles :
First. We hold that the inherent powers of our courts of equity
shall not be abridged in the issuance of injunctions in labor disputes.
8 Resolutions adopted at the Eighteenth Annual Convention of the Na-
tional Association of Manufacturers, Detroit, May, 1913.
634 CURRENT ECONOMIC PROBLEMS
Second. We hold that the power vested in our courts to punish
for contempt of court should not be abridged by the granting of
jury trial for contempt.
Third. We protest against class legislation, whether enacted by
state legislatures or congress, and we assert that all forms of class
legislation are un-American and detrimental to our common good.
Fourth. We pledge our loyalty to our judiciary, upon the main-
tenance of which, unswerved by passing clamor, rests the perpetua-
tion of our laws, our institutions and our society.
Fifth. We favor the further enactment of equitable, beneficial,
and simplified workingmen's- compensation legislation.
Sixth. We denounce the subserviency of representatives of the
whole people to the dictation of any class legislation.
Seventh. We affirm, in the light of proven facts, that any com-
promise, toleration, or identification with the leaders of criminal
unionism will stultify our liberties and weaken respect for our laws
and their just enforcement.
Eighth. We affirm our approval of the enactment of wise and
just laws, necessary to improve conditions of labor.
Ninth. We affirm that our tested, self-controlled, representative
democracy is adequate, under our constitutional guarantees, to
eflfectuate the real needs and purposes of our national life.
Tenth. We pledge ourself toward the accomplishment of the
spirit and purpose of the foregoing.
c) An Industrial Creed ^
BY JOHN D. ROCKEFELLER, JR.
Might not the parties to industry subscribe to an industrial creed
somewhat as follows :
1. I believe that labor and capital are partners, not enemies ; that
their interests are common, not opposed ; and that neither can attain
the fullest measure of prosperity at the expense of the other, but only
in association with the other.
2. I believe that the community is an essential party to industry
and that it should have adequate representation with the other parties.
3. I believe that the purpose of industry is quite as much to
advance social well-being as material prosperity ; that, in the pursuit
^ From a speech entitled "Representation in Industry" delivered before the
War Emergency and Reconstruction Conference of the Chamber of Commerce
of the United States, at Atlantic City, New Jersey, December 5, 1918. This
"creed" was officially indorsed by the Conference.
PROBLEMS OF UNIONISM AND WAGE CONTRACT 635
of that purpose, the interests of the community should be carefully
considered, the well-being of employees fully guarded, management
adequately recognized and capital justly compensated, and that fail-
ure in any of these particulars means loss to all four parties.
4. I believe that every man is entitled to an opportunity to earn
a living, to fair wages, to reasonable hours of work and proper work-
ing conditions, to a decent home, to the opportunity to play, to learn,
to worship and to love, as well as to toil, and that the responsibility
rests as heavily upon industry as upon government or society, to see
that these conditions and opportunities prevail.
5. I believe that diligence, initiative and efficiency, wherever
found, should be encouraged and adequately rewarded, and that in-
dolence, indifiference and restriction of production should be dis-
countenanced.
6. I believe that the provision of adequate means of uncovering
grievances and promptly adjusting them, is of fundamental importance
to the successful conduct of industry.
7. I believe that the most potent measure in bringing about in-
dustrial harmony and prosperity is adequate representation of the
parties in interest ; that existing forms of. representation should be
carefully studied and availed of in so far as they may be found to
have merit and are adaptable to conditions peculiar to the various
industries.
8. I believe that the most effective structure of representation is
that which is built from the bottom up ; which includes all employees,
which starts with the election of representatives and the formation
of joint committees in each industrial plant, proceeds to the forma-
tion of joint district councils and annual joint conferences in a single
industrial corporation, and admits of extension to all corporations in
the same industry, as well as to all industries in a community, in a
nation, and in the various nations.
9. I believe that the application of right principles never fails to
effect right relations ; that "the letter killeth but the spirit giveth life" ;
that forms are wholly secondary, while attitude and spirit are all
important ; and that only as the parties in industry are animated by
the spirit of fair play, justice to all and brotherhood, will any plan
which they may mutually work out succeed.
10. I believe that that man renders the greatest social service
who so co-operates in the organization of industry as to afford to the
largest number of men the greatest opportunity for self -development
and the enjoyment of those benefits which their united efforts add to
the wealth of civilization.
.10
636 CURRENT ECONOMIC PROBLEMS
\/288. The Purposes of Trade-Unionism'
BY JOHN MITCHELL
In its fundamental principle trade-unionism is plain and simple.
Trade-unionism starts from a recognition of the fact that under
normal conditions the individual, unorganized workman cannot bar-
gain advantageously with the employer for the sale of his labor. Since
he has no money in reserve and must sell his labor immediately, since
he has no knowledge of the market and no skill in bargaining, since,
finally, he has only his own labor to sell, while the employer engages
hundreds or thousands of men, and can easily do without the services
of any particular individual, the workingman, if bargaining on his
own account and for himself alone, is at an enormous disadvantage.
Trade-unionism recognizes the fact that under such conditions labor
becomes more and more degenerate, because the labor which the
workman sells is a thing of his very life and soul and being. In the
individual contract between the rich employer and the poor laborer,
the laborer will secure the worst of it. The individual contract means
that the worst and lowest man's condition in the industry will be that
which the best man must accept. From first to last, beginning to end,
always and everywhere, trade-unionism stands opposed to the indi-
vidual contract. There can be no concession or yielding upon this
point. There can be no permanent prosperity of the working classes,
no consecutive improvements in conditions, until the principle is
firmly and fully established, that in industrial life, the settlement of*
wages, the hours of labor, and all conditions of work, must be made
between employers and workingmen collectively and not individually.
Trade-unionism thus recognizes that the destruction of the work-
ingman is the individual bargain, and the salvation of the working-
man is the joint, united, or collective bargain. To carry out a joint
bargain, however, it is necessary to establish a minimum of wages
and conditions which will apply to all. By this it is not meant that
the wages of all shall be the same, but merely that equal pay shall be
given for equal work. If some are so willing to be over-rushed as to
do more than a fair day's work for a fair day's wage, or are willing
to allow themselves to be forced into patronizing truck stores, to sub-
mit to arbitrary fines or unreasonable deductions, whereas others
would rebel at these impositions, it would result that in the competi-
tion among the men to retain their positions, those who were most
pliant and lowest spirited would secure the work, and the wages,
hours of labor, and conditions of employment would be set or ac-
i^Adapted from Organised Labor, pp. 2-1 1. Copyright by the American
Book and Bible House, 1903.
PROBLEMS OF UNIONISM AND WAGE CONTRACT 637
cepted by the poorest, most cringing, and least independent of work-
ers. If the trade-union did not insist upon enforcing common rules
providing for equal pay for equal work and definite conditions of
safety and health for all workers in the trade, the result would be
that all pretense of a joint bargain would disappear, and the em-
ployers would be free constantly to make individual contracts with
the various members of the union. vT
The trade-union does not stand for equal earnings for al l work- j* ^^
men. It does not object to one man's earning twice as much as the ^^ }^
man working by his side, provided both men have equal rates of '^
pay, equal hours of work, equal opportunities of securing work, -r^
and equal conditions of employment. What the union insists upon is
that certain minimum requirements be fulfilled for the health, com-
fort, and safety of all, in order that the workingmen shall not be
obliged to compete for jobs by surrendering their claims to a reason-
onable amount of protection for their health, and for their life and
limb.
The trade-union thus stands for freedom of contract on the part
of workingmen — the freedom or right to contract collectively. The :
trade-union also stands for definiteness of the labor contract. The
workingman agrees to work at a wage offered him by his employer,
but frequently nothing is said as to hours of labor, periods for tj
meals and rest, intensity of work, conditions of the workshop, pro-
tection of the workmen against filthy surroundings or unguarded
machinery, character of his fellow-workmen, liability of the em-
ployer for accident, nor any of the thousand conditions which
affect the welfare of the workman and the gain of both employer
and employe. In the absence of an agreement with the union it
is in the power of the employer to make such rules absolutely, or
to change or amend them at such times as he thinks proper.
The right to bar gain collectively necessarily involves the right
to representation . Experience and reason both show that a man,
who is dependent upon the good will of an employer, is in no po-
sition to negotiate with him. Workingmen should have the right
to be represented by whomsoever they wish. The denial of the
their representatives, the men cannot enjoy the full benefit of col-
right of representation is tyranny. Without the right to choose
lective bargaining; and without the right of collective bargaining,
the door is open to the evils of the individual contract. To avoid
these calamities the workmen demand "the recognition of the union."
638 CURRENT ECONOMIC PROBLEMS
C. THE THEORY OF UNIONISM
289. The Principle of Uniformity^ ^
/c
BY ROBERT F. HOXIE
The key to the understanding of union rules and actions is to be
found in the fundamental principles and theories of their program.
If you understand these thoroughly and the policies to which they
give rise, you can generally explain any given rule or act without
difficulty ; and without that understanding you are almost certain to
go astray. In the space available it is barely possible to illustrate
in a general way these theories.
Let us, then, by way of illustration, take one of the fundamental
principles of business unionism, the principle of uniformity or
standardization, and use it as a partial explanation of union poli-
cies, demands, and methods. This principle requires that all the
men doing the same work use the same kind of tools and materials,
work normally the same length of time, and at the same speed, turn
out the same quantity and quality of goods, and receive the same
rate of wages. The union argument on which the principle rests
runs somewhat as follows:
1. Wages and conditions of employment are determined by
the relative bargaining strength of the workers and employers of the
industrial group.
2. Under competitive conditions the bargaining strength of the
employer is greater than that of the individual laborer, because of
(a) the superior bargaining knowledge, skill, and waiting power of
the employer; (b) the smaller object which he has at stake — pe-
cuniary profits versus life ; (c) the presence of an actual or potential
oversupply of labor; (d) the increase in bargaining power on the
part of the employer in inverse ratio to his industrial and financial
strength ; (e) the limitation of the bargaining strength of the labor
group to the competitive strength of its weakest member.
3. The full bargaining strength of the employer is bound to be
exercised against the workers because under competitive conditions
the pressure of the consuming public for cheap goods is transmitted
through the retailer and the wholesaler to the most unscrupulous
employer, who sets the pace; while under monopolistic conditions
the relations of the employer and the worker are impersonal.
i^Adapted from an unpublished lecture entitled "The Trade-Union Pro-
gram" delivered at the University of Michigan, May 17, 1914. The statements
in this paper are general and admit of many exceptions. They constitute a
theoretical statement of the tendencies underlying union activities rather than
a generalization from such activities. They are not clearly understood even by
all unionists.
PROBLEMS OF UNIONISM AND WAGE CONTRACT 639
4. Therefore, allowing the employer to pit his bargaining
strength against the bargaining strength of each worker, thus fixing
their different rates of work, wages, etc., means the progressive
deterioration of the wages and conditions of employment of the
group.
5. The only way to prevent this deterioration is to rule out com-
petition by establishing and maintaining the principle of uniformity
or standardization, i.e., to require for all the men doing the same
work the use of the same kinds of tools and materials, the same
working time, the same speed, the same quality of work, and the
same output.
Let us see what light this policy throws upon the policies, de-
mands, methods, and attitudes found in the union program. The
main purpose of this principle, as we have seen, is to rule out com-
petition. But competition is possible in regard to the wage rate,
hours of labor, or the exertion and output of the individual. To
prevent the first the establishment of a standard rate of wages at a
fixed minimum is necessary. The prevention of the second requires
the fixing of a normal day or week as a maximum. The third, in
like manner, necessitates uniformity in the conditions and rate of
work. It is obvious that these conditions working together make
the standard rate a practical maximum as well as a minimum. Hence
there arises the tendency toward dead-line mediocrity.
Competition, however, is possible not only in regard to the wage
rate, the hours, and the exertion or output, but also in regard to the
safety and sanitation, the comfort and convenience of the shop; the
times of beginning and ending work ; the arrangement of shifts ; the
time, place, mode, and character of pay ; the materials and tools
used; and all the minor details of the conditions of work and pay.
Hence, to secure uniformity, there arises the necessity of minute
specifications of standards in regard to all the incidents of work
and pay, from which no deviation can normally be allowed. This
explains a multitude of petty and harassing restrictions, of which
employers complain, the validity of which rests, not on their im-
mediate character and effects, but on the validity of the general
principle of uniformity.
A large part of the trade-union program is thus seen to be a
direct effort to establish specific standards incidental to the prin-
ciple of uniformity. Another large portion is in the interest of en-
forcement of conditions essential to their existence.
Let us first consider the latter. It is evident that these stand-
ards cannot exist if they are violated with impunity ; still successful
enterprise demands flexibility. Hence there has grown up a long
640 CURRENT ECONOMIC PROBLEMS
list of irregularities and violations permitted but charged with pen-
alties. These have the double object of stopping underbidding and
of preventing the irregular practices from becoming regularly estab-
lished. For example, overtime, the doing of extraordinary kinds of
work, and the doing of work in irregular ways are allowed, but only
on condition of extra pay.
These standards, moreover, are hard to establish and maintain
in a thoroughly dynamic industrial state, where new trades are
evolving, and new processes are coming in constantly. This in part
explains the undoubted tendency of unions to restrict new trades,
new machinery, new methods, and new processes in industry — in
short, industrial progress.
If we turn to the enforcement of these standards, we shall find
that another large block of union policies and demands are, in part
at least, in the interests of the principle of uniformity, and are valid
if it is valid. The enforcement of these standards means the common
rule. But to secure this you must have collective bargaining, or
legislation. Collective bargaining implies recognition of the union
and all the complex machinery for the making and enforcement of
contracts.
Moreover, you cannot enforce these standards unless you control
the workers or the working personnel. This, in part, explains ap-
prenticeship regulations, and to the unionist calls absolutely for the
closed shop and the control of hiring and discharge of men. It
is evident that if you cannot control the men you cannot cut out
underbidding in its manifold guise. This is especially true, since the
employer is always supposed to be trying to induce it by swifts,
bell-horses, secret bonuses, frightening the men, etc.
To enforce uniformity you must also have control over the out-
put of the individual and you must control the processes of produc-
tion. You must prevent the use of methods of stimulation, such as
bonus systems, etc., by the employer. Moreover, you must stop up
every minutest loophole for the evasion of the principle by the
employer. Hence you must watch him carefully; you must have
walking delegates on the job. You must carefully delimit the field
of work, and prevent reclassification, so that the employer cannot
create exceptions by the use of new men or new work. Here again
we find explanation of a great number of harassing detailed de-
mands and rules which the unions endeavor to enforce.
It follows, then, that a large portion of the more specific part of
the trade-union program is implied in the principle of uniformity
and flows directly from the effort to establish and enforce it.
PROBLEMS OF UNIONISM AND WAGE CONTRACT 641
-v^
H2
290. Collective Bargaining and the Trade Agreement^
BY JOHN R. COMMONS
Philanthropists have long been dreaming of the time when cap-
ital and labor should lay aside the strike and boycott and should re-
sort to arbitration. By arbitration they understand the submission
of differences to a disinterested third party. But the philanthropists
have overlooked a point. Arbitration is never accepted until each C.
party to a dispute is equally afraid of the other; and when they J^^
have reached that point, they can adopt something better than arbi- ^^
tration, — namely, negotiation. Arbitration is impossible without or- -* ^
ganization, and two equally powerful organizations can negotiate as ^
well as arbitrate. This higher form of industrial peace — negoti-
ation — has now reached a formal stage in a half dozen large in-
dustries in the United States, which, owing to its remarkable like-
ness to parliamentary government in the country of its origin, Eng-
land, may well be called constitutional government in industry.
The bituminous mine operators and the bituminous mine workers
of the four great states of Illinois, Indiana, Ohio and Pennsylvania
have such a constitution. The annual interstate conference of the
bituminous coal industry is the most picturesque and inspiring event
in the modern world of business. Here is an industry where, for
many years, industrial war was chronic, bloodshed frequent, distrust,
hatred, and poverty universal. Today the leaders of the two sides
come together for a two weeks' parliament, face to face, with plain
speaking, without politics, religion, or demagogy; and there they
legislate for an industry that sends upon the market annually $200,-
000,000 of product.
The most comforting feature of such negotiations is the matter-
of-fact way in which each side takes the other. There is none of
that old-time hypocrisy on the part of the employers, that their
great interest in life is to shower blessings upon their hands ; and
there is none of that ranting demagogy on the part of the work-
men about the dignity of Ubor and the iniquity of capital. On the
contrary, each side frankly admits that its ruling motive is self-
interest ; that it is trying to get as much as it can and to give as
little as it must ; and that the only sanction which compels them to
come together, and to stay together until they reach a unanimous
vote, is the positive knowledge that otherwise the mines will shut
down and neither the miner will earn wages nor the operator reap
profits. It is simply wholesome fear that backs their discussions;
i^Adapted from "A New Way of Settling Labor Disputes," American
Review of Reviews, XXIII, 328-33. Copyright, 1901.
/
642 CURRENT ECONOMIC PROBLEMS
the capitalist knows that there are no other laborers in the world
whom he can import as "scabs" to take the places of those whose
representatives face him in this conference and this scale com-
mittee, and he knows, too, from a severe experience, that every one
of these 110,000 miners will obey as one man the voice of these
their chosen representatives. The miners know, also, that these
capitalists with whom they are negotiating are the very ones who
control their only opportunities for earning the wages that feed
themselves and their families. Consequently, everybody knows that
an agreement must be reached before adjournment, or else the in-
dustry will be reduced to anarchy and their wages and profits, to
say nothing of lives, will be destroyed.
In every trade agreement there are usually two large and dis-
tinct questions on which the parties differ, namely, wages and meth-
ods of managing employees. The labor side wants higher wages
(including short hours) and restrictions on bosses and foremen.
The employer side wants low wages and a free hand for the boss.
Each side thereupon comes to the joint conference with demands
more extreme than it expects to see granted. At the conference of
1900 the operators offered an advance of 9 cents per ton and the
miners demanded an advance of 20 cents. The operators wished to
retain the system of paying for the screened coal only, and not for
the slack and waste ; but the miners demanded payment on the basis
of the "run-of-the-mine," i.e. of all coal brought to the surface,
before it is run over the screens. The miners asked also 7 cents
differential between pick and machine mining, but the operators
wanted 12 cents differential.
These opposing propositions had been formulated in separate
conventions and conferences by the opposing sides. The operators'
position was presented to the joint conference and received the
unanimous "aye" of the operators and the unanimous "no" of the
miners. The miners' proposition was then presented, and received
M unanimous "aye" of the miners and the unanimous "no" of the
operators. The two sides then began their parrying. Mr. Mitchell
accused the operators of "joking." The operators accused the miners
of absurdity. Several days were spent in these tilts. Finally con-
cessions were made on both sides. Certain matters were left un-
decided or referred back to the state conferences. The committee
reported a unanimous agreement, and the joint conference adopted
it unanimously. It gave an advance of 14 cents in some districts,
and 9 cents in others. It permitted the "mine-run" standard in cer-
tain districts, and the "screened" standard in other districts, and a
PROBLEMS OP UNIONISM AND WAGE CONTRACT 643
"double standard" in yet a third group of districts, but regulated
the size of the screen and fixed a wide differential between "mine-
run" and a "regulation screen." Similar compromises were made on
the machine scale, day labor, and all along the line. Nobody wa?
satisfied, yet everybody was satisfied. It was the best they could do,
and it saved the business from paralysis. "A failure to agree," said
President Mitchell in his closing speech, "would not only have
ruined the homes of the miners, but would have ruined the business
of the operators." And though the miners did not get what they
expected, yet, said Mitchell, "there has never been a time in the
history of mining, even within the recollection of the oldest one
among you, when an advance so great as this, and applied to siJ
great a number of men, was secured."
The success of each conference depends directly upon the en-
forcement of the legislation of the preceding conference. Curiously
enough, this enforcement falls solely upon the miners' organizatioTi.
The operators, indeed, have their several state associations, but no
national nor interstate association like that of the miners. More-
over, the operators are loosely organized. They can bring only
moral suasion to bear upon the recalcitrant operator who rebelr
at their national decrees. But the miners can do more ; they not
only can suspend their own local unions which violate the agree-
ment, but they can shut down the mine of the rebellious operator
and drive him out of business. The operators understand this, and
they know that their own protection against the cutthroat operator
depends solely on the miners union. President Mitchell, of the
union, at the close of the Indianapolis conference, significantly ac-
cepted his office of joint executive in what might be called his in-
augural. He said, "I will give notice to the operators now thaj
when they go home, unless they keep the agreement inviolate, we
Avill call the men out; and I will serve notice on the miners thai,
unless they keep the laws of the organization, we will suspend thern
from the organization."
In trade agreements the employer must recognize the union.
Employers are willing to pay high wages if all their competitors
pay the same wages. It is not high wages that they dread, but secret ^
and unfair cutting of wages. This is also exactly what the laborers ^^
resist. The joint state or national agreements place all competitors',
on the same basis in the same market. Indeed, in the coal trade
the scale is nicely adjusted so that the districts with the better quality
of coal and the lower railway charges are required to pay enough
higher wages than other districts to counterbalance their superior
natural advantages. On this basis, so far as the union enforces the
644 CURRENT ECONOMIC PROBLEMS
agreement, every operator knows exactly what his competitor's coal
is costing; there is no secret cutting; and the trade is not brought
down to the level of the few unscrupulous and oppressive operators
who grind down their laborers. For this reason the bulk of em-
ployers who have had experience with these joint agreements are
heartily in favor of them.
The most important result of these trade agreements is the new
feeling of equality and mutual respect which springs up in both em-
ployer and employee. After all has been said in press and pulpit
about the "dignity of labor," the only "dignity" that really commands
respect is the bald necessity of dealing with labor on equal terms.
With scarcely an exception the capitalist officials who make these
agreements with the labor officials of tht ^e powerful unions testify
to their shrewdness, their firmness, their temperance, their integrity,
and their faithfulness to contracts. Magnificent generalship is shown
in combining under one leadership the miscellaneous races, religions,
and politics that compose the miners of America. The labor move-
ment of no other country has faced such a problem.
/
-|/291. The Economics of the Closed Shop"
BY FRANK T. STOCKTON
In recent popular discussions of the closed shop much emphasis
has been put upon its uneconomical character. The charge is made
that the demand for the exclusive employment of union men, by
interfering with the right of an employer to "run his own business,"
makes high efficiency impossible. This argument is based on the
fact that the employer, under the competitive system, is alone re-
sponsible for the successful conduct of business undertakings. If
he fails to produce as well and as cheaply as others do, the loss is
his. It is necessary, therefore, for the most economic conduct of
business that the employer "should have power to order his own
affairs." He "should not be influenced by any other consideration
in the hiring of men than the ability, fitness or loyalty of the appli-
cant." At the same time he should be free to reward exceptional
workmen and to discharge those who are inefficient or insubordi-
nate. He should be the sole judge as to the kind of machinery,
tools and material to be used. Only in this way, it is argued, can
the employer secure that "effective discipline" which is essential in
bringing about the "highest measure of success in industry."
i^Adapted from The Closed Shop in American Trade-Unions, pp. 165-75.
Copyright by the Johns Hopkins Press, 191 1.
PROBLEMS OF UNIONISM AND WAGE CONTRACT 645
The "essence" of the open shop is that the employer is entirely
free "to hire and discharge." The closed shop, on the other hand,
denies him the "right to hire and discharge." If the employer wishes
to hire competent non-union men, he is prevented from procuring . y
their services if they cannot or will not obtain union membership.
The employer complains that under the closed shop, instead of
being able to secure workmen regardless of whether they are union
or non-union, white or black, Catholic or Protestant, Jew or Gen-
tile, he is compelled to draw from a definitely fixed labor market.
Very often, too, this market is severely limited by the refusal of
the unions on one ground or another to admit competent workmen
to membership. He cannot hire members of other unions who are
competent to do the work because this will at once involve him in
a jurisdictional dispute. One trial is enough to demonstrate the
fact that members of rival unions tolerate each others' presence less
than they do that of non-unionists. There is then no practicable
way in which he can secure additional help when his work increases
except by bidding for workmen against other union employers. It
is also said that the closed shop serves to prevent the discharge of
inefficient employees.
Another evil attributed to the closed shop is that it establishes a
minimum wage which becomes virtually also a maximum wage.
This is said to produce a disastrous "dead level" of efficiency through-
out an establishment and to discourage effort. Accordingly union
control is declared to be "absolute death to individual effort and
ambition," and to cause the degeneration of "mental and moral fiber."
Restriction of output is the direct result of such conditions. Espe-
cially harmful does the closed shop become, in the opinion of its
opponents, when a union requires foremen to obey its rules and
to serve the union rather than the employers. All closed-shop
unions, it is represented, "define the workman's rights but say
nothing of his duties. They destroy shop discipline and put nothing
in its place."
To these indictments the advocates of the closed shop have made
vigorous rejoinder. They assert that while the unions do not allow
employers to "victimize" their members, they do not interfere other-
wise with the "right to hire and discharge" as long as all persons
who are hired become union members. It is also flatly denied that
the minimum wage is usually the maximum, and that production
is restricted in closed shops.
The reconciliation of these conflicting statements of facts is pos-
sible. The opponents of the closed shop in discussing its economic
effects always assume that the closed shop is everywhere the same,
v-i
646 CURRENT ECONOMIC PROBLEMS
and take as typical those unions in which the restrictions on employ-
ment are most severe. The advocates of the closed shop assume as
typical those unions in which the restrictions are mildest. It will
be noted that in this respect the unions vary widely. In the majority
of closed-shop unions, however, the employer is allowed to hire non-
unionists when competent unionists are not available, or even in
many unions when they are available. It is also customary to allow
such non-unionists to work a certain period in a shop before being
required to join the union. There is little basis for the claim, there-
fore, that employers are restricted to hiring union men only. It is
true that "scabs" and members of rival unions are rarely allowed to
work. "Scabs," however, form but a small part of the men in any
trade, and agreements between rival unions have now to some extent
solved the problem of jurisdictional disputes.
If the union itself is closed, union employers have no means of
obtaining additional help when their business increases. The closed
union, however, although it is usually found with the closed shop, is
not identical with it. To say that no more members shall be admitted
to a union is an entirely different thing from saying that union men
shall not work with non-unionists.
All unions that have advanced beyond the most rudimentary
stage enforce a minimum wage. The tendency to uniformity and a
"dead level" growing out of the existence of the minimum wage can
only be connected with the closed shop through some restriction on
the right to hire and discharge. If the union has a compulsory wait-
ing list, it is easy to see how the minimum wage may become the
maximum wage. However, compulsory waiting lists are established
in very few unions. Similarly, restriction of- output is connected
with the closed shop only through the waiting list. A great part of
closed-shop unions do not have waiting lists.
It is also charged that the joint and extended closed shops lead
to demands upon employers. When satisfactory conditions have
been obtained in one trade, the men may be called out on strike be-
cause "unfair" material is used, or because the open shop exists in
an allied trade. Grievances "manufactured outside the shop" are
thus said to be constantly arising. Complaint is also made that the
closed shop is responsible for many unnecessary shop rules which
virtually deprive the employer of control over his business. One
writer has gone so far as to say that "the amount of restriction which
it may be expected to find in 'closed shops' will certainly amount to
one-third of what the output should amount to." Statements have
frequently been made that the open shop has brought business pros-
perity to different communities.
PROBLEMS OF UNIONISM AND WAGE CONTRACT 647
Taking up the last of these contentions first, the unions allege
that closed-shop agreements are of distinct advantage to employers.
In open shops of most trades the employer is said to be constantly
harassed with complaints from individuals. In closed shops all
grievances must first be referred to the union, which acts upon many
of them unfavorably. It is equally undeniable that most unions
which have opportunity to enforce the extended or the joint closed
shop have not hesitated at times to strike even when all their de-
mands in the particular shop have been satisfied.
The unions have also denied in a general way that their shop
rules have been unduly restrictive. As a matter of fact, the great
open-shop movement which began in 1901 was caused primarily by
the rapid increase in rules regulating the number of apprentices, the
kind of machinery that should be used, the method of shop manage-
ment, and the like. The connection between the closed shop and
arbitrary shop rules is close, but the two are not identical. Arbitrary
rules can rarely be enforced except in closed shops. If the union
is strong enough to secure the one, it can, if it sees fit, enforce the
other. Obviously, however, a closed-shop union need not, and
many of them do not, have hurtful shop rules.
The defenders of the closed shop have tried to show that the
closed shop is an advantage to an employer. In the first place, they
claim that the closed shop protects fair-minded employers from
"cut-throat competition." If an industry is thoroughly unionized,
every manufacturer or contractor can tell precisely what his com-
petitors are paying in wages. As wages form the largest item in the
average employer's expense account, it therefore becomes possible
for him to "figure intelligently on his work," something which he
"could never feel certain of were the open shop to prevail." The
same shop rules also apply in all union establishments. Under the
open shop not nearly the same uniformity in competitive conditions
can be secured. The closed shop is a device absolutely essential to
the rigid and wide enforcement of union rules.
Secondly, those who uphold the closed shop affirm that it tends
to create a greater esprit de corps among the men than the open
shop does. Union and non-union men represent two diametrically
opposed ideas. The first stand for collective, the second for indi-
vidual action. Consequently, there is constant conflict between the
two in the endeavor to obtain control over a shop. Because his men
do not co-operate, the employer is likely to lose money. Therefore
as a business necessity open shops must become either union or non-
union. That there should be ill-feeling between union and non-
union men is easily understood when we consider why unions desire
648 CURRENT ECONOMIC PROBLEMS
the closed shop. Non-union men are the economic enemies of
unionists as long as employers resort to individual bargaining or
express a dislike for full union control. In particular, efforts are
put forth to make the employment of "scabs" unprofitable.
Finally, unionists say that the closed shop is advantageous to
employers because in many unions it carries with it the privilege of
using a label that has a distinct market value. No union solicits
work for an open shop. A label, however, is an advantage to an
employer only under certain conditions. It can be used to best
advantage on articles largely purchased by the laboring classes. That
a label increases sales on such goods is evidenced by the fact that
manufacturers, solely for the purpose of obtaining the use of the
label, have often asked that their establishments be unionized. The
labor journals not infrequently contain statements from employers
that the closed shop is a "good business proposition." But the label
rarely effects an increase in the demand for expensive goods or for
articles sold to women. It is evident, therefore, that the number of
employers who can find an advantage in the use of the labels is small
relative to the total number of employers.
To sum up the arguments against the closed shop on the ground
that it affects unfavorably the economic conduct of industry, it may
be said that the crux of the question is whether or not the "right to
hire and discharge" is unduly restricted under the closed shop. The
employer may enjoy the use of a valuable label and may be placed
on a "fair competitive basis" with other employers. Individually the
employer may reap a gain. But in the long run industry will be
carried on less efficiently if by waiting lists or other restrictive
devices the union interferes with the employer's hiring and discharg-
ing his working force in accordance with his best judgment.
->/292. The Ethics of the Closed Shop^*
BY JAMES H. TUFTS
In certain industries in which the workmen are well organized
they have made contracts with employers which provide that only
union men shall be employed. The psychological motive for the de-
mand for the closed shop is natural enough ; the union has succeeded
in gaining certain advantages in hours or wages or both; this has
required some expense and perhaps some risk. It is natural to
feel that those who get the advantage should share the expense and
effort, and failing this, should not be admitted to the shop. If the
i*Adapted from Ethics, by John Dewey and James H. Tufts, pp. 559-61.
Copyright by Henry Holt & Co., 1909.
PROBLEMS OF UNIONISM AND WAGE CONTRACT 649
argument stopped here it would be insufficient for a moral justifica-
tion for two reasons. First, joining a union involves much more
than p ayment of dues. It means control by the union in ways which
may interfere with ob ligations to family, or even to the social order.
Hence, to exc lude a fellow workman from the opportunity to work
because he— p erhaps for conscientious reasons — would not belong to
the union, could not be justified unless the union could make it ap-
pear that it was mamtammg a social and not merely a group inter-
est. Second, in some cases unions have sought to limit output In
so far as this is done, not for reasons of health, but to raise prices,
the ujiion is opposing the interest of consumers. Here again the
union must exhibit a social justification if it is to gain social approval.
On the other hand, it may be noted that the individualist who
believes in the competitive struggle as a moral process has no ground
on which to declare for "open shop." Exactly the same principle
which would permit combination in capital and place no limit on
competitive pressure, provided it is all done through free contracts,
can raise no objection against combinations of laborers making the
best contracts possible. When a syndicate of capitalists has made
a highly favorable contract or successfully underwritten a large
issue of stock, it is not customary under the principle of "open
shop" to give a share in the contract to all who ask for it, or to let
the whole public in "on the ground floor." Nor are capitalists ac-
customed to leave a part of the market to be supplied by some com-
petitor for fear such competitor may suffer if he does not have
business. When the capitalist argues for the open shop upon the
ground of freedom and democracy, it seems like the case of the
mote and the beam.
An analogy with a political problem may aid : Has a nation the
right to exclude (or tax heavily) goods or persons from other coun-
tries ? May it maintain a "closed shop" ? The policy of the Amer-
ican colonists and of the United States has varied. The Puritans
maintained a "closed shop" on religious lines. They came to this
country to maintain a certain religion and polity. They expelled
several men who did not agree with them. The United States ex-
cludes Chinese laborers, and imposes a tariff which in many cases
is intended to be prohibitive against the products of other countries.
This is done avowedly to protect the laborer, and in so far as it is
effective it closes the shop. The maxim, "This is a white man's
country," is a similar "closed shop" utterance. On moral grounds
the non-union man is in the same category as the man of alien race
or country. What, if anything, can justify a nation or group from
excluding others from its benefits ? Clearly the only conditions are
650 CURRENT ECONOMIC PROBLEMS
(i) that the group or nation is existing for some morally justifiable
end, whicn (2) would be endangered by the admission of the out-
siders. A colony established to work out religious or political lib-
erty would be justified in excluding a multitude who sought to en-
ter it and then subvert these principles. If a union is working for a
morally valuable end, e.g., a certain standard of living which is
morally desirable, and if this were threatened by the admission of
non-union men, the closed shop would seem to be justified. If the
purpose were merely to secure certain advantages to a small group,
and if the open shop would not lower the standard but merely extend
its range of benefits, it is hard to see why the closed shop is not a
selfish principle — though no more selfish than the grounds on which
^he tariff is usually advocated .
D. THE WEAPONS OF INDUSTRIAL CONFLICT
/ 293. The Fun:;tion of the Strike in Collective Bargainings^
BY JOHN MITCHELL
The normal condition of industry is peace. The average work-
ingman, engaged in industries in which strikes occur, loses less than
a day a year in this manner. A strike lasts upon the average about
twenty-three days, but the average employer carries on his business
for thirty years without a strike. The average lockout lasts ninety-
seven days, but of a thousand establishments, less than two declare
a lockout in the course of a year,
A strike is simply a method of bargaining. If the grocers of a
city would refuse to sell tTieir sugar for less than seven cents a
pound and the customers would refuse to pay more than six, exactly
the same thing would occur as happens in an ordinary strike. A
strike does not necessarily involve any form of bitterness ; it merely
represents a difference between what the buyer of labor is willing
to offer, and what the seller of labor is willing to accept. Until the
buyer and seller of an ordinary commodity agree as to price and
conditions no sale can be effected. Until the wages and conditions
of work are agreed upon and acceded to by both employer and work-
man, the industry must stop.
Strikes thus result from a failure to make a bargain or contract
by men who are free to contract. Strikes cannot exist before free-
dom of contract is accorded. The pres ent conception of a strike is
that of workrnen and employers exercising their undoubted right to
^^Adapted from Organised Labor, pp. 299-306. Copyright by the American
Book and Bible House, 1903.
PROBLEMS OF UNIONISM AND WAGE CONTRACT 651
refuse to enter into contracts where the conditions are not satis^
factory to them.
It is frequently stated that trade-unions desire strikes because
they are organized for that purpose. This is not true. The trade
union is organized for the purpose of securing better conditions of
life and labor for its members, and, when necessary, a strike is re-
sorted to as a means to that end. The same conditions which cause
the creation of trade-unions are equally answerable for the constant
demand for improved conditions for the working dass, which demand
frequently voices itself in strikes.
Strikes are to be avoided in all cases where the object desired can
be obtained by peaceful negotiation. There is nothing immoral,
however, in the workingman's striking, just as there is nothing im-
moral in his wanting higher wages.
^
294. The Utility of the Strike"
BY FRANK JULIAN WARNE
A Strike is simply a piece of industrial machinery, if it may be so
termed, which the organization of the trade-union provides for
the attainment of well-defined and laudable objects. Its operation
does not necessarily mean the violation of law, or the destruction
of property, or the taking of human life. All these, where in evi-
dence, are unforseen incidents to the conduct of a great strike for
any long period, and are the manifestations of aroused human
passion and class hatred. No one would question the use of a
revolver in the hands of a husband defending his wife and children
and home from the violation of its sanctity. by outlaws, but most of
us would condemn the employment of the same weapon in the hands
of the outlaws for the accomplishment of their designs. Yet the
weapon in both cases is a revolver. So it is with the strike, it is
simply a weapon for the attaining of certain well-defined ends.
In the hands of men defending their standard of living from the
cupidity and inhumanity of particular members of the employing
class, the strike is oF the very greatest social value. But like the
revolver, it can be misused, as in the case of self-seeking individuals
masquerading under trade-union principles, but because of that
misuse the weapon should not be condemned. It is no more possible
for the trade union to prevent the strike from falling into the hands
of those who misuse it, than it is for the law to prevent revolvers
from coming into the possession of outlaws. The strike has per-
i^Adapted from The Coal-Mine Workers, pp. 154-58. Copyright by Long-
mans, Green & Co., 1905.
652 CURRENT ECONOMIC PROBLEMS
formed and will continue to perform a most useful function in the
progress of the trade-union movement, and consequently in the on-
ward march of American civilization.
It is true that the course of the labor movement has been marked
by the taking of human life and the destruction of property, just as
has been the case in the creation of the state and the establishment
of the church. The why and the wherefore are easily to be ex-
plained in the theory of the adjustment of the principles of new
institutions to those created for society by older established ones.
This is not said as an apology for the taking of human life in strikes.
No one regrets this manifestation of the progress of the trade
union more than does the writer, and yet if he had to choose be-
tween preserving the lives that have been so lost and retaining the
trade-union as an institution, it would not be in favor of the former.
This decision would be made in the firm belief that in the attainment
of its objects — in throwing more safeguards around the working-
man, especially in hazardous employments, in securing better sani-
tary arrangements in factories and mills, in preventing the employ-
ment of children at tender ages, in securing higher wages, in reducing
the hours of employment, in raising the standard of living, and in
innumerable other ways — in these directions the trade-union is saving
for society more lives than have been taken in all the industrial
conflicts of which history gives any record.
The strike justifies itself either as a weapon of offense or defense
in the protection, as a last recourse, of the standard of living of the
American workingman. It is, economically, simply the refusal of a
number of workingmen, usually organized in an association, to sell
their labor for less than a stipulated price or to work under other
than specified conditions of employment, coupled with the refusal
of the purchaser of that labor — the employer — to accede to the de-
mands.
V
295. The Striker and the Worker"
BY SOLON LAUER
I am perfectly willing that you should quit your job, whenever
you do not like it. You may quit individually, or you may all quit
by agreement. It may cause your employers and us, the public, much
inconvenience and expense; but I do not see how we can refuse
you that right if you choose to exercise it.
But there your rights cease. If, now, your employers can find
other men to take your places, why shall they not do so ? Have not
i^From Social Laws, pp. 189-90. Published by the Nike Publishing Co.,
1901.
PROBLEMS OF UNIONISM AND WAGE CONTRACT 653
these men as good a right to work as you have to refuse to work?
And will you march upon them with stones and clubs, and assault \ \
them with dynamite, in order that you may carry your point with
your employers ? When you play the dog in the manger, my broth-
ers, there is nothing for it but to beat you into submission. Eternal
justice, seated calm and impassive above all our petty quarrels, de-
mands it. If the machinery of. justice be not wholly wrecked and
ruined here below, it must be set in motion against your selfish plot.
This is not my affair. I can get on without your cars. Legs
were before electrics. If there were nothing but my interests in-
volved, or those of my neighbors, you and your employer should sit
growling at one another, or fly at each other's throat, until one or
other were wholly vanquished and demolished. But there are the
rights of man to be considered ; yea, the rights of the workingman,
which ought to be most dear to your hearts. You do not want these
jobs on the present terms. These men do want them, having until
now none at all, or worse ones. Shall their rights be ignored and
violated, that you tnay carry your point ?
->/ 296. Wanted — Jobs Breaking Strikes^*
We break strikes — also handle labor troubles in all their phases.
We are prepared to place secret operatives who are skilled mechan-
ics in any shop, mill or factory, to discover whether organization is
being done, material wasted or stolen, negligence on the part of em-
ployees, etc. etc We guard property during strikes,
employ non-union men to fill the places of strikers, fit up and maintain
boarding-houses for them, etc. Branches in all parts of the country.
Write for references and terms. The Joy Detective Agency, In-
corporated, Cleveland, Ohio.
^^ 297. The Efficacy of Secret Service^''
Secret service properly applied with the right men correctly
placed can be made extremely profitable when conditions are studied
and co-operation given. Such service is our specialty, and for that
reason we maintain practical men of all trades and occupations, both
union and non-union. In their daily reports they suggest improve-
ments and new ideas ; also detail the agitating, dishonest, non-pro-
ducing, and retarding conditions.
i^Adapted from an advertisement appearing in American Industries,
August 15, 1907.
^^This letter is alleged to have been sent out by the William J. Burns
Detective Agency. Quoted from Laidler, Boycotts and the Labor Struggle,
p. 295.
654 CURRENT ECONOMIC PROBLEMS
Our operative, when engaged by you, is, to everyone but your-
self, merely an employee in your establishment, and whatever he
receives as wages is credited as part payment for his detective serv-
ice. Daily typewritten reports are mailed to our clients. These
operatives are continually under direct supervision of the manage-
ment of this agency.
Within the heart of your business is where we operate, down in
the dark corners, and in out-of-the-way places that cannot be seen
from your office or through your superintendent or foreman.
If it is of interest to you to know today what occurred in your
plant yesterday, and be in a position to correct these faults tomor-
row, we would be pleased to take the matter up with you further, and
respectfully ask an interview for one of our representatives.
-y 298. The Boycott of the Butterick Company^"
BY A. J. PORTENAR
It was my fortune to take a very active part in the boycott insti-
tuted against the products of the Butterick Company by Typographi-
cal Union No. 6 in 1906, and later carried on by the International
Typographical Union. This boycott was, I verily believe, better
organized, more determined, and more damaging to the parties it
was aimed at than any other I have knowledge of, not excepting that
against the Buck Stove and Range Company, which is more widely
known only because of the adventitious circumstances that brought
the highest officials of the American Federation of Labor into court.
Not only in the United States and Canada, but in Cuba, Germany,
and Australia, the International Typographical Union cut into the
sales and captured the customers of the Butterick Company. Wher-
ever a typographical union was organized, there, in greater or less
degree, the boycott was pushed. The expected court proceedings
were in evidence at all times. There were arrests, injunctions, actions
for criminal contempt. In short I doubt if a more thorough trial of
the efficiency of the boycott has ever been made.
What about results? That the Butterick people were consider-
ably damaged they themselves admitted. Eventually the Butterick
house was unionized again, but it is not possible for us to say to what
extent the boycott was responsible for that consummation. It is with-
in my knowledge, however, that it had been decreasing in intensity for
two years before an agreement with the company was reached, in
20Adapted from Organised Labor, pp. 90-92. Copyright by the Macmillan
Co., 1912,
PROBLEMS OF UNIONISM AND WAGE CONTRACT 655
191 1, and that at the time of the settlement the boycott was practically
dormant.
I was very active in this matter, and from the experience thus
gained I have reached definite conclusions. We expended a large
amount of money; how large I do not know. There was a con-
tinuous distribution of printed matter and of comparatively expen-
sive novelties bearing appropriate inscriptions. There were speakers
sent to tour the country. There was an organizer whose sole duty
it was to further the boycott. * There was a prominent lawyer
engaged by the year. So far as money could compass our object,
we were not niggardly. But money is only one of the essential
factors a union needs in the conduct of an affair of this kind. Far
more than money, it must have the enthusiastic devotion of its
members to the continuous, laborious, and unpleasant work needful
to make the expenditure of money effective. This, with a few
exceptions, I found it impossible to get. Even these few, in the
course of time, finding themselves unsupported by the great majority,
began to get lukewarm, and at last ceased to labor in a field, so vast
and so deserted. It was not that we had no success ; the Butterick
Company is the best witness to the contrary. But it is scarcely
believable how unremittingly we had to labor to save what we had
done one day from becoming useless the next. This fact eventually
led to the abandonment of the boycott and the slow recovery by the
Butterick Company of the ground it had lost. Therefore my opinion
is that no boycott can completely and permanently accomplish the
result sought, and very few will do nearly so much in that direction
as the one here spoken of, which finally became a failure,
—^ 299, Ostracism as an Industrial Weapon-^
BY FRANK JULIAN WARNE
In controlling the ordinary supply of labor in the industry, com-
mittees of union men visit personally every man employed who has
not already been captured by the organizers, and his position is
definitely ascertained. This is one of the most important uses of
picketing, by means of which men are met on their way to and from
work. To the employees continuing at work the pickets at first have
recourse to the powers of friendly and peaceable persuasion, but if
these fail to induce the men to join the union, or, if not this, at least
to remain away from the work, then upon the non-union men are
2iAdapted from The Coal-Mine Workers, pp. 160-65. Copyright by Long-
mans, Green & Co., 1905.
/^^^ 656 CURRENT ECONOMIC PROBLEMS
,y
brought to bear social forces verging upon lawlessness, and over-
stepping the safeguards the state has thrown around individual
liberty, which only a strong public sympathy with the cause of the
union will support. The most important of these social forces is
ostracism.
Ostracism is a stronger social force in maintaining a high stand-
ard of personal conduct than most of us realize. It means banish-
ment or exclusion from social intercourse or favor, and is usually
employed by a particular group against members of its own class or
craft. Its most effective weapon is some term of reproach coined for
the purpose. Lawyers, for example, who do not come up to the
standard set for that profession by its dominant group, are ostracized
and termed "shysters." So it is with the medical profession ; physi-
cians engaged in questionable practices which the dominant group
denounce are ostracized by the more reputable practitioners with the
reproachful term "quack." The same social force is at work among
the industrial classes. Union men set a standard as to wages and
conditions of employment in a particular industry, and those work-
ingmen who fall below that measurement, in offering their labor for
a less price, are ostracized and denounced as "scabs." Whether the
group be doctors or lawyers or workingmen, whatever it adopts as
the standard of measuring conduct along particular lines is sooner
or later taken up by the broader social grouping in the community
and accepted as its standard of judgment. This is particularly and
strikingly true of a community closely identified with an industry the
livelihood of whose members depends upon the industry's activities
and in which a dominant group (usually members of a trade-union)
creates the industrial standard. This explains the attitude of hos-
tility an industrial community exercises towards the "scab." It ex-
plains, also, perhaps, how men far removed from the influence of
the working classes can look upon the "scab" as a hero.
The social force of ostracism, put into operation by the working
of the trade-unions, is directed, and particularly so in strike times,
not only against the "scab" himself, but also along all those channels
of social relations affecting him and which might have influence
upon him in bringing about action conformable to the standard of
the dominant group. The strength of this weapon in the strike of
the anthracite-mine employees in 1902 caused union men and their
families to refuse to associate with the workingman who continued
his employment in the mines ; it expelled a prominent and other-wise
highly respected citizen from a benevolent society which had for
its object the assisting of sick members and the defraying of a part
of the funeral expenses of those who died, and of which he had been
PROBLEMS OF UNIONISM AND WAGE CONTRACT 657
a member in good standing for more than twenty-seven years ; it
caused children of striking mine workers not only to refuse to at-
tend school of a woman teacher whose aged father was a watch-
man at one of the mines, but they also demanded that she be dis-
charged. Children of union miners would not attend Sunday-school
with their former playmates whose relatives continued at work ;
members of the Lacemakers' Union employed at a silk-mill refused
to work alongside girls whose fathers and brothers would not strike ;
clerks were dismissed from stores and business establishments be-
cause they were related to men who continued at work in the mines ;
even promises of marriage were broken through relatives of one or
the other of the contracting parties being non-union workers. The
"scab" was not infrequently held up in public scorn and ridicule by
the publication of his name in the "unfair list" of the newspapers
in the mining towns as being "unfit to associate with honorable
men ;" he was represented by name on signs attached to effigies
dangling from electric light, telegraph, and telephone poles and wires
and from trees in front of his home and along the highways and
streets ; a grave in his yard with his name placed upon the board
at the head to represent a tombstone not infrequently confronted
him; the sign of "the skull and cross-bones" was painted on his
house, and in innumerable other ways, conceivable only by work-
ingmen whose imaginative faculties have been aroused by the desire
for persecution of others who oppose a cause which is so vital to
their home and family, was created a public sentiment against the
non-union employee.
300. The Scab"
BY DYER D. LUM
The non-unionist is but an indirect enemy ; in withholding his
aid he by so much weakens the common line of defense. Though
often his acts may directly, without conscious efifort, aid the enemy,
he need not be a traitor to his fellow toilers. Every great move-
ment has some object of superlative loathing; its Judas Iscariots,
its Benedict Arnolds, its Pigotts, its paid spies and informers, its
Pinkerton thugs — men deaf to all honor, blind to mutual interest,
dead to all but the miserable cravings of their shriveled souls. In
the industrial conflict the instinct of workers has significantly termed
its type of this species "scab !" Loud have been the appeals for sym-
pathy with the workman who falls out from the line to better his con-
dition, or relieve the distress of a starving wife and family. But
22Adapted from Philosophy of Trade Unions, pp. 13-14. Published by
American Federation of Labor, 1892.
658 CURRENT ECONOMIC PROBLEMS
to prevent just such contingencies is the mission of the union. One
who is forced to the necessity of wage labor and refuses to share
the common danger, but either openly or stealthily goes over to the
enemy to accept his terms, is a deserter. By his act he has sundered
the social bonds of mutual interest which united him to us, has
served notice that he asks no aid, expects no sympathy, seeks no
quarter. At his acted word we take him.
The time has passed for circumlocution in handling this subject:
If trade-unionism has a logical ground for existence, if organized
resistance is preferable to slavish submission, if the social ties which
unite us in mutual alliance are of higher validity than the selfish
cravings of an unsocial nature, the relation between the trade-
union and its sycophantic enemy, the "scab," is that existing be-
tween the patriot and the paid informer. No sentimentalism will
attenuate, no olive branch will be extended ; no tears will be shed
over whatever misfortune befalls him, nor aught but utter loathing
be felt for him. He stands forth by his own act recreant to duty.
He is bankrupt in honor, infidel to faith, destitute of social sym-
pathy, and a self-elected target. We here but express clearly what
workingmen feel in every industrial crisis, and we deliberately ex-
press it that at all times such men be regarded as possible "inform-
ers" and traitors.
But let us hear his defense. We are told that trade-unionism
is an encroachment upon individual right, that the toiler, whether
union or non-union, has the privilege to sell his labor as best suits
himself. To this we reply: (i) The toiler does not enter the
market under equal conditions. (2) Monopoly over land, the source
of wealth, and over exchange, its medium of distribution, gives to
the capitalist an economic advantage in the struggle. (3) The legal-
ization of privilege forces upon the unprivileged the necessity of
combination in order to sustain themselves. (4) The logic of events
has settled the line of action; it lies neither in the prayer-meeting
nor in the polling-booth, but in mutual accord of action and de-
termined self-help.
Industrial combination, under such circumstances, is as neces-
sary for the exploited toiler, as military organization for an invaded
people. We are in a state of industrial war. Every appeal to legis-
lation to do aught but undo is as futile as sending a flag of truce to
the enemy for munitions of war. The growth of solidarity evi-
denced in wider federation, in leading the broader views of the issue,
and deeper sense of interrelations, can but intensify this feeling to-
ward the "scab."
PROBLEMS OF UNIONISM AND WAGE CONTRACT 659
Unions have already demonstrated their power to rise above the
subsistence level, where otherwise they would be. It is our duty,
not only to ourselves, but to our families, to enlarge the scope of
union among our fellow craftsmen. Our task is to be true to the
need of the hour in order to be the better fitted for the unknown
needs of the struggle tomorrow. The lines are being closer drawn,
and the exigencies of the situation demand concert of action, both
against the combined enemy and the traitor who would betray our
cause by a shot from the rear. In such a struggle for a higher
civilization — a struggle forced upon us — the industrial recreant is a
social traitor.
Out of conflict all progress has come. The history of the labor
movement, its increasing self-reliance, its growing indifference to
"labor politicians," its development of sturdy independence and
manhood, all alike indicate change in its methods among future pos-
sibilities. But with all this, and its accompanying wider sympathy
and extension of mutual ties, the feeling of loathing toward the
"scab" has intensified.
To sum up, to assert egoism against mutual interests is unsocial
and hence a denial of the mutual basis upon which equitable rela-
tions alone can exist. Thus the "scab" is not merely unsocial, but by
his acted word virtually places himself with the industrial invaders
and becomes an enemy. Equal freedom cannot be strained to mean
a denial of mutual interests. Social evolution is not a mere theory,
but a record of facts, and no fact is more strongly brought out than
that progress has resulted only in so far as mutual interests have
been recognized. We do not institute them, they compel us.
Therefore, primarily as human beings, become so by social evo-
lution, and by the social environment in which the present struggle
is conditioned, and recognizing as the goal of industrial advance the
mutuality of interests involved in the assertion of equal freedom, in
strict accord with all sociological deductions, and with the utmost
submission to the higher law permeating social growth, we rever-
ently raise our hats to say prayerfully : "To hell with the 'scab' !"
E. UNIONISM IN WAR TIME
301. The Challenge to American Labor
a) Great Britain ^^
The British trade-union movement, having first decided to support
^he war, immediately applied itself to the ways and means by which
23A statement by Hon. James H. Thomas, general secretary, National
Union of Railway Men of Great Britain and Ireland.
66o CURRENT ECONOMIC PROBLEMS
it could best do it, and the first thing we did was to declare there
should exist during the period of the war an industrial truce. That
is to say, that with the war raging as it was it would be madness an-^
folly to have side by side with that war raging an industrial war in our
own country, and we entered into an agreement with the employers
whereby they, on the one hand, agreed that they would not interfere
with or reduce the conditions prevalent at the time, in return for
which we, on the other hand, agreed that we should not attempt to
set up any new standard conditions, and that truce was practically
agreed to by the whole of the organized workers of Great Britain.
h) France ^*
To do a good day's work is no longer enough ; one must do all
there is to be done. The worker's effort is on the same plane of
necessity as military effort. During the Battle of Verdun, at a
certain forge for "155" shells, the man's day passed at one bound to
eighteen hours, and to such speed that the proportion of sick and
exhausted reached 11 per cent. The soul of his labor lifts the work-
man above fatigue, and social equity is dominated by the duty to
keep for France her just place in the world. France has been con-
strained to an experience which has revealed her to herself. She will
know how to make her force endure by maintaining in industry the
power invented for battle.
c) Italy ""^
The response of Italian labor, both field and factory, to the
emergency of war and the necessity of industrial mobilization has
been splendid. Our munition works and transportation systems, for
example, are all under full military discipline and every man em-
ployed in such an industry is rated as a soldier. But he gets the pay of
a mechanic that prevails in that industry. It seems unjust, I know,
that a soldier whose work it is to fight at the front receives about
five cents a day, while the soldier whose training fits him for shop
work may get five dollars, but there seems no other way. We have
had no strikes, no labor troubles of any sort, since the war began,
and we do not fear any.
302. A Declaration of Principles^*'
The American Alliance for Labor and Democracy in its first na-
tional conference declares its unswerving adherence to the cause of
2*A statement by the New Republic, July 21, 1917.
25A statement by Dr. Francesco Saverio Nitti.
26Adopted unanimously by the American Alliance for Labor and Democ-
racy at its first national conference at Minneapolis, September 5-7, 1917.
PROBLEMS OF UNIONISM AND WAGE CONTRACT 66 1
democracy, now assailed by the forces of autocracy and militarism.
As labor unionists, social reformers, and Socialists we pledge our
loyal support and service to the United States Government and its
Allies in the present world-conflict.
We declare that the one overshadowing issue is the preservation
of democracy. Either democracy will endure and men will be free,
or autocracy will triumph and the race will be enslaved. On this
prime issue we take our stand. We declare that the great war must
be fought to a decisive result ; that until autocracy is defeated there
can be no hope of an honorable -peace, and that to compromise the
issue is only to sow the seed for bloodier and more devastating wars
in the future.
We declare our abhorrence of war and our devotion to the cause
of peace. But we recognize that there are evils greater and more
intolerable than those of war. We declare that war waged for evil
ends must be met by war waged for altruistic ends. A peace bought
by the surrender of every principle vital to democracy is no peace, but
shameful servility. Our nation has not sought this war. As a people,
we desired peace for its own sake, and we held fast to our traditional
principle of keeping aloof from the political affairs of Europe. Our
President, with a forbearance and a patience which some of us
thought extreme, exhausted every honorable means in behalf of
peace ; and the declaration of war came only after many months
of futile efforts to avoid a conflict. This war, so relentlessly forced
upon us, must now be made the means of insuring a world-wide and
permanent peace.
We declare that in this crisis the one fundamental need is unity
of action. The successful prosecution of the war requires that all
the energies of our people be concentrated to a common purpose.
After more than two years of exhaustive deliberation, in which every
phase of our relation to the great world-problem has been thoroughly
debated, the constitutional representatives of the people declared the
nation's will. Loyalty to the people demands that all acquiesce in
that decision and render the government every service in their power.
We strongly denounce the words and actions of those enemies of
the Republic who, falsely assuming to speak in the name of labor and
democracy, are now ceaselessly striving to obstruct the operations
of the government's purposes. In traducing the character of the
President and of his advisers, in stealthily attempting to incite sedi-
tion, and in openly or impliedly counseling resistance to the enforce-
ment of laws enacted for the national defense, they abuse the rights
of free speech, free assemblage, and a free press. In the name of
liberty they encourage anarchy, in the name of democracy they strive
662 CURRENT ECONOMIC PROBLEMS
to defeat the will of the majority, and in the name of humanity they
render every possible comfort to the brutal Prussian autocracy. If
the sinister counsels of these persons were followed, labor would be
reduced to subjection and democracy would be obliterated from the
earth. We declare that the betrayal of one's fellow-workers during a
strike finds its exact counterpart in the betrayal of one's fellow-
citizens in time of war, and that both are offenses which deserve the
detestation of mankind.
This war, which on our part is waged for the preservation of
democracy, has already set in motion vast forces for the furtherance
and extension of democracy. Revolutionary changes have been made
. — changes which reveal the power and determination of a democratic
people to control its own economic life for the common good. We
declare that peace shall not be another name for reaction, but that
the gains thus far made for labor should be maintained in perpetuity.
We declare that industrial enterprises should be the servants and
not the masters of the people; and that in cases where differences
between owners and workers threaten a discontinuance of production
necessary for the war, the government should assume complete con-
trol of such industries and operate them for the exclusive benefit of
the people.
We declare that the government should take prompt action with
regard to the speculative interests which, especially during the war,
have done so much to enhance prices of the necessaries of life. To
increase the food supply and to lower prices the government should
commandeer all land necessary for public purposes and should tax
idle land in private possession on its full rental value.
We declare that the right of the wage-earners to collective action
is the fundamental condition which gives opportunity for economic
freedom and makes possible the betterment of the workers' condition.
The recognition already given to this principle should be extended
and made the basis of all relationships, direct or indirect, between the
government and wage-earners engaged in activities connected with
the war.
We declare that the wage-earners must have a voice in determin-
ing the conditions under which they are to give service, and that the
voluntary institutions that have organized the industrial, commercial,
and transportation workers in time of peace shall be unhampered in
the exercise of their recognized function during the war — that labor
shall be adequately represented in all the councils authorized to
conduct the war and in the commission selected to negotiate terms
of peace.
PROBLEMS OF UNIONISM AND WAGE CONTRACT 66^
Believing that the material interests of the nation's soldiers and
sailors and of their dependents should be withdrawn from the realm
of charity and chance, and that health and life should be fully
insured, we indorse the soldiers and sailors' insurance bill now before
Congress.
We declare for universal equal suffrage.
Fully realizing that the perpetuity of demoratic institutions is
involved in freedom of speech, of the press, and of assemblage, we
declare that these essential rights must be guarded with zealous care
lest all other rights be lost. We declare, however, that where expres-
sions are used which are obstructive to the government in its conduct
of the war, or are clearly capable of giving aid or comfort to the
nation's foes, the offenders should be reprimanded by the constituted
authorities in accordance with established law.
Inspired by the ideals of liberty and justice herein declared as a
fundamental basis for national policies the, American Alliance for
Labor and Democracy makes its appeal to the working men and
women of the United States, and calls upon them to unite in unani-
mous support of the President and the nation for the prosecution of
the war and the preservation of democracy.
303. A War-Time Labor Policy"
The commission of representatives of employers and workers,
selected in accord with the suggestion of your letter of January 28,
1918, to aid in the formulation, in the present emergency, of a na-
tional labor program, present to you, as a result of their conferences,
the following:
(a) That there be created, for the period of the war, a National
War Labor Board of the same number and to be selected in the same
manner and by the same agencies as the commission making this
recommendation.
(b) That the functions and powers of the National Board shall
be as follows :
1. To bring about a settlement, by mediation and conciliation, of
every controversy arising between employers and workers in the field
of production necessary for the effective conduct of the war.
2. To do the same thing in similar controversies in other fields
of national activity, delays and obstructions in which may, in the
opinion of the National Board, affect detrimentally such production.
27A report made to the Secretary of Labor, March 29, 1918, by the War
Labor Conference Board.
Ed. Note. — This is the basis of our national labor policy and is compara-
ble "so far as American conditions make it comparable" with the English
Treasury Agreement, later embodied in the Munitions Bill.
664 CURRENT ECONOMIC PROBLEMS
3. To provide such machinery by direct appointment, or other-
wise, for selection of committees or boards to sit in various parts of
the country where controversies arise, to secure settlement by local
mediation and conciliation.
4. To summon the parties to the controversy for hearing and
action by the National Board in case of failure to secure settlement by
local mediation and conciliation.
(c) If the sincere and determined effort of the National Board
shall fail to bring about a voluntary settlement, and the members of
the Board shall be unable unanimously to agree upon a decision, then
and in that case, and only as a last resort, an umpire appointed in
the manner provided in the next paragraph shall hear and finally
decide the controversy under simple rules of procedure prescribed by
the National Board.
{d) The members of the National Board shall choose the umpire
by unanimous vote. Failing such choice, the name of the umpire
shall be drawn by lot from a list of ten suitable and disinterested
persons to be nominated for the purpose by the President of the
United States.
{e) The National Board shall hold its regular meetings in the
city of Washington, with power to meet at any other place conve-
nient for the Board and the occasion.
(/) The National Board may alter its methods and practice in
settlement of controversies hereunder, from time to time as experi-
ence may suggest.
{g) The National Board shall refuse to take cognizance of a con-
troversy between employer and workers in any field of industrial or
other activity where there is by agreement or federal law a means
of settlement which has not been invoked.
(/i) The place of each member of the National Board unavoid-
ably detained from attending one or more of its sessions may be
filled by a substitute to be named by such member as his regular sub-
stitute. The substitute shall have the same representative character
as his principal.
(t) The National Board shall have power to appoint a secretary^
and to create such other clerical organization under it as may be in its
judgment necessary for the discharge of its duties.
(;') The National Board may apply to the Secretary of Labor for
authority to use the machinery of the Department in its work of
conciliation and mediation.
{k) The action of the National Board may be invoked in respect
to controversies within its jurisdiction by the Secretary of Labor or
by either side in a controversy or its duly authorized representative.
PROBLEMS OF UNIONISM AND WAGE CONTRACT 665
The Board, after summary consideration, may refuse further hearing
if the case is not of such character or importance as to justify it.
(/) In the appointment of committees of its own members to act
for the Board in general or local matters, and in the creation of local
committees, the employers and the workers shall be equally rep-
resented.
(m) The representatives of the public on the Board shall preside
alternately at successive sessions of the Board or as agreed upon.
(n) The Board in its mediating and conciliatory action, and the
umpire in his consideration of a controversy, shall be governed by the
following principles :
PRINCIPLES AND POLICIES TO GOVERN RELATIONS BETWEEN WORKERS
AND EMPLOYERS IN WAR INDUSTRIES FOR THE
DURATION OF THE WAR
There should be no strikes or lockouts during the war.
Right to organize. — i. The right of workers to organize in trade-
unions and to bargain collectively, through chosen representatives, is
recognized and affirmed. This right shall not be denied, abridged, or
interfered with by the employers in any manner whatsoever.
2. The right of employers to organize in associations or groups
and to bargain collectively, through chosen representatives, is recog-
nized and affirmed. This right shall not be denied, abridged, or inter-
fered with by the workers in any manner whatsoever.
3. Employers should not discharge workers for membership in
trade-unions, nor for legitimate trade-union activities.
4. The workers, in the exercise of their right to organize, shall
not use coercive measures of any kind to induce persons to join their
organizations, nor to induce employers to bargain or deal therewith.
Existing conditions. — i. In establishments where the union shop
exists the same shall continue and the union standards as to wages,
hours of labor, and other conditions of employment shall be main-
tained.
2. In establishments where union and non-union men and women
now work together, and the employer meets only with employees or
representatives engaged in said establishments, the continuance of
such condition shall not be deemed a grievance. This declaration,
however, is not intended in any manner to deny the right, or dis-
courage the practice, of the formation of labor unions, or the joining
of the same by the workers in said establishments, as guaranteed in
the last paragraph, nor to prevent the War Labor Board from urging,
or any umpire from granting, under the machinery herein provided.
666 CURRENT ECONOMIC PROBLEMS
improvement of their situation in the matter of wages, hours of labor,
or other conditions, as shall be found desirable from time to time.
3. Established safeguards and regulations for the protection of
the health and safety of workers shall not be relaxed.
Women in industry. — If it shall become necessary to employ
women on work ordinarily performed by men, they must be allowed
equal pay for equal work and must not be allotted tasks dispropor-
tionate to their strength.
Hours of labor. — The basic eight-hour day^s recognized as apply-
ing in all cases in which existing law requires it. In all other cases
the question of hours of labor shall be settled with due regard to gov-
ernmental necessities and the welfare, health, and proper comfort
of the workers.
Maximum production — The maximum production of all war
industries should be maintained and methods of work and operation
on the part of employers or workers which operate to delay or limit
production, or which have a tendency to increase artificially the cost
thereof, should be discouraged.
Mobilization of labor. — For the purpose of mobilizing the labor
supply with a view to its rapid and efifective distribution, a permanent
list of the number of skilled and other workers available in dififerent
parts of the nation shall be kept on file by the Department of Labor,
the information to be constantly furnished, (i) by trade-unions;
(2) by state employment bureaus and federal agencies of like char-
acter; (3) by the managers and operators of industrial establish-
ments throughout the country. These agencies should be given
opportunity to aid in the distribution of labor, as necessity demands.
Custom of localities. — In fixing wages, hours, and conditions of
labor regard should always be had to the labor standards, wage scales,
and other conditions prevailing in the localities affected.
The living zvage. — i. The right of all workers, including common
laborers, to a living wage is hereby declared.
2. In fixing wages, minimum rates of pay shall be established
which will insure the subsistence of the worker and his family in
health and reasonable comfort.
V:
F. WOMAN'S INVASION
304. Replacement of Men by Women^*
The phrase "women in industry" was used so often during the
war that it has become the part of wisdom to remind ourselves that
28Adapted from "The Industrial Replacement of Men by Women," which
IS Bulletin No. 93, issued by the Department of Labor of the State of New
York (1919).
PROBLEMS OF UNIONISM AND WAGE CONTRACT 667
women are not new to industry. Women have always been an inte-
gral part of the factory system. Before the war 300,000 women
turned the wheels of production in the state of New York. Some
industries are known as women's industries because their hands hold
the tools and operate the machines. Women are the backbone of
garment-making, knit goods manufacture, candy-making, and the
paper trades. They fill the ranks of the unskilled and semi-skilled
in large plants with standardized products and in small low-grade.^y"'
workshops in large cities. Yet their coming into industry in larger'
numbers during the war caused employers, government, and brother-
workers alike to recognize a new phase in industrial development.
As matters stand to date the facts concerning the capacity of
women who have replaced men are not known. We know only
that they have taken men's places during a period of great stress.
The significant questions concerning their precise degree of success
on certain processes in terms of production and steadiness remain
to be answered. The scientific apportionment of women's wages
in relation to their output and the wages of men that they replaced
remains to be made. The effect of the unrestricted introduction of
unskilled labor into the ranks of the skiTIed has not been estimated.
The possibility of women's permanence in their new work has not
yet been considered nor its causes analyzed. Administrative prob-
lems in shop arrangement and trade-union policy limiting the success -'
of women have not been solved.
The extent and character of the replacement of men by women
was governed in every country by the length of the war period. This
indicates the difference in replacement as it occurred in Great Britain
and in this country. In both there was the same sudden demand for
enormous quantities of war materials complicated by the departure
of skilled male labor to war. Great Britain had four years in which
to solve the problem and this country only nineteen months. Great
Britain had time in which to build new factories, planned and
equipped for women, to shift women workers from plant to plant
to obtain for them the most suitable work; and to build machinery
and rearrange processes so that the most productive combination of
male and female labor could be made. In the United States, on the
other hand, this same demand pushed women into the plants and
into men's places without any changes in machines or rearrangement
in process.
This difference between the experience of Great Britain and the
United States illustrates the distinction between two words which
the war has brought into use. The words are "replacement" and
"dilution." Both occur in industry as the result of an emergency
668 CURRENT ECONOMIC PROBLEMS
when an increase in the existing labor supply must be instantly se-
cured. Dilution implies the thinning out or spreading of the func-
tions of skilled workmen among those that are less skilled with or
without division of process or change in machine. Replacement,
on the other hand, is a specific form of dilution in which the less
^.skilled, usually a woman, takes the place of the more skilled, usually
' a man, without division of process or change of machine.
In New York state dilution has occurred in its elementary form
of replacement. Where exceptions to this rule have taken place they
are instructive of what would have been the case had we remained
at war a longer time, or what may be the case in after years when
women are more widely used industrially. Division of process has
taken place in only a few plants, through substitution of power ma-
chinery for tools, and the use of porters to do heavy lifting. Where
such changes are made, the result is not an increase in the number
of employees, but merely a higher degree of specialization-
The amount and character of replacement was dictated not only
by the pressure of war contracts but also by local plant and labor
conditions. At first women filled those vacancies where the work
was light, less skilled and repetitive. Heavy or skilled work was
attempted only after a considerable time had elapsed, or in response
to unusual demands. Those communities have been most successful
in replacement in which the principal industry has offered work of
a light nature and was one in which untrained women could be easily
absorbed. Such a town was Rochester, where in optical and instru-
ment-making women could perform light machine and bench work
after a minimum of training; or Schenectady, where much machine
work on small electrical fittings had always been done. Replace-
ment has come easier to employers and women in those towns where
women's industries had been located and some body of knowledge
concerning the methods of handling the problem was already in
existence.
The following typical instances indicate the extent and variety of
tasks upon which men have been replaced by women : Turning,
sawing, and coloring buttons ; feeding paper ; engraving ; assembling,
inspecting, packing, and shipping metal products ; operating punch
presses, drills, lathes, milling machines ; screw machines ; finishing
and cutting leather ; operating sewing machines ; assembling elec-
trical supplies ; packing cartons of food products ; operating diamond
drills and polishing and grinding lenses ; repairing watches ; acting
as laboratory assistants in chemical industries ; rethreading bolts and
nuts ; operating cranes and hammers in railroad repair shops ; weigh-
ing, examining, and shipping ammunition ; upholstering vehicles ;
PROBLEMS OF UNIONISM AND WAGE CONTRACT 669
and installing telephones. These instances could be multiplied many
times over.
Most of the processes undertaken by the first women supplanting
men required no previous industrial experience. As time went on
training schools became necessary adjuncts to the large plants. The
organization and theory of industrial education upon which these
schools were founded is an important topic of current discussion.
During the war their aim was to turn out specialists as quickly as
possible. Since the war the opinion has been growing that women
showing ability should be trained for the more skilled trades. In
view of the novel questions presented a proper scheme of industrial
training can be established only by a process of trial and error in
each trade. Yet it is clear that if women are to enter machine trades
they must be given special training to make up for the advantage
which the boy has in having learned to handle tools while a child.
The whole story of women's wage status in patriotic service is
told when two comparisons are made : ( i ) The comparison of her
flat wage rate with the government's estimate of the cost of sub-
sistence for a woman who has no one but herself to support; and
(2) the comparison of her wage rate with the rate received by the
male worker she replaces.
A glance at the flat wage rate received by women indicates that
war has not improved women's wage status as much as had been
hoped. The newspapers have turned the limelight of publicity upon
the exceptional women who have earned from $20 to $25 per week.
They have made no mention of the army of munition workers, ma-
chine-gun makers, and the undramatic rank and file in optical and
electrical work. These women have made good but their wages do
not reflect their success. Two-thirds of the women who replaced
men in the state of New York receive less than $15 a week. Their
wages hover around a medium of $13 a week with a group receiving
less than $12 a week. Although some have bettered themselves, for
a great many the war has meant a change of work without an increase
in pay.
The wages of the women compared with those of the men they
have replaced also afford reason for reflection. Of all women re-
placing men 9 per cent receive equal pay. It is to be noted, however,
that the higher the pay of the man replaced the smaller the chance
of the woman replacing him receiving it. The highest paid men
received from $22 to $35 per week. The women who took thefr
places received from $10 to $15 a week. Discrimination begins at
nothing and rises to $19 a week. Over one-half of the women re-
ceive $4 per week or more less than men, 33 per cent receive $6 per
670 CURRENT ECONOMIC PROBLEMS
week or more less, while 3 per cent receive $10 a week or more less
than men.
The opinions of employers about the efficiency of the women re-
placing men fall into two groups. In the first are those who found
women satisfactory— satis factoriness being defined as a composite
quality made up of productive capacity, steadiness, reliability, me-
chanical aptitude, and all those other characteristics innate and ac-
quired which are considered necessary in the good workman. In the
second are those who had dismissed all women replacing men. When
a count was made of the employers who claimed that women were
so satisfactory that men would not necessarily be reinstated when
they were again available, it was found that the total represented 80
per cent of the plants. Eleven employers are emphatic in stating that
women in their plants produce more than the men that they replace.
Yet in no case does a woman producing more than a man receive as
much as a man doing the same work in the same plant.
The replacement of men by women has from the first been a
mystery, not only to those who thought they could never do it, but
also to those who thought if they could they never would stay with
it. The surprise of foremen at women's dexterity and adaptability
only equaled their certainty that after the emergency was over the
problem of women in men's'places would settle itself by their auto-
matic reabsorption into the home. In this simple faith they were
joined by trade-unions, who said that women not only would return
to their homes, but that they would have to return to their homes.
During the war not an employer was to be found who openly con-
templated retaining the women he had taken the pains to select and
train. The day after the armistice was signed, however, there were
unmistakable signs that not only were women to be kept in the places
they were filling but they were to be trained to fill others requiring
greater skill and initiative.
It is far more difficult to secure a statement from an employer
of his reason for retaining women in men's places than for dropping
them. His most usual reply is "Why not? They are entirely satis-
factory." The underlying reason may or may not come out later
in the interview. When it does emerge it requires very little analysis
to see that women are staying primarily because they permit manu-
facture at less cost per unit of production, and with less friction be-
tween management and workers. Some women produce more than
men at an equal wage ; some as much as men at a smaller wage ; and
some less than men at a wage so much smaller that their employment
is still profitable. Women are by habit industrially acquiescent,
PROBLEMS OF UNIONISM AND WAGE CONTRACT 671
pliable, and submissive to routine. They are to a very large degree
unorganized. In any case the employers' advantage is secvire.
The general attitude of labor men is that if women receive the
same wages as men for the same work they will not oppose them, but
they will unalterably oppose their entrardre into new occupations
as underbidders. At first the viewpoint of a great many labor men
toward the entrance of women into new occupations was skeptical.
It is encouraging to note that now most of them are realizing that
women are in the trade to stay and it is necessary therefore to deal
with them as fellow-workers, to organize them in their trade-unions.
If they succeed, there should be no sex competition and men and
women in the trade will work hand in hand for the betterment of
the conditions under which they work.
305. The Health of Women in Industry^^
BY JANET M. CAMPBELL
The question of the relationship of men's and women's wages
is dependent in large measure on the relative health and physical
capacity ; and physical and industrial efficiency are mutually inter-
dependent and indeed inseparable. The medical issues raised by the
inquiry are thus fundamental.
The general conclusions which emerge from this inquiry may be
summed up as follows :
1. The average woman is physically weaker than the average
man ; she cannot compete with him satisfactorily in occupations re-
quiring considerable physical strength, while competition in opera-
tions of a less arduous but still exacting character may be detrimental
to her health. The second fundamental physiological difference
between the man and the woman is the fact of her potential or actual
motherhood. This necessity governs to a large extent her industrial
power, efficiency, and value. It wholly prevents absolutely equal com-
petition in industry. It cannot be disregarded if women are to be
employed under the conditions most appropriate to them not only as
individuals but also with a view to the future and well-being of the
race.
2. The conditions under which women were employed before the
war were not such as to enable them to develop full health and vigor.
Low wages, an unsatisfactory dietary, long hours, and lack of exer-
cise in the open air, resulted in physical and industrial inefficiency and
29Adapted from a "memorandum" with the foregoing caption, included
in the Report of the War Cabinet Committee (England) on Women in Indus-
try, pp. 218, 250-52. The memorandum is dated December 19, 1918.
672 CURRENT ECONOMIC PROBLEMS
caused too low a value to be placed upon women's strength and
capability.
3. The control of employment under the Factory and Workshop
Acts, together with an advance in general sanitation, has done much
to ameliorate the conditions of labor, but has not been fully effective.
4. Employment under the conditions existing in the past has
probably had, upon the whole, an injurious effect upon the health of
women and girls, though it is difficult to disassociate the effect of
employment from social conditions generally. Women have suffered
from numerous minor ailments, which, though not actually disabling,
have resulted in considerable broken time and loss of industrial
efficiency. The rise, during the war, of the tuberculosis death-rate
among urban women suggests that any considerable increase in the
number of women employed and in the period of their employment
may, unless conditions of employment are improved, cause the female
death-rate to approximate that of the male, a result which could not
fail to have a detrimental effect upon national health and efficiency.
5. The effects of employment upon the function of motherhood
are not easy to determine with exactitude. The direct result upon
the reproductive system is probably largely negligible, except in the
case of multifarious women engaged in heavy or fatiguing work. The
indirect influence in causing an impairment of the general health is
certainly considerable. The effect of the increasing employment of
women on the birth-rate has probably been to accelerate somewhat
the steady decline which has been observed since 1876. The influence
of employment upon the infant mortality rate is not very clear. The
regular employment of the mother necessarily deprives her infant of
its natural food, which is the greatest safeguard to its healthy growth
and development, and also of the careful and constant attention which
is so necessary to its successful nurture. On the other hand poverty
or an unsanitary environment may have an even more injurious effect
than the mother's absence. Indeed, it is significant that the infant
mortality rate has shown its most rapid decline in the last decade,
during which industrial employment of women has increased.
6. The employment of married women may react directly upon
the personal health of the expectant and nursing mother and upon
her general physical strength at other times, by imposing a double
burden of factory labor and domestic duties, while lack of "mother-
ing" may lead to the moral and physical injury of the children. Em-
ployment under suitable conditions is not in itself injurious to preg-
nant woman, while the money thus earned may enable her to be prop-
erly fed, a matter of the highest importance. If the work causes
undue fatigue or involves strain or violence it may give rise to gen-
PROBLEMS OF UNIONISM AND WAGE CONTRACT 673
eral or local injury and lead to premature confinement or complica-
tions of pregnancy. A woman should not return to work within four
weeks after the birth of a child.
7. The results of the employment of women under war condi-
tions have emphasized the importance to health of the good food,
clothing, and domestic comfort which can be obtained when the wages
represent a reasonably adequate recompense for labor. They have
also proved that properly nourished women have a much greater
reserve of energy than they have usually been credited with, and that
under suitable conditions they can properly and advantageously be
employed in more arduous occupations than has been considered de-
sirable in the past. Light, sedentary occupations are not necessarily
healthy. The commercial futility of unduly long hours of work and of
overtime has beep demonstrated repeatedly, together with the benefit
to health and to output of shorter hours, of the abolition of work
before breakfast, and of properly arranged spells and pauses.
8. Direct supervision of the health of industrial workers was
almost nonexistent before the war. Experience of war conditions has
emphasized the need for more efficient supervision and for energetic
research into the causes of industrial fatigue and the methods of
preventing disease directly or indirectly due to occupation. Factory
hygiene must become an integral part of the general system of pre-
ventive medicine. For this purpose an adequate service of factory
medical offices is needed, having no duties of treatment, but charged
with the general oversight of factory conditions, hygiene, and health.
306. Will There Be a Sex War in Industry P^"
BY MARY STOCKS
The problem is a problem of adjustment ; of the distribution of
labor, skilled and unskilled, male and female, among the various exist-
ing and potential occupations which the return of peace conditions
will offer. From the workers' point of view it is predominantly a
question of how to stifle the renewed competition which will neces-
sarily prejudice the bargaining power of labor in the coming scramble
for the produce of industry. It has special reference to the outstand-
ing problem of how to deal with the army of women workers which
war conditions have called from home duties or unenterprising idle-
ness, as the case may be. It is here that we see looming ahead of us
the horrible possibiHty of something like an industrial sex war, irt
30Adapted from "The Future of the Woman War Worker," The
Athenaeum, No. 4625, pp. 21-23. Copyright, 1918.
674 CURRENT ECONOMIC PROBLEMS
which the men's trade-unions, and no doubt, for sentimental reasons,
a large section of the public will be on one side, and the industrial
women, supported by the employers for purposes of their own, on the
other.
Broadly, the position of the women is this : In normal times they
have had, for various reasons, to put up with a wage-level considera-
bly below that of the corresponding class of male wage earner.
Among these reasons we may include their inferior physical capacity
in a number of occupations ; their lower subsistence-level, resulting
from the general absence of dependent families and the frequent
existence of home resources independent of their industrial earnings ;
the temporary nature of their industrial careers, resulting from the
fact that they frequently regard industry as a stop-gap pending mar-
riage ; and the consequential absence of vital and lifelong interest in
industrial conditions which is the moving spirit of an effective trade
unionism. These are among the interacting causes of the inferiority
of women's earnings ; but the widest and most profound cause lies
in the fact that women, though of course constituting a minority in
the industrial world, are nevertheless competing for employment in
such a comparatively restricted area that the competition among them
is more intense than it is among male workers. To put it meta-
phorically, the volume of the flood is less, but its channel is relatively
narrower ; therefore its action is more destructive.
When we begin to inquire into the reasons for this restriction we
find ourselves lost in a perfect maze of speculations. To begin with,
obviously the genuine physical limitations of women must necessarily
impose a natural barrier to a whole host of occupations. Supposed
physical limitations not improbably add to the number. In addition
there are less definite social causes, such as differential factory legis-
lation, the inconveniences of a mixed staff, and the liability of women
to get married, which must account for a considerable restriction of
the demand for their labor. Behind all this brood many centuries of
tradition, custom, prejudice, and sex jealousy.
With the development of war conditions, however, some very
profound modifications have occurred in the conditions sketched
above. In the first place, the urgent national necessity of replacing
the large numbers of men withdrawn from the labor market has ac-
counted for the dissolution of much irrational prejudice against
women's work, and broken down innumerable barriers of custom and
tradition. Under the hard schooling of necessity the economic world
PROBLEMS OF UNIONISM AND WAGE CONTRACT 675
has learned that much of the physical and mental incapacity, much
of the administrative inconvenience, of women workers has disap-
peared under the test of actual practice. In the second place, the
heavy war mortality among young men must mean that, for a gen-
eration at least, large numbers of young women will have to find in
the world of industry the main interest of their lives, though how far
this fact will affect their industrial psychology it is, of course, impos-
sible to estimate.
When we come, therefore, to re-examine the old causes of in-
feriority, we find that while many of them remain presumably
unaltered, one or two of them have been profoundly affected. First
and foremost the field in which women are competing for employ-
ment has been almost indefinitely extended ; and it has been so ex-
tended as to include grades of comparatively well-paid work hitherto
closed. Women workers remain, for the most part, unorganized, an
easy prey to industrial exploitation ; but given the will to combine and
the power to bargain collectively, circumstances point to the possibility
of better conditions for women workers in the near future. But of
course all this presupposes the continuance of the new opportunities ;
takes for granted that what is now open will necessarily remain open.
Will it ? Certainly much of it will, for there is no mending of broken
traditions and no re-erecting of shattered illusions ; but there is such
a possibility as the rebuilding of industrial or professional barriers for
reasons other than the actual capacity of women to do the work ; and
that brings us back to our opening problem, the readjustment of
industrial conditions when a demobilized army returns to the labor
market.
It must be remembered that much of the old exclusion of women
from skilled industrial processes was the result of trade-union regu-
lations — agreements forced upon the employer by organized male
labor. Women were regarded, and not without good reason, as -unde-
sirable fellow-workers where a comparatively high standard of life
was to be maintained. When the exigencies of war made it necessary
for Mr. Lloyd George to promote the utilization of female labor in
skilled industry, he found himself up against one of the most
cherished and hard-earned privileges of the British trade unionism,
and, as is well known, was only able to obtain the suspension of that
privilege on the definite understanding that, after the return of peace,
the said trade union regulations should be fully and legally re-estab-
lished. Although in the meanwhile industrial processes have under-
676 CURRENT ECONOMIC PROBLEMS
gone such revolutionary changes of mechanism and organization as
to render the literal fulfilment of that pledge appallingly difficult, if
not practically impossible, yet labor holds, as it were, an I. O. U.
against the government, and will be in a position, when the time
comes, to demand its discharge in the spirit, if not in the letter. The
spirit at the present time, if straws show the way of the wind, is un-
doubtedly an exclusive one as far as the woman war worker is con-
cerned. Nor is the problem confined to those occupations where
definite trade-union regulations have been suspended. The woman
bank clerk, like the woman engineer, will, in days to come, find her-
self confronted by a male predecessor whose standards of remunera-
tion, and probably of professional efficiency, are higher than her own.
Given the above-described circumstances, the situation to be
avoided at all costs is one in which the trade unions will be fighting
on one side for exclusion, women on the other for employment ; the
latter backed whole-heartedly by the employers in search of cheap
and comparatively docile labor power, the former backed half-
heartedly by the government in pursuance of the pledges exacted in
the hour of need. The victory of either side will spell disaster. If
the exclusive principle is carried through, women workers will find
themselves at the mercy of trade-union regulations for the first time
possessing the force of law, and flung back into the old degraded and
inadequate industrial channels, where they will compete all the more
destructively by reason of their swollen numbers. They will suffer,
and their suffering will generate bitterness at a time when all the good
will in the world will be necessary to face an uncertain future. Inci-
dentally, the economic well-being of the nation will be prejudiced by
the wastage of industrial capacity at a time when, with proper fore-
sight and organization, the demand of industry for labor should be
insatiable. Limitations on the power of industrial producers to pro-
duce will prove as harmful in the hungry years which must follow
a world- war as they are in face of the rapacious requirements of war
itself. On the other hand, if for some reason the spirit of the pledge
is never redeemed, if the employers succeed in utilizing the mass of
women war workers as a cheap labor supply for post-war industry
and as a catspaw for the deposition of labor's aristocracy, the result
will be a serious menace to, if not the actual destruction of, such a
life-standard as over a century of trade-union effort has painfully
succeeded in building up. Here, too, will be a source of most disas-
trous and dangerous bitterness, and among that very section of the
community, the home-coming army, which merits the first considera-
tion of the nation.
PROBLEMS OF UNIONISM AND WAGE CONTRACT 677
G. REVOLUTIONARY UNIONISM
^307. Sabotage
a) A Definition of Sabotage ^^
BY ARTURO M. GIOVANNITTI
I. Any conscious and zvilful act on the part of one or more work-
ers intended to slacken and reduce the output of production in the
industrial field, or to restrict trade and reduce the profits in the com-
mercial field, in order to secure from their employers better conditions
or to enforce those promised or maintain those already prevailing,
when no other way of redress is open.
2. Any skilful operation on the machinery of production in-
tended not to destroy it or permanently render it defective, but only
temporarily to disable it and put it out of running condition in order
to make impossible the zvork of scabs and thus to secure the complete
and real stoppage of zvork during a strike.
Whether you agree or not, sabotage is this and nothing but this.
It is not destructive. It has nothing to do with violence, neither to
Hfe nor to property. It is nothing more or less than the chloroform-
ing of the organism of production, the "knock-out drops" to put to
sleep and out of harm's way the ogres of steel and fire that watch
and multiply the treasures of King Capital.
b) Go Cannie ^^
BY ARTURO M. GIOVANNITTI
It must be said with special emphasis that sabotage is not and
must not be made a systematic hampering of production, that it is
not meant as a perpetual clogging of the workings of industry, but
that it is a simple expedient of war, to be used only in time of actual
warfare with sobriety and moderation, and to be laid by when the
truce intervenes.
The form of sabotage which was formerly known as Go Cannie
consists purely and simply in "going slow" and "taking it easy" when
the bosses do the same in regard to wages.
Let us suppose that one hundred men have an agreement with
the boss that they should work eight hours a day and get $4.00 in
return for a certain amount of work. The American Federation of
31 Adapted from the Introduction to Pouget's Sabotage, pp. I3-I4-. Copy-
right by Charles H. Kerr & Co., 1913. Written in the Essex County Jail, Law-
rence, Massachusetts.
32Adapted from the Introduction to Pouget's Sabotage, pp. 22-25. Copy-
right by Charles H. Kerr & Co., 1913.
678 CURRENT ECONOMIC PROBLEMS
Labor is very particular — and wisely so — that the amount of work
to be done during a day be clearly stipulated and agreed upon by the
two contracting parties — the workers and their employers, this for
the purpose of preventing any "speeding up."
To exemplify, let us suppose that these one hundred workers are
bricklayers, get fifty cents an hour, work eight hours a day and, as
agreed, lay fourteen hundred bricks a day. Now, one good day the
boss comes up and tells them he can't pay them $4.00 a day, but they
must be satisfied with $3.50. It is a slack season, there are plenty
of idle men and, moreover, the job is in the country where the work-
ers cannot very well quit and return home. A strike, for some reason
or another, is out of the question. Such things do happen. What
are they to do ? Yield to the boss sheepishly and supinely ? But here
comes the syndicalist who tells them, "Boys, the boss reduced fifty
cents on your pay — why not do the same and reduce two hundred
bricks on your day's work? And if the boss notices it and remon-
strates, well, lay the usual number of bricks, but see that the mortar
does not stick so well, so that the top part of the wall will have to be
made over again in the morning; or else after laying the real number
of bricks you are actually paid for, build up the rest out of the plumb
line or use broken bricks or recur to any of the many tricks of the
trade. The important thing is not what you do, but simply that it
be of no danger or detriment to the third parties and that the boss gets
exactly his money's worth and not one whit more."
The same may be said of the other trades. Sweatship girls when
their wages are reduced, instead of sewing one hundred pairs of
pants, can sew, say, seventy ; or, if they must return the same number,
sew the other thirty imperfectly — with crooked seams — or use bad
thread or doctor the thread with cheap chemicals so that the seams
rip a few hours after the sewing, or be not so careful about the oil on
the machines, and so on.
c) Put Salt in the Sugar
33
If you are an engineer you can, with two cents worth of powdered
stone or a pinch of sand, stall your machine, and cause a loss of time
or make expensive repairs necessary. If you are a joiner or wood-
worker, what is simpler than to ruin furniture without your boss
noticing it, and thereby drive his customers away? A garment
worker can easily spoil a suit or a bolt of cloth ; if you are working
in a department store a few spots on a fabric cause it to be sold for
33Quoted from the Montpelier Labor Exchange for 1900, in Tridon, The
New Unionism (1913), pp. 43-46.
PROBLEMS OF UNIONISM AND WAGE CONTRACT 679
next to nothing; a grocery clerk, by packing up goods carelessly,
brings about a smashup; in the woolen or haberdashery trade a
few drops of acid on the goods you are wrapping will make a cus-
tomer furious ; ... an agricultural laborer may sow bad seed in
wheat fields, etc.
d) The Effectiveness of Sabotage **
BY ARTURO M. GIOVANNITTI
Now that the bosses have succeeded in dealing an almost mortal
blow to the boycott, now that picket duty is practically outlawed,
free speech throttled, free assemblage prohibited, and injunctions
against labor are becoming epidemic ; sabotage, this dark, invincible,
terrible Damocles' sword that hangs over the head of the master
class, will replace all the confiscated weapons and ammunition of the
army of the toilers. It will win, for it is the most redoubtable of all,
except the general strike. In vain may the bosses get an injunction
against the strikers' funds — sabotage will get a more powerful one
against their machinery. In vain may they invoke old laws and make
new ones against it — they will never discover it, never track it to its
lair, never run it to the ground, for no laws will ever make a crime of
the "clumsiness and lack of skill" of a "scab" who bungles his work
or "puts on the bum" a machine he "does not know how to run."
There can be no injunction against it. No policeman's club. No
rifle diet. No prison bars. It cannot be starved into submission. It
cannot be discharged. It cannot be black-listed. It is present every-
where and everywhere invisible, like the airship that soars high above
the clouds in the dead of night, beyond the reach of the cannon and
the searchlight, and drops the dealiest bombs into the enemy's own
encampment.
Sabotage is the most formidable weapon of economic warfare,
which will eventually open to the workers the great iron gate of capi-
talist exploitation and lead them out of the house of bondage into the
free land of the future.
e) The Universality of Sabotage "
Actions which might be classed as sabotage are used by^ the dif-
ferent exploiting and professional classes.
3* Adapted from the Introduction to Pouget's Sabotage, pp. 3S-36. Copy-
right by Charles H. Kerr & Co., 1913-
35 Quoted from an editorial in the Industrial Worker, of Spokane, Wash-
ington, in Tridon, The New Unionism (1913). PP- 53-55-
y
68o CURRENT ECONOMIC PROBLEMS
The truck farmer packs his largest fruits and vegetables upon
the top layer. The merchant sells inferior articles as "something
just as good." The doctor gives "bread pills" or other harmless con-
coctions in cases where the symptoms are puzzling. The builder uses
poorer materials than demanded in the specifications. The manu-
facturer adulterates foodstuffs and clothing. All these are for the
purpose of gaining more profits.
Carloads of potatoes were destroyed in Illinois recently ; cotton
was burned in the southern states ; coffee was destroyed by the
Brazilian planters ; barge loads of onions were dumped overboard
in California; apples were left to rot on the trees of whole orchards
in Washington ; and hundreds of tons of foodstuffs are held in cold
storage until rendered unfit for consumption. All to raise prices.
Some forms of capitalist sabotage are legalized, others are not.
But whether or not the various practices are sanctioned by law, it
is evident that they are more harmful to society as a whole than is
the sabotage of the workers.
Capitalists cause imperfect dams to be constructed, and devastat-
ing floods sweep whole sections of the country. They have faulty
bridges erected, and wrecks cause great loss of life. They sell
steamer tickets, promising absolute security, and sabotage the life-
saving equipment to the point where hundreds are murdered, as wit-
ness the "Titanic."
The "General Slocum" disaster is an example of capitalist sabotage
on the life-preservers. The Iroquois Theater fire is an example of
sabotage by exploiters who assured the public that the fire-curtait^
was made of asbestos. The cases could be multiplied indefinitely.
Capitalist sabotage aims to benefit a small group of non-producers.
Working-class sabotage seeks to help the wage-working class at the
expense of parasites.
The frank position of the class-conscious worker is that capitalist
sabotage is wrong because it harms the workers; working-class
sabotage is right because it aids the workers.
Sabotage is a direct application of the idea that property has no
rights that its creators are bound to respect. Especially is this true
when the creators of the wealth of the world are in hunger and want
amid the abundance they have produced, while the idle few have all
the good things of life.
The open advocacy of sabotage and its widespread use is a true
reflection of economic conditions. The current ethical code, with
all existing laws and institutions, is based upon private property in
production. Why expect those who have no stake in society, as it is
now constituted, to continue to contribute to its support ?
PROBLEMS OF UNIONISM AND WAGE CONTRACT 68 1
308. The Standpoint of Syndicalism^''
BY LOUIS LEVINE
The fact which is untiringly emphasized in the Syndicahst analysis
is the objective antagonistic position of those engaged in modern
industry. The owners of the means of production directly or indi-
rectly running their business for their private ends are interested in
ever-increasing profits and in higher returns. The workingmen, on
the other hand, who passively carry on productive operations are
anxious to obtain the highest possible price for their labor-power
which is their only source of livelihood. Between these two economic
categories friction is inevitable, because profits ever feed on wages,
while wages incessantly encroach upon profits.
From this twofold antagonism, rooted in the structure of modern
economic society, struggle must ever spring anew, and this is the
reason why all schemes and plans to avoid industrial conflicts fail so
lamentably. Even the conservative trades unions, based on the idea
that the interests of labor and capital are identical, are forced by cir-
cumstances to act contrary to their own profession of faith. Organiza-
tions like the Civic Federation are doomed to impotency. Boards of
conciliation and arbitration work most unsatisfactorily and can show
but few and insignificant results.
All eflforts, therefore, to establish industrial peace under existing
conditions result at best in the most miserable kind of social patch-
work which but reveals in more striking nudity the irreconcilable con-
tradictions inherent in modern economic organization.
There is but one logical conclusion from the point of view of
Syndicalism. If industrial peace is made impossible by modern eco-
nomic institutions, the latter must be done away with and industrial
peace must be secured by a fundamental change in social organization.
At the root of the struggle between capital and labor is the private
ownership of the means of production which results in the autocratic
or oligarchic direction of industry and in inequality of distribution.
The way to secure industrial peace is to remove the fundamental
cause of industrial war, that is, to make the means of production com-
mon property, to put the management of industry on a truly demo-
cratic basis and to equalize distribution.
The syndicalist distrusts the state and believes that political forms
and institutions have outlived their usefulness and can not be adapted
to new social relations. The syndicalist program for the future, in so
36Adapted from an article in the Annals of the American Academy of
Political and Social Science, XLIV, 1 14-18. Copyright, 1912.
682 CURRENT ECONOMIC PROBLEMS
far as it is definite and clear, contains the outlines of an industrial
society— the basis of which is the industrial union, and the subdi-
visions of which are federations of unions, and federations of fed-
erations. The direction of industry, in this ideal system, is decentral-
ized in such a manner that each industrial part of society has the
control only of those economic functions for the intelligent perform-
ance of which it is especially fitted by experience, training, and in-
dustrial position.
The creative force of the industrial struggle, according to the
syndicalist, manifests itself in a series of economic and moral phe-
nomena which, taken together, must have far-reaching results. In the
struggle for higher wages and better conditions of work the working-
men are led to see the important part they play in the mechanism of
production and to resent more bitterly the opposition to their demands
on the part of employers. With the intensification of the struggle,
the feeling of resentment develops into a desire for emancipation
from the conditions which make oppression possible ; in other words,
it grows into complete class-consciousness which consists not merely
in the recognition of the struggle of classes but also in the determina-
tion to abolish the class-character of society. At the same time the
struggle necessarily leads the workingmen to effect a higher degree
of solidarity among themselves, to develop their moral qualities, and
to fortify and consolidate their organizations.
It is evident that unless the syndicalist could theoretically con-
nect the struggle of the present with his ideal of the future, the
latter would remain a beautiful but idle dream even in theory. He
is bound, therefore, to find concrete social forces working for the
realization of his ideal. His position forces him to prove that his
ideal is the expression of the interests of a definite class, that it is
gradually being accepted by that class under the pressure of circum-
stances, and that the social destinies of the "revolutionary" class are
more and more identified with the syndicalist ideal.
He cheerfully accepts the conclusion that if industrial strife is
creating social harmony his task is to intensify the struggle, to widen
its scope, and to perfect its methods — in order that the creative force
of the struggle may manifest itself as thoroughly and on as large a
scale as possible. He, therefore, logically assumes a hostile attitude
towards all efforts tending to mitigate the industrial struggle, such
as conciliation and arbitration, and definitely enters the economic
arena for the purpose of stirring up strife and of accentuating the
struggle as much as is in his power.
PROBLEMS OF UNIONISM AND WAGE CONTRACTS 683
309. Where Radicalism Thrives"
1. There are numbers of American workers who are not definite-
ly attached either to any particular locality or to any line of industry.
These migratory workers are continually moving from one part of
the country to another as opportunity for employment is presented.
The great movements of these workers is seasonal in character, as,
for example, the movement of harvest hands during the summer and
autumn, the movement to the ice camps in the winter, the movement
to the construction camps in the spring and summer. In addition
there are large irregular movements of laborers which are produced
by the depression in different trades and localities, and movements
due to false rumors about opportunities and to the men's acquired
habits of migration.
2. The number of these migratory workers seems to be increas-
ing, though there are no available figures to show this conclusively.
3. A considerable proportion of these migratory workers are led
to adopt this kind of life by reason of personal characteristics or
weaknesses, and these weaknesses are accentuated rather than dimin-
ished by the conditions under which they live and work. Neverthe-
less, even if the migratory workers were all men of the highest char-
acter and reliability, there would still be a demand from our indus-
tries for the movement of the population in almost as great numbers
as at present, in order to supply seasonal demands and to take care
of the fluctuations in business.
4. An increasingly large number of laborers go downward in-
stead of upward. Young men with ambition and hope start their
lives as workers, but, meeting failure after failure in establishing
themselves in some trade, gradually sink into the ranks of migratory
and casual workers. Continuing their existence in these ranks, they
lose self-respect. Afterward they become "down-and-outs" — tramps,
bums, vagabonds, gamblers, pickpockets, yeggmen, and other petty
criminals — in short, public parasites.
5. The movement of these migratory workers, at the present
time, is practically unorganized and unregulated. Workmen in large
numbers go large distances in the hope of finding employment on the
basis of a mere rumor and frequently find that there is no work. At
the same time the demand for labor in a given locality or industry
remains unfilled, because the workers have failed to hear of the oppor-
tunity. In fact a large part of the movement of migratory workers
s^Adapted from the Final Report of the Committee on Industrial Rela-
tions, pp. 101-3. This is a summary of an investigation conducted for the
commission by I^A. Speek, 1915.
684 CURRENT ECONOMIC PROBLEMS
at present is determined, not by the demands of industry for labor,
but by the necessity to search for work. To illustrate : A man finds
himself out of work in a given locality because of the termination
of the busy season, because of business depression, or because of his
personal discharge ; he is unable to secure employment in the locality,
and he has no information regarding opportunity for work elsewhere.
If he remains in the locality he is almost certain to be arrested as a
vagrant. His only recourse is to start moving, and the direction of
the movement is usually determined by chance.
6. The attempts to regulate the movements of migratory workers
by local organizations have, without exception, proved failures. This
must necessarily be true no matter how well planned or well man-
aged such local organizations may be.
7. The problem cannot be handled except on a national scale and
by methods and machinery which are proportioned to the enormous
size and complexity of the problem.
The basic industries of the country, including agriculture and rail-
road construction work, are absolutely dependent upon these migra-
tory workers.
8. The conditions under which migratory workers live, both in
the cities and at their places of employment, are such as to inevitably
weaken their character and physique, to make them carriers of disease,
and to create in them a habit of unsteadiness and migration.
The provisions for housing and feeding workers in the labor
camps are subject to severe criticism, while the lodging houses in the
.large cities are even worse, especially from the viewpoint of morals.
One season spent in a city lodging-house is generally sufficient to
weaken the physique and destroy the moral fiber of even the strongest
man. Numerous instances of the spread of dangerous diseases by
migratory workers also have been brought to the notice of the com-
mission.
9. The available information indicates clearly that even the most
perfect distribution of workers, in accordance with the opportunities
afforded at present by American industries, will still leave enormous
numbers unemployed during certain seasons of the year and during
periods of industrial depression.
10. The congregation of large numbers of migratory workers in
large cities during the winter should be avoided, if possible, not only
because they are an unjust burden upon the cities but because of the
degenerating effects of city life during long periods of idleness.
11. The movement of migratory and seasonal workers is caused
chiefly by the seasonal demand of industries and by the men's search
for work, and, to a large degree, by their aimless desire to move about.
PROBLEMS OF UNIONISM AND WAGE CONTRACTS 685
The conditions of their transportation have become grave. Millions
of men annually have to, and are allowed to, resort to such a method
of movement as stealing rides on the railways. This method of
transportation results in the demoralization and casualization of
workers, in their congestion in industrial and railway centers, in waste
of their time and energy, in frequent bodily injuries and numerous
fatal accidents and homicides annually, while, at the same time, it
serves poorly the industrial demand for help.
12. When the workers return to the city, from labor camps, for
instance, either to rest or to spend the time between seasons, they not
only meet the unhealthy and demoralizing influence of cheap lodging-
houses, saloons, houses of prostitution, and other similar establish-
ments in the slums, but they fall easy prey to gamblers, small private
bankers, and all sorts of parasites. As a result what earnings they
have left after deduction of their living expenses at work places
rapidly disappear, no matter how large these earnings may be.
XIII
PROBLEMS OF CONTROL WITHIN INDUSTRY
Two problems concerned with the work and well-being of the laboring
classes are clearly recognized. The protection of the health of the workers,
the reduction of accidents to a minimum, and the elimination from the
lot of toilers of some measure of economic insecurity has long been regarded
as a province for "labor legislation." The determination of wages, the fixing
of hours of employment, and like features of the immediate wage-contract
have in general been left to bargaining and are intimately associated with the
development of unionism. Recently we have come to see a third set of prob-
lems, vaguely defined as "control within industry," which touch each of the
other two, yet properly belong to neither.
The nature and content of the problem of "control within industry" can be
set forth less definitely than its importance. It is evident that it has to do
with questions of the organization of particular shops, of the "hiring and
firing" of men, of the selection of methods of pay, of changes in the process of
production, and kindred matters. It clearly covers the subject of the relations
of laborers to the employer's agents and to each other, as well as the more
comprehensive subject of "shop discipline." It can easily be made to extend
to the general prescription of working conditions and to the terms of the wage
bargain itself. In time the range of problems which it includes may compre-
hend many of the current functions of management and may involve the dis-
position of the profits of industry. One recent advocate of "control" sums the
matter up by saying, "When we say we want control, we mean that we want
the thing the employer does not want us to have."
Many would insist that the war has created the problem of control in
industry. But those who have followed "labor economics" know that the prob-
lem was here before the war. The war, as in other cases, has but analyzed
the industrial situation and revealed problems of long standing. Its industrial
basis is quite explicit. First there is the distressing fact that under modern
industrialism a proper scheme of incentives that appeal to the laborer has not
been devised. The inefficiency that results from the accidental association of
work and pay in his own mind is very large. It is increasingly evident that
under the price-system the routine character of machine work does not appeal
to the spirit of workmanship within him. A large part of his life is spent in
the workshop, a matter that has led to an increasing realization that the prob-
lem of work is more than a mere question of wages. Second, the democratic
franchise has led to a comparison of the worker's influence in politics with the
non-discretionary place he has in industry. Increasingly he has felt his inability
to make responsible judgments about the work which makes up the most
important part of his life. Third, it has been discovered that industrial rela-
tions within the shop have not been reduced to law and order, that free bar-
gaining has failed to include within its terms the proper regulation of organiza-
tion, discipline, and processes.
Out of this situation there is coming a movement that finds expression in a
tendency toward "a constitution for industry." Changes in technical processes
shall be introduced under specified conditions. Innovations in the organiza-
tion of labor shall respond to proper procedure. The discipline of workers
must conform to pre-established rule and must be free from the arbitrary word
of the foreman. All shop matters shall be duly legislated upon and set down
in written order. And, upon these and like matters, a measure of control
686
PROBLEMS OF CONTROL WITHIN INDUSTRY 687
shall be given to the employees. Of this development "the shop steward" move-
ment, the organization of "industrial councils," the establishment of "plans of
participation" and like devices are typical.
The movement has gone far enough both in analysis and in application
to raise a multitude of questions, but not far enough to yield answers. Are
the innovations favored by employers because they promise to increase profits?
Are they to be condemned for this reason? Is "a share in management" an
effective means for showing labor the fallacy of restricting output? Is the
tendency of this new device to break down craft unionism and to substitute
industrial unionism? Is the "constitutionalization of industry" anything more
than the substitution of one mechanical device for another? How can such a
mere change in organization make industry better able to appeal to the laborer's
instincts? Will laborers' control be a stage-play or a reality? If the labor
council has no discretion, will not its existence be purely nominal? If employ-
ers and employees have equal representation how will deadlocks on real issues
be broken? If the balance of power tends to favor the laborer, what will
become of the effectual limits of his control? Will not profits tend to disappear
in wages ? In this case will not laborers in strategic positions wax fat at the
expense of laborers who are accidentally in industries not so strategically sit-
uated? Will rewards then be proportionate to ability and enterprise? What
guarantees will society have of improvements in technique and organization
from a group that may have vested interests in the old? Is not mass action
always conservative? But enough of these questions. The reader can extend
the list as far as he likes.
Like many other problems of economics the changes which are impending
are coming as a result of an accommodation of the industrial system to its
most immediate problems. In the past we have not been in the habit of set-
ting down the future trend of a proposed change and weighing carefully the
relative social advantages and disadvantages of its adoption. Nor are we
likely to adopt this method of procedure in this instance. The adoption of
rules for living and working together is still in the stage of rule of thumb.
Here, as elsewhere, we are likely to yield to immediate pressure and leave
the future to a Providence which we think we can trust.
A. UNREST
310. War and National Unity ^
The seeming prosperity of the country during the war has ob-
scured the realities of the situation. Because the war has not given
rise to unemployment and the financial crisis which followed on its
outbreak was successfully tided over, manv observers ismore the in-
dustrial dislocation which has taken place. Because there has been a
general cessation of disputes between labor and capital, which has
enabled us to concentrate our energies upon the vigorous prosecution
of the war, they imagine that the problem of industrial unrest has in
some way been solved.
These conclusions are altogether contrary to the facts of the case.
The prosperity of the present is artificial and transient. It is due in
part to strenuous exertion which cannot be continued indefinitely;
in part to sacrifices which go unrealized because they are not pro-
^Adapted from memorandum on the Industrial Situation after the War,
pp. 6-1 1. Circulated by the Carton Foundation, 1916.
688 CURRENT ECONOMIC PROBLEMS
claimed; in part to the depletion of accumulated stocks; in part to
the suspension of expenditure on national plants which, if continued,
would end in dilapidation ; in part to the temporary absorption into
industry of people who will not continue to be producers after the
war; in part to borrowing and recalling money from abroad. It
resembles in large measure the lavishness of the spendthrift which
leads to bankruptcy. The absence of unemployment is due, not to
thriving trade, but to the withdrawal of several million men from
the labor market, the inflation of the currency, and the concentration
of purchasing power in the hands of the state, which has not to study
the absorptive power of commercial markets for the disposal of its
purchases, but uses them to destruction as fast as they are produced.
It is not till these stimulants are removed and we are left once more
to the operation of the ordinary laws of supply and demand, com-
plicated by the difficulties of readjustment to normal conditions, that
the real situation created by the war will become obvious.
It may be said that the success with which our national organiza-
tion and activities were adapted to the circumstances of the war
gives a fair promise of similar success in the readjustments necessi-
tated by peace. But the problems presented by a temporary crisis
in which economic considerations sink into a secondary plane and
the strongest possible appeal is made to the spirit of self-sacrifice in
all classes, afiford no real parallel to those presented by a return to
normal conditions after a long period of dislocation. The factors
mentioned in the preceding paragraph, while they have eased the
situation during the war, will become a source of weakness as soon
as peace is signed. In some cases, such as the withdrawal of men
from the labor market, their operation will be exactly reversed. In
others, such a depletion of stocks and the suspension of expenditures
on national plant, immediate relief has been purchased by mortgag-
ing the future. The war has, in these two regards, been paid for by
drafts upon our prospective wealth which will have to be met at a
time when the enthusiasm which sustains a nation during war has
given place to the reaction that usually follows a period of tension.
The rapid recovery ol industry from the shock of war affords no
ground for dismissing lightly the difficulties inherent in a return to
peace conditions. On the contrary, an examination of the causes
of that recovery reveals additional grounds for viewing those diffi-
culties with concern. The prospect is a grave one and it is likely
to be further complicated by the spirit in which it is regarded by both
parties to industry.
Even were the present relations of employers and employed en-
tirely harmonious, we could not f*el complete confidence in the con-
PROBLEMS OF CONTROL WITHIN INDUSTRY 689
tinuance of that harmony after the war. But such is not the case.
Even under the stress of war there is ill-feehng, suspicion, and
recrimination. Charges have been made against each side of placing
personal and class interests before national welfare, and of using
the national emergency to snatch present gains and to strengthen its
strategical position for the resumption of industrial hostilities. Em-
ployers have pointed to extortionate wage demands, broken time,
slackness, insubordination, and sullen resistance to temporary
changes, the necessity for which has been openly acknowledged. The
workers have pointed to war profits, to the virtual enslavement of
labor by the misuse of powers conferred by the state, to attempt to
undermine and weaken the unions and so to establish an ascendancy
which may be maintained after the war. They lay stress, also, on
the increased cost of living, which they attribute in the main to the
deliberate action of manufacturers and traders, and are more studi-
ous of their own than of national advantage.
There is a prevalent belief that the "brotherhood of the trenches"
and workshops, the spirit of co-operation and self-sacrifice which
has made possible our efforts in the war, will remain as a permanent
factor in our national life. A great deal has been said of the effect
of discipline upon the men who have served at the front, and it is
widely assumed that on their return they will be more amenable to
management and less responsive to agitation. Those who argue thus
do so mostly on general principles and probabilities. But it is no use
arguing that certain conditions ought to produce certain effects if
the facts show that they do not. There is evidence that many of the
men who return from the trenches to the great munition and ship-
building centers are, within a few weeks of their return, amongst
those who exhibit most effectively their discontent with present con-
ditions. Among those who have fought in Flanders or who have
been employed in making shells at home, there are many who look
forward to a great social upheaval following the war. To some this
may be distressing and almost incredible. The facts remain, and the
facts must be faced.
So long as the country is actually at war, this spirit is likely to be
held in check both by the abnormal conditions of state control and
by the patriotism of the mass of the people. So long as the peril
from without remains the supreme factor, we may look to the work-
men to forego his most cherished safeguards and to employers and
the propertied classes to bear patiently restriction of profits and an
unparalleled burden of taxation. But we have had signs already,
in the war-time strikes, in the denunciations of profiteering, and in
the evidence of a great body of suppressed resentment on both sides,
690 CURRENT ECONOMIC PROBLEMS
which does not as yet come to the surface, that the industrial peace is
only a truce. It would be a mistake to assume that this truce will
survive the immediate pressure of foreign war which brought it about.
The idea that the united front shown by the country to the ex-
ternal enemy implies of itself the burial of class hatred and suspicion
and that the suspension of controversy during the war foreshadows
the cessation of industrial disputes after the war, is dangerous just
because it is so attractive. The natural desire to accentuate the ap-
pearance of unity and minimize internal differences lea4s us to treat
as negligible sections of public opinion which are really powerful
and may become predominant. The spirit of patriotism which in-
duces the majority of all classes to remain silent as to their grievances
is construed to mean that the feeling of grievance does not exist. At
the same time that criticism is supposed to imply unqualified approval.
. The war has not put an end to industrial unrest. Every one of
the old causes of dispute remains and others of a most serious nature
have been added in the course of the war. The very moderation and
unselfishness shown by the responsible leaders of organized labor
are looked upon by important sections of their following as a betrayal
of the cause and by some employers as a tactical opportunity. The
efforts of the government to safeguard the interests of the workers
are likely to give rise to unreasonable demands for future action on
the one side and ungenerous criticism on the other. The difficult
and complex problem of the return to peace conditions will bristle
with thorny questions only to be solved successfully by the clear-
sighted and unselfish co-operation of all concerned. There are too
many indications that they may be approached in a spirit of passion
and suspicion, which would render a satisfactory solution impossible.
This would be a serious matter even if the industrial problem
stood alone. Failure to cope with the economic situation must nec-
essarily involve widespread loss and misery. But the industrial prob-
lem is inextricably entangled with social and political development.
It is not merely that a certain minimum standard of material well-
being is a necessary condition of moral and intellectual advance, or
that commercial prosperity is an important factor in the strength and
prestige of the state. Industry itself has a human side. The dis-
content of labor is not exclusively a matter of wages and hours of
work. It is becoming increasingly evident that it is based to a very
large extent upon questions of status and social conditions. The
spirit in which both employers and employed regard their common
work will color not only their relations to each other but their general
attitude toward the corporate life of the nation. That attitude has
been roughly challenged by the war, which has profoundly disturbed
PROBLEMS OF CONTROL WITHIN INDUSTRY 691
the current both of circumstances and of ideas. It has shaken men's
faith in the permanence of existing conditions and accustomed them
to the contemplation of great changes and to the possibiHty of extra-
ordinary exertions. The moment is a propitious one for an attempt
to understand more clearly than in the past the fundamental princi-
ples of industrial relations and their place in the national life. The
forces of change are visibly at work, and it rests with us whether we
allow them to hurry us blindly with them, or direct them along the
path of ordered progress.
311. Portrayal of Unrest in War^
BY FELIX FRANKFURTER
1. The Commission had wide opportunities, both as to the extent
of territory and the variety of industries investigated, to inquire into
industrial conditions in war time. The Commission visited Arizona,
the Pacific Coast, Minneapolis and St. Paul, and Chicago ; studied
the situation in the copper mines, the telephone industry, the North-
west lumber industry, the meat-packing industry as centered in
Chicago, the rapid-transit situation and the related industrial con-
dition in the Twin Cities, and observed as well other industries in the
states adjacent to those it visited. All relevant sources of information
were tapped, for close contact was had with workmen on strike and at
work ; employers and professional men and federal and state officials,
who are brought particularly in touch with labor matters ; and in
addition, the voluminous official files of federal and state authorities
furnished much knowledge. While undoubtedly each industry pre-
sents its own peculiarities, certain underlying general factors ap-
plicable to all industry emerge from the three months' work of the
commission.
2. Throughout its inquiry and in all its work the Commission
kept steadily in mind the war needs of the country. The conclusion
cannot be escaped that the available man power of the nation, serving
as the industrial arm of war, is not employed to its full capacity or
wisely directed to the energies of the war.
3. The effective conduct of the war suffers needlessly because
of (a) interruption of work due to actual or threatened strikes;
(b) purposed decrease in efficiency through the "strike on the job";
(c) decrease in efficiency due to labor unrest; and (d) dislocation of
the labor supply.
^Adapted from the report of the President's Mediation Commission to the
President of the United States, January 9, 1918. The report is signed by W.
B. Wilson, chairman; Ernest P. Marsh; Verner S. Reed; Jackson L. Spangler;
John H. Walker ; Felix Frankfurter, secretary and counsel ; and Max Loewen-
thal, assistant secretary. This is a summary of the Commission's conclusions.
692 CURRENT ECONOMIC PROBLEMS
4. These are not new conditions in American industry, nor are
their causes new. The conditions and their causes have long been
famihar and long uncorrected. War has only served to intensify the
old derangements by making greater demands upon industry and by
affording the occasion for new disturbing factors.
5. Among the causes of unrest, familiar to students of industry,
the following stand out with special significance to the industrial
needs of war:
a) Broadly speaking, American industry lacks a healthy basis of
relationship between management and men. At bottom this is due
to the insistence by employers upon individual dealings with their
men. Direct dealings with employees' organizations is still the
minority rule in the United States. In the majority of instances there
is no joint dealing, and in too many instances employers are in active
opposition to labor organizations. This failure to equalize the par-
ties in adjustments of inevitable industrial contests is the central cause
of our difficulties. There is a commendable spirit throughout the
country to correct specific evils. The leaders in industry must go
farther, they must help to correct the state of mind on the part of
labor ; they must aim for the release of normal feelings by enabling
labor to take its place as a co-operator in the industrial enterprise.
In a word, a conscious attempt must be made to generate a new spirit
in industry.
h) Too many labor disturbances are due to the absence of dis-
interested processes to which resort may be had for peaceful settle-
ment. Force becomes too ready an outlet. We need continuous
administrative machinery by which grievances inevitable in industry
may be easily and quickly disposed of and not allowed to reach the
pressure of explosion.
• c) There is a widespread lack of knowledge on the part of capital
as to labor's feelings and needs and on the part of labor as to prob-
lems of management. This is due primarily to a lack of collective
negotiation as the normal process of industry. In addition there is
but little realization on the part of industry that the so-called "labor
problem" demands not only occasional attention but continuous and
systematic responsibility, as much so as the technical or financial
aspects of industry.
d) Certain specific grievances, when long uncorrected, not only
mean definite hardships; they serve as symbols of the attitude of
employers and thus affect the underlying spirit. Hours and wages
are, of course, mostly in issue. On the whole, wage increases are
asked for mostly in order to meet the increased cost of living, and such
demands should be met in the light of their economic causes. Again,
PROBLEMS OF CONTROL WITHIN INDUSTRY 693
the demand for the eight-hour day is nation wide, for the workers
regard it as expressive of an accepted national poHcy.
6. Repressive deaHng with manifestations of labor unrest is the
source of much bitterness, turns radical labor leaders into martyrs
and thus increases their following, and, worst of all, in the minds of
workers tends to implicate the government as a partisan in an eco-
nomic conflict. The problem is a delicate and difficult one. There is
no doubt, however, that the Bisbee and Jerome deportations, the
Everett incident, the Little hanging, and similar acts of violence
against workers have had a very harmful effect upon labor both in the
United States and in some of the allied countries. Such incidents are
attempts to deal with symptoms rather than causes. The LW.W.
has exercised its strongest hold in those industries and communities
where employers have most resisted the trade-union movement and
where some form of protest against unjust treatment was inevitable.
7. The derangement of our labor supply is one of the great evils
in industry. The shockingly large amount of labor turnover and the
phenomenon of migratory labor means an enormous economic waste
and involves an even greater social cost. These are evils which flow
from grievances such as those we have set forth ; they are accentuated
by uncontrolled instability of employment. Finally, we have failed
in the full use and wise direction of our labor supply, falsely called
"labor shortage," because we have failed to establish a vigorous and
competent system of labor distribution. However, means and added
resources have recently provided for a better grappling with this
problem.
8. It is then to uncorrected specific evils and the absence of a
healthy spirit between capital and labor, due partly to these evils
and partly to an unsound industrial structure, that we must attribute
industrial difficulties which we have experienced during the war.
Sinister influences and extremist doctrine may have availed them-
selves of these conditions ; they certainly have not created them.
9. In fact, the overwhelming mass of the laboring population is
in no sense disloyal. Before the war labor was, of course, filled with
pacific hopes shared by nearly the entire country. But, like other
portions of the citizenship, labor has adjusted itself to the new facts
revealed by the European war. Its sufifering and its faith are the
suffering and the faith of the nation. With the exception of the
sacrifices of the men in the armed service, the greatest sacrifices have
come from those at the lower rung of the industrial ladder. Wags
increases respond last to the needs of this class of labor, and their
meager returns are hardly adequate, in view of the increased cost of
living, to maintain even their meager standard of life. It is upon
694 CURRENT ECONOMIC PROBLEMS
them the war pressure has borne most severely. Labor at heart is
as devoted to the purposes of the government in the prosecution of
this war as any other part of society. If labor's enthusiasm is less
vocal, and its feelings here and there tepid, we will find the explana-
tion in some of the conditions of the industrial environment in which
labor is placed and which in many instances is its nearest contact
with the activities of the war.
a) Too often there is a glaring inconsistency between our demo-
cratic purposes in this war abroad and the autocratic conduct of some
of those guiding industry at home. This inconsistency is emphasized
by such episodes as the Bisbee deportations.
h) Personal bitterness and more intense industrial strife inevita-
bly result when the claim of loyalty is falsely resorted to by employers
and their sympathizers as a means of defeating sincere claims for
social justice, even though such claims be asserted in time of war.
c) So long as profiteering is not comprehensively prevented to
the full extent that governmental action can prevent it, just so long
will a sense of inequality disturb the fullest devotion of labor's con-
tribution to the war.
The causes of unrest suggest their own means of correction.
1. The elimination to the utmost practical extent of all pre Iteer-
ing during the period of the war is a prerequisite to the best moi ale in
industry.
2. Modern large-scale industry has efiFectually destroyed the per-
sonal relation between employer and employee — the knowledge and
co-operation that come from personal contact. It is therefore no
longer possible to conduct industry by dealing with employees as
individuals. Some form of collective relationship between manage-
ment and men is indispensable. The recognition of this principle by
the government should form an accepted part of the labor policy of
the nation.
3. Law, in business as elsewhere, depends for its vitality upon
steady employment. Instead of waiting for adjustment after griev-
ances come to the surface there is needed the establishment of con-
tinuous administrative machinery for the orderly disposition of in-
dustrial issues and the avoidance of an atmosphere of contention and
the waste of disturbances.
4. The eight-hour day is an established policy of the country;
experience has proved justification of the principle also in war times.
Provision must of course be made for longer hours in case of emer-
gencies. Labor will readily meet this requirement if its misuse is
guarded against by appropriate overtime payments.
PROBLEMS OF CONTROL WITHIN INDUSTRY 695
5. Unified direction of the labor administration of the United
States for the period of the war should be established. At present
there is an unrelated number of separate committees, boards, agencies,
and departments having fragmentary and conflicting jurisdiction over
the labor problems raised by the war. A single-headed administration
is needed, with full power to determine and establish the necessary
administrative structure.
6. When assured of sound labor conditions and effective means
for the just redress of grievances that may arise, labor in its turn
should surrender all practices which tend to restrict maximum effi-
ciency.
7. Uncorrected evils are the great provocative to extremist propa-
ganda, and their correction would be in itself the best counter-
propaganda. But there is need for more affirmative education. There
has been too little publicity of an educative sort in regard to labor's
relation to the war. The purposes of the government and the meth-
ods by which it is pursuing them should be brought home to the fuller
understanding of labor. Labor has most at stake in this war, and it
will eagerly devote its all if only it be treated with confidence and
understanding, subject neither to indulgence nor neglect, but dealt
with as a part of the citizenship of the state.
B. OUTPUT
312. Selling Labor Short^
BY WALTER DREW
The most vital, important, and sinister of the economic features
of the closed shop is the decreased efficiency of the union man. The
fact is too well settled to permit of argument. Bricklayers, for in-
stance, in a closed shop will lay on an average eight hundred to one
thousand brick per day, when a fair day's work of eight hours, and
one which was common a few years ago, would be three thousand
and more brick. The structural iron worker, when he had his closed
shop, would drive from seventy-five to one hundred rivets per day.
In an open shop at the present time in New York and other cities, the
output runs from two hundred to four hundred rivets per day. A
carpenter before he had a monopoly would hang a door in an hour ;
now, in his closed shop, he considers four doors a good day's work.
President Mellen, of the New Haven, in a recent report, stated
that with every increase in wages to the union employes of the road
there was a corresponding decrease in efficiency.
^Adapted from Closed Shop Unionism, pp. 10-12, a pamphlet issued by the
National Association of Manufacturers of the United States of America, 1909.
696 CURRENT ECONOMIC PROBLEMS
These things are not hard to understand. The wage scale by
which the good man and the poor receive the same wage takes away
the incentive of the good man. Why should he do any more or bet-
ter work than his fellow, when they receive the same wage? The
good man, also, is often kept from conscientious work by the union
doctrine that he must not set too fast a pace for his less-skilled fel-
low, who otherwise might lose his job if the comparison were too
much to his discredit. This applies not only to his less-skilled fellow
union men, but also to the shiftles and the lazy, who because of serv-
ice in union political matters have been rewarded with a job in which
the union boss desires to see them retained. The practice of making
work is also common. That is, in dull times, if a piece of work could
be very well performed by ten men in a given time, each man em-
ployed so decreases his efforts as to make it necessary to employ
twelve or fifteen men in order that employment may be given to more
of the members of the union. The teaching of labor leaders to the
effect that labor produces all wealth, that there is an inevitable con-
flict between capital and labor, and that unions are organized for the
purpose of getting as much as possible and giving in return as little
as possible, all serve to deaden the conscience and decrease the effort
of the union man. The natural result of this combination of causes,
added to the ever-present fact, of course, that the union man in the
closed shop is not subject to discharge, as would be a non-union man,
but has back of him the entire strength of the monopoly to vouch-
safe him his job, results in reducing the efficiency of the men to a
point where that of the shiftless, the lazy, and the least skilled be-
comes the common measure of the efficiency of all. The question of
high wages, then, is not the most important in reaching the final wage
cost; and when, coupled with high wages, there is a decrease in the
output of the worker 50 per cent or more, the final figures reflected
in the cost of production become startling.
As a partial summing up, pile up on top of this abnormal wage
cost the toll of graft; the losses occasioned by jurisdictional disputes,
sympathetic strikes and strikes waged to establish the closed shop and
involving no question of wages or hours ; the general and more in-
definite loss to industry through the disorganization of the productive
factors due to the domination of the union boss and the arbitrary
restrictions and limitations insisted upon — and some idea may be
gained of what the closed shop means in its relation to the cost of pro-
duction. The final consumer must pay for all these items, unreason-
able, abnormal, illegitimate and uneconomic as they may be. One
partial oft'set to this is the fact that high wages are paid to the few
men having the monopoly, thus increasing their purchasing power
PROBLEMS OF CONTROL WITHIN INDUSTRY 697
and creating to some extent a market for goods at the higher prices ;
but this is a very small item of benefit, for the reason that the num-
ber of men receiving the higher w^ages is so few in comparison with
the number of the great purchasing public that the wages paid them
can have very little appreciable influence in creating a general market.
The final result, then, is that the general public pays abnormal and
uneconomic prices for many products with no corresponding element
of benefit.
313. The Limits of Sabotage*
THORSTEIN VEBLEN
Sabotage is not to be condemned out of hand, simply as such.
There are many measures of policy and management both in private
business and in public administration which are unmistakably of the
nature of sabotage and which are not only considered to be excusable,
but are deliberately sanctioned by statute and common law and by
the public conscience. Many such measures are quite of the essence
of the case under the established system of law and order, price and
business, and are faithfully believed to be indispensable to the com-
mon good. It should not be difficult to show that the common wel-
fare in any community which is organized on the price system cannot
be maintained without a salutary use of sabotage — that is to say,
such habitual recourse to delay and obstruction of industry and such
restriction of output as will maintain prices at a reasonably profitable
level and so guard against business depression. Indeed, it is precisely
considerations of this nature that are now engaging the best attention
of officials and business men in their endeavors to tide over a threat-
ening depression in American business and a consequent season of
hardship for all those persons whose main dependence is free income
from investments.
Without some salutary restraint in the way of sabotage on the
productive use of the available industrial plant and workmen, it is
altogether unlikely that prices could be maintained at a reasonably
profitable figure for any appreciable time. A businesslike control
of the rate and volume of output is indispensable for keeping up a
profitable market, and a profitable market is the first and unremitting
condition of prosperity in any community whose industry is owned
and managed by business men. The ways and means of this neces-
sary control of the output of industry are always and necessarily
something in the nature of sabotage — something in the way of re-
tardation, restriction, withdrawal, unemployment of plant and work-
men — whereby production is kept short of productive capacity. The
^Adapted from "On the Nature and Uses of Sabotage" in the Dial, LXVI
342-46. Copyright, 1919.
698 CURRENT ECONOMIC PROBLEMS
mechanical industry of the new order is inordinately productive. So
the rate and volume of output have to be regulated with a view to
what the traffic will bear— that is to say, what will yield the largest
net return in terms of price to the business men in charge of the
country's industrial system. Otherwise there will be "overproduc-
tion," business depression, and consequent hard times all round.
Overproduction means production in excess of what the market will
carry off at a sufficiently profitable price. So it appears that the
continued prosperity of the country from day to day hangs on a "con-
scientious withdrawal of efficiency" by the business men who control
the country's industrial output. They control it all for their own
use, of course, and their own use means always a profitable price.
In any community that is organized on the price system, with
investment and business enterprise, habitual unemployment of the
available industrial plant and workmen, in whole or in part, appears
to be the indispensable condition without which tolerable conditions
of life cannot be maintained. That is to say, in no such community
can the industrial system be allowed to work at full capacity for any
appreciable interval of time, on pain of business stagnation and con-
sequent privation for all classes and conditions of men. The require-
ments of profitable business will not tolerate it. So the rate and vol-
ume of output must be adjusted to the needs of the market, not to the
working capacity of the available resources, equipment and man
power, nor to the community's need of consumable goods. There-
fore there must always be a certain variable margin of unemploy-
ment of plant and man power. Rate and volume of output can, of
course, not be adjusted by exceeding the productive capacity of the
industrial system. So it has to be regulated by keeping short of
maximum production by more or less, as the condition of the market
may require. It is always a question of more or less unemployment
of plant and man power, and a shrewd moderation in the unemploy-
ment of these available resources, a "conscientious withdrawal of
efficiency," therefore, is the beginning of wisdom in all sound work-
day business enterprise that has to do with industry.
All this is matter of course and notorious. But it is not a topic
on which one prefers to dwell. Writers and speakers who dilate on
the meritorious exploits of the nation's business men will not com-
monly allude to this voluminous running administration of sabotage,
this conscientious withdrawal of efficiency, that goes into their ordi-
nary day's work. One prefers to dwell on those exceptional, sporadic,
and spectacular episodes in business where business men have now
and again successfully gone out of the safe and sane highway of con-
servative business enterprise that is hedged about with a conscientious
PROBLEMS OF CONTROL WITHIN INDUSTRY 699
withdrawal of efficiency, and have endeavored to regulate the output
by increasing the productive capacity of the industrial system at one
point or another.
Where the national government is charged with the general care
of the country's business interests, as is invariably the case among the
civilized nations, it follows from the nature of the case that the na-
tion's lawgivers and administration will have some share in adminis-
tering that necessary modicum of sabotage that must always go into
the day's work of carrying on industry by business methods and for
business purposes. The government is in a position to penalize ex-
cessive or unwholesome traffic. So it is always considered necessary,
or at least expedient, by all sound mercantilists to impose and main-
tain a certain balance or proportion among the several branches of
industry and trade that go to make up the nation's industrial system.
The purpose commonly urged for measures of this class is the fuller
utilization of the nation's industrial resources in material, equipment,
and man power ; the invariable effect is a lowered efficiency and a
wasteful use of these resources, together with an increase of inter-
national jealousy. But measures of that kind are thought
to be expedient by the mercantilists for these purposes — that is
to say, by the statesmen of these civilized nations, for the purposes of
the vested interests. The chief and nearly sole means of maintaining
such a fabricated balance and proportion among the nation's indus-
tries is to obstruct the traffic at some critical point by prohibiting or
penalizing any exuberant undesirables among these branches of in-
dustry. Disallowance, in whole or in part, is the usual and standard
method.
The great standing illustration of sabotage administered by the
government is the protective tariff, of course. It protects certain
special interests by obstructing competition from beyond the frontier.
This is the main use of a national boundary. The effect of the tariff
is to keep the supply of goods down and thereby keep the price up,
and so to bring reasonably satisfactory dividends fo those special
interests which deal in the protected articles of trade, at the cost of the
underlying community. A protective tariff is a typical conspiracy in
restraint of trade. It brings a relatively small, though absolutely
large, run of free income to the special interests which benefit by it,
at a relatively, and absolutely, large cost to the underlying community,
and so it gives rise to a body of vested rights and intangible assets
belonging to these special interests.
Of a similar character, in so far that in effect they are in the na-
ture of sabotage — conscientious withdrawal of efficiency — are all
700 CURRENT ECONOMIC PROBLEMS
manner of excise and revenue-stamp regulations ; although they are
not always designed for that purpose. Such would be, for instance,
the partial or complete prohibition of alcoholic beverages, the regula-
tion of the trade in tobacco, opium, and other deleterious narcotics,
drugs, poisons,'and high explosives. Of the same nature, in effect if
not in intention, are such regulations as the oleomargarine law ; as
also the unnecessarily costly and vexatious routine of inspection im-
posed on the production of industrial (denatured) alcohol, which has
inured to the benefit of certain business concerns that are interested
in other fuels for use in internal-combustion engines ; so also the
singularly vexatious and elaborately imbecile specifications that limit
and discourage the use of the parcel post, for the benefit of the ex-
press companies and other carriers which have a vested interest in
traffic of that kind.
In what has just been said there is, of course, no intention to find
fault with any of these uses of sabotage. It is not a question of mor-
als and good intentions. It is always to be presumed as a matter of
course that the guiding spirit in all such governmental moves to reg-
ularize the nation's affairs, whether by restraint or by incitement, is a
wise solicitude for the nation's enduring gain and security. All that
can be said here is that many of these wise measures of restraint and
incitement are in the nature of sabotage, and that in effect they habit-
ually, though not invariably, inure to the benefit of certain vested in-
terests — ordinarily vested interests which bulk large in the ownership
and control of the nation's resources. That these measures are quite
legitimate and presumably salutary, therefore, goes without saying.
In effect they are measures for hindering traffic and industry at one
point or another, which may often be a wise precaution.
314. The Increase in Production^
In order that we may understand the nature and importance of
the fundamental problem, it is necessary to examine a little more
closely the essentials of industrial prosperity and its relations to
national welfare.
The foundation of industrial prosperity is production. The ma-
terial well-being of a nation demands, first, the attainment of the
possible maximum both as regards size and quality of output, whether
of goods or services ; secondly, the elimination of all waste of mate-
^Adapted from a memorandum on The Industrial Situation after the War.
Circulated by the Garton Foundation (1916), Iff 133-41. Reprinted by Indus-
trial Relations Division, United States Shipping Board Emergency Fleet
Corporation, Philadelphia.
PROBLEMS OF CONTROL WITHIN INDUSTRY 701
rial or effort in the process of production; thirdly, an equitable divi-
sion of the proceeds of industry, enabling all those concerned in the
creation of wealth to obtain a reasonable share of its material bene-
fits. The social welfare of the nation requires that the conditions of
work and the relations between the parties to industry shall be such
as make for intelligent and self-respecting citizenship on the part of
all concerned, and that the activities which occupy so large a propor-
tion of men's time and powers shall be felt by them to be fit and
worthy employment of their energies.
Any attempt to solve industrial problems which is concerned
solely with the distribution of earnings must necessarily be inade-
quate. In the first place, the amount available for distribution de-
pends upon the amount produced, and an attempt by any section of
the community to increase its own share of the proceeds by a scheme
of redistribution which ignores the necessity of increased creative
effort is apt to result in a shrinkage of the available total. In the sec-
ond place, the questions which center round wages and profits, im-
portant as they are, are not so vital as the questions of industrial rela-
tions and social conditions with which they are connected.
In order that production may be efficient both as regards the
quantity and quality of output and the methods employed, it is essen-
tial that the supply of capital should be adequate and that the national
plant should be kept up to date. The war has involved deterioration
of plant and a heavy drain on capital. In order that capital may be
renewed and the national plant repaired and kept in the highest state
of efficiency it is essential that confidence should be maintained and
savings increased. The accumulation of surplus wealth which we
call capital represents the balance of production over consumption in
previous years and is constantly being added to or diminished in ac-
cordance with the ratio of goods produced to goods consumed. When
that accumulation has been depleted, the deficiency can be made good
only by an increase in the annual balance. It will be necessary to en-
courage economy in the consumption of goods and the investment of
the resulting savings in productive industries. We must work hard
and efficiently in order to produce more. We must spend less on
luxuries in order that we may save more. We must increase confi-
dence in the national industries in order that savings may be attracted
into the right channels.
Increased production, increased saving, increased confidence — ■
these are the keys to the whole problem.
Production may be hampered either in pursuance of a deliberate
policy, or simply by the use of inefficient methods. The interest of
702 CURRENT ECONOMIC PROBLEMS
employers, as a general rule, is to increase output, the danger of over-
stocking being met by improved distributive organization and the
opening up of new markets. Cases of restriction, for the sake of
keeping up prices, occur mainly in connection vi^ith monopoly products
and the problem of counteracting the influences which make for re-
stricted output in these cases deserves a more careful study than has
yet been given to it.
Much of the limitation of output, on the part of employers, arises
from inefficiency in management — conservation in methods, the re-
tention of badly planned works and out-of-date plant, bad organiza-
tion, neglect of scientific research, the presence of "deadheads" on
the office staff.
The limitation of output by labor arises partly from the legitimate
desire to restrict the hours of work in the interest of health, educa-
tion, family life and enjoyment. These are considerations of social
welfare which cannot be set aside. We must look for greater produc-
tion rather than from an increase in the number of hours worked.
There are, however, large sections of labor by whom a further limita-
tion of output is deliberately practiced in the assumed interests of
their class as a whole. In some cases the motive is the honest but mis-
taken belief that the less each man does the more work there will be
to go round. "Work" is regarded as an exhaustible fund, or at the
best as a diminishable flow, and it is assumed to be in the interests of
his class that each man should "use up" as little as possible. The
fallacy lies in the conception of an inelastic "wages fund." Wages
come out of the stream of products, and other factors remaining
constant, the distribution of wages cannot be widened except by an
increase of the stream. In the case of trades in which employment is
irregular and demand uncertain, the temptation to slacken work as
a job nears completion is easy to understand, but the results of the
policy are too wasteful tQ be contemplated with satisfaction. The
remedy must be sought in a better organization of the industries con-
cerned which will give the workman greater security of tenure, and
remove the fear of unemployment or relegation to lower-paid work
as a result of exercising his maximum efifort.
A further cause of limitation of output lies in the natural differ-
ences of individual capacity. The workers believe that if each man
were allowed to produce to his full power, the minimum standard de-
manded by the employer would be based on the performances of the
quickest and most skilful and a "speeding-up" process would be intro-
duced, involving either excessive strain or lessened earnings on the
part of the majority. From this point of view, restriction of output is
PROBLEMS OF CONTROL WITHIN INDUSTRY 703
a sacrifice made by the ablest workers in the interests of their fel-
lows. While such restrictions necessarily result in limiting the total
output, it is obvious that labor cannot fairly be asked to remove them
unless some definite assurance can be given against the evils antici-
pated. The question is one which will require very serious attention
both from employers and employed, when we come to face the task
of industrial reconstruction.
With regard to quality of output it is obvious that the workers'
interest lies in the direction of a high standard which will improve the
status of those concerned in the industry. Whether from the point
of view of earning power or of interest and satisfaction in their work,
the workmen have everything to gain by the standard of workman-
ship in their particular trade being raised. A general appreciation
of this fact, resulting in greater attention by labor organizations to
questions of craft training and quality of output, would do much
both to raise the position of labor itself and to strengthen the hands
of those employers who are striving for a high level of production,
as against those who seek to make their profit out of the bad taste of
bargain hunters.
It is clear that any restrictions placed upon production, whether
by employers or employed, beyond those based upon the social needs
of the workers, must be removed if the difficulties of the economic
situation are to be faced successfully- In order to make good the
wastage of war and raise the general level of industrial prosperity,
the efforts of both parties must be united for the purpose of increas-
ing the quantity of output and improving its quality. In order to
avoid disastrous conflicts with regard to the distribution of earnings,
the national income, the total sum available for distribution, must
not only be maintained, but increased. The prospects of success de-
pend upon the willingness of both sides to face the facts of the situa-
tion and to throw aside somewhat of their mutual distrust. It will
be necessary for labor to abandon the policy of restricting output
and to concentrate upon demanding adequate remuneration for the
work performed. It will be equally necessary for employers to recog-
nize that efficient production is the only ultimate source of profit,
that the policy of keeping down wages and cutting piece rates is op-
posed to their own interests, and that industry as a whole will benefit
by any rise in the level of craftsmanship and production. There is to-
day an urgent necessity for the removal of all obstacles to any man
either working or earning to the full extent of his capacity.
The argument has brought us to the fundamental question which
underlies all our industrial troubles — ^the relation between employers
704 CURRENT ECONOMIC PROBLEMS
and employed. The limitation of production, whether by labor re-
strictions on output or cutting of piece rates by employers, springs
from the belief that the interests of employers and employed are in-
evitably and fundamentally hostile. If it can be shown that their in-
terests are concurrent as regards production and only partially op-
posed even as regards distribution, the way will have been paved for
a compromise which will leave both parties free to co-operate in the
work of industrial reconstruction.
The relations of employers and employed are partly antagonistic
as regards distribution, because it is to the interest of each to secure
a relatively large share of wealth produced. They are not wholly op-
posed, even in this respect, because it is to the interest of the employer
that his workpeople's standard of life shall be sufficiently high to
promote efficiency and afford a reasonable incentive to effort; it is
to the interest of the workman that the firm shall be sufficiently pros-
perous to provide steady employment. Good work cannot be ex-
pected from men who are ill-fed and insufficiently clothed, or who
feel that they derive no advantage from increased production. Con-
tinued employment cannot be expected from a firm which is not mak-
ing a profit on its business. The qualification becomes still more
important when it is extended from the relations existing in a par-
ticular firm to industry as a whole. It is to the interest of all em-
ployers engaged in the supply of common commodities that wages
as a whole should be good, in order that the purchasing power of
their customers may be high. It is to the interest of the workers, who
are also consumers, that firms producing articles of general use
should be sufficiently prosperous to keep plant up to date and produce
well and cheaply.
The interests of employers and employed are concurrent as re-
gards production, because it is to the benefit of each that the total
available for distribution shall be as large as possible. The interest
of the working class in increase of output may be limited by other
than economic considerations. They will not accept for the sake of
increased wages methods of work which involve loss of self-respect
or a narrowing of their life by undue restriction of leisure. To this
extent the interest of the employer may be over-ridden by considera-
tions of social welfare. The real conflict is between his economic
interests as an employer of labor and the social interests of the com-
munity of which he is a member- But the employer and employed
are both concerned in increased efficiency of production, which im-
plies equal or improved output at less cost to the employer and with
less strain to the employed. Here, too, it is to be noted that the
PROBLEMS OF CONTROL WITHIN INDUSTRY 705
workman, as consumer, will benefit by any increase in the general
efficiency of production.
C. EFFICIENCY
315. Labor and Efficiency®
BY FREDERICK W. TAYLOR
It is safe to say that no system or scheme of management should
be considered which does not in the long run give satisfaction to both
employer and employee, which does not make it apparent that their
best interests are mutual, and which does not bring about such
thorough and hearty co-operation that they can pull together instead
of apart. It cannot be said that this condition has as yet been at all
generally recognized as the necessary foundation for good manage-
ment. On the contrary, it is still quite generally regarded as a fact
by both sides that in many of th^,most vital matters the best interests
of employers are necessarily opposed to those of the men. In fact,
the two elements which we will all agree are most wanted on the one
hand by the men and on the other hand by the employers are gen-
erally looked upon as antagonistic.
What the workmen want from their employer beyond anything
else is high wages, and what employers want from their workmen
most of all is a low labor cost of manufacture.
These two conditions are not diametrically opposed to one another
as would appear at first glance; on the contrary, they can be made
to go together in all classes of work, without exception, and in the
writer's judgment the existence or absence of these two elements
forms the best index to either good or bad management.
The only condition which contains the elements of stability and
permanent satisfaction is that in which both employer and employees
are doing as well or better than their competitors are likely to do,
and this in nine cases out of ten means high wages and low labor
cost, and both parties should be equally anxious for these conditions
to prevail. With them the employer can hold his own with the com-
petitors at all times. Without them both parties may do well enough
in busy times, but both parties are likely to suffer when work becomes
scarce.
The possibility of coupling high wages with a low labor cost
rests mainly upon the enormous difference between the amount of
"Adapted from "Shop Management," Transactions of the Society of
Mechanical Engineers, XXIV (1903), 1343-47.
7o6 CURRENT ECONOMIC PROBLEMS
work which a first-class man can do under favorable circumstances
and the work which is actually done by the average man.
That there is a difference betwen the average and first-class man
is known to all employers, but that the first-class man can do in most
cases two to four times as much as is done on an average is known
to but few, and is fully realized only by those who have made a
thorough and scientific study of the possibilities of men.
The writer has found this enormous difference between the first-
class and average man to exist in all of the trades and branches of
labor which he has investigated, and this covers a large field, as he,
together with several of his friends, has been engaged with more
than usual opportunities for twenty years past in carefully and sys-
tematically studying this subject.
It must be distinctly understood that in referring to the possi-
bilities of a first-class man the writer does not mean what he can do
when on a spurt or when he is overexerting himself, but what a good
man can keep up for a long term of years without injury to his
health, and become happier and thrive under.
The second and equally interesting fact upon which the possibility
of coupling high wages with low labor cost rests, is that first-class men
are not only willing but glad to work at their maximum speed, pro-
viding they are paid from 30 to 100 per cent more than the average
of their trade.
The exact percentage by which the wages must be increased in
order to make them work to their maximum is not a subject to be
theorized over, settled by boards of directors, sitting in solemn con-
clave, nor voted upon by trade unions. It is a fact inherent in human
nature and has only been determined through the siow and difficult
process of trial and error.
The writer has found, for example, after making many mistakes
above and below the proper mark, that to get the maximum output
for ordinary shop work requiring neither especial brains, very close
appHcation, skill, nor extra hard work, such, for instance, as the
more ordinary kinds of routine machine-shop work, it is necessary
■;o pay about 30 per cent more than the average. For ordinary day
labor requiring little brains or special skill, but calling for strength,
severe bodily exertion and fatigue, it is necessary to pay from 50 to
60 per cent above the average. For work requiring special skill or
brains, coupled with close application but without severe bodily
exertion, such as the more difficult and delicate machinist's work,
from 70 per cent to 80 per cent beyond the average. For work re-
quiring skill, brains, close application, strength, and severe bodily
PROBLEMS OF CONTROL WITHIN INDUSTRY 707
exertion, such, for instance, as that involved in running a well-run
steam hammer doing miscellaneous work, from 80 per cent to 100 per
cent beyond the average. Men will not work at their best unless as-
sured a good liberal increase, which must be permanent.
It is the writer's judgment, on the other hand, that for their own
good it is as important that workmen should not be very much over-
paid, as that they should not be underpaid. If overpaid, many will
work irregularly and tend to become more or less shiftless, extrava-
gant, and dissipated. It does not do for most men to get rich too
fast. The writer's observation, however, would lead him to the con-
clusion that most men tend to become more instead of less thrifty
when they receive the proper increase for an extra hard day's work,
as, for example, the percentages of increase referred to above. They
live rather better, begin to save money, become more sober, and work
more steadily. This certainly forms one of the strongest reasons for
advocating this type of management.
316. The Nature of Scientific Management^
BY MAURICE L. COOKE
What we want in any industrial establishment, if we are to reach
the highest point in productivity, is to have every individual use his
highest powers to the best advantage. This is the final goal of sci-
entific management. It is the goal both for the individual and for
society. If you can picture a society in which every unit is using
his highest faculties to the best advantage, you will see that it ap-
proximates the millennium.
The moment you adopt this as a standard, however, you must
frame your organization so that every employee, from the humblest
to the highest, is given a chance to exercise his highest powers to the
best advantage. He must not only not be hindered, but he must
be helped, and helped to the extent of pointing out and developing
faculties and powers of which he may have been unaware. Under
scientific management we think that we are learning how to do this.
Alfred Marshall has called attention to the fact that perhaps half the
brains of the world are in the so-called working classes and that "of
this a great part is fruitless for want of opportunity." Under the
new methods this great storehouse of wealth will be tapped, not we
hope for the benefit of the few, but for the benefit of all.
■'Adapted from "The Spirit and Social Significance of Scientific Man-
agement," Journal of Political Economy, XXI (1913). 485-87-
7o8 CURRENT ECONOMIC PROBLEMS
To define scientific management is no easy task. Hugo Diemer
says that Mr. Taylor
considers a manufacturing establishment just as one would an intricate
machine. He analyzes each process into its ultimate simple elements and
compares each of these simplest steps or processes with an ideal or perfect
condition. He then makes all due allowance for rational and practical con-
ditions and establishes an attainable commercial standard for every step. The
next process is that of attaining, continuously, the standard, involving both
quality and interlocking, or assembling, of all these primal elements into a
well-arranged, well-built, smooth-running machine.
Mr. Taylor says that the philosophy of scientific management is
embraced under these four principles:
1. The development of a science in place of "rule of thumb" for each
element of the work.
2. The scientific selection and training of the workman.
3. The bringing of the science and the scientifically trained workmen
together through the co-operation of the management with the man.
4. An almost equal division of the work and the responsibility between
the management and the workmen, the management taking over all work for
which they are better fitted than the workmen, while in the past almost all
of the work, and the greater part of the responsibility, were thrown upon
the workman.
Quiet informally, scientific management may be thus defined :
1. It is a definite working policy applicable wherever human
eflfort is put forth.
2. It is the introduction of the laboratory method in everyday
affairs.
3. It is the acceptance of the dictates of science instead of those
of personal opinion and tradition.
4. It is the establishment of the fact that not to know is no
crime — that the crime is not being willing to find out.
5. It is a type of co-operation more intensive than the world has
yet seen.
6. It is filling in — not bridging — the chasm between capital and
labor.
7. It is making our industrial life square up with the best we
know in our personal and social relations,
8. It involves a very radical change in the attitude both of the
men and of the management to the work on which they are mutually
engaged.
Practically everything that is done in developing scientific man-
agement in an establishment has for its object the setting of tasks.
x\ task is simply a fair day's work and — let us not forget — one that
can be repeated day in and day out, year in and year out, if necessary,
PROBLEMS OF CONTROL WITHIN INDUSTRY 709
without detriment to the physical, mental and moral well-being of the
person performing it. Unless you are able to set tasks you cannot
have scientific management.
317. The Attitude of Organized Labor^
We are opposed to any system of shop management which re-
quires one man to stand over another, timing him with a stop watch
in order to speed him up beyond his normal capacity. In addition
to the brutality of such a proceeding, no stop watch time study can
possibly be accurate. Every physical act performed by man is pre-
ceded by a mental process. The greater the amount of skill required
in the work, the greater the mental process preceding the physical
expression of it, and there is no method known to efficiency engineers
or others by which a time study can be made by a stop watch or any
other time-measuring device of the mental process which precedes
the physical act. The mental process being a necessary part of the
work itself, the failure to make a time study of that operation of the
work makes the study inaccurate, and secondly, worthless as a basis
for computing compensation.
To establish a bonus or premium system upon such a time study
is wrong, induces the workman to toil beyond his normal capacity,
and the whole system has a tendency to wear the worker to a nervous
wreck, destroy his physical and mental health, and ultimately land
him as a charge upon the community in some of our eleemosynary
institutions.
Resolved,^ That the Thirty-eighth Annual Convention of the
American Federation of Labor reiterate its former position against
the introduction of these systems of so-called "scientific manage-
ment" and urge Congress to restore the language above referred to
which was eliminated from the Naval Appropriation bill in the Sen-
ate and to incorporate the same anti-Taylor system proviso in the
appropriation bills which have carried it heretofore.
318. Modern Industry and Craft SkilP"
The one great asset of the wageworker has been his craftsman-
ship. We think of craftsmanship ordinarily as the ability to manipu-
late skilfully the tools and materials of a craft or trade. But true
^Resolutions passed by the National Convention of the American Federa-
tion of Labor, November 22, 1912.
^Unanimously adopted June 14, 1918.
i^An editorial w^ith the foregoing caption in the International Moulders'
Journal, LI (1915), 197-98.
7IO CURRENT ECONOMIC PROBLEMS
craftsmanship is much more than this. The really essential element
in it is not manual skill and dexterity, but something stored up in
the mind of the worker. This something is partly the intimate
knowledge of the character and uses of the tools, materials, and
processes of the craft which tradition and experience have given
the worker. But beyond this and above this, it is the knowledge
which enables him to understand and overcome the constantly aris-
ing difficulties that grow out of variations, not only in tools and
materials, but in the conditions under which the work must be done.
In the past for the most part the skilful manipulation of the
tools and materials of a craft and this craftsmanship of the brain
have been bound up together in the person of the worker and have
been his possession. It is this unique possession of craft knowledge
and craft skill on the part of a body of wage workers — that is, their
possession of these things and the employer's ignorance of them —
that has enabled the workers to organize and force better terms from
the employers. On this unique possession has depended more than on
any other one factor the strength of trade-unionism and the ability
of unions to improve the conditions of their members.
This being true, it is evident that the greatest blow that could be
delivered against unionism and the organized workers would be the
separation of craft knowledge from craft skill. For if the skilled
use of tools could be secured from workmen apart from the craft
knowledge which only years of experience can build up, the pro-
duction of "skilled workmen" from unskilled hands would be a mat-
ter in almost any craft of but a few days or weeks ; any craft would
be thrown open to the competition of an almost unlimited labor
supply ; the craftsmen in it would be practically at the mercy of the
employer.
Of late this separation of craft knowledge and craft skill has
actually taken place in an ever-widening area and with an ever-
increasing acceleration. Its process is shown in the two main forms
which it has been taking. The first of these is the introduction of
machinery and the standardization of tools, machinery, products,
and process, which make production possible on a large scale and the
specialization of the workmen. Each workman under such circum-
stances needs and can exercise only a little craft knowledge and a
little craft skill. But he is still a craftsman, though only a narrow
one and subject to much competition from below. The second form,
more insidious and more dangerous than the first, but to the signifi-
cance of which most of us have not yet become aroused, is the
gathering up of all this scattered craft knowledge, systematizing it
and concentrating it in the hands of the employer, and then doling
PROBLEMS OF CONTROL WITHIN INDUSTRY 711
it out again in the form of minute instructions, giving to each worker
only the knowledge needed for the mechanical performance of a par-
ticular relatively minute task. This process, it is evident, separates
skill and knowledge even in their narrow relationship. When it is
completed the worker is no longer a craftsman in any sense, but is
an animated tool of the management. He has no need of special craft
knowledge or craft skill, or any power to acquire them if he had, and
any man who walks the streets is a competitor for his job.
There is no body of skilled workmen today safe from the one
or the other of these forces tending to deprive them of their unique
craft knowledge and skill. Only what may be termed frontier trades
are dependent now on the all-round craftsman. These trades are
likely at any time to be standardized artd systematized and to fall
under the influence of this double process of specialization. The
problem thus raised is the greatest one which organized labor faces.
For if we do not wish to see the American workmen reduced to a
great semi-skilled and perhaps little organized mass, a new mode
of protection must be found for the working conditions and standards
of living which unionism has secured, and some means must be dis-
covered for giving back to the worker what he is fast losing in the
narrowing of the skill and the theft of his craft knowledge. It is
another problem which the organized workmen must solve for them-
selves and society.
319. Scientific Management and Welfare"
BY ROBERT FRANKLIN HOXIE
The more ultimate effects of scientific management upon wages,
unemployment, and industrial peace are matters of pure speculation.
During the period of transition, however, there can be little doubt of
the results. The tendency will be toward a realignment of wages.
The craftsmen, the highly trained workers, cannot hope to maintain
their wage advantage over the semi-skilled and less skilled workers.
There will be a leveling tendency. Whether this leveling will be up or
down it is impossible to say. At present the writer believes scientific
management is making the relatively unskilled more efficient than ever
before, and that they are in general receiving greater earnings. It is
evident, however, that the native efficiency of the working class must
suffer from the neglect of apprenticeship, if no other means of in-
dustrial education is forthcoming. Scientific managers themselves
have complained of the poor and lawless material from which they
i^Adapted from Scientific Management and Labor, pp. 133-36. Copyright
by D. Appleton and Co., 1915.
712 CURRENT ECONOMIC PROBLEMS
must recruit their workers, compared with the efficient and self-
respecting craftsmen who applied for employment twenty years ago.
Moreover, it must not be overlooked that the whole scheme of
scientific management, especially the gathering up and systematiz-
ation of the knowledge formerly the possession of the workmen,
tends enormously to add to the strength of capitalism. This fact,
together with the greater ease of replacement, must make the security
and continuity of employment inherently more uncertain. It may not
be such in fact, but, if not, the result will be by grace of the employer.
If generally increased efficiency is the result of scientific manage-
ment, unemployment would, in the end, seem to become less a menace.
But during the period of transition we should expect its increase.
Not. only must the old craftsmen suffer as a result of the destruction
of their crafts, but, until scientific management finds itself able to
control markets, its increased efficiency must result in gluts in special
lines with resulting unemployment in particular trades and occupa-
tions. The writer was informed by a leading scientific management
expert that one shop in six in a certain industry systematized by him
could turn out all the product the market would carry. The result
to the workers, if the statement be true, needs no explanation. Scien-
tific management would seem to offer ultimate possibilities of better
market control or better adaptation to market conditions, but the ex-
perience of the past year of depression indicates that at present no
such possibility exists.
Finally, until unionism as it predominantly exists has been done
away with or has undergone essential modifications, scientific man-
agement cannot be said to make for the avoidance of strikes and the
establishment of industrial peace. Strikes seem less frequent in
scientific management shops than elsewhere, but this is owing largely
to the fact that organized workmen are on' the whole little employed.
So long as present-day unionism believes that scientific management
means the destruction of their organizations, it will continue to oppose
it energetically.
It has been said with much truth that scientific management is like
the progressive invention of machinery in its effect upon workers and
social conditions and welfare generally, — that it gives a new impulse
to the industrial revolution and strengthens its general effects and
tendencies. A chief characteristic of this revolution has been the
breakdown of craftsmanship, the destruction of crafts, and the carry-
ing of the modern industrial world forward toward an era of special-
ized workmanship and generally semi-skilled or less skilled workmen.
Scientific management seems to be another force urging us forward
toward this era and practically adapted to function in an age of
PROBLEMS OF CONTROL WITHIN INDUSTRY 713
specialized and unskilled workmanship. Here we glimpse the great
problem with which its spread and development confront modern
society. No solution or series of solutions offered for this problem
can be considered at all which does not meet the needs of such a
situation. It is a long-time problem which requires a long-time
solution.
What is really needed, under the circumstances, is not so much
repression and direct control as social supplementation and increased
knowledge. The main demands are for a frank recognition of the
trend of events and for some method of putting back into the worker's
life the content which he is losing as the result of increased specializa-
tion and the abandonment of the old apprenticeship system. The
development of such a method will, of course, take time. In the
meanwhile, we need more thorough study and general publicity con-
cerning the true character, policies, and methods of scientific manage-
ment, its possibilities and limitations ; concerning the real character,
intelligence, and spirit of those engaged in its application, the qualities
and qualifications required by the best social standards for the exer-
cise of this power and responsibility, and the progressive education
of scientific management experts and employers, labor and the public,
to the needs and requirements of the situation.
320. Employment Managements^
It has taken the exigencies of war to bring home to employers the
imperative need for expert administration of their labor problems.
In the lag times of peace they were somehow able to muddle through.
But the new war industries requires not only men, but skilled men in
excess of the available supply. Our industrial army is undergoing
an expansion parallel to the expansion of the military force.
Today this expertness is being developed by high specialization,
by setting up a fourth major department in our factories — a personnel
or employment management department to supplement the financial,
production, and sales departments. Executives competent to take
charge of these personnel departments are consequently in great de-
mand. In response to this demand the War Department has instituted
training classes for employment managers in a number of technical
schools and universities.
The birth of the National Employment Managers' Association,
a national organization to sponsor the movement for trained per-
sonal executives, is tantamount to the birth of ^a new profession. It
i^Adapted from "The Rise of a New Profession," New Republic, XV,
102-3. Copyright, 1918.
714 CURRENT ECONOMIC PROBLEMS
promises the development of a body of technique and method in the
long neglected field of labor administration, for the competent appli-
cation of which a rigorous professional training and professional
status are essential. This is in line with the specializing tendency
which in the last quarter-century has created the professions of ac-
countancy, industrial engineering, and scientific management.
But once this becomes a fact, once it is admitted that there is a
body of technical knowledge capable of transmission, serious ques-
tions arise as to the field and controlling point of view of the new
profession. The human equation is distinctly not of the same char-
acter as the problems of cost accounting, arrangement of machinery,
and routing of work. The handling of human beings, the adjust-
ment of subtle human relationships, is fundamentally a problem
where the interests served by the personnel executive and the ulte-
rior motives animating his handling of men inevitably determine his
point of view and procedure.
The province of the personnel manager, is to administer the selec-
tion and discharge of employees, the development of sources of com-
petent labor, the improvement of working conditions, and the deter-
mination of equitable standards of output in relation to pay. While,
of course, this conception involves the permeation of the entire fac-
tory organization by the human interest of the personnel executive,
it means specifically that the employment manager is charged with
responsibility for four problems — selection, training, payment, dis-
charge.
321. Industrial Physiology"
BY FREDERIC S. LEE
In surveying the extraordinary growth of industry during recent
decades one cannot fail to be struck by its many-sided aspects, the
diversity of its problems, and the variety of human intellects that
have been called upon to solve these problems. Industry is not simply
an affair of employer and employees; it has its manufacturing as-
pects, its economic aspects, its engineering aspects, its medical aspects,
its chemical aspects, its human aspects, and its efficiency aspects.
Quite recently its aspects of efficiency have risen into great prom-
inence. What has been called scientific management has accom-
plished something in promoting industrial efficiency, but a critical
analysis of it reveals its inability to go far in eliminating inefficiency.
The fact must be recognized that in the body of the worker, with
its combination of living organs and tissues, undergoing chemical
reactions and transforming energy under the direction of a nervous
i^Adapted from "The New Science of Industrial Physiology," Public
Health Reports (1919), XXXIV, 723-28.
PROBLEMS OF CONTROL WITHIN INDUSTRY 715
system, we have a very intricate mechanism, upon the proper work-
ing of which depends, in large degree, industrial efficiency. The war,
with its extraordinary call upon human energies, has emphasized
as never before the hygienic or, more properly speaking, the physio-
logical aspects of industrial activity. During the past few years the
beginnings of a new science, an industrial physiology, have appeared
and attracted the attention of scientific men and the more sagacious
of industrial leaders.
By "industrial physiology" I mean to designate the sum of knowl-
edge pertaining to the working of the human mechanism in industrial
activity. It has two objects: First, the scientific one of learning
how the industrial worker actually performs his work and what the
conditions are under which he can work most efficiently, while at
the same time maintaining his body in health and in the best working
condition ; second, the more practical one of establishing in the fac-
tories the conditions which conduce at the same time to the maximum
output and the maximum power of the worker. The former of these
objects is now being achieved; the latter will be achieved when it
becomes clear to both employers and workmen that it is an advantage
to both that industrial work be organized on an intelligent basis.
The methods by which industrial physiology are being developed
are the recognized methods of all scientific investigation, namely,
observation and experiment. The investigations are carried on
chiefly in the factories, the workers being used as the subjects and
ui-der their actual working conditions, these conditions being changed
when it is desired to compare the efficiency of one set of conditions
with that of another. Exact measurements of output are made, and,
where it is possible, exact tests of the physiological effects of the work
are employed. Every effort is made to procure exact data and utilize
these as a basis for forming conclusions rather than to rely upon
mere opinion and preconceived notion.
Some of the topics that have been or are being investigated and
some of the results are the following :
Certain physiological and psychological tests have been employed
with workers, and it appears practicable to employ some of these
tests in selecting workers and assigning them to jobs.
The output of the successive hours of the working-day in different
types of operations have been measured and the daily curves of the
output have been plotted. These vary with the kind of operation,
but are alike in showing a reduced efficiency as the day proceeds.
Reduction in the length of the working-day is characterized by
an increase in output of the successive hours and usually by a total
increase in that of the day. The optimum duration of work probably
varies with the character of work itself.
7i6 CURRENT ECONOMIC PROBLEMS
The introduction of resting periods in the working spell is ac-
companied especially when the working-day is long, by a total in-
crease in the day's production. A five-hour working spell, unbroken,
is probably always too long.
Overtime following a day of labor is probably inadvisable, as is
also Sunday work following a week's labor. These tend to impair
the working power of the worker.
A hot day tends to impair strength and reduce output. Every
effort should be made to keep the body of the worker cool.
Night work is, in general, less efficient than day work. Its total
output is less, and this, with a long working-night, falls off enormously
in the early morning hours. Alternation of periods of night work
with periods of day work is more profitable than continuous night
work.
Women are capable of a greater variety of industrial occupations
than has hitherto been recognized. Their problem is not of their
greater or less general efficiency than men, but rather of what type
of work they are best fitted for.
Accidents to workers are a great source of inefficiency. They are
caused by fatigue, inexperience, speed, insufficient lighting, high tem-
perature, and like factors.
Food and efficiency are directly connected with one another.
A high labor turnover is incompatible with efficiency. It is ex-
pensive, entailing high cost of training, and is a serious cause of
accidents.
With the ending of the war the problems of industry press for
solution more earnestly than ever. One of the most timely of these
concerns the physiological aspects of the human machine. Upon us
in America there is imposed a grave duty — that of directing investi-
gation along such lines that erhpiricism and tradition, two obstacles
long potent in industrial evolution, shall be cast out and industry
shall be placed permanently upon a scientific basis.
D. ORDER
322. Joint Standing Industrial Councils"
We have the honor to submit the following interim report on
joint standing industrial councils :
2. The terms of reference to the subcommittee are :
( I ) To make and consider suggestions for securing a permanent
improvement in the relations between employers and workmen.
i*The Interim Report by the Committee on Relations between Employers
and Employees (the Whitley Committee) of the British Ministry of Recon-
struction (1917).
In all this committee issued six published statements, of which this is the
first. The second dealt with joint standing industrial councils for unorganized
PROBLEMS OF CONTROL WITHIN INDUSTRY 717
(2) To recommend means for securing that industrial condition
affecting the relations between employers and workmen shall be
systematically revised by those concerned, with a view to improving
conditions in the future.
3. After a general consideration of our duties in relation to the
matters referred to us, we decided first to address ourselves to the
problem of establishing permanently improved relations between em-
ployers and employed in the main industries of the country, in which
there exist representative organizations on both sides. The present
report accordingly deals more especially with these trades. We are
proceeding with the consideration of the problems connected with the
industries which are less well organized.
4. We appreciate that under the pressure of the war both em-
ployers and workpeople and their organizations are very much pre-
occupied, but, notwithstanding, believe it to be of the highest im-
portance that our proposals should be put before those concerned
without delay, so that employers and employed may meet in the near
future and discuss the problems before them.
5. The circumstances of the present time are admitted on all
sides to offer a great opportunity for securing a permanent improve-
ment in the relations between employers and employed, while failure
to utilize the opportunity may involve the nation in grave industrial
difficulties at the end of the war.
It is generally allowed that the war enforced some reconstruction
of industry, and in considering the subjects referred to us we have
kept in view the need for securing in the development of reconstruc-
tion the largest possible measures of co-operation between employers
and employed.
In the interests of the community it is vital that after the war the
co-operation of all classes, established during the war, should con-
tinue, and more especially with regard to the relations between em-
ployers and employed. For securing improvement in the latter, it
is essential that any proposals put forward should offer to work-
people the means of attaining improved conditions of employment
and a higher standard of comfort generally, and involve the enlist-
ment of their active and continuous co-operation in the promotion
of industry.
To this end, the establishment for each industry of an organiza-
tion, representative of employers and workpeople, to have as its
trades. An adaptation of the third, or supplementary report is given in the
next selection. The fourth was a memorandum on industrial councils and
trade boards ; the fifth a report upon conciliation and arbitration ; and the sixth
a "final report" that does little more than summarize the other published
reports.
7i8 CURRENT ECONOMIC PROBLEMS
object the regular consideration of matters affecting the progress and
well-being of the trade from the point of view of all those engaged
in it, so far as this is consistent with the general interest of the com-
munity, appears to us necessary.
6. Many complicated problems have arisen during the war which
have a bearing both on employers and workpeople, and may affect
the relations between them. It is clear that industrial conditions will
need careful handling if grave difficulties and strained relations are
to be avoided after the war has ended. The precise nature of the
problems to be faced naturally varies from industry to industry, and
even from branch to branch within the same industry. Their treat-
ment consequently will need an intimate knowledge of the facts and
circumstances of each trade, and such knowledge is to be found only
among those directly connected with the trade.
7. With a view to providing means for carrying out the policy
outlined above, we recommend that His Majesty's government should
propose without delay to the various associations of employers and
employed the formation of joint standing industrial councils in the
several industries, where they do not already exist, composed of rep-
resentatives of employers and employed, regard being to the various
sections of the industry and the various classes of labor engaged.
8. The appointment of a chairman or chairmen should, we think,
be left to the council who may decide that there should be: (i) a
chairman for each side of the council; (2) a chairman and vice
chairman selected from the members of the council (one from each
side of the council) ; (3) a chairman chosen by the council from
independent persons outside the industry ; or (4) a chairman nomi-
nated by such person or authority as the council may determine or,
failing agreement, by the government.
9. The council should meet at regular and frequent intervals.
10. The object to which the consideration of the councils should
be directed should be appropriate matters affecting the several in-
dustries and particularly the establishment of a closer co-operation
between employers and employed. Questions connected with demo-
bilization will call for early attention.
11. One of the chief factors in the problem, as it at first pre-
sents itself, consists of the guaranties given by the government, with
parliamentary sanction, and the various undertakings entered into by
employers, to restore the trade-union rules and customs suspended
during the war. While this does not mean that all the lessons learned
during the war should be ignored, it does mean that the definite co-
operation and acquiescence by both employers and employed must be
a condition of any setting aside of these guaranties or undertakings,
PROBLEMS OP CONTROL WITHIN INDUSTRY 719
and that, if new arrangements are to be reached, in themselves more
satisfactory to all parties but not in strict accordance with the guar-
anties, they must be the joint work of employers and employed.
12. The matters to be considered by the councils must inevitably
differ widely from industry to industry, as different circumstances
and conditions call for different treatment, but we are of opinion that
the suggestions set forth below ought to be taken into account, sub-
ject to such modification in each case as may serve to adapt them to
the need of the various industries.
13. In the well-organized industries, one of the first questions to
be considered should be the establishment of local and works organiza-
tions to supplement and make more effective the work of the central
bodies. It is not enough to secure co-operation at the center between
the national organizations ; it is equally necessary to enlist the activity
and support of employers and employed in the districts and in indivi-
dual establishments. The national industrial council should not be
regarded as complete in itself ; what is needed is a triple organization
— in the workshops, the districts, and nationally. Moreover, it is
essential that the organization at each of these three stages should
proceed on a common principle, and that the greatest measure of
common action between them should be secured.
14. With this end in view, we are of opinion that the following
proposals should be laid before the national industrial councils:
a) That district councils, representative of the trade-unions and
of the employers' associations in the industry, should be created, or
developed out of the existing machinery for negotiotion in the vari-
ous trades.
b) That works committees, representative of the management
and of the workers employed, should be instituted in particular works
to act in close co-operation with the district and national machinery.
As it is of the highest importance that the scheme making provi-
sion for these committees should be such as to secure the support of
the trade-unions and employers' associations concerned, its design
should be a matter for agreement between these organizations.
Just as regular meetings and continuity of co-operation are es-
sential in the case of the national industrial councils, so they seem to
be necessary in the case of the district and works organizations. The
object is to secure co-operation by granting workpeople a greater
share in the consideration of matters affecting their industry, and this
can only be achieved by keeping employers and workpeople in con-
stant touch.
720 CURRENT ECONOMIC PROBLEMS
15. The respective functions of works committees, district coun-
cils, and national councils will no doubt require to be determined sep-
arately in accordance with the varying conditions of different in-
dustries. Care will need to be taken in each case to delimit accurately
their respective functions, in order to avoid overlapping and resulting
friction. For instance, where conditions of employment are deter-
mined by national agreements, the district councils or works commit-
tees should not be allowed to contract out of conditions, so laid down,
nor, where conditions are determined by local agreements, should
such power be allowed to works committees.
16. Among the questions with which it is suggested that the
national councils should deal or allocate to district councils or works
committees the following may be selected for special mention :
a) The better utilization of the practical knowledge and ex-
perience of the workpeople.
b) Means for securing to the workpeople a greater share in
and responsibility for the determination and observance of the condi-
tions under which their work is carried on.
c) The settlement of the general principles governing the con-
ditions of employment, including the methods of fixing, paying, and
readjusting wages, having regard to the need for securing to the
workpeople a share in the increased prosperity of the industry.
d) The •establishment of regular methods of negotiations for
issues arising between employers and workpeople, with a view both
to the prevention of differences and to their better adjustment when
they appear.
e) Means of insuring to the workpeople the greatest possible
security of earnings and employment, without undue restriction upon
change of occupation or employer.
/) Methods of fixing and adjusting earnings, piecework prices,
etc., and of dealing with the many difficulties which arise with regard
to the method and amount of payment apart from the fixing of gen-
eral standard rates, which are already covered by paragraph c).
g) Technical education and training.
h) Industrial research and the full utilization of its results.
*) The provision of facilities for the full consideration and
utilization of inventions and improvements designed by workpeople
and for the adequate safe-guarding of the rights of the designers of
such improvements.
/) Improvements of processes, machinery, and organization and
appropriate questions relating to management and the examination
of industrial experiments, with special reference to co-operation in
carrying new ideas into effect and full consideration of the work-
people's point of view in relation to them.
PROBLEMS OF CONTROL WITHIN INDUSTRY 721
k) Proposed legislation affecting the industry.
17. The methods by which the functions of the proposed councils
should be correlated to those of joint bodies in the different districts,
and in the various works within the districts, must necessarily vary
according to the trade. It may, therefore, be the best policy to leave
it to the traders themselves to formulate schemes suitable to their spe-
cial circumstances, it being understood that it is essential to secure in
each industry the fullest measure of co-operation between employers
and employed, both generally, through the national councils, and
specifically, through district committees and workshop committees.
18. It would seem advisable that the government should put
the proposals relating to national industrial councils before the em-
ployers' and workpeople's associations and request them to adopt
such measures as are needful for their establishment where they do
not already exist. Suitable steps should also be taken, at the proper
time to put the matter before the general public.
19. In forwarding the proposals to the parties concerned, we
think the government should offer to be represented in an advisory
capacity at the preliminary meetings of a council, if the parties so de-
sire. We are also of opinion that the government should undertake
to supply to the various councils such information on industrial sub-
jects as may be available and likely to prove of value.
20. It has been suggested that means must be devised to safe-
guard the interests of the community against possible action of an
anti-social character on the part of the councils. We have, however,
here assumed that the councils, in their work of promoting the in-
terests of their own industries, will have regard for the national
interest. If they fulfil their functions they will be the best builders
of national prosperity. The state never parts with its inherent over-
riding power, but such power may be least needed when least ob-
truded.
21. It appears to us that it may be desirable at some later stage*
for the state to give the sanction of law to agreements made by the
councils, but the initiative in this direction should come from the
councils themselves.
22. The plans sketched in the foregoing paragraphs are applica-
ble in the form in which they are given only to industries in which
there are responsible associations of employers and workpeople which
can claim to be fairly representative. The case of the less well-
organized trades or sections of a trade necessarily needs further
consideration. We hope to be in a position shortly to put forward
recommendations that will prepare the way for the active utilization
in these trades of the same practical co-operation as is foreshadowed
in the proposals made above for the more highly organized trades.
722 CURRENT ECONOMIC PROBLEMS
23. It may be desirable to state here our considered opinion that
an essential condition of securing a permanent improvement in the
relations between employers and employed is that there should be
adequate organization on the part of both employers and workpeople.
The proposals outlined for joint co-operation throughout the several
industries depend for their ultimate success upon there being such
organization on both sides ; and such organization is necessary also to
provide means whereby the arrangements and agreements made for
the industry may be effectively carried out.
24. We have thought it well to refrain from making suggestions
or offering opinions with regard to such matters as profit-sharing,
copartnership, or particular systems of wages, etc. It would be im-
practicable for us to make any useful general recommendations on
such matters, having regard to the varying conditions in different
trades. We are convinced, moreover, that a permanent improvement
in the relations between employers and employed must be founded
upon something other than a cash basis. What is wanted is that the
workpeople should have a greater opportunity of participating in
the discussion about and adjustment of those parts of industry b}
which they are most affected.
25. The schemes recommended in this report are intended not
merely for the treatment of industrial problems when they have be-
come acute, but also, and more especially, to prevent their becoming
acute. We believe that regular meetings to discuss the industrial
questions, apart from and prior to any differences with regard to them
that may have begun to cause friction, will materially reduce the
number of occasions on which, in the view of either employers or
employed, it is necessary to contemplate recourse to a stoppage of
work.
26. We venture to hope that representative men in each industry
with pride in their calling and care for its place as a contributor to
the national well-being, will come together in the manner here sug-
gested, and apply themselves to promoting industrial harmony and
efficiency and removing the obstacles that have hitherto stood in the
way.
323. The Organization of Works Committees^^
In our first and second reports we have referred to the establish-
ment of works comrnittees, representative of the management and of
the workpeople, and appointed from within the w^o'rks, as an essential
i^Adapted from Supplementary (the third) Report on Works Committees
issued by the Committee on Relations (the Whitley Committee) between Em-
ployers and Employed of the British Ministry of Reconstruction, 1917.
PROBLEMS OF CONTROL WITHIN INDUSTRY 723
part of the scheme of organization suggested to secure improved rela-
tions between employer and employed. The purpose of the present
report is to deal more fully with the proposal to institute such com-
mittees.
2. Better relations between employers and their workpeople can
best be arrived at by granting to the latter a greater share in the con-
sideration of matters with which they are concerned. In every indus-
try there are certain questions, such as rates of wages and hours of
work, which should be settled by district or national agreement, and
with any matter so settled no works committee should be allowed
to interfere ; but there are also many questions closely affecting daily
life and comfort in, and the success of, the business, and affecting in
no small degree efficiency of working, which are peculiar to the in-
dividual workshop or factory. The purpose of a works committee is
to establish and maintain a system of co-operation in all these work-
shop matters.
3. We have throughout our recommendations proceeded upon
the assumption that the greatest success is likely to be achieved by
leaving to the representative bodies of employers and employed in
each industry the maximum degree of freedom to settle for them-
selves the precise form of council or committee which should be
adopted, having regard in each case to the particular circumstances
of the trade ; and, in accordance with this principle, we refrain from
indicating any definite form of constitution for the works committee.
Our proposals as a whole assume the existence of organizations of
both employers and employed, and a frank and full recognition of
such organizations. Works committees established otherwise than in
accordance with these principles could not be regarded as a part of
the scheme we have recommended, and might, indeed, be a hindrance
to the development of the new relations in industry to which we look
forward. We think that the aim should be the complete and coherent
organization of the trade on both sides, and works committees will
be of value in so far as they contribute to such a result.
4. We are of opinion that the complete success of works com-
mittees necessarily depends largely upon the degree and efficiency of
organization in the trade, and upon the extent to which the committees
can be linked up, through organizations that we have in mind, with
the remainder of the scheme which we are proposing, viz., the district
and national councils. We think it important to state that the suc-
cess of the works committees w^ould be very seriously interfered with
if the idea existed that such committees were used, or likely to be
used, by employers in opposition to trade unionism. It is strongly
724 CURRENT ECONOMIC PROBLEMS
felt that the setting up of works committees without the co-operation
of the trade-unions and the employers' associations in the trade or
branch of trade concerned would stand in the way of the improved in-
dustrial relationships which in these reports we are endeavoring to
further,
5. In an industry where the workpeople are unorganized, or only
very partially organized, there is a danger that works committees may
be used, or thought to be used, in opposition to trade-unionism. It
is important that such fears should be guarded against in the initiation
of any scheme. We look upon successful works committees as the
broad base of the industrial structure which we have recommended,
and as the means of enlisting the interest of the workers in the suc-
cess both of the industry to which they are attached and of the work-
shop or factory where so much of their life is spent. These commit-
tees should not, in constitution or methods of working, discourage
trade organizations.
6. Works committees, in our opinion, should have regular meet-
ings, at fixed times, and, as a general rule, not less frequently than
once a fortnight. They should always keep in the foiefront the idea
of constructive co-operation in the improvement of the industry to
which they belong. Suggestions of all kirnis tending to improvement
should be frankly welcomed and freely discussed. Practical pro-
posals should be examined from all points of view. There is an un-
developed asset of constructive ability — valuable alike to the industry
and to the state — awaiting the means of realization ; problems. Did and
new, will find their solution in a frank partnership of knowledge, ex-
perience, and good-will. Works committees would fail in their main
purpose if they existed only to smooth over grievances.
7. We recognize that, from time to time, matters will arise which
the management or the workmen consider to be questions they can-
not discuss in these joint meetings. When this occurs we anticipate
that nothing but good will come from the friendly statement of the
reasons why the reservation is made.
8. We regard the successful development and utilization of
works committees in any business on the basis recommended in this
report as of equal importance with its commercial and scientific
efficiency; and we think that in every case one of the partners or
directors, or some other responsible representative of the manage-
ment, would be well advised to devote a substantial part of his time
and thought to the good working and development of such a
committee.
PROBLEMS OF CONTROL WITHIN INDUSTRY 725
9. There has been some experience, both before the war and dur-
ing the war, of the benefits of works committees, and we think it
should be recommended most strongly to employers and employed
that, in connection with the scheme for the establishment of national
and district industrial councils, they should examine this experience
with a view to the institution of works committees on proper lines,
In works where the conditions render their formation practicable.
We have recommended that the Ministry of Labor should prepare a
summary of the experience available with reference to works com-
mittees, both before and during the war, including information as to
any rules or reports relating to such committees, and should issue
a memorandum thereon for the guidance of employers and work-
people generally, and we understand that such a memorandum is
now in course of preparation.
10. In order to insure uniform and common principles of action,
it is essential that where national and district industrial councils
exist the works committees should be in close touch with them, and
the scheme for linking up works committees with the councils should
be considered and determined by the National Councils.
11. We have considered it better not to attempt to indicate any
specific form of works committees. Industrial establishments show
such infinite variation in size, number of persons employed, multiplic-
ity of departments, and other conditions, that the particular form of
works committees must necessarily be adapted to the circumstances
of each case. It would, therefore, be impossible to formulate any
satisfactory scheme which does not provide a large measure of elas-
ticity.
We are confident that the nature of the particular organization
necessary for the various cases will be settled without difficulty by
the exercise of good-will on both sides.
16
324. National Councils for Industries
The Whitley Report on Joint Standing Industrial Councils, in
discussing the constitution and functions of such councils, recom-
mended that it should be left to the trades themselves to constitute
schemes suitable to their special circumstances. The object of the
following memorandum is to put forward certain suggestions which
may serve as a basis for discussion and help in concentrating atten-
tion upon some outstanding points in the relations of employers and
workpeople which must be taken into consideration in the actual
i^Adapted from "Industrial Councils," Industrial Reports, No. 4, pp. 3-7,
issued by the (British) Ministry of Labor, 1919.
726 CURRENT ECONOMIC PROBLEMS
formation of a council. Many of the clauses which follow are drawn
from constitutions already drafted.
The functions of a joint industrial council are:
1. To secure the largest possible measure of joint action be-
tween employers and workpeople for the development of the industry
as a part of national life and for the improvement of the conditions
of all engaged in industry. Among its more specific objects will be
the following:
2. Re^ilar consideration of wages, hours, and working condi-
tions in the industry as a whole.
3. The consideration of measures for regularizing production
and employment.
4. The consideration of the existing machinery for the settle-
ment of differences between dififerent parties and sections in the in-
dustry, and the establishment of machinery for this purpose where
it does not already exist, with the object of securing the speedy
settlement of difficulties.
5. The consideration of measures for securing the inclusion of
all employers and workpeople in their respective associations.
6. The collection of statistics and information on matters apper-
taining to the industry.
7. The encouragement of the study of processes and design and
of research, with a view to perfecting the products of the industry.
8. The provision of facihties for the full consideration and
utilization of inventions and any improvement in machinery or
method, and for the adequate safeguarding of the rights of the de-
signers of such improvements, and to secure that such improvement
in method shall give to each party an equitable share of the benefits
financially or otherwise arising therefrom.
9. Inquiries into special problems in the industry, including the
comparative study of the organization and methods of the industry
in this and other countries, and, where desirable, the publication of
reports. The arrangements of lectures and the holding of confer-
ences on subjects of general interest to the industry.
10. The improvement of the health conditions obtaining in the
industry and the provision of special treatment where necessary for
workers in the industry.
11. The supervision of entry into, and training for, the industry,
and co-operation with the educational authorities in arranging edu-
cation in all its branches for the industry.
12. The issue to the press of authoritative statements upon mat-
ters affecting the industry of general interest to the community-
PROBLEMS OF CONTROL WITHIN INDUSTRY 727
13. Representation of the needs and opinions of the industry to
the government, governmental departments, and other industries.
14. The consideration of any other matters that may be referred
to it by the government or any government department.
15. The considerations of the proposals for district councils and
works committees, put forward in the Whitley Report, having regard
in each case to any such organizations as may already be in existence.
16. Co-operation with the Joint Industrial Councils for other
industries to deal with problems of common interest.
17
325. A National Industrial Council
The committee are impressed with the importance of establishing
without delay some form of permanent representative national indus-
trial council. The considered views of the committee are as follows :
Preamble. — A national industrial council should not supersede
any of the existing agencies for dealing with industrial questions.
Its object would be to supplement and co-ordinate the existing sec-
tional machinery by bringing together the knowledge and experience
of all sections and focusing them upon the problems that affect indus-
trial relations as a whole. Its functions, therefore, would be advisory.
Such a council would have to be large to give due representation
to all industrial interests concerned ; at the same time, it should be as
small as is consistent with an adequate representative basis. Since
in any case it would be too large for the transaction of detailed
business, a standing committee, large enough to insure that it will
not be unrepresentative, will be needed. The council must be elected,
not nominated; otherwise its authority will not be adequate to the
proper handling of its functions.
In order that the council may have the necessary independent
status and authority if it is to promote industrial peace, the govern-
ment should recognize it as the official consultative authority to the
government upon industrial relations, and should make it the normal
channel through which the opinion and experience of industry will be
sought on all questions with which industry as a whole is concerned.
In addition to advising the government the council should, when
it is thought fit, issue statements on industrial questions or disputes
for the guidance of public opinion.
Objects. — To secure the largest possible measure of joint action
between the representative organizations of employers and work-
people, and to be the normal channel through which the opinion and
i^Adapted from the "Report of the Industrial Conference Provisional
Joint Committee" adopted by the (British) National Industrial Conference,
at Central Hall, Westminster, April 4, 1919.
728 CURRENT ECONOMIC PROBLEMS
experience of industry will be sought by the government on all ques-
tions affecting industry as a whole.
It will be open to the council to take any action that falls within
the scope of this general definition. Among the more specific objects
will be : (a) the consideration of general questions affecting indus-
trial relations ; {b) the consideration of measures for joint or several
action to anticipate and avoid threatened disputes ; (c) the considera-
tion of actual disputes affecting industrial relations; {d) the consid-
eration of legislative proposals affecting industrial relations; {e) to
advise the government on industrial questions and on the general
industrial situation; (/) to issue statements for the guidance of
public opinion on industrial issues.
Constitutions. — The council : i. The council shall consist of four
hundred members fully representative of and duly accredited by
the employers' organizations and the trade-unions, to be elected one-
half by each of the two.
2. The method of election and the allocation of representatives
shall be determined by each side for itself.
3. Members of the council shall retire annually, and shall be
eligible for re-election by the organizations which they represent.
4. The council shall meet at least twice a year, and in addition
as often as the standing committee deem it to be necessary.
5. The minister of labor shall be president of the council and
shall, when possible, preside at its meetings. There shall be three
vice-presidents, one appointed by the government to be chairman
of the standing committee, one elected by and from the employers'
representatives on the council, and one elected by and from the trade-
unions' representatives. In the absence of the president, the chair-
man of the standing committee shall preside, in his absence one of
the other vice-presidents.
6. The two sides of the council shall vote separately, and no
resolution shall be declared carried unless approved by a majority of
those present on each side. Each side shall determine for itself the
method of voting.
7. The expenses of the council shall be borne by the government.
8. The council shall be empowered to make standing orders for
the conduct of its business.
The standing committee: i. There shall be a standing com-
mittee of the council, consisting of twenty-five members elected by
and from the employers' representatives, and twenty-five elected by
and from the trade-union representatives.
2. The mode of election of members shall be determined by
each side of the council for itself.
PROBLEMS OF CONTROL WITHIN INDUSTRY 729
3. The standing committee shall be empowered to take such
action as it deems to be necessary to carry out the objects of the
council. It shall consider any questions referred to it by the council
or the government, and shall report to the council its decisions.
4. The standing committee shall be empowered to appoint an
emergency committee and such subcommittees as may be necessary.
5. The standing committee shall be empowered to co-opt rep-
resentatives of any trade not directly represented upon it for the
consideration of any question aflfecting that trade.
6. The standing committee shall meet as often as may be neces-
sary, and at least once a month.
7. The government shall appoint a chairman to the standing com-
mittee who shall preside at its meetings, but shall have no vote.
There shall be two vice-chairmen, elected respectively by and from
the representatives of the employers and the trade-unions. In the
absence of the chairman the vice-chairmen shall preside in turn.
8. The standing committee shall be empowered to appoint such
secretaries and other officials as may be necessary.
9. The standing committee shall be empowered to make stand-
ing orders for the conduct of its business.
10. The expenses of the standing committee shall be borne by
the government.
E. POLITICS
326. Instincts and Employments^
BY IRVING FISHER
1. The instinct of self-preservation. — Maintain healthy working
conditions. Guard against overfatigue. Provide safety devices. No
man can do his work well if he feels it is fitting him only for the
scrap heap.
Provide a living wage.
Assure your men of steady jobs as long as they do their part.
Let them know that, if laid off without any fault of theirs, they will
be given due notice or a suitable dismissal wage. Energy dissipated
in worry means loss to all concerned.
2. The instinct of workmanship. — Find the tight job, mentally
and physically, for every man, and the right man for every job.
Enable the man by exact records to have a true and accurate
picture of his work and of any improvement he makes in it.
Encourage the workman to suggest improvements in the processes
and thus stimulate personal interest.
isprom "How Can the Employer Help the Worker Satisfy His Funda-
mental Instinct." Published by Industrial Department, Y.M.C.A.. of New
Haven, 1918.
730 CURRENT ECONOMIC PROBLEMS
Guard against the tendency to let the workers slip into dead-end
jobs. Make it plain that efficiency means advancement.
Encourage promotions and the development of all-round ability.
Make your directions to workmen clear, concrete, and specific,
and have a well thought-out plan of work.
3. The instinct of respect. — Utilize the records of work to give
the credit and standing which a good record deserves in the eyes of
the employer and of fellow-workmen. The spirit of rivalry spurs
initiative.
Avoid calling a man down, especially before his fellow-workers.
So far as possible use praise as the chief incentive rather than
blame or threat of dismissal.
Consider a man trustworthy until he has proved himself un-
trustworthy. Even-handed justice is recognized by saint and sinner.
4. The instinct of loyalty. — Develop a team spirit.
Mass activities, group singing, marching in a parade, going on
a picnic, wearing a button, or cheering a baseball team will foster a
united feeling.
Stimulate pride in the organization. Pride is a weatherproof
cement.
Make the organization worth being loyal to. Loyalty is based on
justice and mutual consideration. Prove to the workman that you
respect his rights and wishes. Put yourself in his place.
If you want overtime or special consideration from him let him,
\i possible, have the fun of volunteering the service.
5. The instinct of play. — "All work and no play makes Jack a
dull boy." The balanced life demands recreation which provides a
safety valve for many inevitably repressed instincts. This play should
not be frivolity, still less dissipation, but entertainment which will
develop physical and mental health and a broadened outlook on life.
Encourage membership on athletic teams, attendance at good
movies, at reading rooms, and clubs. Have singing at the noon hour,
and calisthenics to interrupt the morning and the afternoon. At the
least, try brief rest periods.
6. The instinct of love. — Conditions of employment should, in
every possible way, conduce to happy family life. The unrest caused
by bad instinctive life outside the plant is demoralizing.
Do not arouse resentment by any action which affects the family
welfare.
A workman without a home or a happy home is unstable.
7. The instinct of worship. — "Man shall not live by bread alone."
No man should be compelled to do work which will prevent attend-
ance at church or inspiring public meeting, or crush idealism, or
warp the spirit of humanity and service.
PROBLEMS OF CONTROL WITHIN INDUSTRY 731
Every man should have a religion ; and his daily work should be
uplifted by, and really be a part of, his religion.
In a word, your employee is a man with the same fundamental
human nature as yourself. Remember that his primitive instincts
can be guided but not suppressed. If you would have him loyal,
efficient, and contented, give him the opportunity to give expression
to the best that is in him. Without self-expression no man can lead
a normal life. It is his initiative which you should aim to encourage.
This is not paternalism, which is always resented. It is the opposite.
When the worker can be given a stake in the business and a voice
in its management almost all the important motives are enlisted and
strengthened — the motives of money-making, of accumulating, cre-
ating, gaining credit, team play.
Afford an opportunity for presenting grievances and for their
adjustment.
327. The Midvale Plan^*
In order to establish a representative system which will provide
a regular means of communication and conference between the offi-
cials and the employees of these companies, the following plan is
hereby adopted :
I. PLAN OF REPRESENTATION OF EMPLOYEES
1. For the convenient administration of this plan, each plant
shall be divided into as many divisions as may be decided upon by
the division representatives of each plant, on the basis of one repre-
sentative for each 300 men. If any division shall have 150 men in
excess of 300 or multiple of 300 it shall be entitled to a representa-
tive for such fraction. In case the fraction is less than 150 it shall
not be counted unless merged with a similar fraction from another
division.
The foregoing representation shall be based upon the average
number of employes of each division, as shown on the books of the
company for the three months, October, November, and December,
preceding the election.
For the purpose of determining the proper representation of
each division, the Plant Conference Committee hereinafter consti-
tuted, shall have access to the records of the time offices of the plant.
2. Annual election of employees' representatives. — Employees in
each division shall elect annually from among their number, repre-
sentatives as set forth in clause i to act on their behalf in all matters
i^Plan of representation of employees of Midvale Steel and Ordnance
Company, Cambria Steel Company, and subsidiary companies, eflfective October
I, 1918.
732 CURRENT ECONOMIC PROBLEMS
pertaining to conditions of employment, the adjustment of differ-
ences, and all other matters affecting the relation of the employees to
the company. *
3. Annual election of representatives. — The annual election of
representatives shall be held on the second Monday of January of
each year, and the nomination of representatives shall be held at least
two days preceding the election. The meetings for the nomination
and election shall be called by direction of the Plant Conference Com-
mittee hereinafter constituted. Notices of the nomination and elec-
tion, indicating the number of representatives to be elected in each
division, shall be publicly posted in each subdivision of the works
a week in advance of such meetings, and shall state that all employees
are entitled to vote, with the exception of salaried foremen and
superintendents. Special elections shall be similarly called, when for
any reason a vacancy occurs in the representation of any division.
4. Nomination and election of representatives. — To insure abso-
lute freedom of choice, both nomination and election shall be by
secret ballot, under conditions insuring an impartial count. The
company shall, if requested, provide ballot boxes. It shall also, if
requested, provide blank ballots for purposes of nomination, and
also ballots, differing in form or color, for purposes of election. Each
employee entitled to vote, shall be given a nomination blank by the
election officers, on which he shall write the names of the fellow-
employees in his division whom he desires to nominate as representa-
tives, and will himself deposit the nomination blank in the ballot box.
Each employee may nominate representatives to the number to which
the division is entitled, in accordance with public notice. Employees
unable to write may ask any of their fellow-employees to write for
them on their ballots names of the persons whom they desire to
nominate.
In the event of any nomination paper containing more than the
number of representatives to which the division is entitled the ballot
shall be void. Persons to the number of twice as many representa-
tives as the division is entitled to receiving the highest number of
nomination votes shall be regarded as the duly nominated candidates
for employees' representatives, and shall be voted upon as herein-
after provided. For example, if the division is entitled to two rep-
resentatives the four persons receiving the largest number of nomi-
nation votes shall be regarded as the duly nominated candidates. If
the division is entitled to three representatives, then the six persons
receiving the largest number, etc.
5. Nomination and election of representatives. — For the pur-
poses of inaugurating this plan, the division representatives elected
PROBLEMS OF CONTROL WITHIN INDUSTRY 733
at the various plants on Monday, September 23, 19 18, shall hold
office until their successors are elected on the second Monday of Janu-
ary, 1919. All nominations and elections thereafter shall be under
the supervision of an Election Committee of three for each division,
to be selected by the Plant Conference Committee hereinafter con-
stituted.
The Election Committee shall count the nominating ballots, make
a list showing the number of votes cast for each person, and post
notices, signed by each member of the committee, at suitable places
in the division, giving the number of votes cast for each person and.
announcing the names of the nominees, as provided in clause 4.
These notices shall be posted at least forty-eight hours in advance of
the election. On the date designated, the election of representatives
shall be held by secret ballot, from among the number of candidates
nominated.
The election ballots shall be counted by the Division Election
Committee, and one list in triplicate, showing the number of votes
cast for each person, shall be prepared by the Division Election
Committee and signed by each member thereof, one of which lists
shall be posted in a conspicuous place in the division, one forwarded
to the general superintendent as evidence that the persons elected are
duly accredited, and one list retained by the committee. The persons
showing by such certified lists to have been elected as provided in
clause 4, shall be the representatives of the division for the ensuing
year, or until their successors are elected.
6. The Division Election Committee shall seal and hold in safe
custody for a period of ten days the ballot boxes containing both the
nomination and the election ballots. In case of an appeal signed by
not less than two-thirds of the voters of any division, within this
ten-day period, questioning the validity of the count, the Division
Election Committee shall deliver the sealed ballot boxes to the Plant
Conference Committee, hereinafter constituted. This committee shall
count and certify by signed lists in the same manner as provided in
clause 5, and there shall be no further appeal from their decision.
If in the judgment of the Plant Conference Committee the irregu-
larities are such as to demand a new election, they are authorized to
arrange for such election,
7. As a certain interval of time is required to enable a man to
become acquainted with the conditions surrounding the work in any
department, so that he can intelligently represent his fellow-work-
men, all persons elected as division representatives shall have been
in the employment of the company for at least one year in the aggre-
gate; provided, however, that the division representative of each
734 CURRENT ECONOMIC PROBLEMS
plant, if they so elect, may provide for a longer term of service in
order to qualify a man for the position of representative.
8. In case a petition is signed by not less than two-thirds of the
employees of any division, stating that any elected representative of
that division has ceased to be satisfactory to them, a re-election for
the position occupied by such representative shall be held similar to
that which would be held in the case of a vacancy.
9. When any elected representative ceases to be an employee of
the company, his position as representative shall become vacant, and
his successor shall be elected as provided in Part I, clause 3.
II. ADMINISTRATION
1. Within a week from the date on which the Division Election
Committee announce the names of the elected division representa-
tives, all of these representatives shall meet and elect from among
their number a Plant Conference Committee, consisting of one rep-
resentative for each 3,000 employees at the plant ; with the proviso
that if, at any plant, the number of employees in excess of 3,000 or
any multiple thereof is 1,500, there shall be a representative elected
for this fraction; and if the fraction is less than 1,500, it shall not
be counted ; with the further proviso that no two members of the
Plant Conference Committee shall be selected from the same depart-
ment of the plant.
2. Any employee having' any grievance or any matter on which
he desires to have a decision shall first present the subject to his
immediate foreman or superintendent, in person or through his divi-
sion representatives. If unable to secure a satisfactory adjustment,
the aggrieved person, through his division representatives, shall pre-
sent the matter in writing to the Plant Conference Committee men-
tioned in clause i. If, in the judgment of this committee, the
grievance is a just one, they shall present the matter in writing to
the general superintendent of the works, who shall then confer with
the Plant Conference Committee, with a view to reaching a satisfac-
tory settlement. The general superintendent shall have the privilege,
if he so desires, of calling into this conference all of the division
representatives.
3. If the general superintendent, or his representative, and a
majority of the Plant Conference Committee (or a majority of the
division representatives in case they are called into the conference) ,
are unable to agree upon any question at issue, the matter shall be
referred to a committee consisting of the general superintendents of
all the plants of the company and all the members of the Plant Con-
ference Committees of all the plants of the company. This combina-
PROBLEMS OF CONTROL WITHIN INDUSTRY 735
tion of Plant Conference Committees together with the general
superintendents shall be known as the General Committee. On all
propositions submitted to a vote by the General Committee, the gen-
eral superintendents shall jointly cast one vote for the company and
the representatives of the employees shall jointly cast one vote for
the employees. The president and other executive officers of the
company shall have the privilege of appearing before the General
Committee. If this committee is unable to reach an agreement, the
matter shall be referred to arbitration,
4. One person shall be elected as arbitrator if the parties can
agree upon his election; otherwise there shall be a board of three
arbitrators, one member to be selected by the president of the com-
pany or his representative, one member to be selected by the employee
members of the General Committee; these two members, if unable
to agree, to select a third arbitrator. The decision of the arbitrator
or arbitrators in any matter submitted to him or them, shall be final
and binding upon both the company and the employees.
III. RULES GOVERNING THE EMPLOYMENT AND DISCHARGE OF
WORKMEN
1. The right of the company to hire and suspend or discharge
m.en shall not be limited, except as expressly provided herein.
2. Any employee, guilty of any of the following offenses, shall
be subject to immediate discharge without notice: (a) disloyalty to
the United States government by act or utterance; (b) any offense
against the criminal law of the state ; (c) assault upon, or attempt to
injure, another person; (d) wanton destruction of property; (e) re-
fusal to obey a reasonable order of his superior officer ; (/) intoxica-
tion while on duty.
3. For offenses of a less serious character, such as carelessness,
failure to report for duty regularly and at the proper time, ineffi-
ciency, etc., it shall be the duty of the officers to secure efficiency by
giving the offender at least one caution, which, if not heeded, may
b€ followed by dismissal without further notice.
4. Any employee discharged for cause, may demand that such
cause be clearly stated to him, and shall have the right of appeal to
the general superintendent, either in person or through his elected
representative.
IV. GENERAL
I. No employee shall be compelled to purchase any articles, or
service, from the company nor to subscribe to any fund, except such
beneficial associations as are already established or may hereafter,
736 CURRENT ECONOMIC PROBLEMS
with the consent of the employees, be created. This shall not affect
the duty of employees to account for tools or other supplies owned
by the company and intrusted to their care.
2. Nothing in the foregoing shall prohibit the company from
giving employees an opportunity to subscribe for the stock of the
company, Liberty Loans, Thrift Stamps, etc., providing all such
subscriptions are entirely voluntary on the part of the employees,
3. Nothing herein shall affect the right of the company to sus-
pend work in any department because of lack of orders or for any
other legitimate busniess reason. This may be done without notice,
but it shall be the duty of the officers to give as much advance notice
as practicable.
4. If any elected representative is appointed as a salaried fore-
man or superintendent, his position as representative shall thereby
become vacant, and his successor shall be elected as provided in
Part I, clause 3.
Once every three months, at times and places mutually agreed
upon by the president of the company and the Conference Com-
mittee of the plants, there shall be a combined meeting of all elected
representatives with the officials of the company for the purpose of
discussing all matters of general interest to both parties.
328. The Colorado Plan-°
1. There shall be on the part of the company and its employees
a strict observance of the federal and state labor laws and of the
company's rules and regulations supplementing the same.
2. The wage rate shall be kept on file by the superintendents of
the several departments and shall be open to inspection by any rep-
resentative or other employee upon request.
3. There shall be no discrimination by the company or by any
of its employees on account of membership or non-membership on
any society, fraternity, or union.
4. The right to hire and discharge, the management of the
works, and the direction of the working force, shall be vested ex-
clusively in the company, and except as expressly restricted this right
shall not be abridged by anything contained herein.
5. There shall be posted in each subdivision a list of offenses for
commission of which by an employee dismissal may result without
notice. For other offenses employees shall not be discharged with-
out first having been notified that a repetition of the offense will be a
20Adapted from Part III, "The Prevention and Adjustment of Industrial
Disputes" of the Plan of Representation of Employees of the Colorado Fuel
and Iron Company in the Company's Minnequa Steel Works, 1915.
PROBLEMS OF CONTROL WITHIN INDUSTRY 737
cause for dismissal. Nothing herein shall abridge the right of the
company to relieve employees from duty because of lack of work.
In relief from duty through lack of work, men with families shall,
all things being equal, be given the preference.
6. Employees shall have the right to hold meetings at appro-
priate places on company property or elsewhere as they may desire
outside of working hours or on idle days.
7. Employees shall not be obliged to trade at the company stores,
but shall be at perfect liberty to purchase goods wherever they may
choose.
8. Subject to the provisions hereinafter mentioned, every em-
ployee of the company shall have the right of ultimate appeal to the
president of the company concerning any condition or treatment to
which he may be subjected and which he may deem unfair.
9. It shall be the duty of the president's industrial representative
to respond promptly to any request from employees representatives
for his presence in any subdivision, and to visit all of them frequently
to confer with the employees or their representatives and the super-
intendents respecting working and living conditions, the observance
of federal and state laws, the carrying out of company regulations,
and j:o report the result of such conference to the president.
10. Before reporting any grievance to the president, to the indus-
trial representative, or to other of the high officers of the company,
employees shall first seek to have differences on the conditions com-
plained about adjusted by conference, in person or through their
representatives, with the foreman or superintendent.
11. Employees believing themselves subjected to unfair condi-
tions and having failed to secure adjustment through the superin-
tendent, may present their grievances to the industrial representative,
either in person or through their regularly elected representatives,
and it shall be the duty of the industrial representative to look into
the same immediately and seek to adjust the grievance.
12. Should the industrial representative fail with respect to any
grievance, suspension, or dismissal, the aggrieved employee, either
himself or through his representative, may appeal for the considera-
tion and adjustment of his grievance to the manager, general man-
ager, or the president of the company, in consecutive order. The
right of appeal must be exercised within a period of two weeks after
the same has been referred to the industrial representative.
13. Where the industrial representative or one of the higher
officials fails to adjust a difference, upon request to the president by
the employees' representatives of the division concerned, or upon
the initiative of the president himself, the difference shall be referred
738 CURRENT ECONOMIC PROBLEMS
to the joint committee on industrial co-operation and conciliation,
and the decision of the majority of such Joint Committee shall be
binding upon all parties.^^
14. Whenever the Joint Committee on Industrial Co-operation
and Conciliation is called upon to act, except by the consent of all
present, it shall not proceed with any important part of its duties
unless both sides are equally represented. Where agreeable, equal
representation may be effected by the withdrawal of one or more
members from the side having the majority.
15. Should the Joint Committee fail to reach a majority deci-
sion as to any difference, if the majority of its members so agree the
Joint Committee may select as umpire a third person who shall sit
in conference with the committee and whose decision shall be binding
upon all parties.
16. In the event of the Joint Committee failing to adjust a dif-
ference by a majority decision or by the selection of an umpire, if
the parties so agree the matter shall within ten days be referred to
arbitration. Otherwise it shall be made the subject of an investiga-
tion by the state of Colorado Industrial Commission, in accordance
with the provision of the statute regulating the powers of the com-
mission. Where a difference is referred to arbitration, one party
shall be selected as arbiter if the parties can agree upon his selection.
Otherwise there shall be a board of three arbitrators, one to be se-
lected by the employees' representatives on the Joint Committee, one
by the company's representatives on this committee, and a third by
the two arbiters thus selected. By consent of both parties the In-
dustrial Commission of the state of Colorado rnay be asked to appoint
all the arbiters or to arbitrate the difference itself. The decision of
the sole arbiter, or of the majority of the Board of Arbitration, or
of the Industrial Commission when acting as arbiters, as the case
may be, shall be final and shall be binding upon the parties.
17. To protect against the possibility of unjust treatment be-
cause of any action taken or to be taken by them on behalf of one or
more of the company's employees, any employees' representative
believing himself to be discriminated against for such a cause shall
have the same right of appeal to the officers of the company or to the
Joint Committee as is accorded every other employee of the company.
Having exercised the right in the consecutive order indicated without
obtaining satisfaction, for thirty days thereafter he shall have the
further right of appeal to the Industrial Commission of the state of
2iThis committee is composed of twelve members, six of the number
designated by the employees* representatives on the Joint Conference and the
other six by the president of the company or his representative.
PROBLEMS OF CONTROL WITHIN INDUSTRY 739
Colorado, which body shall determine whether or not discrimination
has been shown, and as respects any representative demand by the
commission to have been unfairly dealt with, the company shall make
such reparation as the Industrial Commission shall deem just,
329. The Future of Industrial Relations'^
BY HENRY P. KENDALL
The war has now ceased. The labor problem stands in higher
relief as the great problem facing the American people today. The
question before organized business is, Will we be far-sighted in
formulating a declaration of right principles upon which employers
can meet employees and the public on a new forum where sound
industrial relations can be secured and maintained, not by a measure
of economic strength as in the past, but by the rule of reason?
There are four ways in which the problem will be considered.
First, a set of federal industrial courts after the plan of the Australian
system through which compulsory arbitration is virtually in force,
with a huge governmental machinery to carry it out. There is the
second plan of wage adjustment boards set up by the industries
themselves and their employees with equal representation on each
side. These boards should in advance determine and agree on stand-
ards of wages, hours, and conditions of employment, in which both
parties interested should have an equal voice. The third method of
approaching the problem of industrial relations is to hold that since
labor and management are in an irreconcilable conflict, proper pro-
cedure is merely to keep up the fight until one side is beaten or
things get so bad that the country at large will take a hand. The
fourth plan is simply to let things drift to an approximation of a
status quo ante, which very few believe is either sound or wise.
The second plan, it seems to me, is the only possible safeguard
for management and is sound in business principles and in ethics.
Far-seeing business men today would do well to speak in no mis-
understood fashion and declare the principles for which they stand.
They must be ready to meet the situation squarely with a full knowl-
edge of economic law and the laws of society. There are certain
principles on which wage adjustment boards by industries are
founded. An outstanding part of the plan is to grant representation
within shops, on the theory that the employees are entitled to a voice
in determining the conditions under which they work. Other prin-
ciples which should govern and on which any wise action can be taken
are the following :
22Adapted from an address entitled "Post-War Standards for Industrial
Relations," delivered before a group of business men and manufacturers,
December 5, 1918.
740 CURRENT ECONOMIC PROBLEMS
I. The recognition that industrial enterprises are the source of
HveHhood to workers as well as to employers and should be con-
ducted with a view of the greatest opportunity for all concerned.
- 2. That much of the industrial unrest is caused by irregularity
of employment which can be lessened greatly if industries and com-
munities will face the problem and feel it their responsibility, and
co-operate to standardize methods, customs, and styles, to give regu-
larity of employment.
3. The right of workers to organize in joint action not inimical
to the general welfare cannot be denied. Such recognition, however,
must be joined with responsibility of both parties to the faithful
observance of collective agreements and co-operation with the man-
agement to promote the efficiency of the establishment as a whole.
4. Impartial agencies such as outlined above must be set up to
interpret agreements and to apply them in particular cases and to
make prompt and authoritative settlements.
5. The right of workers, including common laborers, to a living
wage is declared.
6. When the volume of business declines, wages should be the
last item to be cut down. It has been demonstrated that high wages
and national prosperity are corollaries.
7. Wherever there is a standardized wage there should be a
definite standardized measure of performance and all workers have
a right to compensation in proportion to their individual accomplish-
ments, ability, and service.
In plants where there are a sufficient number of the employed,
where the personal relations of the proprietor are more or less lost,
the interests of the employees should be delegated to some one
person as a labor manager or director of personnel who should have
charge of this function of business. It is my conviction that manufac-
turers and merchants could do no more useful work than furthering
throughout the business interests of the country the idea of the im-
portance of the employment manager by which industries and cor-
porations shall have a department which is sensitive and responsive
to the grievances and aspirations of the employees.
In panic times the country realizes the inflexibility of the present
methods of distributing labor. The Labor Department has estab-
lished a system of public employment offices. I believe that in theory
this is just as sound for the flexibility of labor as the Federal Reserve
Board is for the flexibility of currency. These, however, should not
be contaminated with a political influence. The practice should be
extended by decentralized control through local agencies made up of
PROBLEMS OF CONTROL WITHIN INDUSTRY 741
representatives of employers and employes. The public should con-
trol such agencies and maintain a high standard of efficiency.
It is the responsibility of wise business men to discover the cur-
rents of underlying business conditions and help to direct them into
proper channels. This cannot be done by ignoring the great problem
of industrial relations or simply fighting organized labor. The sound
solution of this great problem will determine the future political,
economic, and social stability as well as the industrial prosperity
of this great country. Shall the only big organization representative
of business in the broadest sense throughout the country remain
silent on the subject ? Is there any more important business problem ?
Shall it lead the way and declare a set of principles about which busi-
ness may rally and which shall serve as a guide to governmental
action so far as it is required, in addition to what the business men
of the country in conjunction with the workers accomplish by their
own means?
F. STANDARDS
330. Standards for Children Entering Employment-'
I. AGE MINIMUM
An age minimum of sixteen for employment in any occupation
except that children between fourteen and sixteen may be employed
in agriculture and domestic service during vacation periods.
An age minimum of eighteen for employment in and about mines
and quarries.
An age minimum of twenty-one for night messenger service.
An age minimum of twenty-one for girls employed as messengers
for telegraph and messenger companies.
Prohibition of the employment of minors in dangerous or hazard-
ous occupations or at any work which will retard their proper physical
development.
II. EDUCATIONAL MINIMUM
All children shall be required to attend school for at least nine
months each year, either full time or part time, between the ages of
seven and eighteen.
Children between sixteen and eighteen years of age who have
completed the eighth grade and are legally and regularly employed
shall be required to attend day continuation schools eight hours
a week.
23This list of tentative minimum standards was adopted by the Conference
on Child Welfare, held under the auspices of the Children's Bureau at Wash-
ington, May 5-8, 1919.
742 CURRENT ECONOMIC PROBLEMS
Children between sixteen and eighteen who have not completed
the eighth grade and are legally and regularly employed shall attend
full-time school.
Vacation schools placing special emphasis on healthful play and
leisure time activities shall be provided for all children.
III. PHYSICAL MINIMUM
A child shall not be allowed to go to work until he has had a
physical examination by a public health physician or school physician
and has been found to be of normal development for a child of his
age and physically fit for the work at which he is to be employed.
There shall be a periodical medical examination of all working
children who are under eighteen years of age.
IV. HOURS OF EMPLOYMENT
No minor shall be employed more than eight hours a day. The
maximum working day for children between sixteen and eighteen
years of age shall be shorter than the legal working-day for adults.
The hours spent at continuation school by children under eighteen
shall be counted as a part of the working-day.
Night work for minors shall be prohibited between 6:00 p.m.
and 7:00 a.m.
V. MINIMUM WAGE
Minors at work shall be paid at a rate of wages which for full-time
work shall yield not less than the minimum essential for the "neces-
sary cost of proper living."
VI. PLACEMENT AND EMPLOYMENT SUPERVISION
There shall be a central agency which shall deal with all juvenile
employment problems. Adequate provision shall be made for ad-
vising children when they leave school of the employment opportu-
nities open to them ; for assisting them in finding suitable work and
providing for them such supervision as may be needed during the
first years of their employment. All agencies working toward these
ends should be co-ordinated through the central agency referred to.
VII. ADMINISTRATION
Provision shall be made for issuing employment certificates to
all children entering employment who are eighteen years of age.
An employment certificate shall not be issued to the child until
the issuing officer has received, approved, and filed the following :
I. Reliable documentary proof of the child's age.
PROBLEMS OF CONTROL WITHIN INDUSTRY 743
2. Satisfactory evidence that the child has completed the eighth
grade.
3. A certificate of physical fitness signed by a public health
physician. This certificate shall state that the minor has been thor-
oughly examined by the physician and that he is physically qualified
for the employment contemplated.
4. Promise of employment.
The certificate shall be issued to the employer and shall be re-
turned by the employer to the issuing officer when the child leaves
his employment.
The school last attended, the compulsory education department,
and the continuation schools shall be kept informed by the issuing
officers of certificates issued or refused and of unemployed children
for whom certificates have been issued.
Minors over eighteen years of age shall be required to present
evidence of age before being permitted to work in occupations in
which their employment is prohibited.
Record forms shall be standardized and the issuing of employ-
ment certificates shall be under state supervision.
Reports shall be made to the factory inspection department of
certificates issued and refused.
Full-time attendance officers adequately proportioned to the
school population shall be provided in cities and counties to enforce
the school attendance law.
The enforcement of school attendance laws by city or county
school authorities shall be under school supervision.
Inspection for the enforcement of all child-labor laws, including
those regulating the employment of children in mines or quarries,
shall be under the same department. The number of inspectors
shall be sufficient to insure the regular observance of the laws.
Provision should be made for staflf of physicians adequate to
examine periodically all employed children under eighteen years
of age.
331. Standards for Women in Industry^*
I. HOURS OF LABOR
I. No woman shall be employed or permitted to work more
than eight hours in any one day or forty-eight hours in any one week.
The time when the work of women employees shall begin and end
and the time allowed for meals shall be posted in a conspicuous place
in each workroom and a record shall be kept of the overtime of each
2*Issued by the Women in Industry Service of the United States Depart-
irent of Labor, 1918. Indorsed by the United States War Labor Policies Board.
744 CURRENT ECONOMIC PROBLEMS
woman worker.
2. Observance of the Saturday half-holiday should be the
custom.
3. Every woman worker should have one day of rest in seven.
4. At least three-quarters of an hour shall be allowed for a meal.
5. A rest period of ten minutes should be allowed in the middle
of each working period without thereby increasing the length of the
working day.
6. No woman shall be employed between the hours of 10:00
p. M. and 6 a. m.
II. WAGES
1. Women doing the same work as men shall receive the same
wages with such proportionate increases as the men are receiving in
the same industry. Slight changes made in the process or in the
arrangement of work should not be regarded as justifying a lower
v/age for a woman than for a man unless statistics of production
show that the output for the job in question is less when women are
employed than when men are employed. If a difference in output
is demonstrated, the difference in the wage rate should be based upon
the difference in production for the job as a whole andnot determined
arbitrarily.
2. Wages should be established on the basis of occupation and
not on the basis of sex. The minimum wage rate should cover the
cost of living for dependents and not merely for the individual.
III. WORKING CONDITIONS
I. State labor laws and industrial codes should be consulted with
reference to provisions for comfort and sanitation. Washing facili-
ties with hot and cold water, soap and individual towels should be
provided in sufficient numbers and in accessible locations to make
washing before meals and at the close of the workday convenient.
Toilets should be separate for men and women, clean and accessible.
Their numbers should have a standard rate to the number of workers
employed. Dressing-rooms should be provided adjacent to washing
facilities, making possible changes of clothing outside the work-
rooms. Rest rooms should be provided. Lighting should be ar-
ranged so that direct rays do not shine on the workers' eyes. Venti-
lation should be adequate and heat sufficient. Drinking water should
be cool and accessible, with individual drinking cups or bubble foun-
tain provided. Provision should be made for the workers to secure
a hot and nourishing meal eaten outside the workroom, and if no
lurch rooms are accessible near the plant, a lunch room should be
maintained in the establishment.
PROBLEMS OF CONTROL WITHIN ^INDUSTRY 745
2. Continuous standing and continuous sitting are both injuri-
ous. A seat should be provided for every woman employed and its
use encouraged. It is possible and desirable to adjust the height of
the chairs in relation to the height of the machines or work tables,
so that the worker may with equal convenience and efificiency stand
or sit at her work. The seats should have backs. If a chair is high,
a foot rest should be provided.
3. Risks from machinery, danger from fire and exposure to dust,
fumes or other occupational hazards should be scrupulously guarded
against by observance of standards in state and federal codes. First
aid equipment should be provided. Fire drills and other forms of
education of the workers in the observance of safety regulations
should be instituted.
4. In determining what occupations are suitable and safe for
women attention should be centered especially on the following con-
ditions which would render the employment of women undesirable
if changes are not made: (a) constant standing or other positions
causing a physical strain; (&) operation of mechanical devices re-
quiring undue strength; (c) repeated lifting of weights of twenty-
five pounds or over, or other abnormally fatiguing motions; {d)
exposure to excessive heat, that is, over 80°, or excessive cold, that
is, under 50° ; {e) exposure to dust, fumes, or other occupational
poisons without adequate safeguards against disease.
5. Women must not be employed in occupations involving use
of poisons which are proved to be more injurious to women than to
men, such as certain processes in the lead industries.
6. Uniforms with caps and comfortable shoes are desirable for
health and safety in occupations for which machines are used or in
which the processes are dusty.
IV. HOME WORK
No work shall be given out to be done in rooms used for living
or sleeping purposes or in rooms directly connected with living or
sleeping-rooms in any dwelling or tenement.
V. EMPLOYMENT MANAGEMEN-^
1. In establishing satisfactory relations between a company and
its employees a personnel department is important, charged with
responsibility for selection, assignment, transfer, or withdrawal of
workers and the establishment of proper working conditions.
2. Where women are employed, a competent woman should be
appointed as employment executive with responsibility for conditions
746 CURRENT ECONOMIC PROBLEMS
affecting women. Women should also be appointed in supervisory
positions in the departments employing women.
3. The selection of workers best adapted to the requirements
through physical equipment and through experience and other quali-
fications is as important as the determination of the conditions of the
work to be done.
VI. CO-OPERATION OF WORKERS IN ENFORCEMENT OF STANDARDS
The responsibility should not rest upon the management alone to
determine wisely and efficiently the conditions which should be estab-
lished. The genuine co-operation essential to production can be
secured only if definite channels of communication between em-
ployers and groups of their workers are established. The need of
creating methods of joint negotiation between employers and groups
of employees is especially great in the light of the critical points of
controversy which may arise on a time like the present. Existing
channels should be preserved and new ones opened if required, to
provide easier access for discussion between employer and employee.
332. International Labor Standards-^
Under the wage system the capitalists seek to increase their
profit in exploiting the workers by methods which, unless the exploi-
tation is limited by international action of the workers, would lead to
the physical, moral, and intellectual decay of the workers.
The emancipation of labor can be realized only by the abolition
of the capitalist system itself. Meanwhile, the resistance of the
organized workers can lessen the evil; thus the worker's health, his
family life, and the possibility of bettering his education can be pro-
tected in such fashion that he may fulfil his duties as a citizen in the
modern democracy. The capitalist form of production produces a
competition in the various countries which puts the backward coun-
tries in a state of inferiority to the more advanced.
The need of a normal basis for international labor legislation has
become doubly urgent as a result of the terrific upset and enormous
ravages which the popular forces have suffered because of the war.
We regard the preS'ent remedy of this situation to be the constitution
of a league of nations applying an international labor legislation,
25Adapted by the International Labor Conference held at Berne, 1919.
From the Survey, XLI, 857. It need not be said that this charter was not
adopted by the Peace Conference, and that the provisions of the treaty relating
to labor amount to little more than an organization of an international labor
office and provisions for mechanism for dealing with labor problems in the
future.
PROBLEMS OF CONTROL WITHIN INDUSTRY 747
The International Trade-Union Conference met at Berne and
asked the league of nations to institute and apply an international
system fixing the conditions of labor.
The present conference supports the decisions of the Trades-
Union Conference of Leeds (191 7) and Berne (1918), and asks
that their essential provisions, already applied in the several countries,
be applied internationally and be inscribed in the treaty of peace as
an international charter of labor, as follows:
1. The conference considers primary instruction obligatory in
all countries; pre-apprenticeship and general industrial training
should be estabhshed everywhere. Higher schooling should be free
and accessible to all, special aptitudes and aspirations not being
blocked by the material conditions of life in which the children may
be placed.
Children below fifteen shall not be employed in industry.
2. Children from fifteen to eighteen shall not be employed more
than six hours per day, with one and one-half hours' rest after four
hours of work. For two hours per day both sexes shall take tech-
nical continuation courses to be established for them between six
in the morning and eight at night.
The employment of children shall be prohibited (a) between
eight at night and six in the morning; {b) Sundays and hohdays;
(c) in unhealthy industries; {d) in underground mines.
3. Women workers shall have a Saturday half-holiday and shall
work only four hours that day; exceptions which are necessary in
certain industries being compensated for by a half-holiday some other
day in the week.
Women workers shall not work at night. Employers shall be
forbidden to furnish home work after the regular hours of labor.
Women shall not be employed in the dangerous industries where it
is impossible to create healthy conditions, as, for instance, in mines
where the handling of harmful materials is injurious to the health
of weak constitutions.
The employment of women for four weeks before and six weeks
after maternity shall be forbidden.
A system of maternity insurance shall be established in all
countries and benefits paid in case of illness. Women's work shall
be free and based on the principle of equal pay for equal work.
4. The hours of labor shall not exceed eight per day and forty-
four per week. Night work, after eight at night and before six in
the morning, shall be forbidden except where the technical nature of
the work makes it inevitable.
748 CURRENT ECONOMICIpROBLEMS
Where night work is necessary the pay shall be higher.
5. The Saturday half-holiday shall be introduced in all countries.
The weekly repose shall be of at least thirty-six hours. When the
nature of the work requires Sunday work, the weekly repose shall
be arranged during the week. In industries of continuous fire, the
work shall be arranged so as to give the workers holidays on alternate
Sundays.
6. To protect health, and as a guaranty against accidents, the
hours of labor shall be reduced at least eight hours in very dangerous
industries. The use of harmful matters is forbidden wherever they
can be replaced. A list of prohibited industrial poisons shall be
made; the use of white phosphorous and white lead in decoration
shall be forbidden. A system of automatic coupling shall be applied
internationally on the railroads.
All laws and regulations concerning industrial labor shall in prin-
ciple be applied to home work ; the same is true for social insurance.
7. Work which may poison or injure health shall be excluded
from homes.
8. Food industries, including the manufacture of boxes and
sacks to contain food, shall be excluded from homes.
9. Infectious diseases must be reported in home industries and
work forbidden in houses where these diseases are found. Medical
inspection shall be established.
Lists of workers employed in home industries shall be drawn up
and they shall have salary books. Committees of representatives of
employers and workers shall be formed wherever home industries
prevail, and they shall have legal power to fix wages. Such wage
scales shall be posted in the work places.
Workers shall have the right to organize in all countries. Laws
and decrees submitting certain classes of workers to special condi-
tions or depriving them of the right of organization shall be abro-
gated. Emigrant workers shall have the same rights as native
workers, including the right to join unions and to strike. Punish-
ments shall be provided for those who oppose the rights of organi-
zation and association.
Foreign workers have the right to the wages and conditions of
labor which have been agreed upon between the unions and employers
in all branches of industry. Lacking such agreements they have
the right to the wages current in the region.
10. Emigration shall in general be free. Exceptions shall be
made in the following cases: (a) A state may temporarily limit
immigration during a period of economic depression in order to pro-
tect the native as well as the foreign workers, (b) Any state may
control immigration in the interest of public hygiene and may tern-
PROBLEMS OF CONTROL WITHIN INDUSTRY 749
porarily forbid it. (<r) States may demand of immigrants that they
be able to read and write in their own tongue — this in order to main-
tain a minimum of popular education and to render possible the
application of labor laws in industries employing immigrants.
The contracting states agree to introduce without delay laws
forbidding engaging workers by contract to work in other countries
and putting an end to the abuse of private employment agencies.
Such contracts shall be forbidden.
The contracting states agree to prepare statistics of the labor
market based upon local reports, mutually exchanging information
as often as possible through a central international office. These sta-
tistics shall be communicated to the trade-unions of each country.
No worker shall be expelled from any country for trade-union
activity; he shall have the right of appealing to the courts against
expulsion.
If wages be insufficient to assure a normal life, and if it be im-
possible for employers and workers to agree, the government shall
institute mixed commissions to establish minimum wages.
11. In order to combat unemployment, the trade-union centers
of the various countries shall maintain relations and exchange in-
formation relative to the demand and supply of labor. A system
of insurance against unemployment shall be established in all
countries.
12. All workers shall be insured by the state against industrial
accidents. The benefits paid the insured or their dependents shall
be fixed according to the laws of the worker's country of origin. Old
age and invalidity insurance and insurance for widows and orphans
shall be established with equal benefits for natives and foreigners.
A foreign worker may, on departure, if he has been the victim of
an industrial accident, receive a lump sum, if such an agreement has
been concluded between the country where he has been working and
his country of origin.
13. A special international code shall be created for the protec-
tion of seamen, to be applied in collaboration with the seamen's
unions.
14. The application of these measures shall in each country be
confided to labor inspectors. These inspectors shall be chosen among
technical, sanitary, and economic experts, and aided by the workers
of both sexes.
The trade-unions shall watch over the publication of the labor
laws. Employers employing more than four workers speaking for-
eign tongues shall post the labor regulations and other important
notices in their respective languages, and shall at their own expense
teach the language of the country to their employees.
750 CURRENT ECONOMIC PROBLEMS
15. To apply the international labor legislation the contracting
states shall create a permanent commission constituting half of the
delegates of the states which are members of the league of nations
and half of delegates of the international federation of labor unions.
The permanent commission shall convoke annually the delegates
of the contracting states to perfect the international labor legislation.
This conference should be composed one-half of representatives of
the organized workers of each country ; it shall have power to make
resolutions having the force of international law.
The Permanent Commission shall collaborate with the Interna-
tional Labor Office at Bale and with the International Union of
Trade-Unions.
XIV
SOCIAL REFORM AND LEGAL INSTITUTIONS
From time out of mind the value and permanence of "fundamental" insti-
tutions have been questioned. The escape in America from a discussion of
problems so basic has been largely due to the new^ness of our society. The
open frontier, the wide distribution of industrial opportunity, the lack of
formal class lines, and a spirit of self-reliance have centered our attention
upon the more immediate problems of applying a machine-technique to a new
continent and of collecting the golden returns. So closely have we been ab-
sorbed in this that we have regarded our institutions as a part of the immutable
universe itself, as unalterable as the paths of the stars.
But with our consciousness of maturity we are beginning to realize that
in the immediate future we must newly evaluate our institutions. Three lines
of development are responsible for this change in attitude. First, we are
victims of intellectual curiosity. The emphasis placed upon the general ideas
of "evolution" and "organism" in our intellectual system has led investigators
to explore the institutional realm, and they have brought back word to us that
our institutions are but social conventions, and that, though they change slowly,
they nevertheless change. Accordingly they are losing the attribute of abso-
luteness with which we have been accustomed to endow them. Secondly, there
is a growing feeling that wealth is inequitably distributed. This attitude was
apparent in our discussion of the tariff, the railroads, the trusts, the immigra-
tion problem. It manifests itself clearly in discussions of the problems of labor
and in the literature of socialism. Even so late as a decade ago the conflict
between those who proposed radical changes in our present social arrangements
and the upholders of the present order turned upon the issue of the source of
value. Today questions of market-process are no longer strategic points of
conflict between the opposing systems. The clash now is over institutions.
Accordingly we find questions of the social and industrial reform engaging the
attention, not only of the economist, but of the student of jurisprudence, the
political scientist, the sociologist, and the philosopher as well. Thirdly, the
peculiar nature of the industrial system is forcing such questions to the front.
Unlike other systems. Modern Industrialism makes use of a vast co-operative
productive system. In this there are employed vast aggregates of accumulated
wealth. A consciousness of the importance of this large volume of "socialized
capital" is leading to the formation of a "gospel of wealth" not unlike the
mediaeval "doctrine of stewardship." The disposition to justify or condemn
ownership or use of productive goods by "social results" is becoming stronger.
Together these three lines of development are increasing our interest in prob-
lems of an institutional nature.
Four closely related problems are treated below as typical of the whole
group. The first, and in a sense the one which comprehends all the others,
is the legal system. It has been pronounced alike "a subtle device of capital-
ism for enslaving the laborer" and "the supreme palladium of our liberties."
Its defenders insist that "law is the conservative factor in social development"
and declare its stability a necessary condition to industrial and social advance.
Its opponents insist that it is still bound by the natural-rights philosophy of the
eighteenth century, that it is living in a world of fictions, and that it knows
nothing of the reality of Modern Industrialism. A second institution, which is
little else than an aspect of this larger first, is the system of jurisprudence as
interpreted by the courts. It is easy to discern a fundamental anithesis between
the theory of social or group solidarity underlying much recent legislation and
751
752 CURRENT ECONOMIC PROBLEMS
the individualistic philosophy which finds expression in court decisions. It is
easy to criticise the legislation as overlooking "natural rights" which the
"courts were established to maintain." It is equally easy to condemn the courts
for their inability to appreciate the theory of group welfare underlying such
legislative enactments. It is a far more difficult problem to suggest a practical
way in which the antithesis can be solved.
A third institution under attack is our system of private property. Most
of those who condemn the institution are moved by the inequalities in vvealth
which they charge to it. Their attitude is alike shortsighted and individual-
istic. The institution is commonly defended upon the ground that property-
owners are entitled to "what they produce," the asumption being that they
"produce" their property. It need not be said that this defense is as weak
as the attack. There is, however, a growing disposition to judge the institu-
tion by its less immediate "social consequences." Thus, it is attacked because
of its creation and perpetuation of artificial inequalities in income, because of
its influence in stratifying society on pecuniary lines, and because of the
dominant social position which it gives to the owners of large aggregates of
material wealth. Its defenders, in like manner, stress the incentive which it
furnishes to individual initiative, the function which it performs in social
organization by placing productive property under efficient management, and
its contribution to material development in furthering the accumulation of
capital. Perchance a system may be devised for combining the advantages of
economic democracy with those of an advancing material culture. If so, by
all means let us adopt it. But if the antithesis is irreconcilable, we must choose
between two things, both of which offer advantages and disadvantages. Per-
chance it may be best to sacrifice material advancement ; but it is to be feared
that the preent generation cannot easily be convinced of that. Perhaps we
may be fortunate enough to retain the institution, but can succeed in modifying
it in such a way as to establish a necessary connection between the privileges
and the responsibilities of ownerhip. At best the problem contains many
contradictory values, and turns upon the larger question of the type of society
that is desirable.
A fourth and closely related institution is that of individual liberty, em-
bracing as it does the legal convention of freedom of contract. A necessary
complement of private property in a flexible industrial system, it is the very
epitome of the older institutional complex. Its modification is threatened by
the rise of the newer group spirit, through such legislative initiatives as regu-
lation of monopoly, prescription of hours of labor, legal restraints upon hiring
and discharge, etc. How sweeping its modification is to be only the future
can tell.
Our attention to our institutional framework of society has just begun.
The range of inquiry is as broad as human life itself; the other problems
discussed in this volume only begin to show its comprehensiveness. By con-
scious change many of our institutions are to be profoundly modified. If the
newer life finds the institutional molds too rigid, the change may be rapid and
revolutionary. But most important of all are the changes in these institutions
which are gradually being effected by a process of growth which we but dimly
see and the changes which these institutions in turn are inducing in the complex
of our developing scheme of life and values.
SOCIAL REFORM AND LEGAL INSTITUTIONS 753
A. THE LEGAL SYSTEM
333. The Economic Basis of Law^
BY ACHILLE LORIA
Changes in the prevaiHng economic conditions necessarily involve
corresponding alterations in law. The history of law furnishes us
with clear and definite demonstration of the fact. During the primi-
tive period when law was worked out upon a family and not upon
a property basis, mother-right prevailed universally. Under more
modern conditions we are struck with amazement at the similarity
in legal systems prevailing among the most diverse peoples. The
ancient law of the Romans and Germans alike shows us the same
classification of persons ; among both the law maintained the inviola-
bility of private property, determined the boundaries of patrimonial
fields, proclaimed the personal nature of an obligation, and fixed the
rigorous bonds that shackled the liberty of the debtor.
That so striking an analogy should exist in the legal system of
two peoples so profoundly different and so widely separated is highly
significant : on the one hand, because it reverses the theory that law
is an emanation of national consciousness ; and upon the other, be-
cause it shows that the law necessarily depends upon existing eco-
nomic conditions. The Romans and t\\e primitive Germans were
different in race and manners and lived under different climatic con-
ditions. Between the two peoples there was nothing in common
beyond the identity of their economic systems ; or, to put it more
definitely, there was nothing in common except identical territorial
conditions, which irresistibly impelled them to adopt an identical
economic constitution. The analogy in legal systems must neces-
sarily have resulted from the one element common to them both, their
economic system.
The Roman economy and the German economy proceeded to-
gether for a certain time. But after the collective economy gave
way to the system of capitalistic property, their ways lay apart ; for
Germany's free land, being of a low grade of fertility, could be taken
from the laborer without serious violence, while in Southern Europe,
with its fertile land, blood and iron alone could prevent the laborers
from establishing themselves on the free land. This led in Southern
Europe to an admirably perfected capitalistic system upon which a
corresponding legal structure was raised. The resulting system of
legal relations and doctrines remain to our day a superb monument to
Latin genius.
^Adapted from The Economic Foundations of Society (1889), pp. 80-86.
Translated by Lindley M. Keasbey.
754 CURRENT ECONOMIC PROBLEMS
The slave economy was never rigorously established in Teutonic
countries ; the suppression of free land there assumed the milder
form of serfdom. Thus there was produced a legal system differing
from that of Rome in three respects: it instituted patriarchal rela-
tions between property and labor ; it protected the serf from arbi-
trary acts of violence by the proprietor ; and it placed respect for
the family and a sentiment of solidarity above the mere satisfaction
of brutal egoism. With the disintegration of Roman society, the
classic law fell into abeyance. Southern Europe was forced to in-
troduce the serf system, and it then became expedient to substitute
the Germanic code for the classic law of Rome. This substitution
was not a victory of Teutonic over Roman law ; it was simply the
natural reproduction of a legal system to meet the reappearance of
the very economic conditions that had originally given it life. We
thus have additional proof of the law's exclusive dependence upon
the economic structure of society.
In a somewhat analogous manner the later institution in Germany
of economic relations similar to those formerly prevailing in Rome
introduced the Roman law into that country. Here the growing wage
economy engendered a new set of relations between property and
labor, and these had to give rise to institutions heretofore unknown.
The new system offered a profound analogy to that of the Roman
slave economy. Thus, though the law regulating the wage contract
had to be an original creation of the new economic system, the law
regulating the relations among proprietors could practically be repro-
duced in its classic form. Now it is exactly these relations that
constitute the essential object of the law. The Roman law, accord-
ingly, emerged from the tomb where it had so long reposed into the
expansion of a new life. The movement toward this awakening
commenced in Italy where the wage economy first began to develop.
Its passing from Italy into Germany was but the necessary correla-
tion of the economic revolution that spread these same conditions
throughout Northern Europe.
Thus legal history shows us that instead of being the product of
abstract reason, or the result of national consciousness, or a racial
characteristic, the law is simply the necessary outcome of economic
conditions.
334. Social Rights and the Legal System^
BY ROSCOE POUND
A generation ago it would have been hard to find anyone to ques-
tion that upon the whole the American law was quite what it should
^Adapted from "Social Problems and the Courts," American Journal of
Sociology, XVIII, 33i-4i- Copyright by the University of Chicago, 1912.
SOCIAL REFORM AND LEGAL INSTITUTIONS 755
be. But first the economists and sociologists and students of govern-
ment, and then the bar itself, have been thinking upon this matter
freely and vigorously until criticism has become stable. The need
for agitation has passed. Novi^ for a season we need careful diag-
nosis and thoroughgoing study of the lines along which change is to
proceed.
Legal history shows that from time to time legal systems have to
be remade, and that this new birth of a body of law takes place
through the infusion into the legal system of something from with-
out. A purely professional development of law, which is necessary
in the long run, has certain disadvantages, and the undue rigidity to
which it gives rise must be set off from time to time by receiving
into the legal system ideas developed outside of legal thought. Such
a process has taken place in the history of our own law. In the six-
teenth and seventeenth centuries the common law, through purely
professional development in the King's Courts, had become so sys-
tematic and logical and rigid that it took no account of the moral
aspects of causes to which it was to be applied. With equal impar-
tiality its rules fell upon the just and the unjust. The rise of the
Court of Chancery and the development of equity brought about an
infusion of morals into the legal system — an infusion of the ethical
notions of chancellors who were clergymen, not lawyers — and made
over the whole law. Again, in the eighteenth century, the law had
become so fixed and systematized by professional development as to
be quite out of accord with a commercial age. As the sixteenth-
century judge refused to hear of a purely moral question, asking
simply what was the common law, so the eighteenth-century judge at
first refused to hear of mercantile custom and commercial usage,
and insisted upon the strict rules of the traditional law. But before
the century was out, by the absorption of the law merchant, a great
body of non-professional ideas, worked out by the experience of
merchants, had been infused into the legal system, and had created or
made over whole departments of the law.
Today a like process is going on. The sixteenth-century judge
who rendered judgment upon a bond already paid, because no formal
release had been executed, and refused to take account of the purely
moral aspects of the creditor's conduct; the great judge in the
eighteenth century who refused to allow the indorsee of a promis-
sory note to sue upon it, because by the common law things in action
were not transferable, and would not listen to the settled custom of
merchants to transfer such notes, nor to the statement of the London
tradesmen as to the unhappy effect of such a ruling upon business,
have their entire counterpart in the judges of one of the great courts
756 CURRENT ECONOMIC PROBLEMS
of the Uijited States in the twentieth century to whom the economic
and sociological aspects of a question appear palpably irrelevant.
The sixteenth- and seventeenth-century law was brought to take
account of ethics. The eighteenth-century law came to receive the
custom of merchants as part of the law of the land. May we not
be confident that in the same way the law of the twentieth century
will absorb the new economies and the social science of today and
be made over thereby ?
It is an infusion of social ideas into the traditional element of
our law that we have to bring about; and such an infusion is going
on. The right course is not to tinker with our courts and with our
judicial organization in the hope of bringing about particular results
in particular kinds of cases, at a sacrifice of all that we have learned
or ought to have learned from legal and judicial history. It is rather
to provide a new set of premises, a new order of ideas in such form
that the courts may use them and develop them into a modern system
by judicial experience of actual cases. A body of law which will
satisfy the social workers of today cannot be made of the ultra-indi-
vidualist materials of eighteenth-century jurisprudence and nine-
teenth-century common law based thereon, no matter how judges are
chosen or how often they are dismissed.
A master of legal history tells us that taught law is tough law.
Certainly it is true that our legal thinking and legal teaching are to
be blamed more than the courts for the want of sympathy with social
legislation which has been so much in evidence in the immediate past.
One might almost say that instead of recall of judges, recall of law
teachers would be a useful institution. At any rate, what we must
insist upon is recall of much of the juristic and judicial thinking of
the last century.
For many reasons which cannot be taken up here, our conception
of the end of the legal system came to be thoroughly individualistic.
Legal justice meant securing of individual interests. It sought by
means of law to prevent all interference with individual self-develop-
ment and self-assertion, so far as this might be done consistently with
a like self-development and self-assertion on the part of others. It
conceived that the function of the state and of the law was to make
it possible for the individual to act freely. Hence it called for a
minimum of legal restraint, restricting the sphere of law to such
checks as are necessary to secure "a harmonious coexistence of the
individual and of the whole." This purely individualistic theory of
justice culminated in the eighteenth century in the Declaration of the
Rights of Man and the Bill of Rights so characteristic of that period.
Spencer's formula of justice, "the liberty of each limited only by the
like liberties of all," represents the ideal which American law has
SOCIAL REFORM AND LEGAL INSTITUTIONS 757
had before it during its whole existence. In politics, in ethics, and in
economics this conception has decayed, and has given way to a newer
idea of justice. But it continues to rule in jurisprudence.
In contrast with such juristic thinking of the immediate past,
which started from the premise that the object of the law was to
secure individual interests and knew of social interests only as indi-
vidual interests of the state or sovereign, the juristic thinking of the
present must start from the proposition that individual interests are
to be secured by law because and to the extent that they are social
interests. There is a social interest in securing individual interests
so far as securing them conduces to general security, security of in-
stitutions and the general rural and social life of individuals. Hence
while individual interests are one thing and social interests another,
the law, which is a social institution, really secures individual inter-
ests because of a social interest in so doing.
Study of fundamental problems of jurisprudence, not petty
changes of the judicial establishment, is the road to socialization of
the law. First of all, there must be a definition of social justice to
replace the individualistic or so-called legal justice which we have;
there must be a definition of social interests and a study of how far
these are subserved by securing the several individual interests which
the law has worked out so thoroughly in the past ; there must be a
study of the means of securing these social interests otherwise than
by the methods which the past had worked out for purely individual
interests. Second, there must be a study of the actual social effects
of legal institutions and legal doctrines. Courts cannot do this, nor
can law teachers or law writers, except within narrow limits. The
futility of a self-sufficing, self-centered science of law has become
apparent to jurists.
335. Law and Social Statics'*
BY OLIVER W. HOLMES
This case is decided upon an economic theory which a large part
of the country does not entertain. If it were a question whether I
agreed with the theory I should desire to study further and long
before making up my mind. But I do not conceive that to be my
duty, because I strongly believe that my agreement or disagreement
has nothing to do with the right of the majority to embody their
opinion in law. ' It is settled that state constitutions and laws may
^Lochner v. New York, 198 U.S. 74- This is the well-known "bake-shop
case." A statute passed by the New York legislature, regulating the hours
of labor in bake shops, was declared unconstitutional. The selection given is
an excerpt from a dissenting opinion (1904).
758 CURRENT ECONOMIC PROBLEMS
regulate life in many ways that we as legislators might think inju-
dicious, or if you like, as tyrannical as this, and which equally inter-
fere with the liberty of contract. This liberty of the citizen to do
as he likes so long as he does not interfere with the like liberty of
others to do the same, which has been a shibboleth for many well-
known writers, is interfered with by school laws, by the post-office,
by every state and municipal institution which takes his money for
purposes thought desirable, whether he likes it or not. The Four-
teenth Amendment does not enact Herbert Spencer's Social Statics.
A constitution is not intended to embody a particular economic theory,
whether of paternalism and the organic relations of a citizen to the
state, or of laissez faire. It is made for people of fundamentally
differing views.
General propositions do not solve concrete problems. The decision
will depend on a judgment or intuition more subtle than any articulate
major premise. Every opinion tends to become law. I think that the
word liberty in the Fourteenth Amendment is perverted when it is
held to prevent the natural outcome of a dominant opinion, unless it
can be said that a rational and fair minded man would necessarily
admit that the proposed statute would infringe fundamental prin-
ciples as they have been understood by the traditions and the laws of
our people.
336. The Social Function of Law*
BY HOMER HOYT
The critics of the current legal system seem to be agreed as to
the baneful effect of its static character. Law is said to be a sur-
vival of eighteenth-century philosophy which cannot be justly applied
to twentieth-century society. The favorable hearing which this plea
is receiving indicates that it is in keeping with the growing tendency
of an age of industrial change to emphasize the dynamic and evolu-
tionary elements of its institutions. The demand for relative stand-
ards of jurisprudence becomes more insistent, as people become more
convinced of the unique and marvelous character of their own epoch.
We are told that legal codes should be developed out of the experience
of the society to which they are to be applied, and that any law whose
basis is broader than the time and place in which it is now established,
to the extent that it fails of this coincidence, is clearly unjust. In
particular, our present society, which is so different from other so-
cieties both in degree of complexity and in kind of organization,
necessarily requires rules of conduct which are adapted to its insti-
tutions. The scope of laws is not only to be narrowed to a brief
time unit, but their application to different classes of individuals at
*ioi5-
SOCIAL REFORM AND LEGAL INSTITUTIONS 759
the same moment is to be carefully restricted. As commonly ex-
pressed, justice consists in giving to every person a square deal, and
this is generally interpreted to mean judgment of the individual by the
rules of the game which were set for his particular social environ-
ment. Perfect justice could be secured in every case, according to
these critics, by discarding past standards and by deciding each case
upon its merits. This involves nothing less than the abandonment
of objective rules of judgment, and the substitution in their place
of the subjective test of the psychological laboratory. The indictment
is thus chiefly directed against the social value of static standards of
law.
The apologists for the existing legal institutions assert that stable
standards of law are necessary to secure this very special consid-
eration of the merits of each individual case, which constitutes the
very essence of individual justice. They would remind their critics
that legal principles originate in social intercourse, and are concerned
with the conduct of individuals in relationships where some com-
munity of understanding is indispensable. The social conventions
and institutions are the relatively static elements in society, and it is
necessary for their function as media of social communication that
they should be so. Their purpose is to furnish a convenient agency
of mutual expression, which can be acquired with a minimum of
effort on the part of the individual, and to establish an agreement
among diverse and heterogeneous interests in regard to matters where
unanimity is of great advantage to the individual. Law acquires its
static character by becoming so familiar that it no longer requires
conscious attention. Men form habits in regard to their legal insti-
tutions, for the same purpose that they form habits in regard to
language — to economize the time and effort of carrying on relations
with their fellows. Legal standards thus enter indissolubly into the
thoughts, acts, and characters of men as a part of their fundamental
assumptions, which they accept without question. Individual acts
inevitably carry forward the theory of law which existed prior to
their performance, and thus tend to perpetuate the same principles.
The prohibition of retroactive laws is universally considered neces-
sary to prevent confiscation of property, and forfeiture of vested
rights, but it accomplishes its purpose by guaranteeing a certain
degree of stability in our legal system. Justice to the individual,
according to the conception entertained in the preceding paragraph,
can be assured only by recognizing the social value of static laws in
setting up guideposts to direct individuals to the legal road. The com-
plexity of modern civilization confuses and bewilders one who has no
definite knowledge of its laws. As an immigrant in a strange land
76o CURRENT ECONOMIC PROBLEMS
feels helpless and insecure because of ignorance of the unfamiliar
social organization, so the native citizen is nonplused by shifting and
unstable legal standards. The consequences of action may be that the
individual is subjected to extraordinary civil and criminal liability,
for society imputes legal responsibilty to one definte act of the many
which have co-operated to produce the final result. The criminal act
itself is criminal in view of the social attitude which prevails at the
time, and the justice of enforcing the social attitude is dependent upon
announcement of it beforehand in terms sufficiently definite to put
individuals upon their guard.
Uncertainty as to what is legal, when the consequences of guess-
ing wrongly may result in heavy penalties, blights forward action
in its very inception, at the moment when the individual is deciding
to make the positive step required to overcome the safety and cer-
tainty of doing nothing. At this point the society whose duty it was
to establish laws and administer justice finds itself deeply concerned,
for upon the decision of the individuals depends its progress as a
group. Activity of individuals is even more necessary to society than
regulatory measures whose purpose is to secure the best type of
activity. But when the rules of law depart from fixed standards to
suit the exigencies of particular cases to such an extent that they
cease to be trustworthy guides for future action, then law, instead of
creating an attitude favorable to progress, deadens individual activity.
In society as at present organized the social advantages of continued
production and the opening of new lines of enterprise would be
destroyed, were law made immediately responsive to social condi-
tions, by the very agency which is designed to increase social efficiency.
A fairly stable and certain standard of law must necessarily be estab-
lished to tempt individual initiative, and this implies that individual
standards of justice must give way to a common standard of justice,
which all individuals having social dealings can understand and
interpret. Otherwise the plea of unusual circumstances or peculiar
temperament will readily lend itself to arbitrary and capricious rules
of law, the very possibility of which will foster suspicion and distrust
of judicial processes. It is only because men are fairly certain that
the main bases of property and contract rights will not be suddenly
and substantially altered to their disadvantage, that they strike out
into new fields of enterprise. It is only because individuals are con-
fident that the court will not construct special standards to apply to
their acts, that they will proceed with decision upon tomorrow's
work. If all things were subject to change, would anyone confine his
attention to one task even for a moment ? Entrepreneurs may be able
to calculate with some degree of accuracy the probable changes in the
SOCIAL REFORM AND LEGAL INSTITUTIONS 761
factors which will affect future markets for their products, but if
the very standards by which they have made their calculations vary at
the discretion of a future court, how accurately can they allow for
these unprecedented psychological factors ?
Definite rules of law are formulated by court decisions as well
as by statutory enactment. In the case of court-made law the recog-
nition of precedents is indispensable to the existence of the law, for
a legal principle is not established until it comes to be acknowledged
as binding upon the facts to which it applies. As fast as new laws
are developed, the number of doubtful questions is diminished, and
the road is cleared for fresh consideration of new situations which
arise out of the dynamic progress of society. It is as necessary,
therefore, that the courts be relieved of the enormous burden of
reconsidering old issues, as it is for the individual to find definiteness
in the law. As individuals accept the greater part of the questions
arising out of their social relations as definitely settled, and proceed
to expend money and eflFort upon the assumption that the definite
rules will not be reversed, so the courts resolve new cases by com-
paring them with cases already decided. In thus basing their de-
cisions on precedent, the courts are often unfairly accused of apply-
ing a blind rule of thumb to avoid the trouble of exerting ingenuity
and using wisdom in devising methods of equitable relief. But it is
manifestly far more unjust to reverse the settled principles upon the
faith of which men have acquired power and governed their courses
of action in the past than to enact into law the court's own unfettered
opinion as to the justice of the case, which may or may not coincide
with what is generally accepted. Considerations of practicability
enforce this course upon the courts. The task of reconciling con-
flicting precedents itself gives the widest leeway for the exercise
of ingenuity, and the frequency with which cases are decided by a
divided opinion indicates the difficulty involved in finding a definite
course. The application of legal principles is consequently far more
than the readaptation of past rules to present situations. The growth
of new social environments changes the force of old arguments and
compels a modification of many rules. The precedent which was at
first stated in a broad and abstract form is given definite meanings
by concrete applications. Its logical relationship to other precedents
is developed as occasion requires, and the extent of its scope is
definitely determined by an interaction with other precedents. Into
the old rules is infused the spirit of the new developments ; the out-
worn and archaic elements are cast out and new elements are added.
The whole system of jurisprudence is made to grow by mingling into
the substance of the law the viewpoints of each successive age.
762 CURRENT ECONOMIC PROBLEMS
B. PRIVATE PROPERTY
337. Progress and Property^
BY PAUL ELMER MORE
Not even a Rousseau could cover up the fact of the initial in-
equality of men by the decree of that great Ruler or Law which
makes one vessel for dishonor and another for honor. This is the
so-called injustice of nature. And it is equally a fact that property
means the magnifying of that natural injustice into that which you
may deplore as unnatural injustice, but which is a fatal necessity,
nevertheless. This is the truth, hideous if you choose to make it so
to yourself, true to those, whether the favorites of fortune or not,
who are themselves true — ineluctable at least.
Unless we are willing to pronounce civilization a grand mistake,
as, indeed, religious enthusiasts have ever been prone to do (and
humanitarianism is more a perverted religion than a false eco-
nomics), unless our material progress is all a grand mistake, we must
admit, sadly or cheerfully, that any attempt by government to ig-
nore that inequality may stop the wheels of progress or throw the
world back into temporary barbarism, but will surely not be the
cause of v/ider or greater happiness. It is not heartlessness, there- -
fore, to reject the sentiment of the humanitarian, and to avow that
the security of property is the first and all-essential duty of a civil-
ized community.
And we may assert this truth more bluntly, or, if you please, more
paradoxically. Although, probably, the rude government of bar-
barians, when the person was scantily covered or surrounded by
property, may have dealt principally with wrongs to persons, yet the
main care of advancing civilization has been for property. One
reason, of course, is that the right of life is so obvious, and in the
nature of things has been so long and universally recognized. But,
after all, life is a very primitive thing. Nearly all that makes it more
significant to us than to the beast is associated with property. To
the civilized man the rights of property are more important than
the right to life.
In our private dealings with men, we may ignore the laws of
civilization with no harm resulting to society ; but it is different when
we undertake to lay down general rules of practice. We are essen-
tially, not legislators, but judges. What then, you ask, are human
laws ? In sober sooth, it is not we who create laws ; we are rather
iinders and interpreters of natural laws, and our decrees are merely
^Adapted from an article entitled "Property and Law," Unpopular Review,
III. 259-68. Copyright, 1915.
SOCIAL REFORM AND LEGAL INSTITUTIONS 763
the application of our knowledge, or our ignorance, to particular con-
ditions. When our decrees are counter to natural law, they become
at best dead letters, and at worst, agents of trouble and destruction.
Law is but a rule for regulating the relations of society for practical
purposes. We are bound to deal with man as he actually is. So, if
our laws are to work for progress, they must recognize property as
the basis of civilization, and must admit the consequent inequality
of conditions among men. They will have relatively little regard for
labor in itself or for the laborer in himself, but they will provide
rigidly that labor shall receive the recompense it has bargained for,
and that the laborer shall be secure' in the possession of what he has
received. We may try to teach him to produce more, or to bargain
better, but in the face of all appeals of sentiment society must learn
again today that it cannot legislate contrary to the decree of fate.
Law is concerned primarily with the rights of property.
So directly is the maintenance of civilization and peace and all
our welfare dependent upon this truth — that it is safer, in the ut-
terance of law, to err on the side of natural equality than on the
side of ideal justice. We can do something to control the power of
cunning and rapacity, and to make the distribution of material ad-
vantages fall more in conformity with superiority of character and
culture. We can go a little way, and very slowly, in the endeavor
to equalize conditions by the regulation of property ; but the ele-
ments of danger are always near at hand and insidious ; and un-
doubtedly any legislation that deliberately releases labor from the
obligations of contract, and permits it to make war on property with
impunity, must be regarded as running counter to the first demands
of society. It is an ugly fact that, under cover of the natural in-
equality of property, evil and greedy men will act in a way that can
only be characterized as legal robbery. The state should prevent such
action so far as it safely can. Yet even here, in view of the mag-
nitude of the interests involved, it is better that legal robbery should
exist along with the maintenance of law, than that legal robbery
should be suppressed at the expense of law.
You may to a certain extent control property and make it sub-
servient to the ideal nature of man ; but the moment you deny its
rights, or undertake to legislate in defiance of them, you may for a
time unsettle the very foundations of society, you will certainly in
the end render property your despot and so produce a materialized
and debased civilization. Manifestly, the mind will be free to en-
large itself in immaterial interests only when the material basis is
secure, and without a certain degree of such security a man must
be anxious over material things and preponderantly concerned with
764 CURRENT ECONOMIC PROBLEMS
them. And, manifestly, if this security is dependent upon the right
of property, and these rights are denied or belittled in the name of
some impossible ideal, it follows that the demands of intellectual
leisure will be regarded as abnormal and anti-social.
No doubt the ideal society would be that in which every man
should be filled with noble aspirations. But I am not here con-
cerned with Utopian visions. My desire is to confirm in the dic-
tates of their own reason those who believe that the private owner-
ship of property is, with very limited reservations, essential to the
material stability and progress of society. We who have this con-
viction need to remind ourselves that laws which would render cap-
ital insecure, and, by a heavy income tax or other discrimination in
favor of labor, would deprive property of its power of easy self-
perpetuation, though they speak loudly in the name of humanity,
will in the end be subversive of those conditions under which alone
any true value of human life can be realized.
This, I take it, is the reason that the church and the university
have almost invariably stood as strongly reactionary against any in-
novation which threatened the entrenched rights of property. It is
not at bottom the greed of possession that moves them, nor are we
justified in casting into their teeth the reproach that they who pro-
fess to stand for spiritual things are in their corporate capacity the
most tenacious upholders of worldly privilege. They are guided by
an instinctive feeling that in this mixed and mortal state of our ex-
istence, the safety and usefulness of the institutions they control are
finally bound up with the inviolability of property which has been
devoted to unworldly ends. For if property is secure it may be a
means to an end, whereas if it is insecure it will be the end itself.
338. Mine— Property and Rights^
BY DAVID M. PARRY
1. ^ Man must work for a living. He would have no intelligence
if he lived in a Garden of Eden, because if Nature provided all his
needs ready to hand for his use, there would be no reason for him to
do any thinking, and the result would be that he wouldn't think.
Therefore it is in order to make him develop his intelligence that
man is compelled to wrestle with nature for his livelihood.
2. Each man is entitled to the results of his own exertions. To
say otherwise would be to assert that some men have the right to
live on the fruits of the toil of other* without working themselves,
which would be contrary to our first proposition. Hence persona!
^Adapted from To Organized Labor (1903), pp. 16-18.
SOCIAL REFORM AND LEGAL INSTITUTIONS 765
ownership of property is a necessary deduction from the law that
man must work for a living.
3. Each individual is entitled to freedom of action. Being
assured that what he produces is his own he is constantly spurred on
to develop his capacity to produce. Being assured also that he can-
not profit by another's exertions he realizes that he is responsible to
himself alone for what he makes out of himself. Therefore each
man has an undeniable right to dispose of his own time and labor as
he sees fit, or in other words to work out his own destiny. The effect
of this is to develop strong, self-reliant and intelligent men. It
brings into play the creative faculty of man, his highest faculty, and
the faculty that constitutes him a free agent in so far as he is such an
agent.
4. It is right and just that one man should obtain more of this
world's goods than another. Since personal ownership of property
and individual freedom are both valid deductions from the first
premise that all men shall work, then no complaint can honestly be
made because one man by superior exertion or ability manages to
produce more than another, and consequently has more to show for
his labor than another. The fact that one man succeeds in making
himself a better living than others is itself a spur to other men to
try all the harder. This is what causes progress and the evolution of
the race.
5. Capital arises by reason of the fact that one man can produce
and own more than another. Some men find that they can produce
more than they absolutely need for themselves, and therefore they
store up some of their labor in making a machine, and this machine
is capital. Here is your frightful "bugbear," capital, coming into
existence as the direct and legitimate result of the so-called primal
curse that man must labor. It is born as the result of the industry,
thrift, self-sacrifice, and intelligence of the few as compared to the
many.
6. Industrial ownership of capital is not only the direct deduc-
tion from the right of every man to that which he possesses, but it is
also necessary for its creation. Men will waste their property in
fast living or they will work only part of the time if they find that
there is no profit in saving. If a man employs men to make a machine
and pays them out of his savings, certainly these men have no valid
title to the machine, for they have received for their toil as much, if
not a little more, than they would have received for any other labor
they could have performed. Neither have the men who are subse-
quently employed to run the machine any title of ownership in it, for
they certainly cannot claim to have made it. The ownership correctly
lies in the man who paid for the making of it, and the fact that men
766 CURRENT ECONOMIC PROBLEMS
can convert their savings into a productive machine that will grind
out more savings is the incentive that causes men to have machinery
made.
7. Capital, despite individual ownership, benefits the many much
more than it does the few. It is in fact emancipating man from
drudgery and poverty. Capital brings to the assistance of man the
forces of nature in producing commodities. It not only enables him
to produce the things he needs or desires with the expenditure of
less labor than formerly, but it constantly tends to lift him up from
lower to higher pursuits.
8. Wages are dependent upon the aggregate production. If a
nation produces but little there is but little to divide. The opposite
is true if it produces a great deal. Now the utilization of capital is
the only method of greatly increasing the production per capita.
Strikes, organized idleness, boycotts, etc., cannot fail in reducing
instead of increasing the general rate of wages, and that because they
decrease the aggregate production instead of increasing it. Since
they cause less to be made than would have been made, it is a clear
mathematical proposition that some are going to suffer when it comes
to casting up the balance sheet.
9. The law of supply and demand is the great law regulating
industry under this individualistic or capitalistic regime. It operates
(i) to direct the energies of the nation along channels that will
be the most profitable to all; (2) it makes on the whole the highest
possible use of every individual according to his capability and the
need that exists for various kinds of services he can perform; (3)
it regulates the accumulation of capital, tending to increase its ac-
cumulation more at one time than at another, dependent upon the
urgency of the need for it; (4) it increases nominal wages and de-
creases the prices of commodities as it becomes more utilized, thus
automatically giving to labor the benefits of capital as fast as it is
to the interest of labor that it should be done.
339. My Apology
BY p. PROPERTY
What have I to say why judgment should not be passed against
me? why I should not be banished from human society? why, with
creatures of darkness, I should not be cast into the outer void? I
have little to say. But my long and effective services to society
speak eloquently for themselves, and I may as usual content myself
with few words. I need only enumerate in briefest form the rec-
ord of my accomplishments, and I feel that my defense is complete.
SOCIAL REFORM AND LEGAL INSTITUTIONS 'jG'j
I mention my achievements not boastfully, being as modest as my
first name Private signifies, but only as earnests of what society may
expect from me in the future.
For society, and in furtherance of civilization, I, Private Prop-
erty, assert that I have performed these services, to-wit :
First, I have rendered the fundamental conditions of social and
industrial life safe and secure. Before I came into my own, the
power to seize and hold summed up the ethics of ownership. Ener-
gies that might have gone into more productive employments were
used in defending one's own or in appropriating one's neighbor's.
But I established and secured social sanction and universal respect
for the right of possession.
Second, the security thus aflforded had caused the energies of
men to be diverted from the acquisition to the production of wealth.
It has led to the utilization of natural resources, and has provided
opportunity for the use of long-continued and consistent industrial
policies which have caused material goods to increase verily a hun-
dred fold.
Third, such security has furnished an incentive to man as a
worker to utilize his productive capacities to the full. It has caused
him to sow, because it has promised that he, and not another, should
reap. It has led him to sacrifice immediate gain in establishing new
processes and in devising new instruments of production to the end
that the earth might be crowned with abundance.
Fourth, I plead innocent of the charge of having favored a priv-
ileged "leisure class," upon whom I have showered plenty that has
been wasted in riotous living. It is true that I have conferred
wealth upon a few. But these few I have not particularly favored
I have chosen them for highly important and extremely dangerous
social service. I have assigned to them the task of experimentation
in consumption. Whatever bad they have found they have dis-
carded. The good that they have discovered has in time been made
the property of the masses. They are the vanguard of my army
which is engaged in raising the standard of living. The goods sup-
plied to them are not rewards; they consist only of the laboratory
materials necessary to the work which they are doing. Witness
their suffering, their costs, and you can appreciate the heroism
which makes them willing to serve society in so dangerous and
important an undertaking. The extent to which, through their
pioneer service, the formerly rigid boundaries of consumption have
been extended attests my wisdom.
Fifth, I have greatly increased the product of industry by the
use of vast stores of capital. The economic inequality which I
768 CURRENT ECONOMIC PROBLEMS
have perpetuated has been the cause of the existence of so fruitful
a fund. For its bulk has come from the very large incomes whose
source I am. The savings which become the capital that turns the
wheels of our mills, runs our machines, and speeds our trains across
the continent on their missions of service are possible only because
of me. And, but for the security which I offer, the investment of
these savings would be impossible.
Sixth, I supply the people with abundance and contribute to the
fullness of their lives. The security which I have brought about
has almost eliminated risks. The result is decreased costs, which I
generously offer to the public in decreased prices. The long-time
productive operations, the improvements in technique, and the cumu-
lative investment of capital, which I have brought about, confer the
favors of plenty, variety, and cheapness upon all sorts and condi-
tions of men. My aristocratic methods have been mere devices for
securing democratic ends. I have forced my owners to use me
productively. I have made them stewards of the commonweal.
Seventh, I have led society in its development to higher and
higher planes. Out of my abundance they have been able to satisfy
more and more of their material wants. The certainty with which
I have endowed the satisfaction of the necessary material wants has
enabled those who choose to give of their time, energy, and means
to the immaterial things of life. Our culture, with its wide horizon
and its varied content, is my handiwork. That civilization is not
coarse and material and brutal is my doing.
Eighth, I have prevented a passing sentimentalism from sacri-
ficing these more permanent values to the passing fancy of the
moment. I have, at the cost of much misunderstanding and malig-
nant criticism, prevented the wealth that was needed for a richer
life for the generations of the future from being wasted in satisfy-
ing the immediate wants of a few surplus individuals who promised
no contribution to culture. I have preferred to have such wealth
used in enlarging capital, thus making for bounty of goods, and in
social experimentation whose end was to lead men to richer and
fuller life. I have seen clearly that a deficiency of human life could
easily be supplied within a generation, but that a deficiency in capital
can never be made up ; that cumulatively it becomes greater as the
years pass ; and that it must deny life to many yet unborn and rob
others of comforts which otherwise would have made their lives less
vain and hollow.
Ninth, I have proved myself the custodian of peace and have
laid the foundations of a world-wide Christian community. The
system of vested interests with which I have surrounded labor and
SOCIAL REFORM AND LEGAL INSTITUTIONS 769
capital has done more for the cause of peace than all other agencies
combined. For I have increased many fold the costs to all classes
of engaging in war. The world-wide industrial system which I have
wrought is more powerful than all armaments combined in pro-
tecting a state against the encroachments of another state and it
contributes more to nation's understanding of nation than the whole
world-wide system of diplomacy. My success has not. been com-
plete, but that merely makes my continued presence and activity all
the more necessary.
I would not detract one whit from the good intentions of my
malefactors. I bear them no malice. My only plea is that I be
judged according to my fruits. I am done.
«
340. The Constitutional Position of Property in America^
BY ARTHUR T. HADLEY
European observers who study either the specific industrial ques-
tions which have come before the American people for their solution,
or the general relations between the industrial activity of the govern-
ment and that of private individuals, are surprised at a certain weak-
ness of public action in all these matters. Our legislatures are often
ready to pass drastic measures of regulation ; they are rarely willing
to pursue a consistent and carefully developed policy for the attain-
ment of an industrial end. The people often declaim against the
extent of the powers of private capital ; they are seldom willing to put
that capital under the direct management of the government itself.
The man who talks loudest of the abuses of private railroad manage-
ment shrinks from the alternative of putting railroads into the direct
control and ownership of the state.
The fact is, that private property in the l!jnited States, in spite
of all the dangers of unintelligent legislation, is constitutionally in a
stronger position, as against the government and the government
authority, than is the case in any country of Europe. However much
public feeling may at times move in the direction of socialistic meas-
ures, there is no nation which by its constitution is so far removed
from socialism or from a socialistic order. This is partly because
the governmental means provided for the control of limitation of
private property are weaker in America than elsewhere, but chiefly
because the rights of private property are more formally established
in the Constitution itself.
^ From an article with the foregoing caption in the Independent, April 16,
1908. Copyright.
770 CURRENT ECONOMIC PROBLEMS
This may seem a startling proposition ; but I think a very brief
glance at the known facts of history will be sufficient to support and
sustain it. For property in the modern sense was a comparatively
recent development in the public law of European communities. In
the United States, on the contrary, property in the modern sense
represents the basis on which the whole social order was established
and built up.
Down to about the thirteenth century the system of land tenure in
every country of Europe was a feudal one. It was based upon mili-
tary service. A man held a larger or smaller amount of land on
account of his larger or smaller amount of fighting efficiency. There
were many rival claimants for the land. The majority of those who
wanted to cultivate the soil were unable to protect themselves against
the dangers of war. In the absence of an efficient protector or over-
lord no amount of industry was effective and no large accumulation
of capital was possible. The services of the military chief were in-
dispensable as a basis for the toil of the laborer or the forethought
of the capitalist. It was the military chief, therefore, who enjoyed
not only the largest measure of respect, but the strongest position
under the law. As the condition of public security grew better these
things changed. From the fourteenth century to the nineteenth
Europe has witnessed the gradual substitution of industrial tenures
for military tenures, the gradual development of a system of property
law intended to encourage the activities of the laborers and the capi-
talists, rather than to reward the services of the successful military
chieftain. But down to the end of the eighteenth century this new
sort of private property represented a superadded element rather than
an integral basis of the constitution of society. And even the develop-
ments of the last hundred years in constitutional law and industrial
activity have not been able to obliterate a certain sense of newness
when we contrast the position of the aristocracy of wealth with that
of the aristocracy of military rank.
In the American colonies, on the other hand, where the public
law of the United States first took its rise, conditions were wholly
different. People wanted no military chieftain to protect them, no
overlord to rule them. Each man was familiar with the use of a gun
—how familiar, the overwhelming losses of the British troops in the
Revolutionary War, when brought face to face with untrained
farmers, testify very clearly — and was ready to take his share in
protecting the community against the attacks of the Indians or their
French leaders. There was plenty of land for all — plenty of oppor-
tunity for the exercise of labor and the use of capital. That man did
the most for society who worked hardest and saved most. Under
SOCIAL REFORM AND LEGAL INSTITUTIONS 771
such circumstances the laws were so framed and interpreted as to
give the maximum stimulus to labor and the maximum rights to
capital. There was no military aristocracy which stood in the way.
Governors were at times sent over from England who tried their
best to assert Crown rights for themselves and their subordinates.
But the net effect of the activity of these governors was probably
to weaken rather than to strengthen the claims of feudal authority,
because they made themselves so unpopular that they united the
spirit of the colonists in their resistance to all such claims and pre-
tensions.
At the time, therefore, when the United States separated from
England, respect for industrial property right was a fundamental
principle in the law and public opinion of the land. It was natural
enough that this should be so at a period when every man either held
property or hoped to do so. The strange thmg is that this principle
should have survived with so little change down to the present day.
But there were certain circumstances connected with the adoption
of the Constitution of the United States which provided for the per-
petuation of this state of things — which made it difficult for public
opinion in another and later age, when property-holding was the less
widely distributed, to alter the legal conditions of the earlier period.
During the War of the Revolution, from 1775 to 1782, and in the
years immediately thereafter, the American Union had been a league
of independent states, and a very loose one. They had formed an
organization for mutual protection in carrying on the War, But this
organization, even while the war lasted, was very weak indeed. The
imminence of a common danger, which threatened to involve all, and
the personality of a few leaders, of whom George Washington was
the most conspicuous, were the only things that enabled the different
colonies to act together. When independence was conceded by Eng-
land in 1782, and the restraints of common danger were removed, the
hopeless weakness of the central government became obvious. From
1783 to 1789 the United States had no means of securing concert of
action at home or respect and consideration abroad. Clear-headed
men felt the absolute necessity of centralization. The Constitution
of 1788 was the result of a set of contracts, agreements, and com-
promises bet^ 'een two pretty evenly balanced parties — a states rights
party, which wished to limit the powers of the federal government,
and a national party, which was anxious to set some practical control
on the autonomy of the state government.
The delegates to the convention of 1787 were concerned with
questions of constitutional law in the narrower sense. They were not
thinking of the legal position of private property. But it so happened
772 CURRENT ECONOMIC PROBLEMS
that in making mutual limitations upon the powers of the federal and
the state government they unwittingly incorporated into the Constitu-
tion itself certain very extraordinary immunities to the property
holders as a body.
It was in the first place provided that there should be no taking
of private property without due process of law. The states rights
men feared that the federal government might, under the stress of
military necessity, pursue an arbitrary policy of confiscation. The
Federalists, or national party, feared that under the influence of
sectional jealousy one or more of the states might pursue the same
policy. This constitutional provision prevented the legislature or
executive, either of the nation or of the individual states, from taking
property without judicial inquiry as to the necessity, and without
making full compensation even in case the result of such inquiry
was favorable to the government. No man foresaw the subsequent
effect of this provision in preventing a majority of voters, acting in
the legislature or through the executive, from disturbing existing
arrangements with regard to railroad building or factory operation
until the railroad stockholders or factory owners had had the oppor-
tunity to have their case tried in the courts.
There was another equally important clause in the Constitution
providing that no state should pass a law impairing the obligation of
contracts. In this case also a provision which was at first intended
to prevent sectional strife and to protect the people of one locality
against arbitrary legislation in another became a means of strengthen-
ing vested rights as a whole against the possibility of legislative or
executive interference. Nor was the direct effect of these two clauses
in preventing specific acts on the part of the legislature the most im-
portant result of their existence. They were a powerful means of
establishing the American courts in that position of supremacy which
they enjoy under the Constitution. For whenever an act of the
legislature or the executive violated, or even seemed to violate, one
of these clauses, it came before the courts for review. If the Federal
courts said that the act of a legislature violated one of these provisions
it was blocked — rendered powerless by a dictum of the judges. I do
not mean that these two clauses in the Constitution were the chief
source of judicial power. That power has been due primarily to the
traditional respect for the judicial office existing in the United
States, which has rendered it almost impossible for any but men of
learning and character to aspire to it ; and, secondarily, to the very
great ability that certain of the early American judges — notably
Marshall, Story and Kent — showed in expounding the law in such
manner as to command universal approval. But if these provisions
SOCIAL REFORM AND LEGAL INSTITUTIONS 773
did not lie at the foundation of the positive authority of the judges,
they were unquestionably a most powerful instrument in practically
limiting the authority of legislatures, and to that extent in strengthen-
ing the rights of the property holders.
The rights of individual owners against legislative interference
were thus most fully protected. But how was it when property was in
the hands of corporations ?
Here also the power of control by the government was weakened
and the rights and immunities of the property holders correspondingly
strengthened by two events, whose effect upon the modern industrial
situation may be fairly characterized as fortuitous. One of these
was the decision in the celebrated Dartmouth College case in 1819;
the other was the passage of the Fourteenth Amendment to the Con-
stitution of the United States in 1868.
I call their effects fortuitous, because neither the judges who
decided the Dartmouth College case nor the legislators who passed
the Fourteenth Amendment had any idea how these things would
affect the modern industrial situation. The Dartmouth College case
dealt with an educational institution, not with an industrial enter-
prise. The Fourteenth Amendment was framed to protect the negroes
from oppression by the whites, not to protect corporations from op-
pression by the legislature. It is doubtful whether a single one of
the members of Congress who voted for it had any idea that it would
touch the question of corporate regulation at all. Yet the two to-
gether have had the effect of placing the modern industrial corpora-
tion in an almost impregnable constitutional position.
In 1 81 6 the New Hampshire legislature attempted to take away
the charter rights of Dartmouth College. Daniel Webster was em-
ployed by the college in its defense, and his reasoning so impressed the
court that they committed themselves to the position that a charter was
a contract ; that a state having induced people to invest money by cer-
tain privileges and immunities, could not at will modify those privi-
leges and immunities thus granted. Whether the court would have
taken so broad a position if the matter had come before it thirty or
forty years later, when the abuses of ill-judged industrial charters
had become more fully manifest, is not sure, but, having once taken
this position and maintained it in a series of decisions, the court
could not well recede from it. Inasmuch as many of the corporate
charters granted by state legislation had an unlimited period to run,
the theory that these instruments were contracts binding the state for
all time had a very important bearing in limiting the field within
774 CURRENT ECONOMIC PROBLEMS
which a legislature could regulate the activity of such a body, or an
executive interfere with it.
AgaiU; by the Fourteenth Amendment to the Constitution of the
United States every state was forbidden to interfere with the civil
rights of any person or to treat different persons in an unequal way.
This amendment to the Constitution, passed just after the close of the
Civil War, was intended to prevent the Southern states readmitted, or
on the point of being readmitted, to the Union from abridging the
rights of the negro members of the commonwealth. A number of
years elapsed before the effect of the amendment upon the constitu-
tional position of railroad and industrial corporations seems to have
been fully realized. But in 1882 the Southern Pacific Railroad Com-
pany, having been, as it conceived, unfairly taxed by the assessors of
a certain county in California, took the position that a law of the
state of California taxing the property of a corporation at a different
rate from that under which similar property of an individual would
be taxed was in effect a violation of the Fourteenth Amendment to
the Constitution, because a corporation was a person and therefore
entitled to equal treatment. This view, after careful consideration,
was upheld by the Federal courts. A corporation, therefore, under
the law of the United States, is entitled to the same immunities as
any other person ; and since the charter creating it is a contract, whose
obligation cannot be impaired by the one-sided act of the legislature,
its constitutional position as a property holder is much stronger than
anywhere in Europe.
Under the circumstances, it is evident that large powers and
privileges have been constitutionally delegated to private property
in general and to corporate property in particular. I do not mean
that property owners, and specifically the owners of corporate prop-
erty, have more practical freedom from interference in the United
States than they do in some other countries, notably in England.
Probably they do not have as much. But their theoretical position —
the sum of the conditions which affect their standing for the long
future and not for the immediate present — is far stronger in the
United States. The general status of the property owner under the
law cannot be changed by the action of the legislature or the executive,
or the people of a state voting at the polls, or all three put together.
It cannot be changed without either a consensus of opinion among
the judges, which should lead them to retract their old views, or an
amendment of the Constitution of the United States by the slow and
cumbersome machinery provided for that purpose, or, last — and I
hope most improbable — a revolution.
•
SOCIAL REFORM AND LEGAL INSTITUTIONS 775
When it is said, as it commonly is, that the fundamental division
of powers in the modern state is into legislative, executive and judi-
cial, the student of American institutions may fairly note an excep-
tion. The fundamental division of powers in the Constitution of the
United States is between voters on the one hand and property owners
on the other. The forces of democracy on one side, divided between
the executive and the legislative, are set over against the forces of
property on the other side, with the judiciary as arbiter between them ;
the Constitution itself not only forbidding the legislature and execu-
tive to trench upon the rights of property, but compelling the judi-
ciary to define and uphold those rights in a manner provided by the
Constitution itself.
This theory of American politics has not often been stated. But
it has been universally acted upon. One reason why it has not been
more frequently stated is that it has been acted upon so universally
that no American of earlier generations ever thought it necessary to
state it. It has had the most fundamental and far-reaching effects
upon the policy of the country. To mention but one thing among
many, it has allowed the experiment of universal suffrage to be tried
under conditions essentially different from those which led to its
ruin in Athens or in Rome. The voter was omnipotent — within a
limited area. He could make what laws he pleased, as long as those
laws did not trench upon property right. He could elect what officers
he pleased, as long as those officers did not try to do certain duties
confided by the Constitution to the property holders. Democracy
was complete as far as it went, but constitutionally it was bound to
stop short of social democracy. I will not go so far as to say that
this set of limitations on the political power of the majority in favor
of the political power of the property owner has been a necessary
element in the success of universal suffrage in the United States. I
will say unhesitatingly that it has been a decisive factor in determin-
ing the political character of the nation and the actual development
of its industries and institutions.
C. INDUSTRIAL LIBERTY
341. The Mediatory Character of Freedom^
BY THOMAS HILL GREEN
We shall probably all agree that freedom, rightly understood, is
the greatest of blessings. But when we thus speak of freedom, we
^Adapted from the "Lecture on Liberal Legislation and Freedom of Con-
tiact," Works, III, 370-73. Edited by R. L. Nettleship, 1880.
776 CURRENT ECONOMIC PROBLEMS
do not mean freedom from restraint or compulsion. We do not
mean merely freedom to do as we like quite irrespective of what it
is that we like. We do not mean a freedom that can be enjoyed by
one man at a cost of a loss of freedom to others. We mean rather
a positive power of doing or enjoying something that is worth doing
or enjoying, and that, too, something that we do or enjoy in com-
mon with others. We mean by it a power which each man exercises
through the help or security given him by his fellow-men, and which
in turn he helps to secure for them. When we measure the prog-
ress of a society by its growth in freedom, we measure it by the
increasing development on the whole of those powers of contributing
to social good with which we believe the members of the society to
be endowed ; in short, by the greater power on the part of the citi-
zens to make the most and best of themselves.
Thus, though there can be no freedom among men who act under
compulsion, yet the mere removal of compulsion is in itself no con-
tribution to true freedom. In one sense no man is so well able to
do what he likes as the wandering savage. He has no master. There
is no one to say him nay. Yet we do not count him really free, be-
cause the freedom of savagery is not strength, but weakness. The
actual powers of the noblest savage do not compare with those of the
humblest citizen of a law-abiding state. He is not the slave of
man,. but he is the slave of nature. Of compulsion by natural neces-
sity he has plenty of experience, though of restraint by society none
at all. Nor can he deliver himself from that compulsion except
by submitting to this restraint. So to submit is the first step in
true freedom, because the first step in the exercise of the faculties
with which man is endowed.
But we rightly refuse to recognize the highest development on
the part of an exceptional individual or exceptional class, as an
advance toward the true freedom of man, if it is founded on a
refusal of the same opportunity to other men. The powers of the
human mind have probably never attained such force and keenness
as among the small groups of men who possessed civil privileges
in the small republics of antiquity. But the civilization and free-
dom of the ancient world were short-lived because they were partial
and exceptional. If the ideal of true freedom is the maximum of
power for all the members of human society to make the best of
themselves, we are right in ranking modern society, with all its con-
fusion and ignorant license and waste of effort, above the most
splendid of ancient republics.
If I have given a true account of that freedom which forms
the goal of social effort, we shall see that freedom of contract is
SOCIAL REFORM AND LEGAL INSTITUTIONS 777
valuable only as a means to an end. That end is what I call free-
dom in the positive sense, the liberation of the powers of all men
equally for contribution to a common good.
342. Contract and Personal Responsibility®
BY ARTHUR T. HADLEY
A statement of the history of modern freedom, and one that
ought to command assent in the twentieth century, is that it repre-
sents a passage from a system of obligations imposed by the com-
munity to a system of self-imposed obligations. Duty, in the early
stages of society, is enforced by lynch law. In the later stages it is
enforced by the individual conscience. It is not that the obliga-
tions recognized are narrower or less exacting in the latter case than
in the former. They tend to become wider and more exacting. But
the method of enforcement allows the individual to get at things in
his own way. We have passed from a system of status, where each
man was born into a set of legal rules and duties imposed upon him
for all time, to a system of contract, where each man's rights and
duties are largely those which he has made for himself. This change
has not enabled man to relieve himself of obligations to his fellow-
men. It has allowed these obligations to take forms suited to the
varied powers of the individual and the varied needs of society.
We can trace at least some of the stages in this process of evolution.
The system of caste, or status, is a survival of the old tribal
organization, where law and morals were undistinguished ; where
social arrangements existed by the authority of the gods ; and where
any attempt to disturb them was an act of sacrilege. In course of
time, however, there came about an alteration in character of the
legal penalties. Where one man had wronged another unintention-
ally, it became possible not only to inflict punishment, but to exact
compensation. Instead of the fine which was exacted for an ofifense
against public order, the community could compel the payment of
damages to make good the loss to the person injured. Even where
the wrong was intentional the idea of compensation could enter into
the penalty. When once the legal authorities grasped this possibility
of using a civil remedy, instead of a criminal one, it became possible
to allow to any man who could pay substantial damages a degree of
personal liberty which was not possible under a system where every
infraction of others' rights must be treated as a crime and visited by
criminal penalties.
^Adapted from The Relations between Freedom and Responsibility in
the Evolution of Democratic Government, pp. 74-83. Copyright by Yale Uni-
versity Press, 1903.
778 CURRENT ECONOMIC PROBLEMS
From the development of civil damages it was but a short step
to the system of contracts. The essential idea of a contract is that
one or both parties agree to perform a certain service at a future
time. The obligation which a man assumes in a contract is volun-
tary until he has made the agreement. After that society will compel
him to pay damages for its breach, just as it would compel him to
pay damages for the breach of any of the other rights of his fellow
citizens. It is therefore, in its very essence, a combination of free-
dom and responsibility. It is a means which the community can
adopt for getting work done by the voluntary assumption of obliga-
tions on the part of its members. These obligations they can be
compelled to perform or to furnish compensation to the other party.
Among the many brilliant contributions of the Roman lawyers to
the progress of civilization, there was probably none so far-reaching
as their development of the theory of contract. For, wherever this
theory was applied, it taught people that the exercise of freedom
involved the assumption of responsibility, and could safely be com-
bined with it.
The lesson was not easy to learn, and the Roman lawyers did
not succeed in teaching it to the civilized world for all time. The
irruption of the barbarians into Europe brought with it, under the
feudal system, a nearly complete return to the old theory of a status.
But with the close of the feudal period the ideas of the Roman law
were taken up and widely expanded. The power of making a con-
tract, under the old Roman law, had been practically limited to the
few men who could furnish security for the performance of their
obligations. It belonged chiefly to the minority of freemen who
enjoyed the benefits of slavery. At the close of the Middle Ages,
however, the reintroduction of the idea of contractual obligation as
a basis for social order was accompanied by a system of emancipa-
tion which gave the laborer a certain amount of property right in
the product of his toil. The substitution of industrial for military
tenure put a much larger number of people in a position to furnish
security. It enabled the people as a whole, instead of the privileged
few, to enjoy the system of education in responsibility which marks
the growth of contract law.
For our modern law of contract is a most valuable system of
moral education, operating alike upon lawyers and upon laymen,
and enabling us to make progress both in our judicial ethics and in
our general tone of public morality. The whole English commercial
law of the seventeenth and eighteenth centuries, with its distinctions,
sometimes fine drawn but always well drawn in matters like agency
or warranty, competence or negligence, involves a systematic enforce-
SOCIAL REPOiai AND LEGAL INSTITUTIONS 779
ment of responsibility under the forms of freedom. If we wish to
see what this legal development has accomplished in the way of
introducing responsibility, we have only to contrast our standards
of practice anji ethics in those lines where commercial law has been
developing for centuries with those where its application is compara-
tively new. If I sell a cow on the basis of certain representations,
which prove to be false, the law holds me to an implied contract of
warranty, even if I have explicitly disclaimed any intention to
warrant the animal. If I sell a railroad under similar circumstances
the law offers the sufferer no corresponding remedy ; and no small
section of the public applauds the seller for the shrewdness which
he has displayed in the transaction. If I use an individual position
of trust to enrich myself at the expense of others, the law will
compel me to make restitution, even where criminal intent was
absent. But if I profit by similar errors in the management of a
corporate trust, the difficulty of bringing the responsibility home is
great indeed.
It is the ideal of a free community to give liberty wherever
people are sufficiently advanced to use it in ways which shall benefit
the public, instead of ways which will promote their own pleasure
at the public expense. And it has been the practice of the most
successful communities to go farther than this, and give freedom
somewhat in advance of this ethical development. Liberty is directly
advantageous wherever the ethical development of the community
fits people for its use ; it is likely to prove indirectly advantageous
wherever there is a fair prospect that they can be taught to improve
their ethical standards in the immediate future.
343. Labor and Freedom of Contract^"
What "Freedom of Contract" Has Meant to Labor
1. Denial of eight-hour law for women in Illinois.
2. Denial of eight-hour law for city labor or for mechanics and
ordinary laborers.
3. Denial of ten-hour law for bakers.
4. Inability to prohibit tenement labor.
5. Inability to prevent by law employer from requiring em-
ployee as condition of securing work, to assume all risk from injury
while at work.
6. Inability to prohibit employer selling goods to employees at
greater profit than to non-employees.
^''Adapted from a bulletin used at the Chicago Industrial Exhibit in 1906.
78o CURRENT ECONOMIC PROBLEMS
7. Inability to prohibit mine owners screening coal which is
mined by weight before crediting same to employees as basis of
wages.
8. Inability to legislate against employer using coercion to pre-
vent employee becoming a member of a labor union.
9. Inability to restrict employer in making deductions from
wages of employees.
10. Inability to compel by law payment of wages at regular
intervals.
11. Inability to provide by law that laborers on public works
shall be paid prevailing rate of wages.
12. Inability to compel by law payment of extra compensation
for overtime,
13. Inability to prevent by law employer from holding back
part of wages.
14. Inability to compel payment of wages in cash ; so that em-
ployer may pay in truck or scrip not redeemable in lawful money.
15. Inability to forbid alien labor on municipal contracts.
16. Inability to secure by law union label on city printing.
11
344. Static Assumptions of Contractual Freedom
BY ROSCOE POUND
"The right of a person to sell his labor," says Mr. Justice Har-
lan, "upon such terms as he deems proper is, in its essence, the same
as the right of the purchaser of labor to prescribe the conditions
upon which he will accept such labor from the person offering to
sell it. So the right of the employee to quit the service of the em-
ployer, for whatever reason, is the same as the right of the employer,
for whatever reason, to dispense with the services of such employee.
In all such particulars the employer and employee have equality
of right, and any legislation that disturbs that right is an arbitrary
interference with the liberty of contract, which no government can
legally justify in a free land."^^ With this positive declaration of a
lawyer, the culmination of a line of cases now nearly twenty-five
years old, a statement which a recent writer on the science of juris-
prudence has deemed so fundamental as to deserve quotation and
exposition at an unusual length, let us compare the equally positive
statement of a sociologist: "Much of the discussion about 'equal
i^Adapted from "Liberty of Contract," in 18 Yale Law Journal (1909),
pp. 454-87.
^^Adair V. US., 208 U.S. 161.
SOCIAL REFORM AND LEGAL INSTITUTIONS 781
rights' is utterly hollow. All this ado about the system of contract
is surcharged with fallacy."
To everyone acquainted with the facts at first hand the latter
statement goes without saying. Why, then, do the courts persist
in the fallacy? Why do so many of them force upon legislation an
academic theory of equality in the face of practical inequality?
Why do we find a great and learned court in 1908 taking a long
step into the past of dealing with the relations between employer and
employee in railway transportation, as if the parties were individ-
uals, as if they were farmers haggling over the sale of a horse?
Why is the legal conception of the relation of employer and employee
so at variance with the common knowledge of mankind? Surely
the cause of such doctrine must lie deep. Let us enquire then what
these causes are and how they have operated to bring about the
present state of the law of freedom of contract.
There is no doubt that the theory of "natural rights" is at the
basis of modern conceptions of freedom of contract. This began
as a doctrine of political economy, as a phase of Adam Smith's doc-
trine which we commonly call laissez faire. It was propounded as
a utilitarian principle of politics and legislation by Mill. Spencer
derived it from his formula of justice. In this way it became a chief
article in the creed of those who sought to minimize the functions
of the state, to insist that the most important of its functions was
to enforce by law the obligations created by contract. This theory
has shown itself present in both legislation and judicial decisions.
As a consequence the doctrine of liberty of contract is bound up in
the decisions of our courts with a narrow view as to what consti-
tutes special or class legislation, that greatly limits effective law
making. For one thing there is the doctrine that apart from consti-
tutional restrictions there are individual rights resting on a natural
basis, to which the courts must give effect, beyond the control of
the state. "In the judicial discussions of liberty of contract this idea
has been very prominent. One court reminds us that natural per-
sons do not derive their right to contract from the law."" Another
court in passing adversely upon legislation against company stores,
says any classification is arbitrary and unconstitutional unless it pro-
ceeds on "the natural capacity of persons to contract."^* Another, in
passing on a similar statute, denies that contractual capacity can be
restricted except for physical or mental disabilities.^^ Another holds
that the legislature cannot take notice of the de facto subjection of
" 58 Ark. 407.
" 115 Mo. 307. 15 33 w. Va. 188.
782 CURRENT ECONOMIC PROBLEMS
one class of persons to another in making contracts of employment
in certain industries, but must be governed by the theoretical jural
equality.^''
Not only, however, is natural law the fundamental assumption
of our law and legal philosophy, but we must not forget that it is
the theory of our bill of rights. Not unnaturally the courts have
clung to it as being the orthodox theory of constitutions. But the
fact that the framers held that theory by no means demonstrates
that they intended to impose the theory on us for all time. They
laid down principles, not rules, and rules can only be illustrations of
principles so long as the facts and opinions remain what they were
at the time when the rules were announced. Forgetfulness of this
latter fact and an intense zeal for natural rights theory has led to a
desire to extend this freedom as far as possible and to limit as much
as possible whatever would tend to interfere with this, such as the
number and kinds of incapacities which would justify a restraint of
this liberty. The decisions of the courts plainly reveal this. • They
agree that the term "liberty" is broader than Coke's use of it, that
the fact that Coke confined it to freedom of physical motion and
locomotion does not exclude a broader interpretation today. Yet
the same courts that recognize that liberty must include more today
than it did as used in Coke's Second Institute, lay it down that the
incapacities are to remain what the^ were at the common law, that
new incapacities of fact, arising out of present industrial situations,
may not be recognized by legislation. Restraints upon that freedom
must find some justification in the existence of like limitations recog-
nized at the old common law.
This appears perhaps no more clearly than in the eflForts of the
courts to reconcile the existence of usury laws with their notion of
liberty of contract. As was said in 113 Pa. St. 427, "The right to
regulate the rate of interest existed at the time the constitution was
adopted, and cannot, therefore, be considered either an abridgment
or restraint upon the rights of the citizen, guaranteed by the con-
stitution. The power to pass usury laws exists by immemorial usage ;
but such is not the case with such acts as we are considering." That
narrow assumptions underlie conceptions of contractual capacities
also receives exemplification in connection with judicial discussions
of usury laws. For instance in Frorer v. People,^'^ the court said,
"Usury laws proceed upon the theory that the lender and the bor-
rower of money do not occupy toward each other the same relations
of equality that parties do in contracting with each other in regard
i« 61 Kas. 140. 17 141 111. 171.
SOCIAL REFORM AND LEGAL INSTITUTIONS 783
to the loan or sale of other kinds of property, and that the bor-
rower's necessities deprive him of freedom in contracting and place
him at the mercy of the lender, and such laws may be found on the
statute books of all civilized nations of the world, both ancient and
modern." It does not even se^ m to have occurred to Justice Schol-
field that the necessities of the miner or factory employee might
impair his freedom of contract as well. And instances might be
multiplied, showing the purely individualistic character of all natural
law theories, and the legal decisions based upon them.
345. Contractual Rights — Legal and ReaP^
BY THORSTEIN VEBLIN
The movement of opinion on natural-rights grounds converged
to an insistence on the system of natural liberty, so-called. But this
insistence on natural liberty did not contemplate the abrogation of
all conventional prescription. "The simple and obvious system of
natural liberty" meant freedom from restraint on any other pre-
scriptive ground than that afforded by the rights of ownership. In
its economic bearing the system of natural liberty meant a system
of free pecuniary contract. "Liberty does not mean license" ; which
in economic terms would be transcribed, "The natural freedom of
the individual must not traverse the prescriptive rights of property."
Property rights being included among natural rights, they had tine
indefeasibility which attaches to natural rights. Natural liberty pre-
scribes freedom to buy and sell, limited only by the equal freedom
of others to buy and sell ; with the obvious corollary that there must
be no interference with others' buying and selling, except by means
of buying and selling.
Presently, when occasion arose in America, the metaphysics of
natural liberty was embodied in set form in constitutional enact-
ments. It is, therefore, involved in a more authentic form and with
more incisive force in the legal structure of this community than
in that of any other. Freedom of contract is the fundamental tenet
of the legal creed, so to speak, inviolable and inalienable ; and within
the province of law and equity no one has competence to penetrate
behind this first premise or to question the merits of the natural-
rights metaphysics on which it rests. The only principle which may
contest its primacy in civil matters is the vague "general welfare"
clause, and even this can effectively contest its claims only under
exceptional circumstances. Under the application of any general
i^Adapted from The Theory of Business Enterprise, pp. 271-78. Copy-
right by Charles Scribner's Sons, 1904.
784 CURRENT ECONOMIC PROBLEMS
welfare clause the presumption is, and always must be, that the prin-
ciple of free contract be left intact so far as the circumstances will
permit. The citizen may not be deprived of life, liberty, or property
without due process of law, and the due process proceeds on the
premise that property rights are inviolable. In its bearing upon eco-
nomic relations between individuals this comes to mean, in effect, not
only that one individual or group of individuals may not legally
bring any other than pecuniary pressure to bear upon another in-
dividual or group, but also that pecuniary pressure cannot be barred.
Now, through gradual change of the economic conditions, this
conventional principle of unmitigated and inalienable freedom of
contract began to grow obsolete from the moment when it was fairly
installed; obsolescent, of course, not in point of law, but in point
of fact. The machine process has invaded the field. The standard-
ization and the constraint of the system of machine industry differs
from what went before it in that it has no cenventional recognition,
no meaphysical authentication. The machine process has not itself
become a legal fact. Therefore it neither can or need be taken ac-
count of by the legal mind. It does not exist de jure but de facto.
The "natural," conventional freedom of contract is sacred and in-
violable. The de facto freedom of choice is a matter about which
the law and the courts are not competent to enquire. By force of
the concatenation of industrial processes and the dependence of men's
comforts or subsistence upon the orderly working of these processes,
the exercise of the rights of ownership in the interests of business
may traverse the de facto necessities of a group or class ; it may
even traverse the needs of the community at large, for example,
in the conceivable case of an advisedly instituted coal famine; but
since the necessities or comforts of livelihood cannot be formulated
in terms of the natural freedom of contract, they can, in the nature
of the case, give rise to no cognizable grievance and find no legal
remedy.
D. THE COURTS AND LABOR
346. Limitation of the Working-Day
a) The Supremacy of Freedom of Contract ^^
Does the provision in question restrict the right to contract?
The words "no female shall be employed" import action on the part
of two persons. There must be a person who does the act of em-
^Ritchie v. People, 115 111. 98 (1893). This is an excerpt from the opinion
u 11 t ^*^^^ ^^^'^^ declaring unconstitutional a law providing that "no female
shall be employed m any factory or workshop more than eight hours in any
one day, or forty-eight hours in any one week."
SOCIAL REFORM AND LEGAL INSTITUTIONS 785
ploying and a person who consents to the act of being emplyed.
The prohibition of the statute is twofold: first, that no manufac-
turer or proprietor of a workshop shall employ any female therein
more than eight hours in one day ; and, second, that no female shall
consent to be so employed. It thus prohibits employer and employee
from uniting their minds upon any longer service during one day
than eight hours. They are prohibited, the one from contracting
to employ, and the other from contracting to be employed, other-
wise than as directed. Section 2 of Article 2 of the constitution of
Illinois provides that "no person shall be deprived of life, liberty,
or property without due process of law." The privilege of contract-
ing is both a liberty and a property right. Liberty includes the
right to acquire property, and that means the right to make and en-
force contracts. The legislature has no right to deprive one class
of persons of privileges allowed to other persons under like con-
ditions. Women employed by manufacturers are forbidden to make
contracts to labor longer than eight hours in a day, while women
employed as saleswomen, bookkeepers, stenographers, or other occu-
pations are at liberty to contract for as many hours of labor a day
as they choose. The manner in which this section discriminates
against one class of employers and employees, and in favor of all
others, places it in opposition to the constitutional guarantees here-
inbefore discussed, and so renders it invalid.
But aside from its partial and discriminating character, this en-
actment is a purely arbitrary restriction upon the fundamental rights
of the citizen to control his or her time and facilities. It substi-
tutes the judgment of the legislature for the judgment of the em-
ployer and employee in a matter about which they are competent to
agree with each other. Where the legislature thus undertakes to
impose an unreasonable and unnecessary burden upon any one citizen
or class of citizens it transcends the authority intrusted to it by the
constitution.
b) Maternity and State Regulation ^°
That woman's physical structure and the performance of ma-
ternal functions place her at a disadvantage in the struggle for sub-
sistence is obvious. By the abundant testimony of the medical
fraternity continuance for a long time on her feet at work and repeat-
ing this from day to day tends to injurious effects upon the body ;
and as healthy mothers are essential to a vigorous offspring, the
physical well-being of woman becomes an object of public interest,
and care, in order to preserve the strength and vigor of the race.
^^Muller V. Oregon, 208 U.S. 412 (1907).
786 CURRENT ECONOMIC PROBLEMS
c) Supremacy of the Police Power "
It is enough for our decision if the legislation under review was
passed in the exercise of an admitted power of government ; and that
it is not as complete as it might be, not as rigid in its prohibitions as
it might be, gives perhaps evasion too much play, is lighter in its pen-
alties than it might be, is no impeachment of its legality. This may be
a blemish, giving opportunity for criticism and difference in character-
ization, but the constitutional validity of legislation cannot be deter-
mined by the degree of exactness of its provisions or remedies. New
policies are usually tentative in their beginnings, advance in firmness
as they advance in acceptance. They do not at a particular moment
of time spring full-perfect in extent or means from legislative brain.
Time may be necessary to fashion them to precedent customs and
conditions and as they justify themselves or otherwise they pass from
militancy to triumph or from question to repeal.
But passing general considerations and coming back to our im-
mediate concern, which is the validity of the particular exertion of
power in the Oregon law, our judgment is that it does not transcend
constitutional Hmits.
The case is submitted by plaintiff in error upon the contention
that the law is a wage law, not an hours-of-service law, and he rests
his case on that contention. To that contention we address our
decision and do not discuss or consider the broader contentions of
counsel for the State that would justify the law even as a regulation
of wages.
There is a contention made that the law, even regarded as regulat-
ing hours of service, is not either necessary or useful "for preserva-
tion of the health of employees in mills, factories, and manufacturing
establishments." The record contains no facts to support the con-
tention, and against it is the judgment of the legislature and the
Supreme Court (of Oregon), which said, "In view of the well-known
fact that the custom of our industries does not sanction a longer
service than lo hours per day, it cannot be held, as a matter of law,
that the legislative requirement is unreasonable or arbitrary as to
hours of labor. Statistics show that the average daily working time
among workingmen in different countries is, in Australia, 8 hours ;
in Great Britain, 9 ; in the United States, 9% ; in Denmark, 9% ;
2iAdapted from the opinion of the United States Supreme Court in the
case of Bunting v. Oregon, 243 U.S. 426, decided April 9, 1917. The opinion
declared constitutional a statute of the state of Oregon providing that "no
person shall be employed in any mill, factory, or manufacturing establishment
m this state more than ten hours in any one day," except under particular cir-
cumstances.
SOCIAL REFORM AND LEGAL INSTITUTIONS 787
in Norway, 10; Sweden, France, and Switzerland, loj^ ; Germany,
io]/4 ; Belgium, Italy, and Austria, 11 ; and in Russia, 12 hours."
347. Reciprocal Nature of Employer's and Employee's Rights"
1. The defendants acted within their right when they went out
on a strike. Whether with good cause, or without any cause or rea-
son, they had the right to quit work, and their reasons for quitting
work were reasons they need not give to anyone. And that they
all went out in a body, by agreement or preconcerted arrangement,
does not militate against them or affect this case in any way.
2. Such rights are reciprocal, and the company had the right to
discharge any or all of the defendants, with or without cause, and
it cannot be inquired into as to what the cause was.
3. It is immaterial whether the defendants are not now in the
service of the company because of a strike or a lockout.
4. The defendants have the right to combine and work together
in whatever way they believe will increase their earnings, shorten
their hours, lessen their labor, or better their condition, and it is for
them, and them only, to say whether they will work by the day or
by piecework. All such is part of their liberty. And they can so
conclude as individuals, or as organizations, or as unions.
5. And the right is also reciprocal. The railroad company has
the right to have its work done by the premium or piece system,
without molestation or interference by defendants or others. This
is liberty for the company, and the company alone has the right to
determine as to the matter.
6. When the defendants went on strike, or when put out on
a lockout, their relations with the company were at an end : they
were no longer employees of the company ; and the places they once
occupied in the shops were no longer their places, and never can
be again, excepting by mutual agreement between the defendants
and the company.
7. No one of the defendants can be compelled by any law, or
by any order of any court, to work again for the company on any
terms or under any conditions.
8. The company cannot be compelled to employ again any of
the defendants, or any other persons, by any law, or by any order
of any court, or on any terms, or on any conditions.
9. Each, all, and every of the foregoing matters between the
company and the defendants are precisely the same, whether applied
to the company or to the defendants.
22Adapted from the opinion of the court in Union Pacific Railway Co. v.
Ruef, 120 Fed. 102 (1903).
ygg CURRENT ECONOMIC PROBLEMS
10. The company has the right to employ others to take the
places once filled by defendants ; and in employing others the defend-
ants are not to be consuUed, and it is of no lawful concern to them,
and they can make no lawful complaint by reason thereof. And it
makes no difference whether such new employees are citizens of
Omaha or of some other city or state.
11. Defendants have the right to argue or discuss with the
new employees the question whether the new employees should
work for the company. They have the right to persuade them if
they can. But in presenting the matter, they have no right to use
force or violence. They have no right to terrorize or intimidate
the new employees. The new employees have the right to come and
go as they please, without fear or molestation, and without being
compelled to discuss this or any other question, and without being
guarded or picketed, and persistent and continued and objectionable
persuasion by numbers is of itself intimidating, and not allowable.
12. Picketing in proximity to the shops or elsewhere on the
streets of the city, if in fact it annoys or intimidates the new em-
ployees, is not allowable. The streets are for public use, and the
new emplo)'ee has the same right, neither more nor less, to go back
and forth, freely and without molestation and without being haras-
sed by so-called arguments, and without being picketed, as has a
defendant or other person. In short, the rights of all parties are one
and the same.
348. Unionism and the Conditions of Employment-^
Included in the right of personal liberty and the right of private
property — partaking of the nature of each — is the right to make
contracts for the acquisition of property. Chief among such con-
tracts is that of personal employment, by which labor and other
services are exchanged for money or other forms of property. If
this right be struck down or arbitrarily interfered with, there is
substantial impairment of liberty in the long-established constitu-
tional sense. The right is as essential to the laborer as to the capi-
talist, to the poor as to the rich ; for the vast majority of persons
have no other honest way to begin to acquire property, save by
working for money.
28Adapted from the opinion of the court in the case of Coppage v. State
of Kansas, 236 U.S. I (1915). A workman was discharged for refusing to
sever his connection with a labor organization. A law of the state of Kansas,
where the suit originated, forbade employers requiring of employees an agree-
ment not to become or remain members of labor organizations as a condition
of securing or retaining employment. The Kansas statute, involved in this case,
was declared unconstitutional.
SOCIAL REFORM AND LEGAL INSTITUTIONS 789
An interference with this Hberty so serious as that now under
consideration, and so disturbing of equaHty of right, must be deemed
to be arbitrary, unless it be supportable as a reasonable exercise of
the police power of the state. But, notwithstanding the strong gen-
eral presumption in favor of the validity of state laws, we do not
think the statute in question, as construed and applied in this case,
can be sustained as a legitimate exercise of that power.
The act, as the construction given to it by the state court shows,
is intended to deprive employers of a part of their liberty of contract,
to the corresponding advantage of the employed and the unbuilding
of the labor organizations. But no attempt is made, or could rea-
sonably be made, to sustain the purpose to strengthen these voluntary
organizations any more than other voluntary associations of persons,
as a legitimate object for the exercise of the police power. They
are not public institutions charged by law with public or govern-
mental duties, such as would render the maintenance of their mem-
bership a matter of direct concern to the general welfare. If they
were, a different question would be presented.
As to the interest of the employed, it is said by the Kansas
Supreme Court to be a matter of common knowledge that "Employees,
as a rule, are not financially able to be as independent in making
contracts for the sale of their labor as are employers in making a
contract of puThase thereof." No doubt, wherever the right of
private property exists, there must and will be inequalities of for-
tune ; and thus it naturally happens that parties negotiating about a
contract are not equally unhampered by circumstances. This applies
to all contracts and not merely to that between employer and em-
ployee. Indeed a little reflection will show that wherever the right
of private property and the right of free contract coexist, each party
when contracting is inevitably more or less influenced by the question
whether he has much property, or little, or none ; for the contract is
made to the very end that each may gain something that he needs
or desires more urgently than that which he proposes to give in ex-
change. And, since it is self-evident that unless all things are held
in common, some persons must have more property than others, it is
from the nature of things impossible to uphold freedom of contract
and the right of private property without at the same time recognizing
as legitimate those inequalities of fortune that are the necessary re-
sult of the exercise of those rights.
It is said in the opinion of the state court that membership in a
labor organization does not necessarily affect a man's duty to his
employer ; that the employer has no right by virtue of the relation,
790 CURRENT ECONOMIC PROBLEMS
"to dominate the life nor to interfere with the Hberty of the employee
in matters that do not lessen or deteriorate the service," and that
"the statute implies that labor unions are lawful and not inimical
to the rights of employers." The same view is presented in the
brief of counsel for the state, where it is said that membership in
a labor organization is the "personal and private affair'' of the em-
ployee. To this line of argument it is sufficient to say that it cannot
be judicially declared that membership in such an organization has
no relation to a member's duty to his employer; and therefore, if
freedom of contract is to be preserved, the employer must be left
at liberty to decide for himself whether such membership by his
employee is consistent with the satisfactory performance of the
duties of the employment.
Of course we do not intend to say, nor to intimate, anything
inconsistent with the right of individuals to join labor unions, nor
do we question the legitimacy of such organizations so long as they
conform to the laws of the land as others are required to do. Con-
ceding the full right of the individual to join the union, he has no
inherent right to do this and still remain in the employ of one who
is unwilling to employ a union man, any more than the same indi-
vidual has the right to join the union without the consent of the
organization. Can it be doubted that a labor organization — a volun-
tary association of workingmen — has the inherent and constitutional
right to deny membership to any man who will not agree that during
such membership he will not accept or retain employment in com-
pany with non-union men? Or that a union man has the constitu-
tional right to decline proffered employment unless the employer
will agree not to employ any non-union man?
And can there be one rule of liberty for the labor organization
and its members, and a different and more restrictive rule for em-
ployers? We think not; and since the relation of employer and
employee is a voluntary relation, as clearly as it is between the mem-
bers of a labor organization, the employer has the same inherent
right to prescribe the terms upon which he will consent to the
relationship, and to have them fairly understood and expressed in
advance.
When a man is called upon to agree not to become or remain
a member of the union while working for a particular employer, he
is in effect only asked to deal openly and frankly with his employer,
so as not to retain the employment upon terms to which the latter
is not willing to agree. And the liberty of making contracts does
not include a liberty to procure employment from an unwilling em-
ployer, or without a fair undersatnding. Nor may the employer
SOCIAL REFORM AND LEGAL INSTITUTIONS 791
be foreclosed by legislation from exercising the same freedom of
choice that is the right of the employee.
To ask a man to agree, in advance, to refrain from affiliation
with the union while retaining a certain position of employment, is
not to ask him to give up any part of his constitutional freedom.
He is free to decline the employment on those terms, just as the
employer may decline to offer employment on any other ; for "it
takes two to make a bargain." Having accepted employment on
those terms, the man is still free to join the union when the period
of employment expires ; or, if employed at will, then any time upon
simply quitting the employment. And if bound by his own agree-
ment to refrain from joining during a stated period of employment,
he is in no different situation from that which is necessarily incident
to term contracts in general. For constitutional freedom of contract
does not mean that a party is to be as free after making a contract
as before ; he is not free to break it without accountability. Freedom
of contract, from the very nature of the thing, can be enjoyed only
by being exercised ; and each particular exercise of it involves making
an engagement which, if fulfilled, prevents for the time any incon-
sistent course of conduct.
349. The Legality of Unionizing a Shop-*
BY LOUIS D. BRANDEIS
Unionizing a shop does not mean inducing employees to become
members of the union. It means inducing the employer to enter into
a collective agreement with the union governing the relations of the
employer to the employees. Unionizing implies, therefore, at least
formal consent of the employer. But plaintiff and defendants in-
sisted upon exercising the right to secure contracts for a closed shop.
The plaintiff sought to secure the closed non-union shop through
individual agreements with employees. The defendants sought to
secure the closed union shop through a collective agreement with
the union. Since collective bargaining is legal, the fact that the
workmen's agreement is made not by individuals directly with the
employer, but by the employees with the union and by it, on their
2*From a dissenting opinion in the case of Hitchman Coal and Coke Co.
V. Mitchell, 245 U.S. 229. In this Mr. Brandeis was joined by Mr. Holmes and
Mr. Clarke. The issues in this case are somewhat involved. But the main
issue is clear. The company had an agreement with its men not to join a
union while in its employ. The suit is brought by the company to secure an
injunction restraining Mitchell and other officers of the United Mine Workers
of America from soliciting its employees to join that organization. In a
decision made on December 10, 1917, the United States Supreme Court con-
firmed an injunction to this effect granted by a lower court.
792 CURRENT ECONOMIC PROBLEMS
behalf, with the employer, is of no significance in this connection.
The end being lawful, defendant's efforts to unionize the mine can
be illegal only if the methods or means pursued were unlawful.
It is urged that a union agreement curtails the liberty of the oper-
ator. Every agreement curtails the liberty of those who enter it.
The test of legality is not whether an agreement curtails liberty, but
whether the parties have agreed upon something which the law pro-
hibits or declares otherwise to be inconsistent with the public welfare.
The operator by the union agreement binds himself (i) to employ
only members of the union; (2) to negotiate with union officers,
instead of with employees individually, the scale of wages and the
hours of work; (3) to treat with the duly constituted representatives
of the union to settle disputes concerning the discharge of men and
other controversies arising out of employment. These are the chief
features of a unionizing by which the employer's liberty is curtailed.
Each of them is legal. To obtain any of them or all of them men
may lawfully strive and even strike. And, if the union may legally
strike to obtain each of the things for which the agreement provided,
why may it not strike or use equivalent economic pressure to secure an
agreement to provide them?
It is also urged that defendants are seeking to "coerce" plaintif?
to "unionize" its mine. But coercion, in a legal sense, is not exerted
when a union merely endeavors to induce employees to join a union
with the intention thereafter to order a strike unless the employer
consents to unionize his shop. Such pressure is not coercion in a
legal sense. The employer is free either to accept the agreement or
the disadvantage. Indeed, the plaintiff's whole case is rested upon
agreements secured under similar pressure of economic necessity
or disadvantage. If it is coercion to threaten to strike unless plaintiff
consents to a closed union shop, it is coercion also to threaten not to
give one employment unless the applicant will consent to a closed
non-union shop. The employer may sign the union agreement for
fear that labor may not be otherwise obtainable ; the workman may
sign the individual agreement for fear that employment may not be
otherwise obtainable. But such fear does not imply coercion in a
legal sense.
In other words, an employer, in order to effectuate the closing
of his shop to union labor, may exact an agreement to that effect
from his employees. The agreement itself being a lawful one, the
employer may withhold from the men an economic need — employ-
ment — until they assent to make it. Likewise an agreement closing
a shop to non-union labor being lawful, the union may withhold from
an employer an economic need— labor — until he assents to make it.
SOCIAL REFORM AND LEGAL INSTITUTIONS 793
In a legal sense an agreement entered into, under such circumstances,
is voluntarily entered into ; and as the agreement is in itself legal no
reason appears why the general rule that a legal end may be pursued
by legal means should not be applied ; or, putting it in other words,
there is nothing in the character of the agreement which should make
unlazvful means used to attain it, which in other connections are
recognized as laivful.
25
350. The Legal Issue in the Minimum Wage
BY THOMAS REED POWELL
The theory of the minimum wage is that there is a public interest
in having those who give their whole strength to an employer receive
enough from that employer to maintain that strength. It is that
there is a public interest in having an industry support itself instead
of relying on outside subsidies. The opponents do not say that there
is no such public interest. They say in effect that the promotion of
such public interest by minimum-wage legislation will cause loss to
individual employees. So it may. But individual loss results from
the promotion of most if not of all public interests. It results from
war, from taxation, from discharges in bankruptcy, from exercises
of the police power. The question is whether the public interest is
sufficient to justify the individual loss. The individuals who suffer
loss are a part of the public. If they do not share in the public gain
which accompanies their individual loss, they share in other public
gains which depend for their attainment on the principle that they
shall not be defeated by fear of attendant individual loss.
The only specific public interest to which the opponent of the law
adverts is the claim that "the statutory minimum wage is a protection
of the morals of women workers." "This sensational claim," he
says, "has been practically abandoned. Of course, if insufficient
wages during employment produce immorality, then lack of employ-
ment would tend to produce it all the more." Yes, if all women now
underpaid shall as a result of the minimum-wage statute lose em-
ployment entirely. But if the greater part of the women now receiv-
ing wages less than the cost of subsistence are raised to a standard
which will support them, the number of those who must rely on
outside subsidies will be greatly diminished. In so far then as im-
morality is fostered by the necessity of adding to wages some other
source of income, the number of those who are in this predicament
will be greatly diminished by the minimum wage.
25Adapted from "The Constitutional Issue in Minimum- Wage Legislation,"
The Minnesota Law Review (1917), II, 18-23.
794 CURRENT ECONOMIC PROBLEMS
What is true of the relation of the minimum wage to moraHty
is true also of the relation of the minimum wage to ill-health due
to insufficient nourishment and improper living conditions. The
purpose and result of minimum-wage legislation is to insure that
those who give a day's work receive a day's support in return. The
purpose is a public purpose, because the evils which result from
poverty and weakness and premature death are public evils. They
are the public evils which all our health laws seek to avert. They
are the public evils which public charity seeks to avert. Men are
compelled to pay money in taxes to prevent these evils. They must
pay to provide food and lodging and medical care for those who
stand in no relation to them except that of fellow-citizens. There
can be no dispute that the end sought by minimum-wage legislation is
a legitimate public end. The only question is the appropriateness
of the means.
The objection of the employer is in substance that he is not his
brother's keeper. The statute says that he shall be his employee's
keeper, that he shall not have his employee kept for him by others.
It leaves him free to decide whether any person shall be his employee.
He has a freedom which is not accorded to those who are taxed to
support others who do not receive from private sources enough to
support themselves. But if the employer chooses to take the daily
labor of a woman, he is compelled to pay that woman enough to
make that labor possible. He pays only the cost of that from which
he chooses to reap the benefits. He pays what the common law
makes men pay in judgments in quasi-contract. The obligation
which the law imposes on him in respect to wages is similar to
that which it imposes on him in respect to injuries arising in the
course of employment. Under our modern workmen's compensa-
tion statutes the employer pays for injuries to employees, not be-
cause his negligence has caused the injuries, but because the injuries
were incident to the employment and the employer chose to make the
contract that gave rise to the employment. Injuries are only a possi-
ble or likely incident of the employment. The support of the worker
is a necessary and certain incident of the employment. It is a condi-
tion without which the employment cannot exist. The employer
must pay for the fuel for his furnaces, as the farmer pays for fodder
and shelter for his kine. But when a statute commands an employer
to pay enough for clothing, food and shelter to those whose labor he
uses in his factory, it is alleged to be a violation of the principles of
our government. Yet by common law and by many approved statutes
those who accept benefits are made to bear the attendant burdens.
SOCIAL REFORM AND LEGAL INSTITUTIONS 795
The only employees who can complain of minimum-wage legis-
lation are those whom the employer rejects. It must be recognized
that a serious defect in minimum-wage legislation is the absence of
specific provision for caring for the unemployables. But a statute is
not invalid because it takes only the first step in dealing with a situa-
tion and leaves other steps to be adopted as experience shall advise.
"Constitutional law, like other mortal contrivances, must take some
chances," Mr. Holmes has reminded us. Minimum-wage statutes
will tend to sort out the unemployables. They will remedy the evils
due to the fact that industry is not now maintaining the employees
whom it requires and must continue to require. Those whom indus-
try does not require must be subjected to special treatment later.
This is not, however, all that may be said in answer to the objec-
tion of the employee who loses her chance to work because her em-
ployer will not retain her at the wage prescribed by the statute. She
must be regarded not as an isolated individual but as a member of a
class. The class of women workers as a whole will derive such bene-
fits from the raising of their wages to the cost of subsistence, that the
loss to the unemployables is overbalanced by the gain to those whom
industry cannot dispense with. As a compulsory vaccination statute
cannot be defeated because some will suffer from its enforcement, so
a statute raising wages should not be defeated because some laborers
will suffer from its enforcement. The class to which they belong will
gain. Therefore there is no loss to the class to be weighed against
the general public benefits which the statute will promote.
The immateriality of loss to individual employees from the opera-
tion of minimum-wage legislation would seem to be sufficiently estab-
lished by the instances already given in which the courts have sus-
tained legislation establishing standards of fitness, of rates of interest,
and of pay. Such loss is regrettable, but it does not make the statute
unconstitutional. It is, however, to be hoped that the states which
adopt minimum-wage legislation will soon add provisions for dealing
with the needs of the unemployed and the unemployable. Such needs
are of course provided for in a measure by our systems of public
charity and by institutions for the care and training of defectives.
To the extent to which public funds are released by the effect of
minimum-wage statutes on those who remain in employment, the
care of the unemployed will involve no increase of the tax burden.
And to the extent to which the statutes operate to sift the defectives
from the mass of workers, substantial aid will be given to the move-
ment for mental hygiene which has already won recognition as an
essential governmental function.
796 CURRENT ECONOMIC PROBLEMS
The economic wisdom or folly of minimum-wage legislation can
of course be better demonstrated by experience than by theoretical
argument. The judicial determination of such questions should not
be based upon fantastic or at best highly speculative predictions of
dire results. When the results are known, their appraisal will be in
large part dependent upon views of social policy. Under the de-
velopment of our constitutional system such question of policy are
passed upon by the courts. The considerations which influence the
judicial decisions of such questions are not always susceptible of easy
determination. It is apparent, however, that the courts are rapidly
abandoning the general notions of individualism and of laisses faire
which underlie the arguments of opponents of minimum-wage legis-
lation. Experience is demonstrating the superior wisdom of legis-
lative prescription of social standards over the anarchaic chaos of un-
fettered individual action.
Legislation compelling employers to pay a wage equal to the cost
of subsistence differs in detail from other legislation already sustained
as constitutional. But the public ends to be gained by the statutory
minimum wage are akin to, if not identical with, the public ends
secured by legislation which has already successfully run the gauntlet
of judicial consideration. The private detriment which minimum-
wage statutes may cause is less serious and more easily justified than
are the burdens imposed by statutes which have long been part of our
system of legal legislation. A judicial declaration that minimum-
wage legislation is a deprivation of property without due process of
law would be inconsistent with the necessary implication of the group
of decisions on similar statutes and with the social philosophy which
those decisions exemplify.
SOCIAL REFORM AND TAXATION 799
it private ? Is the co-operation desired to be secured by coercion or
through voluntary association ? One cannot emphasize too strongly
the contrast between these two forms of social activity in their in-
fluence upon the aggregate of public expenditures.
It is exceedingly difficult to express in a few words the char-
acteristic features of the social theories which, under various forms
and with many and constant modifications, give color to the politi-
cal and social fabric of various states. These differences may, how-
ever, be suggested by observing that the one theory is a modification
of the view of the state assumed by Roman law, and exemplified in
a general way by most of the Continental peoples ; while the other
is a development of the Teutonic and Saxon ideas of personal lib-
erty ; and shows its most natural unfolding among peoples in English
historical descent. The former makes the state the center of all
collective life, and defines the rights of individuals in terms of
national importance; the latter places the individual at the center
of thought, and conceives of the state as one of several means to
individual attainment and development. Under the influence of that
philosophy which subordinates the individual to the state it is natural
for those intrusted with the administration of the government to
regard all questions as properly adjusted when the interests of the
state are conserved. Especially will this be true if to such a theory of
society there be added the influence of the monarchial form of ad-
ministration. It is logical, for example, that they who represent
monarchial governments should accept the necessities of the state
as the true measure of legitimate expenditures, without having very
much regard for the concurrent needs of individuals. It is easy, also,
under such a social theory, for the spirit of paternalism to show
itself in many of the items of a budget, and for the thought that the
state is an industrial corporation as well as a political organization to
swell the proportion of public expenditures.
The view of social relations which underlies English common
law, on the other hand, works upon national expenditure in quite
another manner, at least so far as those appropriations are concerned
which minister to pride and foster bureaucracy, or which are related
to the exercise of paternal functions. According to this theory a
condition of liberty is conceived to be a heritage of the individual.
The state is not regarded as an organism in the sense that it pos-
sesses soul, conscience, and sensibilities of its own ; it is rather a
form of association, and differs mainly from ordinary associations
in the character of the service it has to perform, and in the fact
that these services are of such a sort as require the state to be the
goo CURRENT ECONOMIC PROBLEMS
depository of coercive power. Public concessions are judged from
the point of view of the interest of the individual, and are approved
or disapproved according as they bear upon his prospects. The
result of this philosophy of social relations among peoples who
practice self-government is to insist that the government prove its
case beyond the possibility of a doubt whenever it demands increased
expenditures for approved services or the approval of expenditures
for an unusual service. Greater reliance is placed upon voluntary
association for the attainment of collective interests than upon
coercive association. And this results inevitably in charging the
cost of many lines of service to the income account of private cor-
porations rather than to that of the state. In this manner, there-
fore, public expenditures are curtailed by virtue of individualistic
philosophy applied to governmental affairs.
352. The Individualistic Theory of Taxation-
BY WILLIAM KENNEDY
The social attitude of the eighteenth century was not based upon
one political theory, but it was nevertheless based predominantly on
one poltical theory. This was the "freeholder," non- functional con-
ception of society. Men entered into society in order to secure them-
selves in the rights which. individually belonged to them; the state
existed to provide this security ; the rights to be secured were theoret-
ically "natural" rights, in practice conceived as the more general and
characteristic rights guaranteed by English law ; and all men having
rights to be protected which, though different in extent, were essen-
tially similar in kind, every man was a free man and a citizen. The
basis of political obligation was that the state was necessary to, and
in effect did, protect men's rights. Men were born not to functions
or services, but to rights and enjoyments. They were born free-
holders or free merchant adventurers.
The more abstract pohtical speculation of the century illustrates
very clearly the predominance of this conception of society. On
the one hand it was put forward in strict Lockian form by Black-
stone. In his Commentaries he explains that the individual possessed
some "absolute" rights — chiefly those of personal security, personal
liberty, and private property — which appertained to him merely as
an individual, independently of his membership in society; but that
no absolute duties pertained to the individual (at least such as law
could explain and enforce) — all duties were relative only, and that
"the principal aim of society is to protect individuals in the enjoy-
^Adapted from English Taxation, 1640-1799: An Essay on Policy and
Opinion, pp. 180 ff. Copyright by G. Bell & Sons, 1913.
SOCIAL KEFOkM AND TAXATION 801
ment of those absolute rights which were vested in them by the im-
mutable laws of nature." Blackstone's essential justification for the
existence of a propertied aristocracy, had he thought it necessary to
discuss such a question, would therefore have been that they had
natural or absolute rights to property like other people, and not that
they governed England or did anything in particular for anyone or
anything but themselves.
On the other hand, the freeholder conception was equally involved
in the speculation of those who, prior to Bentham, attempted to add
to Locke's theory a vague utilitarian explanation of rights, such as
that the right of private property is beneficial in society. This was
the position of the philosophers Hutcheson and Hume, the econo-
mists Adam Smith and Sir James Steuart, and the whig lawyer Sir
James Mackintosh. These thinkers had no idea of a connection be-
tween rights and functions. Adam Smith, for instance, discussed
the causes of the subordination of the classes in society, and all he
saw was, first, that birth and fortune seemed to be the two circum-
stances which principally set one man over another ; and, second, that
the reason for subordination seemed to lie in the need for the defense
of great private properties. The sixteenth-century theorist would
have said that subordination and great properties existed so that the
subordinate classes might be well governed.
Finally the freeholder conception dominated the feeling of those
who were led, by the implications which the French Revolution em-
phasized in Lockian ideas, to repudiate the doctrine of natural rights,
and with Burke to canonize the actual property and other rights
which tradition had sanctified in England. Even Burke, in spite of
his splendid inconsistencies, did not succeed in any direct way in
embodying ideas of function in his defense of the English social
order. He made men feel the complex and organic and traditional
character of a real society, but he advanced very little in compre-
sension of the structure of its organism.
Now it follows directly on this conception of society as held to-
gether by the protection of individual rights, that all men, rich and
poor, should pay taxes, that is, share in the cost of the protecting
organization. The logical alternative, as Burke said, was loss of citi-
zenship. This was the doctrine which underlay even the sentiment in
favor of exempting the poor from taxation. This view was not a
functional one which demanded public service of the individual.
No political theory could have had such widespread influence
upon public opinion as the freeholder theory had in the eighteenth
century, except by representing some real and important aspect of
the state of contemporary society. And the freeholder theory did
8o2 CURRENT ECONOMIC PROBLEMS
represent such an aspect— namely, the fact that the rights which the
governing class in particular possessed were rights attaching not to
an office but to ownership of property. They received incomes
whether or not they performed services in return. But the theory
also misrepresented the state of society, for it treated this legal mean-
ing of the right of property as its whole significance. The theory
ignored the fact that the governing class did perform services in
society, and that it was not composed merely of "idle rich consumers."
This other aspect of English society was represented by the second
but much less important political theory which influenced the social
attitude of the eighteenth century. It was the theory of class duty
and of the mutual dependence of classes, and was expressed in gen-
eral terms by all kinds of men, but was voiced chiefly by the Church,
which at all times insisted upon a functional theory which treated
rights not as their own justification but as the conditions of duties.
353. Canons of Taxation^
BY ADAM SMITH
It is necessary to premise the four following maxims with regard
to taxes in general:
I. The subjects of every state ought to contribute toward the
support of the government, as nearly as possible, in proportion to
their respective abilities ; that is, in proportion to the revenue which
they respectively enjoy under the protection of the state. The ex-
pense of government to the individuals of a great nation, is like the
expense of management to the joint tenants of a great estate, who
are all obliged to contribute in proportion to their respective inter-
ests in the estate. In the observation or neglect of this maximum con-
sists, what is called, the equality or inequality of taxation.
II. The tax which each individual is bound to pay ought to be
certain, and not arbitrary. The time of payment, the manner of
payment, the quantity to be paid, ought all to be clear and plain
to the contributor, and to every other person. The certainty of what
each individual ought to pay is, in taxation, a matter of so great
importance that a very considerable degree of inequality, it appears,
1 believe, from the experience of all nations, is not nearly so great
an evil as a very small degree of uncertainty.
III. Every tax ought to be levied at the time, or in the manner,
in which it is most likely to be convenient for the contributor to
pay it. A tax upon the rent of land or of houses, payable at the same
term at which such rents are usually paid, is levied at the time when
it is most likely to be convenient for the contributor to pay ; or when
"Adapted from The Wealth of Nations (1776), Book V, chap, ii, Part IL
SOCIAL REFORM AND TAXATION 803
he is most likely to have wherewithal to pay. Taxes upon such
consumable goods as are articles of luxury are all finally paid by
the consumer, and generally in a manner that is very convenient for
him. He pays them by little and little, as he has occasion to buy the
goods. As he is at liberty too, either to buy, or not to buy, as he
pleases, it must be his own fault if he ever suffers any considerable
inconvenience from such taxes.
IV. Every tax ought to be so contrived as both to take out and
to keep out of the pockets of the people as little as possible over
and above what it brings into the public treasury of the state.
354. The Burden of Taxation"
BY S. J. CHAPMAN
As regards taxation, the first thing to settle is the principle ac-
cording to which its burden should be distributed. It is commonly
agreed at the present time that taxation should be designed so as to
cause eqiial proportional sacrifice among the taxpayers. When there
is equality of proportional sacrifice, people are left in the same rela-
tive positions after being taxed as before.
This principle has been called the principle of equality of sac-
rifice. It is better, however, to call it the principle of proportional
sacrifice, because equality of sacrifice might be interpreted to mean
equality of absolute sacrifice and not of proportional sacrifice. If
the utility of income were constant and the same for all — as it is
not — and a man with ii,ooo a year and a man with ^500 a year con-
tributed iio a year each in taxes, equal amounts of sacrifice would
be entailed, but the man with £500 would be involved in a greater pro-
portional sacrifice. The proportional sacrifice of the man with £500
a year would be the same as that made by a man with £1,000 a year
who paid iio in taxes, if the former paid not iio but £$, on the
assumptions made as regards the utility of income.
It is repeatedly affirmed that the right theory of taxation is the
faculty theory. Generally speaking, the faculty theory lays it down
that a person should pay taxes in proportion to his power to do so.
Whether the faculty theory is the correct theory or not, according
to the consensus of expert opinion, depends upon the exact meaning
that we read into it. Let us take an example from a primitive com-
munity. The state needs a particular piece of work to be done.
Then, some say, for the whole community to turfi out to do the
work, and for each person to work according to his strength would
be for each to contribute to the service of the state according to
^Adapted from Outlines of Political Economy, pp. 276-7g. Copyright by
Longmans, Green & Co., 191 1.
8o4 CURRENT ECONOMIC PROBLEMS
faculty. But would this be the equitable thing? If all worked ten
days, the man of great capacity would be doing absolutely more for
the state than the man of little capacity. But the latter would be
making a greater proportional sacrifice than the former. He would
be doing so because the man of great capacity, who could make
much in a year, in yielding up ten days of his time would be sur-
rendering comparative superfluities, whereas the man of little capac-
ity in yielding up ten days of his time would be surrending compara-
tive necessities. The force of this argument will be more fully appre-
ciated when it is put in terms of money. Equal sacrifices of time
are equivalent to proportional sacrifices of money income, but pro-
portional sacrifices of money income are not equivalent to propor-
tional sacrifices of real income, that is of the utility of income,
which is the thing that ultimately counts. However, the faculty
theory may be interpreted in such a way as to be made identical with
the theory of proportional sacrifice.
The so-called ability theory is either the faculty theory in the
form first analyzed above, or the theory of proportional sacrifice.
If we mean by any theory that proportional sacrifice alone is equit-
able, it is best to call it the "theory of proportional sacrifice" so as
to prevent any misunderstanding.
Taxation which embodies the principle of proportional sacrifice
must be progressive. By the principle of progression is meant in
general that the higher the clear net income of a person the greater
must be the rate at which he is taxed. The need of progression is
derived from the known facts as regards the variation of the utility
of income with its amount. In view of the rate at which the mar-
ginal utility of income falls, it is practically certain that taxation
proportional to income exacts a greater proportional sacrifice from
the poorer of any two persons, other things being equal.
The great obstructions in the way of applying the principle of
progression with scientific accuracy are (i) that utility varies with
income differently for different persons, and even for the same per-
son at different times, and (2) that the variations of utility with
income cannot be accurately measured.
B. NATURE OF WAR FINANCE
355. Conscription of Income^
BY 0. W. W. SPRAGUE
Conscription of men should logically and equitably be accom-
panied by something in the nature of conscription of current income
^Adapted from "The Conscription of Income," Economic Journal (March,
I9I7),PP. 5-6.
SOCIAL REFORM AND TAXATION 805
above that which is absolutely necessary. The obligation that each
citizen furnish the state in time of war a large portion of his current
income manifestly would impose no more oppressive burden than the
obligation of military service. To be sure, the pressing necessity
which leads to compulsory service is absent, since it is possible to
finance a war by means of borrowing. Yet as a permanent war-
finance policy borrowing has limitations which should exclude it from
any comprehensive scheme of military preparedness. Modern wars
are so enormously costly that a country which resorts to borrowing
has not merely created for itself a difficult problem of taxation after
the return of peace; it has also placed itself in a financial position
which will make it exceedingly difficult to find the money to maintain
and improve its military establishment in future years. Purely as a
military measure, then, the conscription of income during a war
should be adopted, unless such policy would prove in any way a
lerious obstacle to the effective conduct of hostilities.
The injustice of treating those who provide the funds for war
purposes more generously than those who risk life itself will not be
questioned. Consider for a moment the contrast under the borrowing
method of war finance between a soldier in receipt of an income of
500 pounds before a war and his neighbor who remains at home in
continued receipt of a similar amount. The civilian reduces his
expenditure in every possible way and subscribes a total of 800
pounds to a war loan. He is rewarded with a high rate of interest, to
which his soldier neighbor must contribute his quota in higher taxes
if he is fortunate enough to return from the front. The contrast
becomes still greater if, as often happens, the income of the stay-at-
home increases during the war and if he is able to secure a superior
position. On the other hand, the soldier often finds it difficult to
secure a position as good as that from which he was taken at tl^
beginning of the war.
356. Destruction of Capital : A Business View°
There are sound reasons why an important share of the expenses
of the war should be raised by taxation during the war. Most lines
of business are under extraordinary stimulus, profits are larger than
usual, wages are generally higher, and the employment of the people
is very complete. Therefore the country can afford to pay taxes now
better perhaps than it will be able to in the years following the war,
when it may be suffering from reaction. Moreover the industrial
^Adapted from the monthly bulletin of the National City Bank of New
York on Economic Conditions, Governmental Finance, etc., June, 1917.
8o6 CURRENT ECONOMIC PROBLEMS
capacity and labor supply of the country are occupied with war busi-
ness to such an extent that it is impossible to go ahead with construc-
tive work in other lines as usual. The current income of the country
must of necessity be given over largely to the government, either
through loans or taxation, to enable it to carry on the war, and the
proportion between loans and taxation should not be governed by a
desire either to favor or to penalize wealth, but by the probable
effects upon the general welfare, through the results upon industry,
employment, and the ability of the country to meet conditions after
the war. No taxation conceivably possible after the war will be as
important to the masses of the people as the possible difference
between a state of general industrial activity, with full employment
to all the people, and a state of industrial depression such as this
country experienced in the winter of 1914-15. Everybody will be
able to pay his share of the taxes if the industries are busy and still
have a better living than he will have if the industries are depressed.
The catch phrases which are used show the same want of compre-
hension of the fundamental relations of society which is responsible
for most of the ill-feeling and friction in the industrial world. The
agitation is all based upon the assumption that private wealth is
devoted to the owners, and that if it is taken away from them, even
though destroyed, nobody else is a loser. The whole idea is that
the proposed taxation will reach hidden hoards, or possibly curtail the
luxurious living of the rich, with apparently no appreciation of the
fact that it will fall upon the industrial fund, the capital available for
the support of industry.
Is the public interested in the industrial fund? Is it interested
in the production of things for the public market? This is an oppor-
tune time to ask if it is interested in the supply and price of things of
common consumption. Is the public interested in the development
and improvement of industry, in the multiplication of power plants,
and the enlargement of industrial capacity and output? Is it inter-
ested in the facilities for transportation? If it is agreed that the
public is interested in these things then the proposal to withdraw
capital in great amounts from these purposes should be considered
with regard to its effect upon public interests instead of being treated
as though the individual title-holders were alone concerned.
If this reasoning is correct the community should beware how '.■
seizes for current use upon the capital which is certainly destined fu.
the industrial fund. To a very great extent it must be done, but ii.
IS not to be done in the spirit of eager confiscation with which in some
quarters it is advocated at the present time. It would be folly 10
SOCIAL REFORM AND TAXATION 807
seize it upon the theory that the public is really acquiring anything
at the expense of the rich owner, for under no conceivable circum-
stances will the taxation encroach upon the portion of his income
which is devoted to his own support. Indeed the common argument
for the seizing of large incomes is that it will involve no sacrifice to the
owners. This is true ; the sacrifice is from the fund destined to public
use, and at the expense of society as a whole in the future.
357. The War Burden Upon the Common Man^
BY HERBERT J. DAVENPORT
If a great war is to go on the burden of it has to be drastically
severe upon the poor as well as on the rich. Whatever the fiscal
forms of collection, a high rate of charge must trench upon even the
relatively meager incomes. Only when the masses contribute, and
greatly, can the fiscal return be considerable.
Assume, for example, the pre-war level of prices ; a national in-
come of $40,000,000,000; a war budget of $15,000,000,000, approxi-
mately two-fifths of the current national income. The income tax
returns for the year 1914 reported less than 400,000 incomes above
$3,000. A 100 per cent income tax on all these incomes, averaged as
at $3,000 without even a minimum exemption, would aflford less than
$1,250,000,000 of revenues. Assume the incomes to have averaged
$6,000 each, without exemption — $2,400,000,000 of fiscal returns.
Double the incomes as allowance for under-statement — $5,000,000,000
in all. Double the number of income receivers as allowance for eva-
sions — $10,000,000,000. The average family income for our 23,000,-
000 families, as deduced from the 1916 returns, appears to have been
approximately $1800, inclusive of corporate holdings and business
gains. Eight hundred thousand families had incomes of upwards of
$2500 exclusive of corporate and business gain. The total income of
all these 800,000 families (exclusive again of corporate and business
holdings averaged at $400 for each of the 27,000,000 families) , was
$9,750,000,000. Assume now that three-fourths of all corporate and
business returns accrued to these 800,000 families — $9,000,000,000.
A tax then that should take 100 per cent of all these incomes, without
exemption of any sort, would provide $19,000,000,000 of revenue out
,^ an estimated total national income of $50,000,000,000. Allowing
^^2,000 exemption, the total remaining incomes for the 800,000 fam-
'Jpcs would be approximately $17,000,000,000. At an average tax of
*f' '^Adapted from "The War-Tax Paradox," American Economic Review,
A^. 39-41- Copyright, 1919.
8o8 CURRENT ECONOMIC PROBLEMS
33 per cent on the taxable revenues the yield would be less than $6,-
000,000,000. At the actual rates as they were imposed for the year
1916 the yield of all income, corporate and profits taxes was $345,-
000,000; for 19 1 7, $3,000,000,000.
Quite obviously, then, a war absorbing two-fifths of the current
national resources of goods and services is possible only on terms
of great sacrifices imposed on the relatively meager incomes. Af-
ter the rich and the well-to-do have paid all that they can, there
is still an enormous payment necessary from the masses. A great
war calls on all for all that they can spare. The income tax re-
turns for 1914 showed only one $3,000 income out of seventy families.
It is safe to say that to nineteen men out of twenty belongs the vague
word poor; they are artisans, wage-earners, laborers. The support
of a great war requires their grievous contributions.
Somehow, therefore, the masses of citizens must and do con-
tribute to a great war. When the average income for civil con-
sumption falls by two-fifths, the incomes of the masses must fall.
Real wages in the average must sufifer relatively to product, pre-
cisely because two-fifths of the national product is being diverted
from civil consumption. The average income must sufifer quanti-
tatively also, unless it be true that the efficiency of civil produc-
tion is so speeded up as to oflfset not only all the displacement of men
and of capital and of civil production, but also whatever degree of
rapid consumption is peculiar to the new war activities — shipping,
coal, oil, munitions, ammunition, motor cars, strategic railroads,
warehouses — and finally also the amount by which the consumption
of food and apparel is exceptionally large. That the per capita
expenditure in civil consumption declines relatively to the per capita
product, rests in the mathematical necessities of the case. And that
the per capita civil consumption must decline in quantitative com-
mand of goods is practically clear. Out of short crops an unusually
large amount was exported. Iron was scant for civil consumption,
also leather, fuel, woolens, and perhaps especially, cotton. This
scarcity was indeed established by the very fact that old things were
made to do duty in place of new, purchases being deferred in count-
less lines. This restriction of consumption, and measurably also of
new construction, was the means by which ultimately the sacrifices of
war were borne. There is little evidence that the per diem output
of labor was appreciably increased, a very considerable body of evi-
dence to the contrary. There has been much deliberate waste ol
time in a wide range of industries. And the very fact of a wide-
spread redistribution of laborers into novel occupations involves the
cancellation of much specialized skill. The new economic activities
SOCIAL REFORM AND TAXATION 809
of women counted for disappointingly and shamefully small results
in the total. Whatever, therefore, the technical form of payment,
the income of laborers had to suffer. The actual rate approached
the charge upon the most princely of American incomes; the general
rise of prices has far outstripped the general rise of wages. In thii
lag of real wages w^as the laborers' contribution. There is slight pros-
pect of such rates in future income taxes for the retirement of the
war bonds as shall offset the abnormal apportionment of burdens
under the present methods. More probable is it that the future taxes
will be more distinctly regressive, relatively to paying capacity, than
are the present methods.
358. The Evils of Inflation*
BY A. C. MILLER
The danger of the loan policy is that, by deluding itself with a
notion that it is putting the burden onto the future, it will, through
resort to fatuous and easy expedients, put the burden both on the
present and on the future. This will happen if the loan policy, failing
to induce a commensurate increase in the savings fund of the nation,
degenerates, through the abuse of banking credit, into inflation —
raising prices against the great body of consumers as well as against
the government, thus needlessly augmenting the public debt and
increasing the cost of living just as taxes would. The policy of
financing war by loans, therefore, will be but a fragile and deceptive
and costly support unless every dollar obtained by the government is
matched by a dollar of spending power relinquished by the commu-
nity — in other words, will fail and develop into inflation unless the
dollars which are subscribed to the bonds of the government are real
dollars, the result of real savings and of real retrenchment. The
danger to be feared in undertaking to finance our war by credit is that
sophistry and financial legerdemain may lead us to attempt to carry
the operation through as an operation in banking finance instead of
an opertaion in saving and investment. The doctrine is already
current in the country, with the sanction of some leading bankers,
that our war cannot be financed except by credit expansion running
to the limits of inflation. Being dealers in banking credit, they
naturally take the view that the expansion of credit in question will
properly have to be an inflation of banking credit ; for this is the new
and most recent form of inflation which the gigantic war in Europe
has been bringing to the front as a device in war finance.
^Adapted from "War Finance and the Federal Reserve Banks," Financial
Mobilisation for War (1917), pp. 145-49.
8 10 CURRENT ECONOMIC PROBLEMS
Inflation as an expedient of public finance has long been practiced,
although it has never had the sanction and approval of those whose
business it has been to lay down canons of finance rather than to
engage in the practice of finance. The record of our own great wars
and the records of the great wars of other nations in modern times
show pretty uniformly that timidity in facing the serious realities of
war finance has usually developed a situation from which escape was
finally sought through the desperate and costly expedient of govern-
ment currency inflation. Such was our disastrous experience in the
Civil War, when resort was had to the greenback currency, which
was nothing but a device of inflationism, and some $500,000,000 was
thereby added to the cost of the war — which might have been avoided
had the government's financial operation been maintained on a strong
and healthy basis — to say nothing of the demoralization wrought in
business and the hardships and iniquities inflicted upon the great body
of defenseless workingmen and consumers. Clear and specific as
the teachings of that experience are to those who can learn from
history, it will remain for this war to demonstrate whether or not the
lesson has been fully taken to heart. Inflation still has seductive
potentialities for the pundits of paper finance. Even if we do not
avowedly repeat the costly mistakes of our Civil War by ventures in
the field of government currency inflation, we may yet reach a similar
result and land the community in a similar plight through the more
subtle and less vulgar process of banking inflation.
The same process, only in a vastly intensified degree, has been
going on in the belligerent countries of Europe and has given rise
repeatedly to the gravest expressions of solicitude by those who are
engaged in looking through the tissues of paper finance to the inexor-
able economic facts. All of the belligerent countries of Europe, in
one degree or another, have undertaken to finance the war by bank
borrowing, with inflation results that, for the most of them, make a
tragic record of hardship for the masses and needless augmentations
of the nations' debts, and will leave behind, at the close of the war and
for the next generation, a heritage of unspeakable financial confusion.
For let it not for a moment be overlooked that inflation, in its
effects, amounts to conscriptive taxation of the masses. It is, indeed,
one of the worst and the most unequal forms of taxation, because it
taxes men, not upon what they have or earn, but upon what they need
or consume. The only difference for the masses between this kind
of disguised and concealed taxation and taxes which are levied and
collected openly is that in the case of the latter the government gets
the revenue, while in the former case it borrows it, and those to whom
it is eventually repaid are not those, for the most part, who have been
SOCIAL REFORM AND TAXATION 8ii
mulcted for it. Inflation therefore produces a situation akin to
double taxation in that the great mass of the consuming public is hard
hit by the rise of prices induced by the degenerated borrowing policy
and later has to be taxed in order to produce the revenue requisite to
sustain the interest charge on the debt contracted and to repay the
principal. The active business and speculative classes can usually
take care of themselves in the midst of the confusion produced by
inflation and recoup themselves for their increasing outlays. Indeed
inflation frequently makes for an artificial condition of business
prosperity. That is why war times are frequently spoken of in terms
of enthusiasm by the class of business adventurers. But it is a pros-
perity that is dear-bought and at the expense of the great body of
plain-living people. It would be a monstrous wrong if in financing
our present war we should pursue methods that would land us in a
sea of inflation in which the great body of the American people, who
are called upon to contribute the blood of their sons to the war, were
made the victims of a careless or iniquitous financial policy.
C. WAR TAXES
359. The Income Tax»
BY EDWIN R. A. SELIGMAN
The change in rates imposed by the War Revenue Act of October
3, 1917, as compared with the act of September 8, 1916, is of a three-
fold character : an increase of the normal tax, a lowering of the ex-
emption, and a rise in the scale of progression. A supplementary
normal tax of 2 per cent is imposed, bringing the tofal to 4 per cent.
The law furthermore provides for a reform that had been widely
urged by those who considered the exemption of $3,ooo-$4,ooo en-
tirely too high. Accordingly, in the case of the supplementary normal
tax the exemption is reduced to $1,000 for unmarried and $2,000 for
married persons. The law also provides for an additional exemption
of $200 for each child under eighteen years of age or incapable of
self-support because of mental or physical defect.
In order to counterbalance this reduction, which will bring into
the toils of the law millions of new taxpayers, the rates on the higher
incomes are sharply increased. The original law, it will be remem-
bered, had provided for a so-called additional tax (popularly called
the surtax, or sometimes the supertax) on all incomes over $20,000,
ranging from i to 8 per cent on the highest amounts. The law of
1916, as we have noted, increased the graduated scale so as to run
^Adapted from "The War Revenue Act," Political Science Quarterly,
XXXIII, 17 ff. Copyright, 1918.
8i2 CURRENT ECONOMIC PROBLEMS
from I to 13 per cent. The new law reduces to $5,000 the amount at
which graduation begins and provides an entirely different scale,
ranging from i to 50 per cent, for the supplementary additional tax.
The result is that the maximum rate is now 67 per cent, that is, 2
per cent supplementary normal tax, 13 per cent old additional tax,
and 50 per cent new additional tax.
This is the highwater mark thus far reached in the history of
taxation. Never before in the annals of civilization has an attempt
been made to take as much as two-thirds of a man's income by taxa-
tion. In comparing our present income tax with the British, more-
over, it is to be noted that our rates are much higher on the larger
incomes and much smaller on the lower and moderate incomes. The
American scale is an eloquent testimony to the fact, not only that
large fortunes are far more numerous here than abroad, but also that
there is greater appreciation of the democratic principles of fiscal
justice. For the overwhelming trend of modern opinion is clearly in
the direction of applying to excessive fortunes the principle of faculty
or ability to pay. It still remains to be seen, however, whether the
new law, with its exceedingly high rates, will turn out to be as work-
able administratively and as productive fiscally as a somewhat lower
scale would have been.
The second change in the law is the virtual abandonment of the
stoppage-at-source method of collection. It will be remembered that
the two leading types of income tax that had developed during the
last generation were the so-called lump-sum method of Prussia and
the scheduled method of Great Britain. The Prussian system, which
rested finally upon accurate official assessment, depended for its
success upon an incorruptible civil service and the fear instilled into
the average taxpayer of making false returns. Great Britain had
long since abandoned the scheme and had substituted the plan of
imposing the responsibility of the tax upon the person who paid the
income rather than upon the recipient. As between the unchecked
lump-sum and the stoppage-at-source method it is clear that under
American conditions the latter was preferable. At the close, how-
ever, of the discussion in 1913, an alternative plan was suggested, to
which the present writer gave the name of information-at-source, de-
signed to achieve the substantial purposes of the collection-at-source
method without its discomforts and complications. This alteration
has now been finally adopted in essence. The law makes the tax
collectible from the recipient of the income, but imposes upon the
payers of income the obligation to give full information of the
amount and conditions of payment. Information is required from
corporations as to dividend payments, from brokers as to details of
SOCIAL REFORM AND TAXATION 813
transactions, and, in general, from all persons making payment to
any other person of any "fixed or determinable gains, profits, and
income over $800." Only two exceptions are permitted. Withhold-
ing at the source is retained for the original normal tax in the case
of income accruing to non-resident aliens and of interest on tax-free
bonds. The latter exception was inserted as a concession to bond-
holders who, relying upon the promise of the corporations to assume
the tax, had paid so much more for the bonds. It is to be regretted,
however, that the law fails to include the provision, found in the
British statute, which prohibits for the future the inclusion of such
tax-free covenants in corporate bonds.
On the fundamental question of what constitutes income the new
law does not take any fresh stand. This still remains a difficulty,
which, however, not only is shared by many other income-tax laws,
but is traceable to an inadequate analysis. The distinction between
capital and income has received far less scientific attention than it
deserves. It may be said that there are at least three diflferent con-
ceptions of income found in economic literature : the one emphasizes
the idea of regularity or recurrence; the second accentuates the idea
of product or return from an enduring source ; the third, or net-profit
theory, lays stress on the surplus of what comes in over what goes
out. It is impossible here to discuss the widely divergent practical
consequences of these theories. It may be said, however, that until
economists have decided which of the three is correct, the interpre-
tation of the law is bound to create endless trouble. Some of the
chief difficulties of the interpretation are still associated with the
question of stock dividends and depreciation in the market value of
securities.
Up to this point we have discussed the individual income tax.
The law, however, provides, as before, also for a corporate income
tax. In addition to the existing normal tax of 2 per cent, a supple-
mentary tax of 4 per cent is imposed upon the income of every cor-
poration, joint-stock company or association, or insurance company,
but not including partnerships. The result is that corporations will
hereafter pay a tax of 6 per cent on their income. In computing the
tax, however, all dividends received by one corporation from another
taxable corporation are deductible — an important concession to hold-
ing companies but a concession limited to the supplementary tax.
The limitations on the deduction for interest and taxes referred to
above in the case of individuals are applicable also to corporations,
as is the provision permitting the crediting to income of the excess
profits levied in the same year.
8 14 CURRENT ECONOMIC PROBLEMS
Corporations, however, are subject to a further tax of lo per
cent on the amount of profits remaining undistributed six months
after the end of the year. Income actually invested in business or in
federal bonds is exempted from this additional tax; but if it trans-
pires that profits retained for employment in the business are not so
employed or are not reasonably required therein, they shall be subject
to a tax of 15 per cent. It may be conjectured that these provisions
will lead to a speedy distribution of all corporate profits that should
properly go to the stockholders.
In any fair estimate of the present law five defects may be noted,
some of them survivals, some of them additions.
The first weakness is the failure to introduce differentiation be-
tween earned and unearned income. An attempt was made to per-
suade Congress to adopt this distinction, which, as is well known
was initiated in Great Britain almost a decade ago. The reason
advanced for the refusal — the fear of further complicating the tax
— is far from convincing. Simplicity gained at the expense of equity
is not to be admired. The situation is in fact aggravated by the exten- .
sion of the excess-profits tax to professional incomes, as a result of
which earned incomes, instead of being taxed less, will actually be
taxed more than unearned incomes. This is of course a travesty of
justice.
The second defect is that returns, instead of being demanded from
everyone, are required only from the non-exempt classes, that is,
from those whose income exceeds $i,ooo-$2,ooo or $3,ooo-$4,ooo
respectively. This, coupled with the failure to compel a return of
income from government tax-free bonds, will prevent the collection
of valuable information as to the total social income and its distri-
bution. A return, including the entire income, should be required,
as is almost uniformly the case elsewhere, from every citizen.
Third, the provision as to the calculation of losses and gains is
still inequitable. On any one of the three difiFerent theories of income
referred to above, our present practice of counting certain gains as
income and of refusing to allow for corresponding losses is not only
indefensible, but sure to create gross inequalities.
In the fourth place, the treatment accorded to dividends is highly
questionable. Dividends must indeed be reported by individuals and,
although not subject to the ordinary normal tax, are liable to both the
supplementary normal tax and the additional taxes. A new section,
however, provides that dividends are taxable at the rates prescribed
for the years in which the corporate profits are accumulated. This
is unjust because the dividends ought to be considered income when
received, irrespective of when the profits were earned. If the war
SOCIAL REFORM AND TAXATION 815
should last several years and be attended by an increase of war taxes,
it is likely that many wealthy stockholders will escape by the fact of
the corporate profits having been originally earned in the period
before the high taxes were imposed. Moreover the law will probably
be so complicated as not to be easy of enforcement. For the rate of
the tax will depend upon the amount of total income in any one year,
and the identical amount of dividend may form an entirely different
proportion of that income from year to year. It will be increasingly
difficult, therefore, to administer the provision. In the meantime
great confusion will ensue.
The final defect is that no machinery has yet been devised to
check the returns from individuals engaged in business or occupa-
tions. In the case of large corporations and partnerships, as well as
individual incomes from securities, the system of information-at-
source, together with the observance of modern accounting rules, will
in all probability ensure fair accuracy in the returns. But where
neither of these safe-guards is applicable, a large loophole is left
open. Where the rates of taxation are as high as at present, the
dangers of evasion are multiplied ; and evasion means not only loss
of revenue but inequality. Much has been done elsewhere to institute
checks designed to diminish this danger. While some of the state-
ments advanced in and out of Congress as to the widespread evasions
in the present law are clearly exaggerated, there is still room for
decided improvement in administration.
360. The Excess-Profits Tax^°
BY EDWIN R. A. SELIGMAN
Although the income tax, both old and new, is designed to provide
about the same revenue as the excess-profits tax, the latter is the novel
part of the law. What is its significance?
The first point to be emphasized is that it is a business tax. The
criteria that may be employed in classifying taxes are manifold. For
the purpose, however, of explaining this new impost it will suffice to
observe that taxes on wealth are susceptible of a threefold division.
The tax may be on either property or income, on either Individuals or
corporations, on either persons or things. It is this last distinction
which is of consequence here — the distinction which the lawyers
make between taxes in personam and in rem. Among the "things"
on which taxes may be imposed are land, capital, and business. The
excess-profits tax is one on the business, irrespective of the person
who conducts it. It is like the real estate tax in New York, assessed
lOAdapted from ibid., pp. 25 ff. Copyright, 1918.
^
8i6 CURRENT ECONOMIC PROBLEMS
on the land without regard to the owner. The objection, therefore,
is not valid that because the tax is imposed on profits it constitutes
double taxation in superimposing one income tax upon another. This
is the same confusion of thought which has led some writers to object
to the inclusion of a corporate income tax in a law which endeavors to
reach the entire income of the individual. The corporate income tax,
like the excess-profits tax, is a tax on the business, not a tax on the
individual ; a tax on a thing, not on a person.
In the second place, the excess-profits tax is not a war-profits tax,
if by this term we mean a tax imposed upon the additional profits
resulting from the war. This constitutes its chief difference from the
war-profits taxes levied in other countries.
The almost simultaneous institution of the war-profits taxes
abroad is easy of compresension. Never before in the history of the
world have such gigantic sums been expended by belligerents or have
such collossal gains been made by private individuals in belligerent
and neutral countries alike. It was a natural feeling that no private
enterprise should be permitted to make inordinate gains out of the
misery of humanity, and that the community should be entitled to a
great part of the profits for which no individual enterprise is really
responsible. The consequence was that the government everywhere
put in a claim to a large share of these profits due to the war. The
proportion has risen in some countries to 80 or 90 per cent, and the
war profits have in general been defined as the excess of profits during
the war over those during a pre-war period.
The reason which induced Congress to modify this principle was
that not a few of our largest business enterprises had been making
immense profits in the pre-war period, and that, inasmuch as their
profits, both past and present, were scarcely being touched by the
corporate income tax, these enterprises would virtually be exempt,
while their more unfortunate competitors, who had done relatively
poorly during the pre-war period, would be heavily burdened. The
decision was therefore reached to levy the tax, not on war profits as
such, but on excess profits in general. Although the tax is called the
"war excess-profits tax," the term really means the tax on excess
profits levied during the war, just as the terms "war excise taxes" or
"war income tax" mean the respective taxes levied durmg the war.
The significant fact, however, is that nothing is said about the
limitation of the tax to the period of the war. In the war-profits
taxes abroad the taxes cease automatically with the end of the war,
for where there is no war there can be no war profits. It is entirely
possible, however, for our tax to continue after the war, just as it is
possible that fiscal exigencies may compel the continuance, in whole
SOCIAL REFORM AND TAXATION 817
or in part, hi our war income tax or of our war excises. It will be
seen, therefore, that we have here, ready to hand, a potential source
of the future income which will be so sorely needed hereafter, and
for which European statesmen and publicists have been dimly groping.
When, however, we come to consider the precise way in which
this new business tax has been worked out, we find that it is open to
serious criticism. In all the European laws the taxes are not on war
excess profits but on excess war profits ; that is, on the excess of war
profits over peace profits. Since, however, our plan is to tax excessive
profits in general rather than the excess over a pre-war standard, the
criterion had to be lodged elsewhere than in pre-war profits. Unfor-
tunately the criterion of normal profits is declared to be a certain
percentage of the capital employed, the pre-war period being utilized
only incidentally in ascertaining this normal percentage. That is to
say, in computing excess profits the law takes the excess over a so-
called deduction or normal amount, consisting of a fixed sum ($3,000
for domestic corporations, or $6,000 for partnerships, citizens or
residents), together with an amount equal to the percentage of the
invested capital represented by the average annual income during the
pre-war period, provided that this percentage shall in no case be less
than 7 nor more than 9 per cent of the capital. The pre-war period
is held to be the period from 191 1 to 1914. In case the business was
not in existence in those years, the deduction is fixed at 8 per cent
instead of the 7-9 per cent. And in case there was no income or a
percentage of capital earned by a similar or representative business.
From this base line of normal profits are computed the excess
profits, the tax rising progressively with the excess, being fixed at
20 per cent on the excess profits up to 15 per cent ; 35 per cent on the
excess from 15 to 20 per cent; 35 per cent on the excess from 20 to
25 per cent ; 45 per cent on the excess from 25 to 33 per cent; and 60
per cent on the excess profits over 33 per cent.
It is obvious that the important point here lies in the computation
of capital, for with one exception income is defined precisely alike in
the excess-profits and the income-tax laws. The greater the amount
of the "invested capital" as compared with a given income, the smaller
will be the percentage and the tax. What constitutes invested capital,
however, is so elusive as to be virtually impossible of precise compu-
tation. Not only will there be gross inequality between businesses
which enjoy the same income but which are variously capitalized, thus
putting extra taxation on small and conservatively capitalized con-
cerns, but all manner of opportunity will be afforded for evasion of
the law. The effort made to define capital in the law is unavailing.
Invested capital is defined as actual cash paid in, the actual cash value
8i8 CURRENT ECONOMIC PROBLEMS
of tangible property, and the paid-in or earned surplus Employed in
the business. Patents and copyrights are included up to the par value
of the stock paid therefor, and the same rule is declared applicable to
the good-will, trade-marks, and franchises or other intangible prop-
erty, provided that if purchased before 1917 the amount is limited
to 20 per cent of the capital. The inadequacy of these provisions is
manifest.
It has been contended, in defense of the law, that it is on the whole
immaterial whether the criterion be sought in income or in capital ;
for capital, we are told, is nothing but capitalized income. In reality,
however, capital is not capitalized income ; capital is the capitaliza-
tion, not only of present income, but of anticipated future income,
which is a very different thing. If, as frequently happens, the antici-
pated future income does not materialize, there is a vital difference
between a tax on capital and a tax on income. The objection to the
law still remains, as before, that the choice of capital not only con-
stitutes a clumsy attempt to reach taxable ability, but introduces a
gross inequality in principle and a deplorable uncertainty in adminis-
tration. While something may no doubt be done to clear up the
ambiguities and to remove some crass inequities, enough will remain
to deprive the measure of a claim to scientific or practical validity.
The most serious objection to the law, however, has yet to be
mentioned. Even assuming that the above difficulties were removed,
that the capital could be accurately estimated, and that it varied in
amount proportionally with the income — even on these unlikely
assumptions the tax would still be defective.
This is due to the criterion chosen for the basis of the graduated
scale. Something can be said for a graduated tax on income ; some-
thing can even be said for a graduated tax on capital ; but it is difficult
to say anything in defense of a tax which is graduated on the varying
percentage which income bears to capital. To penalize enterprise
and ingenuity in a way that is not accomplished by a tax on either
capital or income — this is the unique distinction of the law. For
in the first place, while it is true that excess profits are sometimes the
result, in part at least, of the social environment, they are not infre-
quently to be ascribed to individual ability and inventiveness. While
it is entirely proper that a share of the profits should go to the com-
munity, it is not at all clear that the tax should be graduated according
to the degree of inventiveness displayed. But there is a still more
important consideration. Almost all large businesses have grown
from humble beginnings, and it is precisely in these humble begin-
nings that the percentage of the profits to the capital invested is apt
to be the greatest. The criterion selected, therefore, is the one best
SOCIAL REFORM AND TAXATION 819
calculated to repress industry, to check enterprise in its very incep-
tion, and to confer artificial advantages on large and well-established
concerns. Nothing could be devised which would more effectively
run counter to the long-established policy of the American govern-
ment toward the maintenance of competition.
What then is the alternative? If the excess-profits tax has come
to stay, as is probably the case, a slight change in the criterion
employed would accomplish the desired result. What is needed is
that the excess-profits tax should become a progressive income tax.
It is significant that this is actually done already where the capital
criterion is impossible. The law provides that in every business
without any capital, or with only a nominal capital, a tax of 8 per cent
should be paid on the income, in addition to the income tax. This
provision has indeed the awkward result of making earned income
pay at a higher rate than unearned income, but it is none the less
significant. The individual income tax is levied on a highly progres-
sive scale, but the corporate income tax is proportional. All of the
desirable ends sought to be achieved by the excess-profits tax would
be reached by converting the corporate income tax into a progressive
tax. Graduation would then be applicable in both cases, the only
difference being that while the test of ability to pay would be sought
for the individuals primarily in the sacrifice imposed, it would be
found for the business primarily in the privilege enjoyed.
11
361. A Tax on Luxuries
The tax t>n "retail sales" is recommended, not only to raise
additional revenue, but for the equally important purpose of dis-
couraging wasteful consumption and unnecessary production. It
would be superfluous at this stage of the war to dwell upon the
fact that waste and extravagance are akin to treason. We pay
lip homage to this truth, but we neglect its practice. We are not
yet cutting our personal budgets sufficiently to make the excess of
national production over national consumption equal to the needs of
the government.
The retail-sales tax distinctly labels the taxed article as luxurious
and serves notice that the government's ban is upon it. The specific
tax on luxuries, however, is paid by the producer or dealer and is
likely to reach the consumer concealed in the form of an increased
price. At this time it is necessary, not only to tax extravagance, but
to make the tax known and felt by the taxpayer. It is for this reason
^^Adapted from a memorandum of possible sources of revenue suggested
by the Treasury Department and submitted to the Ways and Means Commit-
tee, 1918.
820 CURRENT ECONOMIC PROBLEMS
that despite some administrative objections a tax upon retail sales is
so distinctly worth while.
Assuming the correctness of this general attitude, it seems to
follow that the retail-sales tax to be effective must be heavy. The
really needy consumer is amply protected by exempting from the tax
altogether those classes of articles which the poor actually buy or need
to buy. Other articles must be taxed vigorously if the tax is not to be
interpreted as legitimatizing extravagance. Place a 20 per cent tax
on nonessentials and the consumer will pause before buying. Impose
only a lo per cent tax and he will frequently satisfy his conscience by
purchasing the article and paying the tax. This aspect of the question
seems vital. Whether 20 per cent is high enough to discourage
extravagance is a question ; that 10 per cent is too low, under existing
conditions admits of little question.
It is highly important that the consumption of unnecessary
things be given up, in order that both capital and labor may be liber-
ated for the production of those things which the government needs
for the prosecution of the war.
For the same reason, it is important that the usual consumption
of even necessary things should be curtailed. An industrial condi-
tion adapted to peace demands must give place to an industrial
condition adapted to war demands before the business activities of
the nation can be said to be mobilized for war. Processions and
brass bands cannot accomplish this result, nor an appeal to patriotism,
nor the wielding of the big stick. There is one way, and one way
only, of attaining this result, and that is through the prices of things
that people buy.
If, now, the government could secure a portion of the revenue it
needs by taxes that work their way into prices in such a manner as to
direct the consumption of the people, and, consequently, their pro-
duction, along proper lines, the by-product of such a financial policy
would be even more significant than its direct product. Indeed,
without this by-product no financial program can succeed. A sound
financial policy alone will not obtain the needed funds, nor obtain
them in such a way that future revenues may be taken from the same
source; a sound financial policy must, in addition to such results,
exert a positive influence for the accomplishment of that industrial
readjustment which the advent of a great war makes necessary. The
federal income-tax laws have no such influence, and for this reason
are to be condemned as exclusive war taxes.
The general conclusion of the foregoing comments may be sum-
marized as follows:
SOCIAL REFORM AND TAXATION 821
The initial burden of a war is in the industrial transition from a
condition of peace to a condition of war. Every act of government
that touches business, and especially taxation, should be shaped to
the accomplishment of that transition. The excess-profits and dif-
ferential income taxes are over the top of the problem, and, conse-
quently, are incompetent as war taxes. The new war taxes to be
passed by the present congress ought to be written from a more
comprehensive point of view. They ought to be regarded as a part
of a systematic program of war financiering.
362. The New Revenue Tax^^
BY THOMAS SEWALL ADAMS
The Revenue Act of 1918 will impress the student of financial
history as a signal victory for certain theories of taxation which a few
years ago were regarded as "socialistic." Within a quarter of a
century Justice Field pronounced an income-tax law socialistic and
unconstitutional because it exempted incomes of less than $4,000
from the 2 per cent burden it imposed upon larger incomes. But the
Revenue Act of 1918, designed to produce in the first twelve months
of its operation $5,788,260,000, will raise more than 80 per cent of
this sum from progressive income taxes.
The estimates are worthy of notice. The war-profits and excess-
profits tax — a form of income taxation unknown five years ago — is
expected to raise $2,500,000,000, or 43 per cent of the entire tax
budget. The income taxes proper, individual and corporate, will
raise $2,207,000,000 additional, or 37 per cent of the tax budget.
"Ability" taxes, therefore, account for more than 81 per cent of
the entire tax levy. If we add progressive estate or inheritance taxes
the proportion rises to more than 82 per cent ; and if we add further
the excises on beverages, tobacco, and other luxuries, together with
taxes on admissions and dues, we account for nearly 94 per cent of
this colossal tax bill, leaving only about 6 per cent to be provided by
taxes on transportation and on necessary processes of production and
commerce. Practically no tax is laid upon articles of actual neces
sity. Contrast this with the tax program of the Civil War and we
find much reason for congratulation. The new revenue bill may be
full of imperfections, but it represents a striking victory for ability
taxation and democratic finance.
The most important feature of the new law is the striking advance
in rates. Income-tax rates have, for most taxpayers, been more than
i^Adapted from an article with the foregoing caption in the Nation, CVIII,
316-17. Copyright, 1919.
§22 CURRENT ECONOMIC PROBLEMS
doubled. The taxpayer having a wife but no children will pay, on
an income of $3,000, $60 under the Revenue Act of 1918 as com-
pared with $20 under that of 191 7; on $10,000, $830 as contrasted
with $350; and on $100,000 $35,030, as contrasted with $16,180.
On moderate incomes we have possibly been too lenient, but on
the very rich the rates are probably too high for successful collection.
There are outstanding in this country probably five or six bilHon
dollars of tax-exempt securities in which the rich can freely invest
their money without fear of taxation, and rates of 70 per cent or
more merely drive them to make such investment and to practice
illicit as well as authorized methods of evasion. The income-tax
rests largely, for its successful administration, upon the honesty of
the taxpayer, who is, all things considered, surprisingly honorable in
his dealings with the tax official; but rates which impress him as
excessive undermine his morale. He will evade a 50 per cent tax
where he would not evade one of 15 per cent.
While the rates of the new income tax are high, the law is plenti-
fully besprinkled with what have come to be called "cushions." The
new law makes adequate allowance for obsolescence m general and
for amortization of the extraordinary costs of war plant. Falling
inventories have also been provided for. One of the most striking
departures of the new law is the provision authorizing a credit for
taxes paid in foreign countries. Many other instances might be
cited of the solicitous care to soften the mechanical rigor of federal
income laws.
Some of the more radical advocates of heavy taxation have been
disposed to criticise this solicitude, interpreting such action as a
concession to big business. This criticism is doubly mistaken. The
exemption of individuals, partnerships, and personal service corpo-
rations from the profits tax ; the limitation of the surtaxes on profits
derived by the prospector from the sale of mineral and oil properties
which he has discovered or developed; the limitation of the profits
tax on the first $20,000 of taxable income show that Congress has
been more lenient with the small than with the large taxpayer.
But there is also a major question of financial policy involved.
Advocates of high income and profits taxes should be the first to pro-
test against the taxation of receipts which are sometimes called
income or profits but which are not in reality income or profits of
the kind from which heavy taxes can be taken. When tax rates
are low you can muddle through without much respect for the finer
equities. But when the tax rates reach 75 and 80 per cent, the in-
herent complexities of income taxation must be recognized, or tax-
payers will be bankrupted by the tax — and in no democracy can a tax
SOCIAL REFORM AND TAXATION 823
long endure which regularly "breaks" a material percentage of the
tax-paying population. So long as relief provisions are based upon
equity and actual knowledge of the involved conditions of actual
business, it will be practically impossible to multiply them unduly.
With them, progressive income and profits taxes may perhaps pro-
vide the foundations for a liberal democratic finance. Without them,
these fiscal instruments become transformed into engines of de-
struction.
The new revenue act is the bill of no one man and no one party,
but the joint production of many minds and many influences. It is
a characteristic product of democratic financial procedure, and has
the defects of its qualities. Few tax laws in the history of this or
any other country bear greater evidence of a desire to accomplish
discriminatingly exact justice, and it is this effort to do justice in
the exceptional case that accounts for the oppressive complexity of
the new measure. It is easy to demand tax laws which shall be sure
and simple, explicit and certain, but the day of simple tax laws has
probably passed. A corporation fortunate enough to earn 30 per cent
on its capital will now in most cases pay in profits and income taxes
more than half of its earnings, to say nothing of the capital-stock tax
and the surtaxes imposed upon any dividends paid to stockholders.
The law which imposes such a burden must be framed with meticu-
lous care. Simplicity must give way to the complexity of truth.
D. TENDENCIES IN FINANCE
363. Standardizing Expenditure^^
BY WILLIAM LEAVITT STODDARD
It is a very fortunate thing for all concerned that there is only
one Ways and Means Committee for the House of Representatives.
Just now the casual visitor to the capitol will find that committee
sitting every fine morning, holding hearings on the bill which is to
raise revenue for the prosecution of the war. If Congress raised its
money as it expends it, instead of one Ways and Means Committee
there would be half a dozen, each with a different name : A com-
mittee on revenue, a committee on income from the territories, a
committee on supplying the treasury, and so on. But, broadly speak-
ing, it is true that the task of raising revenue directly is intrusted
to just one group in the House. In the Senate it is intrusted to the
Finance Committee.
i^Adapted from "Congress Needs a Budget," the Independent, XCIV,
508-9. Copyright, 1918.
824 CURRENT ECONOMIC PROBLEMS
If there is one revenue-raising committee for each branch of
Congress, if Congress has one bookkeeper for the work of securing
funds and defining tax poHcy, why does not and cannot Congress
have one bookkeeper for the work of appropriating the expenditures
of the nation? Better still, why not have a single bookkeeping com-
mittee charged with the duty of regulating income and outgo? Why
not go the whole way and be businesslike ? Why not, in short, have
a budget system and a budget committee ?
Only a few weeks ago a little incident occurred which shows what
kind of trouble Congress can get itself into by reason of its unbusi-
nessHke accounting methods. It was announced in Congress that the
War Department wanted about $i5,ooo,ooo,cxx) for the next year.
This figure was arrived at — or was intended to be arrived at — ^by
adding up the estimates submitted by the War Department to the
House. It is not clear to whom the estimates were sent, but it is
clear that two committees were concerned, the Military Affairs
Committee and the Appropriations Committee. The first-named
committee frames the bill known as the army appropriation bill, the
second the fortifications bill. Both bills appropriate money for de-
fense but they are separate bills. And the committees operate sepa-
rately.
Because of the fortunate employment of statisticians by the two
committees who happened to hold converse together, it was discov-
ered that the War. Department was not asking for fifteen billions ;
it was only asking for $1,771,666,847 and some odd cents. It seems
that the same provision for coast fortification had been inserted in
each bill, and had therefore been added up twice. Needless to say
the error was corrected. But it might not have been found until the
bills had been passed.
Everybody who has thought about the matter at all knows that
Congress needs a budget system. An expert commission in President
Taft's day recommended it, and for some time there was a good deal
of agitation, but it got nowhere. President Wilson has urged it,
but there has been no action on the part of Congress. The basic
reason why Congress does nothing is conservatism, opposition to
change, the political theory of let-well-enough-alone-haven't-we-
always-worried-through-somehow-before-this? In addition there is
the natural distrust of able and experienced men, accustomed to
handle things one way.
A failure to understand Congress is largely responsible for the
failure of a national budget. The efficiency experts on Mr. Taft's
commission performed a magnificent piece of work which came to
naught. They offended Congress by offending powerful individuals
SOCIAL REFORM AND TAXATION 825
in Congress. They tried to force Congress to do something which
it did not understand, was by nature opposed to do, and would prefer
to do by its own apparent initiative.
Congress possesses a peculiar psychology, and the most successful
president is he who understands it and who, by that understanding,
is able to secure the adoption of his pet measure. Events, properly
guided, will carry the budget with them. A possible solution may be
found in this : A centralized budget committee does not necessarily
require the abandonment of all the little appropriating committees.
It merely means the centralization of their plans and decisions in one
switch-board, which, being central, will have knowledge and facilities
for competently adjudicating between demands and appropriating
sums. By common consent — a means by which there is much done
extra-legally these days — the President can secure the formation of
an informal centralized budget committee from powerful members
of the House, and can suggest to them the advisability of meeting,
say, with a central executive budget committee representing the ex-
ecutive departments. Such a move would cut miles of red tape and
involving precedent. It would be the sensible, business-like way of
doing the job. It would preserve honest pride and legitimate preju-
dice, and would, moreover, fully recognize the delicate psychology
of the patient.
The budget is coming, whether by this way or another, it makes
little difference.
364. Spheres of Taxation
14
The action of Congress in adopting at the close of the session the
so-called "revenue" bill marks another definite stage in the develop-
ment of the new system of taxation necessitated by actual and
prospective outlay for national defense.
The striking aspect of the new tax measure is found in the cir-
cumstance that it apparently represents a definite adherence on the
part of the federal government to direct taxation along lines that are
already being followed by the states as the main avenue through
which their current means of support are to be obtained. It is true
that the income tax, both corporate and individual, has now been on
the statute books for some three years, and that in other particulars
direct taxation has been employed since the present national crisis
developed and upon former occasions of emergency or trouble.
Nevertheless, there has always been the belief in most quarters that
these taxes would not constitute a permanent feature of federal
^^Adapted from "Washington Notes," Journal of Political Economyf
XXV, 385-87. Copyright by the University of Chicago, 1917.
826 CURRENT ECONOMIC PROBLEMS
finance, perhaps with the exception of the income tax, but that
eventually there would be a recurrence to indirect taxation. While of
course it is true that a change in administration at some time in the
future may result in such an alteration of policy as is thus con-
templated, it is also true that no such change will occur for four years
to come, and that — more important than this — the country is ap-
parently placing itself upon a new and very much higher level of
expenditure. Unless general world-disarmament should come at the
close of the war, there seems little reason to expect a very great
lessening of federal expenditure for militar}' and naval purposes.
If it be supposed, therefore, that the federal government has
definitely committed itself to a fairly large program of direct taxation,
in most of the states will necessarily recur the question how to read-
just their own taxes accordingly. The present program seems to sug-
gest considerable danger of duplication and of injustice, conditions
which in all such cases injure the tax-producing owner of the com-
munity, besides being a great source of dissatisfaction among con-
tributors. Moreover, the question is quite certain to become acute
whether all grades of government can be considered warranted in
the attempt to obtain the bulk of their incomes through direct taxa-
tion, particularly when so large an extension is made in income
taxation. Thus there seems reason for expecting even a worse con-
fusion of tax legislation in the United States than has heretofore
exhibited itself, and this probably without any interest on the part
of legislators to bring about such an condition.
As is well known, there has never been in federal finance any well-
organized or far-sighted program of fiscal management, although
for years past the need for such a program has been frequently urged.
Committees of Congress have acted in emergencies upon the basis
of expediency, arranging to get what they could by the least trouble-
some method. The states, meanwhile, as is well known, are largely
cut off from indirect sources of taxation, owing to constitutional
limitations upon their power. This represents a situation which can
be corrected only through the employment by the federal government
of indirect taxation as a make- weight or offset, its direct taxes being
adjusted to those of the states in such a way as to leave the field as
nearly free as possible for the latter.
Conditions of this kind are not easy to bring to public attention in
a prompt and effective way, while the lack of harmony and uniformity
on the part of state legislatures is too well known to require more
than passing mention. In the absence of some new method of bring-
ing about the adoption of a general program for the readjustment
of taxation and its division on equitable lines between national, state,
SOCIAL REFORM AND TAXATION 827
county, and municipal governments, there is but too much reason
to fear the development of even more conflicting and unsatisfactory
conditions in this regard than have been characteristic heretofore.
365. Public Capitalization of the Inheritance Tax^^
BY ALVIN JOHNSON
There are new burdens to be assumed, and tremendous ones, just
over the present horizon of the state. Pensions for the superan-
nuated and disabled, relief for the sick, reformation of the outcast,
subsidies for indigent motherhood, conservation of child life and
of the human resources we now neglect through parsimony in educa-
tional effort are among the burdens which the state will in the end
be forced to assume. Whether we approve or disapprove of the state
assumption of responsibilities of this nature, as dispassionate ob-
servers of historical tendencies we are compelled to admit that in
every modern state the party of "social reform" is making rapid head-
way. There is in the existing social constitution no opposing force
powerful enough to prevent the ultimate realization of part, if not of
the whole, of the program of the social reformers. With the new
fiscal burdens that will have to be assumed, new sources of revenue
must be found, or old sources must be made more fruitful. It is a
realization of this situation that fixes the eye of the democracy upon
the vast mass of wealth passing each year from the able hands of its
accumulators to the hands of all but passive heirs. What profit shall
the democracy fix for itself on death's turnover ?
To Adam Smith and his immediate successors the inheritance tax
presented one serious defect: it is an unthrifty tax, falling, not upon
"revenue," but upon capital, and hence tends to deplete the national
stock of parent wealth. If this view of the matter is valid, the prog-
ress of inheritance taxation as a source of ordinary revenue cannot
be regarded as an unmixed good. Admitting, as we must, that the
maintenance of the capital stock is not in itself the highest end of
social policy, and that we must at times accept capital depletion as
the legitimate cost of a higher good, we are yet not justified in over-
looking the fact that the dissipation of accumulated capital is a social
cost which should be reduced to a minimum, so far as this is possible.
This point, I assume, scarcely needs argument, as the social-economic
value of thrift is one of the best-established values of economic
theory.
The inheritance tax rests upon the entire mass of wealth, includ-
ing that which originates in unearned increment as well as that which
i^Adapted from "Public Capitalization of the Inheritance Tax," Journal of
Political Economy, XXll (1914), 160-80.
828 CURRENT ECONOMIC PROBLEMS
m
originates in saving. But the state does not take from a given in-
heritance proportionate shares of the lands, reproducible goods, fran-
chises, and other privileges that compose it. The public authority-
demands money, and this is drawn, in one way or another, from
liquid capital. The whole of the inheritance tax, then, is paid out of
the fund of fluid, mobile capital, which is the sole financial basis of
the goods which conserve or increase our productive equipment — the
fund of which it may properly be said that it originates in saving.
With rates of inheritance taxation so light and accumulations so
large as they are in most of our states, the tendency of such taxes
to trench upon accumulated capital may be almost negligible. But
it would be hazardous to assume that accumulation in the United
States can continue indefinitely at the present rate. Our large sav-
ings from income may be explained, in part at least, by economic
conditions which are manifestly transitory. Our working class, re-
cently transplanted from a less fertile economic field, secure incomes
in excess of their accustomed needs, and accordingly have a surplus
for accumulation. Our men of wealth, newly enriched, have not,
as a class, acquired the art of luxurious consumption. Their incomes
outrun their expenditures, and the surplus accumulates without active
effort on their part. New opportunities presented by nature or created
by society have always been available and have served as an addi-
tional stimulus to thrift. One cannot gain title to a homestead, one
cannot seize and exploit coal lands or street-railway franchises, with-
out the control of funds accumulated from income. Rarely, in a
rapidly developing economic state, is it possible for an entrepreneur
to draw from pre-existing funds all the capital requisite to a full
exploitation of his opportunities. He must supplement the funds
which he already owns and those which he can borrow with funds
saved from his current income, if he is unwilling to forego many
chances of great profit. "Unearned increment" thus serves as a
premium upon thrift.
As our economic conditions become more settled the unearned
increment loses much of its potency as a stimulus to thrift. Further-
more, our laborers are raising their standards of living and our
capitalists are learning the ways of a society which knows how to
spend its income. How soon the rate of accumulation will begin
to decline, and how rapid the decline will be, we need not attempt
to predict. For our present purpose it is sufficient to point out that
a tax rate which would today absorb 20 per cent of our annual ac-
cumulations would absorb a much larger percentage of the annual
accumulations of, say, 1964.
SOCIAL REFORM AND TAXATION 829
Granted, then, that the evil of unthrifty inheritance taxes is
neghgible at the present time, when the taxes are light and the rate
of accumulation is high. Such taxes, nevertheless, are destined to
become heavier and the rate of accumulation is destined to become
less. The evil, obviously, is one which has the capacity of growing
into importance.
If the inheritance tax is indeed affected with the vice of unthrift
and if the defect may lead to such serious consequences as have been
indicated, it might be thought to be a part of wisdom to abandon the
tax altogether, or to restrict it to so narrow a range that its power
of destroying accumulated capital would be negligible. To propose
such a restriction of the tax, however, would be idle, in view of the
powerful social and political forces to which its development responds.
Economists may urge the necessity of capital conservation, but the
democracy will be slow to recognize such necessity, so long as the
alternative to a policy of public dissipation of capital is the perpetua-
tion of vast private estates. Must we accept this alternative? There
seems to be no good reason why we should. There is nothing in the
nature of the state which requires it to assume the role of a prodigal
heir who squanders his inheritance upon current needs instead of
administering it prudently with a view to its future increase. The
state can adopt the same policy which every prudent person recom-
mends to the private heir. It can treat capital acquired through
inheritance as a fund to be maintained intact. Let the state set apart,
as a permanent investment fund, the proceeds of all inheritance taxes,
and depletion of the natural capital will at once cease.
The public capitalization of the inheritance tax would tend to
conserve the national stock of productive wealth. It is a policy that
would encounter no insuperable administrative difficulties ; it would
not seriously prejudice the interests of the private investor. Politically
and socially such a policy, if it has potentialities for ^vil, would appear
to have far greater potentialities for good.
There is manifestly nothing revolutionary in principle in a capital
fund owned and managed by the state for the benefit of a particular
public service. Public and semi-public endowment funds now in
existence in this country amount, in the aggregate, to an imposing
sum. We are living in an epoch in which the funded endowment is
employed with growing frequency. There is an increasing reluctance
on the part of private donors to contribute funds merely for current
expenditures ; there is an increasing tendency on the part of public
and semi-public institutions to transform extraordinary current
receipts into permanent endowment. Not on principle, then, can a
plan of the permanent endowment of a public service be treated as
830 CURRENT ECONOMIC PROBLEMS
revolutionary. If there is anything revolutionary in the plan, it must
consist solely in the magnitude of the operations that it would entail.
Defenders of an economic system based upon the principle of
private property must admit that at two points their position is de-
cidedly weak: the private enjoyment of funded income, and the
private burden upon the worker of mischances against which it is
impossible for him to make provision. The private recipient of an
absolutely secure funded income is freed from the necessity of ex-
ercising the skill and foresight which serve, in general, as an ethical
basis for the defense of private property. The active manager of an
industrial capital finds his position morally weakened by the fact
that his property income is assimilated, in the social consciousness,
to that of the functionless "remittance man." However much we
may approve of the policy of throwing upon each able-bodied man
the responsibility for finding means of self-support, we must admit
that hundreds of thousands of our workingmen are exposed to
chances against which they can make no adequate provision. For
hundreds and thousands of our city workers, the only escape from
an indigent old age is premature death. For hundreds of thousands
of families, the death of the chief breadwinner means the maiming
of children's lives almost past recovery. A system which permits
such evils is surely not free from moral weakness. Now, the general
tendency of the policy which I propose is to divert to the state part
of the funded income of society from the private recipients in whose
hands it subserves no useful purpose, and to charge upon it precisely
those burdens by which the weak are now crushed. Not by the
rough method of expropriation, however, but by a method which is
legal as well as ethical, and which entails no sacrifice of the future to
present gain. The public capitalization of inheritance taxes would
result in an accumulation of funds which would be gradual, and it
would hence leave opportunity for the development of efficient means
of administration. Under this plan public accumulations would con-
stantly increase ; but their increase could never become so great as to
restrict the field of private property unless private accumulations
should come to a standstill and opportunities for private exploitation
should fail.
XVI
COMPREHENSIVE SCHEMES OF REFORM
"Social unrest" is not an exclusive and prized possession of Modern
Industrialism. The voice of prophet, of seer, or reformer, has long been heard
in the land, condemning the prodigal waste of the rich, the unjust distribution
of "the common store of earthly wealth," the institutions which "create and
perpetuate artificial class differences," and the "tangled scheme of human
affairs" which we call life. Peculiar as are the voices condemning the society
we know, they are like those of other times in demanding "a way out."
That all is not good is clearly realized by even the most stalwart of indi-
vidualists. In devious ways they would guide us out of the social wilderness.
One would leave "natural selection" to "eliminate the unfit," to free us from
"the spawn of earth," and to make us a happier society by making us a better
people. Another would substitute a large program, and a still larger spirit, of
co-operation for "the sordid greed of competition" that "makes chaos of eco-
nomic cosmos." The Utopian dreams of co-operation, however, have recently
been blighted by a cool analysis which shows that its promises are bright but
not spectacular. Most prominent just now is the program of those wise in the
lore of business who promise a transformed society through the magic of
profit-sharing, "scientific management," and "welfare work." Give them con-
trol of technique, organization, and working conditions, and they will fill the
land with plenty, the while raising labor to a pinnacle before undreamed of.
Through their superimposed scheme the unwilling laborer is to be fed, clothed,
housed, recreated, amused, educated, and introduced into a new paradise. If
he fails to get what he wants — if industrial democracy fails of realization — ■
he will at least get what is good for him. A supreme pre-wisdom will supplant
his shortsightedness.
But the non-individualists are even more bent upon a transformation of
industrial society. One program of reconstruction, a program inherent in the
activity of a number 'of groups, rather than consciously formulated, is well
under way. It is evident in the tendency toward government regulation —
and even ownership — of railroads and capitalistic monopolies; in the proposal
to choose our own population by a regulation of births and of immigration;
in the attempt through state action to eliminate economic insecurity; in the
growth of a spirit of group solidarity so apparent in unionism ; in a formal
modification of the "fundamental" institutions of society, and informal change
through taxation and social convention. The extent to which this program will
be realized — and whither it is tending — only the future can reveal.
A more drastic program, springing from a similar philosophy, is pre-
sented in socialism. Its strength lies partly in the "righteous indictment" which
it can make against the "capitalistic organization of society," and partly in the
sublime faith which the classes to which it appeals have in the efficacy of
elaborate social machinery to eliminate social evils. The analysis of society
rnade by most of its advocates is immediate, and loses sight of several "long-
time" considerations, such as control of numbers and the accumulation of
capital. Socialism, however, is losing its militancy. As its numbers increase,
it is less and less disposed to "see red." In its latest manifestations it has
become conventionally "respectable." It is hard to distinguish between the
"evolutionary socialist" of today and the out-and-out progressive. The radical
members are leaving the ranks of socialism to fight for "something worth
while" with the syndicalists and "the revolutionary unionists." To find the
radical spirit of protest we must turn to these latter organizations.
831
832 CURRENT ECONOMIC PROBLEMS
Meanwhile the war has been none too kind to "state socialism." _ An early
English economist is reported to have said (there is no authentic written
word) that he preferred to leave control to a God whose very existence he
doubted rather than to men whom he knew well enough to call friends.
Something of this disbelief in man is shared by those who discovered during
the war that the agency of control so glibly referred to as the government
is a many-headed personality, and that the persons are supplied in very differ-
ent degrees with facts, knowledge of the industrial system, and straightforward
purpose The result is that the antithesis between centralization and initiative,
flexibility, and enterprise is clearer to many more minds than once it was.
This finds its reflection in the increasing prominence of gild socialism and the
appeal of its ideas of decentralization and fear of bureaucracy to those who
accept socialist ends. ,.,.,. . ,
It is impossible to predict the future of socialist doctrine. As our scheme
of arrangements has changed, socialist doctrine has changed. Its early attack
was upon the inadequacy of capitalistic production. The issue was later shifted
to distribution. Thanks to arguments afforded by the war, its attack is once
more upon production. One need not fear that socialism lacks flexibility to
adapt its method and object of attack to an existing situation.
A. THE VOICE OF SOCIAL PROTEST
366. Privilege and Power
a) Woe to the Idle Rich'^
Woe to them that are at ease in Zion, and to them that are secure
in the mountain of Samaria, the notable men of the chief of the
nations, to whom the house of Israel come! Pass ye into Calneh,
and see ; and from thence go ye to Hamath the great ; then go down
to Gath of the Philistines: are they better than these kingdoms? or
is their border greater than your border ? — ye that put far away the
evil day, and cause the seat of violence to come near; that lie upon
beds of ivory, and stretch themselves upon their couches, and eat the
lambs out of the flock, and the calves out of the midst of the stall ; that
sing idle songs to the sound of the viol ; that invent for themselves
instruments of music, hke David ; that drink wine in bowls, and anoint
themselves with the chief oils ; but they are not grieved for the afflic-
tion of Joseph. Therefore shall they now go captive with the first
that go captive; and the revelry of them that stretched themselves
shall pass away.
b) The Daughters of Zion^
Moreover Jehovah said, Because the daughters of Zion are
haughty, and walk with outstretched necks and wanton eyes, walking
and mincing as they go, and niaking a tinkling with their feet ; there-
fore the Lord will smite with a scab the crown of the head of the
daughters of Zion, and Jehovah will lare bare their secret parts. In
lAmos 6 :i-7 (750 e.g.). 2 isa. 3 :i6-24 (750 b.c.).
COMPREHENSIVE SCHEMES OF REFORM 833
that day the Lord will take away the beauty of their anklets, and
the cauls, and the crescents ; the pendants, and the bracelets, and the
mufflers; the headtires, and the ankle chains, and the sashes, and
the perfume boxes, and the amulets; the rings, and the nose jewels;
the festival robes, and the mantles, and the shawls, and the satchels ;
the hand-mirrors, and the fine linen, and the turbans, and the veils.
And it shall come to pass, that instead of sweet spices there shall
be rottenness ; and instead of a girdle a rope ; and instead of well
set hair, baldness ; and instead of a robe, a girdling of sackcloth ;
branding instead of beauty.
c) Why the Lords? ^
BY JOHN BALL
By what right are they whom we call lords greater folks than we?
Why dp they hold us in serfage ? They are clothed in velvet, while
we are covered with rags. They have wine and spices and fair bread ;
and we oat-cake and straw, and water to drink. They have leisure
and fine houses ; we have pain and labor, the rain and the wind in the
fields. And yet it is of us and our toil that these men hold their state.
d) Government and Inequality *
BY SIR THOMAS MORE
Is not that government both unjust and ungrateful that is so
prodigal of its favors to those that are called gentlemen, or such
others who are idle, or live either by flattery or by contriving the
arts of vain pleasure, and, on the other hand, take no care of those
of a meaner sort, such as ploughmen, colliers, and smiths, without
whom we could not subsist? But after the public has reaped all
the advantage of their service, and they come to be oppressed with
age, sickness, and want, all their labors and the good they have done
is forgotten, and all the recompense given them is that they are left
to die in great misery. The richer sort are often endeavoring to bring
the hire of laborers lower — not only by their fraudulent practices, but
by the laws which they procure to be made to that effect ; so that
though it is a thing most unjust in itself to give such small rewards
to those who deserve so well of the public, yet they have given those
hardships the name and color of justice, by procuring laws to be
made for regulating them.
Therefore, I must say that, as I hope for mercy, I can have no
other notion of all the governments that I see and know than that
3 Quoted in Wallace, Studies Scientific and Social, II (1366?), 432.
^Adapted from Utopia, 1516 (Cassell's National Library edition), p. 17.
834 CURRENT ECONOMIC PROBLEMS
they are a conspiracy of the rich, who, on pretense of managing the
pubhc, only pursue their private ends, and devise all the ways and
arts they can find out; first, that they may, without danger, preserve
all that they have so ill acquired, and then that they may engage the
poor to toil and labor for them at as low rates as possible, and oppress
them as much as they please.
e) The Possibilities of Production '
BY RICHARD JEFFREY
I verily believe that the earth in one year can produce enough
food to last for thirty. Why then have we not enough ? Why do
people die of starvation, or lead a miserable existence on the verge
of it? We have millions upon millions to toil from morning till
evening just to gain a mere crust of bread? Because of the absolute
lack of organization by which such labor should produce its effects,
the absolute lack of distribution, the absolute lack of even the very
idea that such things are possible. Nay, even to mention such things,
to say that they are possible is criminal with many. Madness could
hardly go further.
f) The Beginning of It All^
BY J. J. ROUSSEAU
The first man, who having enclosed a piece of ground, took
thought to declare, "This is mine," and found people simple enough
to believe him, was the real founder of civil society. How many
crimes, wars, and murders, how much misery and horror would have
been spared the human race if some one, tearing down the pickets
and filling up the ditch, had cried to his fellows, "Beware of listen-
ing to that imposter ; you are lost if you forget that the land belongs
to none and its fruits to all."
367. "Progress and Poverty"
a) In the Wake of Trade ^
BY OLIVER GOLDSMITH
Ye friends to truth, ye statesmen who survey
The rich man's joys increase, the poor's decay,
Tis yours to judge how wide the limits stand
Between a splendid and a happy land. •
'^ Quoted in Wallace, Studies Scientific and Social, II, 490-91.
«"Discours sur I'inegalite," (Euvres, I (1754), 551.
''The Deserted Village (1770), 11. 265-86. . . ' .. \
COMPRmENSIVE SCHEMES OF REFORM 835
Proud swells the tide with loads of freighted ore,
And shouting folly hails them from her shore ;
Hoards even beyond the miser's wish al)Ound,
And rich men flock from all the world around.
Yet count our gains ; this wealth is but a name
That leaves our useful products still the same.
Not so the loss. The man of wealth and pride
Takes up a space that many poor supplied ;
Space for his lake, his park's extended bounds,
Space for his horses, equipage, and hounds :
The robe that wraps his limbs in silken sloth
Hath robbed the neighboring fields of half their growth ;
His seat, where solitary sports are seen,
Indignant spurns the cottage from the green :
Around the world each needful product flies,
For all the luxuries the world supplies ;
While thus the land, adorn'd for pleasure, all
In barren splendour feebly waits the fall.
b) When There Was a Frontier *
BY J. B. MC MASTER
The year 1786 in all the states was one of unusual distress. The
crops had indeed been good. In many places the yield had been
great. Yet the farmers murmured, and not without cause, that their
wheat and their corn were of no more use to them than so many
bushels of stones ; that produce rotted on their hands. That while
their barns were overflowing, their pockets were empty. That when
they wanted clothes for their families, they were compelled to run
from village to village to find a cobbler who would take wheat for
shoes, and a trader who would give everlasting in exchange for
pumpkins. Money became scarcer and scarcer every week. In the
great towns the lack of it was severely felt. But in the country places
it was with difficulty that a few pistareens and coppers could be
scraped together toward paying the state's quota of the interest on
the national debt.
A few summed up their troubles in a general way, and declared
the times were hard. Others protested that the times were well
enough, but the people were grown extravagant and luxurious. For
this, it was said, the merchants were to blame. There were too many
merchants. There were too many attorneys. Money was scarce.
^Adapted from The History of the People of the United States, II, 180.
Copyright by D. Appleton & Co., 1885.
836 CURRENT ECONOMIC PROBLEMS
Money was plenty. Trade was languishing. Agriculture was fallen
into decay. Manufactures should be encouraged. Paper should be
put out.
One shrewd observer complained that his countrymen had fallen
away sadly from those simple tastes which were the life-blood of
republics. It was distressing to see a thrifty farmer shaking his
head and muttering that taxes were ruining him at the very moment
his three daughters, who would have been much better employed at
the spinning-wheel, were being taught to caper by a French dancing
master. It was pitiable to see a great lazy, lounging, lubberly fellow
sitting days and nights in a tippling house, working perhaps two days
in a week, receiving double the wages he really earned, spending the
rest of his time in riot and debauch, and, when the tax-collector came
round, complaining of the hardness of the times and the want of a
circulating medium. Go into any coffee-house of an evening, and
you were sure to overhear some fellow exclaiming, "Such times!
no money to be had ! taxes high ! no business doing ! we shall all be
broken men."
c) Labor and Value ^
Wages should form the price of goods ;
Yes, wages should be all ;
Then we who work to make the goods,
Should justly have them all ;
But, if their price be made of rent,
Tithes, taxes, profits all,
Then we who work to make the goods
Shall have just none at all.
d) The Poor in Manchester ^°
BY FREDERICK ENGELS
The manner in which the great multitude of the poor is treated
by society today is revolting. They are drawn into the large cities
where they breathe a poorer atmosphere than in the country ; they
are relegated to districts which, by reason of the method of con-
struction, are worse ventilated than any others; they are deprived
of all means of cleanliness, of water itself, since pipes are laid only
when paid for, and the rivers are so polluted that they are useless for
^Quoted in the article on "Chartism," The Dictionary of Political Econ-
omy, from The Poorman's Guardian, 1831.
i°Adapted from The Condition of the Working Class in England in 1844
(1848), pp. 49-53.
COMPREHENSIVE SCHEMES OF REFORM 837
such purposes ; they are obliged to throw all offal and garbage, all
dirty water, often all disgusting offal and excrement into the streets,
being without other means of disposing of them. As though the viti-
ated atmosphere of the streets were not enough, they are penned in
dozens into single rooms, they are given damp dwellings, cellar dens
that are not waterproof from below, or garrets that leak from above.
Their houses are so built that the clammy air cannot escape. The
view from the bridge is characteristic of the whole district. At the
bottom flows, or rather stagnates, the Irk, a narrow, coal-black,
foul-smelling stream, full of debris and refuse, which it deposits on
the shallower right bank. Everywhere heaps of debris, refuse and
offal ; standing pools for gutters, and a stench which alone would
make it impossible for a human being in any degree civilized to live
in such a district. The whole side of the Irk is built in this way,
a planless, knotted chaos of houses, more or less on the verge of
uninhabitableness, whose unclean interiors fully correspond with
their filthy external surroundings. In truth it cannot be charged
to the account of these helots of modern society if their dwellings are
not more cleanly than the pigsties which are here and there to be
seen among them. ]\Iy description is far from black enough to
convey a true impression of the filth, ruin, and uninhabitableness,
the defiance of all considerations of cleanliness, ventilation, and
health which characterize this district.
e) Packing toimi as a Residential Section ^^
BY A. M. SIMONS
From the general air of hoggishness that pervades everything
from the general manager's offices down to the pens beneath the
buildings and up to the smoke that hangs over it all, the whole
thing is purely capitalistic. One's nostrils are assailed at every
point by the horribly penetrating stench that pervades everything.
Great volumes of smoke roll from the forest of chimneys at all
hours of the day, and drift down over the helpless neighborhood like
a deep black curtain that fain would hide the suffermg and misery
it aggravates. The foul packing-house sewage, too horribly offen-
sive in its putrid rottenness for further exploitation even by monop-
olistic greed, is spewed forth in a multitude of arteries of filth into
a branch of the Chicago River at one corner of the Yards, where
it rises to the top and spreads out in a nameless indescribable cake
i^Aclapted from Packingtown, pp. 2-19. Published by Charles H. Kerr
& Co.
83S CURRENT ECONOMIC PROBLEMS
of festering foulness and disease-breeding stench. On the banks
of this sluiceway of nastiness are several acres of bristles scraped
from the backs of innumerable hogs and spread out to allow the
still clinging animal matter to rot away before they are made up
into brushes. Tom Carey, now alderman of this ward, owns long
rows of some of the most unhealthy houses in this deadly neighbor-
hood. These houses have no connection with the sewers, and under
some of them the accumulation of years of filth has gathered in a
semi-liquid mass from two to three feet deep. Shabbily built in the
first place and then subjected to years of neglect, they are veritable
death-traps. A cast-iron pull with the Health Department renders
him safe from any prosecution.
f) Hallelujah on the Bum ^^
"O, why don't you work "O, I like my boss —
Like other men do?" , He's a good friend of mine ;
"How in hell can I work That's why I am starving
When there's no work to do ? Out in the bread-line.
Chorus:
"Hallelujah, I'm a bum, "I can't buy a job
Hallelujah, bum again, For I ain't got the dough.
Hallelujah, give us a handout — So I ride in a box-car,
To revive us again." For I'm a hobo.
"0, why don't you save "Whenever I get
All the money you earn ?" All the money I earn,
"If I did not eat The boss will be broke,
I'd have money to burn. And to work he must turn."
368. Expanding Wants and Social Unrest
BY A CAPE COD FISHERMAN
Yes, that's the trouble. My father wanted fifteen things. He
didn't get 'em all. He got about ten, and worried considerable be-
cause he didn't get the other five. Now, I want forty things, and
I get thirty, but I worry more about the ten I can't get than the
old man used to about the five he couldn't get.
^^Songs of the Workers, pp. 34. Published by the Industrial Worker.
The tune is "Revive Us Again."
COMPREHENSIVE SCHEMES OF REFORM
839
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COMPREHENSIVE SCHEMES OF REFORM 841
370. The Economic Costs^*
BY J. A. HOBSON
The material waste and destruction of this war, with its ever-
increasing area of conflict, have been far greater, more various, and
more widespread than would have been thought possible before the
actual event. At the outset most economists in this and other
countries predicted exhaustion of one or both belligerent groups
before two years were passed. The actually available resources of
every country have proved to be far greater than was supposed.
What this country [England], in particular, has done amounts to an
economic miracle. With some four million men taken from ordinary
occupations for the fighting forces, and two more millions for muni-
tions, we have been able somehow to maintain the ordinary productive
operations of our country at so high a level as to provide food, cloth-
ing, vehicles, and innumerable other expensive articles for our own
forces and a large surplus for our Allies ; while our civil population
as a whole has been living upon a somewhat higher level of material
comfort than before.
There are those to whom the obvious explanation of the miracle
is that we are living on our capital, and they insist that we shall have
to pay afterwards for this necessary extravagance. Now living upon
capital from the standpoint of a nation may mean one or the other
of two things, or both. It may mean that we have destroyed, dam-
aged, or diminished the plant, buildings, roads, stocks, money, which
we possessed in this country before the war, together with the foreign
securities which represented claims upon real wealth in other coun-
tries. Or it may mean that we have mortgaged abroad portions of
the wealth we shall produce after the war, by obtaining upon credit
foreign goods to supplement our war deficiencies. If either of these
things has occurred, it will seem to involve a diminution in our
national income after the war — a measure of poverty.
It is manifest that our war economy will have caused a letting
down of most of those forms of fixed capital which can be let down
without great immediate damage to their productive services.
Repairs and renewals, both of public and private fabrics of a durable
kind, have been postponed, industrial machinery and other plants
have been injured by overwork and neglect. It is estimated that a
sum of from 170 to 180 million pounds per annum represented indus-
trial wear and tear and renewals, or approximately one-tenth of the
industrial income of the nation. A considerable part of this expendi-
i^Adapted from "Shall We Be Poorer after the War?" Contemporary
Review, CXI, 43-47. Copyright by the Contemporary Review Co., 1917.
842 CURRENT ECONOMIC PROBLEMS
ture, no doubt, has been suspended — i. e., the work that would have
gone for this purpose has been diverted into work for the production
of immediately consumable wealth. This damage to future pro-
ductive power is enhanced by a letting down of many stocks of
materials, unfinished or finished goods, which in ordinary times
constitute a reserve of national wealth to meet the sudden enhance-
ments of demand, and to secure the required elasticity of trade.
These stocks, both in this country and throughout the world, have
been largely depleted to meet the urgent needs of the belligerent
nations. Their reduction must rank as an expenditure out of capital
which will have to be made good before trade can be fully restored.
This expenditure of capital is probably the most serious incurred by
this country. So far as the income-earning power of our capital is
concerned, the letting down of plant and stock is the measure of the
direct damage to capital due to the war. Against it may be set an
estimate of the new engineering and other plants brought into exist-
ence, primarily for war requirements, but capable of adaptation to
peace industries afterwards.
The large sale of American and other foreign securities, and the
loans efifected in the United States and in our Dominions, no doubt
involve an expenditure of past capital and a mortgage of future
resources. But regarded from the national standpoint, what has
taken place may fairly be treated as a shifting of securities. We have
sold securities and raised credits in America in order to make financial
advances of at least equal magnitude to our Allies. The interest on
this sum will represent a net reduction of the annual income of our
nation available for distribution here so long as this method of pay-
ment is continued.
Summarizing the evidence we have cited, we may fairly conclude
that the material capital of this country will emerge from the war
not seriously damaged or diminished. Indeed, it may plausibly be
argued that the better organization of industry for obtaining a fuller
use of the existing plant— e.g., the introduction of a shifts system into
processes where plant was lying idle for the greater part of the time —
may almost compensate for the admitted loss by letting down fixed
capital and stocks. In a word, the supply of available industrial
capital for this country after the war will not be so greatly diminished
as to necessitate a total output of industry appreciably lower than it
was before the war.
How, next, will it fare with the other factors of production ? Will
the supply of labor be reduced by the ravages of war? The loss of
life and the disablement will amount to a heavy total. Perhaps it
may represent a million men, or one-sixth of those withdrawn from
COMPREHENSIVE SCHEMES OF REFORM 843
ordinary civil occupations. But this would not mean a corresponding
reduction of effective labor. There are several compensations here.
First comes the stoppage of all British emigration during the war. At
least half a million workers who would have gone abroad will have
been kept at home. It may, indeed, be admitted that the tide of
emigration after peace will carry away large numbers both of our
civilians and of disbanded soldiers. But the pace of this movement
will be restrained by reduced facilities and enhanced costs of trans-
port, as well as by the lack of the money usually required to make
emigration a success for men untrained in agriculture. Another
compensation is to be found in the newly discovered and trained
powers of women. Though many of the six hundred thousand who
have already entered munitions and other industrial occupations will
doubtless return to domestic work, the ranks of labor will be enlarged
permanently, not merely by those who, having already entered, will
remain, but by a constant flow of new female labor into occupations
for the first time opened by the war. Women have discovered new
aptitudes and new confidence in exercising them. Their status in
industry has definitely and permanently risen. It is no mere question
of numbers. Both for women and for unskilled men the artificial
barriers which precluded them from learning and undertaking large
numbers of skilled occupations have been broken down. After the
war the proportion of workers, male and female, possessing ap-
proved skill in some productive process will be greatly increased.
This, of course, is equivalent to an enlargement of the effective pro-
ductive power of the nation. It may be concluded that the aggregate
labor-power available after the war will be quite as great at that
available in the summer of 1914, assuming that the war is not
prolonged beyond next summer.
Business ability and enterprise in the organizing and employing
classes ought to be enhanced rather than diminished by the lessons
in adaptation and experimentation imposed by the stress of war needs.
Rapid transformations of plant and premises, novel technical proc-
esses, revolutionary changes in finance, control, organization of labor
have everywhere been shaking the easy-going, slack, routine ways
and notions of employers. Thousands of them have been compelled
for the first time in their lives to "look alive" and stir their intellectual
stumps. The great revelation of what could be done to maintain and
enhance productivity under the spur of national necessity can never
perish from our minds. We now know that with the material and
human resources at our disposal it is technically possible, when the
war is over, to begin producing industrial wealth at a considerably
844 CURRENT ECONOMIC PROBLEMS
faster rate than it was produced three years ago. The great econ-
omies effected by reducing our railways to a single system are only
one striking example of an economy of capital and labor which will
certainly be conserved in the future.
371. The Ultimate Burdens^^
It is difficult to appraise the real cost of war. A recital of the
figures of war debts only serves to conceal the truth. On the purely
material side, the best we can do is to ascertain the extent of the loss
of new capital and the amount of depreciation of the existing indus-
trial equipment of the national resources of a nation. On the human
side, we can determine the number of casualties, but it is impossible
to measure the different values to the community of those who are
killed. A genius lost involves an immeasurable cost viewed in
national terms. The loss of an ordinary soldier is relatively incon-
sequential.
But quite apart from the loss of life, war entails enormous sac-
rifices in human resources. The sacrifice in health of the men who
have been for years in the trenches cannot be measured in terms of
money, for there is no satisfactory method of reducing the values of
human lives and human health to pecuniary terms. The war has
also impoverished the people of many lands and this carries with it a
real lowering in the standards of life. There is less food, bodies are
less adequately protected with clothes and shelter, medical service
is scarcer, and in general conditions are less conducive to healthful
living. Future generations of Belgians, Roumanians, Poles, Russians,
Turks, Armenians, and Persians, not to mention others, will pay the
penalty of this generation of economic disorganization. Preventive
measures can alleviate somewhat the future wretchedness which is the
product of war, but it cannot eliminate it entirely. Children will
be reared undernourished and without proper medical attention,
entailing costs that will manifest themselves in succeeding ages.
Moreover, the bodies of the mature population, under the intense
strain of a long war, become less immune to the ravages of disease.
The lowering of health standards and the lessening of human vitality
tend to have viciously cumulative effects; for the war necessitates
low standards of living, low standards of living cause low pro-
ductivity, and low productivity in turn causes low standards of living
for long years to come. Poland, for instance, has been impoverished
by the war to an extent that renders it almost impossible to gain the
^^An editorial, 1918.
COMPREHENSIVE SCHEMES OF REFORM 845
initial momentum necessary to recuperation and to return to erst-
while living conditions.
Even in countries such as England and the United States, which
do not bear the brunt of invasion, and where the economic organiza-
tion is such as to prevent starvation, or even a serious lessening of
national vitality, there are still serious costs to be reckoned with.
The lowering of labor standards carries with it, unless our standards
were false, serious impairment of efficiency as measured in terms of
long-run national considerations. Much of the labor of women now
used in factories will carry with it its meed of cost in shortened lives
and in ill-health in the years to come. The increasing employment of
children and the curtailment of education among the youth prevent a
development of the full resources of the coming generation of
manhood and womanhood. In a less obvious way there is a great
social sacrifice involved in the diversion of energy from scientific
pursuits, from social study and investigation, from art and literature,
to immediate material pursuits of military importance. The sort of
life which conditions the elements of genius and originality is almost
prohibited, for genius and originality can usually ripen only amid
leisure; the world of ideas and values out of which an improving
society eventually comes is almost at a standstill during the war.^®
Another of the immeasurable costs of war lies in the fact that
war arrests the training of the future leaders of a nation. Business
responsibilities, and the necessity of keeping the home fires burning,
make it impossible to send a large proportion of the mature men of
a nation to war. It is the youth who must bear the brunt of the
conflict. A nation is thus stripped of the services of those who would
naturally be the future leaders in community and civic enterprise.
Even those who return, the year spent in the military service have
cost in many instances the labor and study which otherwise would
have been spent in cultural, technical, and vocational training, and
hence it tends to lessen their efficiency for leadership in the future.
This is doubtless oiTset to some extent by training which the war itself
offers in developing alertness and resourcefulness ; but the specializa-
tion of the present war coupled with the predominance of trench
warfare probably renders such training less valuable than in former
wars. Particularly is this true in view of the fact that the social
phenomena of the complicated world of today require training and
^^This of course does not apply to experiments in governmental control of
industry. It is possible, too, that the inventions called forth for use in the war
may result in great ultimate value for times of peace. The statement has been
made, however, by those in position to know that few great inventions have
thus far come from the laboratories of war.
846 CURRENT ECONOMIC PROBLEMS
study of a very different sort from what was required for leadership
under more primitive conditions of existence.
The war affects the temper and character of Hfe in many ways.
It profoundly modifies the habits, practices, customs, and ideals of
the civilian population as well as of those actively engaged in the
conflict. Some of these changes are bad, many of them are good,
and it is possible that the ultimate results in the way of new social
values may quite offset the immediate losses occasioned by war. It
is impossible to make at this time a full recital of the changes which
the war has wrought in our social and economic life, but they are
everywhere in evidence. For instance, we have become reconciled,
at least for the period of the war, to a control of industrial activities
on the part of the government which would have been unthinkable in
this individualistic country only two years ago. Not all of this will
be retained in the peace which is to follow, but it is evident that
we will have a much larger measure of governmental direction than
we have had in the past. Much of the experience of the war in
governmental control may be utilized in ways that will promote long-
run welfare in the years of peace. For instance, it appears that the
federal organization of the labor market which the war has effected
is a piece of machinery so essential to the successful working of our
industrial system that it will never be given up. We have also come
to appreciate more fully than before the importance of large national
production, and a useful distinction has been drawn between essen-
tials and nonessentials, which may prove serviceable in peace as well
as in war.
A subtle change which the war has wrought is to be found in the
increasing number of women employed in industry. Their active
participation in the affairs of a world-wide economic society makes
a return to the old-fashioned cloistered American home almost im-
possible. The situation carries with it far-reaching implications in
the matter of family ideals and the organization of domestic life
around the hearthstone. Who can say whether this will lead to ulti-
mate gains or to ultimate losses ?
These are but a few examples of the many changes which the war
IS effecting. They relate not only to the elements of our life and its
organization but also to its ideals. Our standards of judgment are
very different from what they were before the war and since values
and costs can be measured only in these social standards, it is impos-
sible to make an accurate statement in quantitative terms of the
ultimate costs of the war. Indeed, in view of these changing stand-
COMPREHENSIVE SCHEMES OF REFORM 847
ards it is impossible to tell whether, all factors considered, and looking
into the far distant future, the war has entailed a net cost to society.
It all depends upon which scheme of things one prefers in life.
/ C. STATE SOCIALISM
^ .' 372. The Economic Failure of Capitalism^^
BY J. RAMSAY MACDONALD
Commercialism is a phase in the evolution of industrial organi-
zation, and is not its final form. It arose when nations were suffi-
ciently established to make national and international markets pos-
sible, and it created classes and interests which separated themselves
from the rest of the community and which proceeded to buttress
themselves behind economic monopolies, social privileges, political
power. The new industrial regime supplanted feudalism when the
historical work of feudalism was done and it had ceased to be useful,
and proceeded to build up a method of wealth production and distri-
bution regulated by nothing but the desire for individual success and
private gain. The new power lost sight of social responsibilities and
social coherence. The interests of the individual capitalist, of the
class of capit alists, of the property owners, were put first, and those
of the community as a whole were subordinated. It was hoped, that
by the individual capitalist pursuing his own interest national well-
being would be served. The error soon reaped its harvest of misery,
when women and children were dragged into the factories late in the
eighteenth and early in the nineteenth centuries, when people were
gathered into foul industrial towns, and when only human endurance
limited the length of the working day. So separate had become the
interests of the nation from those of the propertied classes that the
latter found profit from the degradation and deterioration of the
population. It mattered not to the cotton owner of Lancashire
a hundred years ago what became of the children who were working
in his factories, or later on, what became of the women who took
their places. When one "hand" died another "hand" was ready to
step into his place, and whether his life was long or short, sad or
merry, the machines which he tended spun out their enormous profits,
and the owner saw no reason to believe that the day of his prosperity
was short.
The system certainly solved the problem of production. Under
its whips and in search of its prizes, mechanical invention proceeded
'^''The Socialist Movement, pp. 94-99. Copyright by Henry Holt & Co. and
Williams & Norgate, 191 1.
848 CURRENT ECONOMIC PROBLEMS
apace, labor was organized and its efficiency multiplied ten, twenty,
an hundred fold. Statistics in proof of this live with the wonder
that is in them. That twenty men in Lancashire today can make as
much cotton as the whole of the old cotton-producing Lancashire
put together; that 1,000 shoe operatives in Leicester can supply a
quarter of a million people with four pairs of boots a year; that
120 men in a mill can grind enough flour to keep 200,000 people's
wants fully supplied, seem to come from the pages of romance rather
than from the sober history of industry. Commercialism has written
those pages, and they are its permanent contribution to human well-
being.
As time went on, however, it was seen that this wonderful system
of production was quite unable to devise any mechanism of distribu-
tion which could relate rewards to deserts. Distribution was left to
the stress and uncertainty of competition and the struggle of eco-
nomic advantages. The law of the survival of the fittest was allowed
to have absolute sway, under circumstances which deprived it of
moral value. The result was that national wealth was heaped- up at
one end over a comparatively small number of people and lay thinned
out at the other end over great masses of the population. At one
end people had too much and could not spend it profitably, at the
other end they had too little and never gained that mastery of things
which is preliminary to well-ordered life. Aloreover, even many of
those who possessed held their property on such precarious tenure
that possession gave them little security and peace of mind. Pros-
perity was intermittent both for capital and labor.
Then conscious efifort to rectify the chaos began to show itself.
The national will protected the national interests through factory
and labor legislation, and at the same time the chaos within the sys-
tem was being modified by the life of the system itself. Competition
worked itself out in certain directions and co-operation in the form
of trusts came to take its place, as nature turns to hide up the traces
of war in a country that has been fought over. This new organization
is more economical and may steady to some extent the demand for
labor ; but it means that economic power is being placed in the hands
of a few. That is too dangerous in the eyes of the Socialist. Its
operation is too uncertain. From his very nature the monopolist is
an exploiter. He grasps the sceptre of state, as well as the sceptre
of industry. He sits in Parliament as well as in the counting-house.
He becomes a powerful citizen as well as a masterful captain of in-
dustry. He raises in a most acute form the problem of how the com-
munity can protect itself against interests being created round its
. COMPREHENSIVE SCHEMES OF REFORM 849
exploitation and enslavement. Competition solves its own problems
and leaves those of monopoly in their place.
Surveying the same field with an eye on the moral fruits which
it has borne, the Socialist once more discovers weeds in plenty. The
I'amiliar methods of adulteration and of all forms of sharp dealing,
both with work-people and with customers, pass before his eyes in
disquieting masses. Honesty on this field is not the best policy.
Materialist motives predominate. Birth and honor bow to wealth.
Wealth can do anything in "good" society today — even to the pur-
chase of wives as in a slave market. A person may be vulgar, may be
uncultured, may be coarse and altogether unpleasing in mind and
manner but, if he has money, the doors of honor are thrown open to
him, the places of honor are reserved for his occupation. The strug-
gle for life carried on under the conditions of commercialism means
the survival of sharp wits and acquisitive qualities. The pushful
energy which brings ledger successes survives as the "fittest" under
commercialism. Capitalism has created a rough and illworking
mechanism of industry and a low standard of value based upon
nothing but industrial considerations, and it has done its best to hand
over both public and private values to be measured by this standard
and to be produced by this mechanism.
But the controlling influences which have been brought to bear
upon it — both those of a political character from without and those
of an industrial character from within — are the foreshadowings of a
new system of organization. Commercialism lays its own cuckoo
egg in its nest. Every epoch produces the thought and the ideals
which end itself. Like a dissolving view on a screen, commercialism
fades away and the image of Socialism comes out in clearer outline.
373. The Central Aim of Socialism's
BY THOMAS KIRKUP
The central aim of socialism is to terminate the divorce of the
workers from the natural sources of subsistence and of culture. The
socialist theory is based on the historical assertion that the course of
social evolution for centuries has gradually been to exclude the pro-
ducing classes from the possession of land and capital, and to establish
a new subjection, the subjection of workers who have nothing to
depend on but precarious wage-labor. Socialists maintain that the
present system leads inevitably to social and economic anarchy, to the
degradation of the working man and his family, to the growth of vice
^^Adapted from A History of Socialism, pp. 8-12. Copyright by Charles
Scribner's Sons, 1900.
850 CURRENT ECONOMIC PROBLEMS
and idleness among the wealthy classes and their dependents, to bad
and inartistic workmanship, to insecurity, waste, and starvation ; and
that it is tending more and more to separate society into two classes,
wealthy millionaires confronted with an enormous mass of prole-
tarians, the issue out of which must either be socialism or social ruin.
To avoid all these evils and to secure a more equitable distribution of
the means and appliances of happiness, socialists propose that land
and capital, which are the requisites of labor and the sources of all
wealth and culture, should be placed under social ownership and
control.
In thus maintaining that society should assume the management
of industry and secure an equitable distribution of its fruits, social-
ists are agreed ; but on the most important points of details they differ
very greatly. They differ as to the form society will take in carrying
out the socialist program, as to the relation of local bodies to the
central government, and whether there is to be any central govern-
ment, or any government at all in the ordinary sense of the word,
as to the influence of the national idea in the society of the future, etc.
They differ also as to what should be regarded as an "equitable"
system of distribution.
Still, it should be insisted that the basis of socialism is economic,
involving a fundamental change in the relation of labor to land and
capital — a change which will largely affect production, and will en-
tirely revolutionize the existing system of distribution. But, while
its basis is economic, socialism implies and carries with it a change in
the political, ethical, technical and artistic arrangements and insti-
tutions of society, which would constitute a revolution greater than
has ever taken place in human history, greater than the transition
from the ancient to the mediaeval world, or from the latter to the
existing order of society.
In the first place, such a change generally assumes as its political
complement the most thoroughly democratic organization of society.
Socialism, in fact, claims to be the economic complement of democ-
racy, maintaining that without a fundamental economic change polit-
ical privilege has neither meaning nor value.
In the second place, socialism naturally goes with an unselfish
or altruistic system of ethics. The most characteristic feature of the
old societies was the exploitation of the weak by the strong under the
systems of slavery, serfdom, and wage-labor. Under the socialistic
regime it is the privilege and duty of the strong and talented to use
their superior force and richer endowments in the service of their
fellow-men without distinction of class, or nation, or creed. In the
COMPREHENSIVE SCHEMES OF REFORM 851
third place, socialists maintain that, under their system and no other,
can the highest excellence and beauty be realized in industrial produc-
tion and in art; whereas under the present system beauty and thor-
oughness are alike sacrificed to cheapness, which is a necessity of suc-
cessful competition.
Lastly, the socialists refuse to admit that individual happiness
or freedom or character would be sacrificed under the social arrange-
ments they propose. They believe that under the present system a
free and harmonious development of individual capacity and happi-
ness is possible only for the privileged minority, and that socialism
alone can open up a fair opportunity for all. They believe, in short,
that there is no opposition whatever between socialism and individ-
uality rightly understood, that these two are complements the one
of the other, that in socialism alone may every individual have hope
of free development and a full realization of himself.
374. The Transition to the Socialist State^»
BY O. D. SKELTON
The first problem that faces the socialist — how catch the hare —
is primarily a question of tactics, but its solution largely determines
the character and extent of the difficulties facing the collectivist com-
monwealth at the outset. Is the capitalist to be expropriated without
indemnity, or to be oflFered compensation? The earlier hot-blooded
demand for the expropriation of the robber rich without one jot of
payment is now heard more rarely in the socialist camp. This attitude
was consistent with the catastrophic view of social evolution, the
view that the revolution would be "an afifair of twenty-four lively
hours, with individualism in full swing on Monday morning, a tidal
wave of the insurgent proletariat on Monday afternoon, and socialism
in complete working order on Tuesday." But in these post-Dar-
winian days this naive expectation is untenable. With the growing
admission that the new order must be established by degrees, it is
seen that it would be impossible to expropriate certain capitalists and
leave the rest in undisturbed possession. Further, forcible expropria-
tion without indemnity would be impossible ; even were the great
majority of the manufacturing proletariat won over to the policy,
they could scarcely hope to overcome the determined resistance of the
millions of farmers and the urban middle class.
If the other horn of the dilemma is then unanimously chosen, and
the capitalists bought out at one hundred cents on the dollar, how is
i^Adapted from Socialism: A Critical Analysis, pp. 182-84. Copyright by
Hart, Schaffner & Marx, 191 1.
8^2 CURRENT ECONOMIC PROBLEMS
the condition of the poorer classes one jot improved? There will be
heaped up an immense debt, a perpetual mortgage on the collective
industry ; rent and interest will still remain a first charge, still extract
"surplus labor" from the workers. Even if coUectivist management
jvere to prove every whit as efficient as capitalistic, the surplus for
division among the workers would not be increased beyond that
available today. Indeed, it would be diminished. Today a great
part of the revenue drawn in the shape of rent and interest is at once
recapitalized, and makes possible the maintenance and extension of
industry. A socialist regime could not permit the paid-off capitalists
to utilize their dividends in this manner, increasing their grip on in-
dustry ; they would be compelled to spend it in an orgy of consump-
tion. All provision for capital extension would therefore have to
come out of what was left of the national dividend. The last state
would be worse than the first.
Recognizing this, various socialists have proposed, once the cap-
ital has been appropriated, to put on the screws by imposing income,
property, and inheritance taxes which will eventually wipe out all
obligations against the state. In other words, they would imitate the
humanitarian youngster who thoughtfully cuts off the cat's tail an
inch at a time, to save it pain. Doubtless there are, within the existing
order, great possibilities of extension of such taxes for the fuifher-
ance of social reform. Possibly our withers would be unwrung if iht
socialistic state confiscated the multimillionaire's top hundred mil-
lion by a progressive tax. But the fortunes of the multimillionaires,
spectacular as they are and politically dangerous as they are, form
but a small proportion of the total wealth. So soon as the tax came
to threaten the confiscation of the small income as well as the great,
the matter would again become one of relative physical force.
375. Socialism and Inequality-"
BY N. G. PIERSON
Under state socialism, pure and simple, the government of the
country would assume the ownership of the instruments of produc-
tion. We take it that this end might be achieved in the following
manner. Just as at the present it already owns the postal system,
just as in certain countries it already owns and works the railways,
manufactures cigars and matches, so it might successively assume
the ownership, and undertake the working of all factories and work-
^oAdapted from Principles of Economics, II, 88-91. Copyright by Mac-
millan & Co., 1902.
COMPREHENSIVE SCHEMES OF REFORM 853
shops, all means of transport, farms, fisheries, warehouses, and shops.
In order to be able to form by degrees a staflf of properly qualified
officials, the state would have to be careful not to proceed with undue
haste. Beginning with those branches of industry, in which no great
experience or intelligence was required, it would have to proceed step
by step in extending the sphere of its operations, and would have
to be content if, at the end of sixty or a hundred years, it had suc-
ceeded in bringing the whole of production within that sphere. From
this, however, it follows that the transfer would necessarily have to
be effected on terms of adequate compensation to the present owners.
We are now leaving questions of equity entirely out of considera-
tion, and regarding only the economic aspects of the question. Dur-
ing the time when the state was engaged in appropriating the instru-
ments of production, there should be no disturbances of a nature to
occasion direct distress, and such disturbances would be inevitable
where sentence of confiscation was hanging like a sword of Damocles
over the head of every capitalist for a number of years. The more it
became evident from experience that the danger was real and no mere
bogey, the worse would things grow. People would become much
less inclined to save, and much more disposed to squander. The prop-
erties which the state was to take over would ultimately have got
into the most melancholy condition of decay, and habits of neglect and
recklessness would have become general and would be slow to dis-
appear.
A state, which meant to become socialist, would have to do one
of two things : if it offered no full compensation, it would have to
take over the whole production in a very short period of time ; if,
on the other hand, it meant to take over the various branches of pro-
duction by degrees, it would be unable to escape the necessity of
offering compensation. The former alternative would be impossible,
even in such a small country as Holland. The second alternative
would, therefore, have to be chosen on purely economic grounds,
apart from all considerations of justice. The compensation would
have to be such as would be deemed sufficient by the recipients them-
selves, otherwise it would fail in its object. It has been suggested that
the compensation might be paid in thirty or fifty annuities. Certainly
this system, like many another, could be applied ; but we must clearly
understand that everything which reduced the compensation would
diminish the care given to such goods as the state had not yet appro-
priated. And it would be of the utmost importance that this care
should not be relaxed, but should continue unabated up to the very
end.
854 CURRENT ECONOMIC PROBLEMS
It would of course be possible to create a certain inducement for
the owner not to neglect his property, by providing that the number
or the amount of the annual payments made by way of compensa-
tion should depend upon the state of the property at the time of its
transfer to the government; it is very much to be questioned, how-
ever, whether this would prove a sufficient inducement. Everyone
would compare the actual advantage that accrued from saving the
expense of upkeep with the possible disadvantages of the annual
payment system, and it is easy to judge what the result of the com-
parison would be in most cases; more especially if the payments
took a form which did not commend itself to the owner, or if there
were any reason to suppose that the socialist state might not fulfill
its obligations.
We look further into the future ; sixty, or, say, a hundred years
have passed; what condition of things do we see now? What has
changed and what has not?
The principal survival is the inequality, the very thing that some
people found most difficulty in submitting to in the past. There are
no longer any merchants, shipowners, or manufacturers, there are
no landowners or bankers; but, unless the annuity system of com-
pensation has been adopted, we find, instead, a very large number
of holders of government stock, so that there are as many owners
of property as before. This class will remain and increase. For
the socialistic state will have recognized — if not at once, then after
being taught by bitter experience — that with growth of population,
capital also must grow, and that it must grow even more rapidly
than the population. The state will therefore have to encourage
thrift by paying a certain rate of interest on all savings entrusted
to its keeping. It will have to maintain the law of inheritance ; for
there can be no strong incentive to save, unless goods for consump-
tion and claims in respect of debt can be handed down from one
generation to another. We do not know if this is quite compatible
with the socialistic system, but we do know that it is absolutely
necessary, since the need for capital will always remain, no matter
on what lines society may be organized.
The inequality thus remains; only certain of its causes disap-
pear. Fortunes can no longer be accumulated in commerce or in
dustry, nor does increased demand for agricultural or building land
tend any longer to enrich the few at the expense of the many. But
gambling on the stock exchange will not have disappeared. Even
though the compensation should have taken the form of terminable
annuities, it would be many years before all the bonds establishing
their holders' claims to such annuities had disappeared, and it is
COMPREHENSIVE SCHEMES OF REFORM 855
probable that in a socialistic state these bonds would be subject to
considerable fluctuations in the market. Even if all the annuities in
the country itself were to have expired, there would still, no doubt,
be bonds of other countries to speculate in. Besides, there will
never be wanting things to serve as the subject of betting and gam-
bling transactions. If any one expects that the socialistic state will
be able to get rid of these causes of inequality, his optimism must
be rather extravagant.
376. Socialism and the Factors of Production-^
In fervid attempts to correct the inequalities in distribution, we
are very likely to overlook the social importance of production. Only
what is produced can be distributed ; consequently the larger the
production, the greater the average distributive share. Therefore,
before a scheme of social reform can win our approval, it must show
either that it will not decrease production, or that the decrease will
be more than balanced by gains in the distributive system. Produc-
tion must not be overlooked.
The amount of the "social dividend" is contingent, among other
things, upon the proportion maintained between the factors of pro-
duction. The greatest steps in material progress have been associated
with a decrease in the amount of labor used in proportion to the
non-human elements in production. The economic importance of
the Black Death lies in it^decrease of the population; of the settle-
ment of America, in its increase of natural resources; and of the
industrial revolution in its increase of accumulated capital. In the
"socialistic future" the state will find itself in the "stage of dimin-
ishing returns" ; for the cry for socialism will remain an unheeded
v/ail so long as "increased returns" yield abundance. Relief from
the pressure of population on resources cannot be found in the
utilization of new lands, for no new continent will be left for ex-
ploitation. As a result the maintenance of a high standard of living
can be achieved only, either by a strict limitation of numbers, or by
an increase in capital. It is necessary, therefore, to inquire what
influence socialism is likely to have upon the increase or decrease of
these factors of production.
To be quite fair, let us assume that socialism, once achieved,
will realize the dreams of its advocates : that it will substantially
reduce the inequalities in the ownership of wealth, and materially
increase the incomes of the classes at the bottom. Granted a tem-
porary increase, the important question is whether these incomes can
2iAn editorial, 1915.
856 CURRENT ECONOMIC PROBLEMS
remain permanent. We have no reason for thinking that socialism
will make us creatures of different passions, and that in this ideal
state maids will cease to look fair to youths. The larger income will
make marriage possible to many who cannot now "afford it." For
others marriage will be possible at earlier ages. The result will be
an increase in the birth rate. Likewise the larger incomes and the
temporarily better way of living should mean for a time a decrease
in the rate of infant mortality. Both causes would tend to increase
the number of laborers in the next generation, to lower the margin
of industry, and to establish lower rates of wages, and lower stan-
dards of living. There is no reason why this tendency should not
be continued until wages and standards were as low as — or lower
than — under the older system. The conditions of the "workers"
would, therefore, be improved only during the transition period
during which the "surplus" wealth of the "classes" was being trans-
ferred. In the end the lower classes would be no better off. The
only appreciable gain would be in a larger number of souls to be
saved.
But what about the increase of capital? Under our present
system thrift is voluntary, not compulsory. Society relies for its
capital upon the temptation to accumulation offered by private prop-
erty and by inheritance and the opportunity for saving residing in
the unequal distribution of income which showers upon the privi-
leged few more than they can spend and forces large aggregates of
wealth to be reinvested in the productive process. A stratifying
society presents ideal conditions for the accumulation of capital.
Democratic equality and rigid class distinction are alike inimical to
the rapid piling up of productive wealth. However, if individual
thrift proves inefficient, the socialist state is in position to substitute
compulsory thrift. Let us see what use a socialistic society can make
of each of these methods.
Voluntary thrift would not suffice. If no interest were offered
on savings, and moral encouragement alone was used, the tangible
wealth accumulated would be negligible. If interest were offered,
either by a payment on bank deposits or by the sale of interest-
bearing bonds, some capital would be formed. But if inheritance
were not allowed, the disposition to spend would increase with ad-
vancing years, and a rather high rate of interest would be necessary
to secure adequate results. If inheritance were allowed, the system
would be very similar to our own. In fact these methods involve
making use of the individualistic incentives to thrift. But, without
raising this question, the chief incentives to individual accumulation
COMPREHENSIVE SCHEMES OF REFORM 857
would be absent. The large fortunes, which are the basis of so much
current accumulation, would be no longer present. Again, the em-
phasis which a socialistic state would place upon life in the present,
together with the greater equality in station and possessions, would
cause expenditure closely to approach income.
Yet, even if individual thrift were inadequate, it must be ad-
mitted that the state could compel accumulation. Under a money
economy, it could accomplish this, either by placing a tax upon the
income of its citizens with the object of paying for the production
of capital goods, or by raising the prices of consumptive goods and
using the surplus in the same way. Without a money economy, the
same object could be effected by a simple distribution of men between
occupations turning out "present" and "future" goods. An analogy
is found in the distribution of work in military societies, where a
part of the labor force is sent out to fight and a part is kept at home
to supply the fighters with munitions and provisions. But could
the state enforce accumulation? Suffrage would be democratic.
Democracy is a short-sighted and wasteful institution that is too
much of a luxury for any country save one with large and virgin
resources. Under our system little attention is given to the necessity
of conserving the supply of capital. Recall, if you can, a considera-
tion of this question in a political speech. Socialists show little
appreciation of the role of capital in production. They fail to appre-
ciate the importance of keeping up its supply. It seems extremely
doubtful whether a party committed to an increase of capital, at-
tended as such an increase necessarily is by a sacrifice in immediate
consumption, could survive in a socialistic state. The opposing party,
promising immediate prosperity and higher incomes — of course at
the expense of the future — would be almost certain to enjoy popular
support. Socialism, therefore, still further threatens to lower the
margin of industry, wages, and the standard of living, by failure to
induce a sufficient supply of capital.
It must not be denied that these difficulties are not insuperable.
The lower classes may, in course of time, learn to control their
numbers. The electorate may learn that individual and immediate
gain must often be sacrificed if more ultimate social good is to be
achieved. It may even learn the importance of keeping up the
supply of capital. But as yet these lessons have not been learned.
When society attains this measure of wisdom, the problem of the
"classes at the bottom" will have lost much of its importance. The
severity of their distress will have disappeared. The magic of
socialism will be no longer necessary. In short, socialism is too
individualistic and too short-sighted to meet our needs.
858 CURRENT ECONOMIC PROBLEMS
D. SOCIALIST ARGUMENTS FOR THE MASSES
377. Capitalism— A Vampire System-^
BY GEORGE E. LITTLEFIELD
1. Under capitalism, labor of brain and hand— human life-
power— is a mere commodity. The world's workers are wage-slaves,
compelled to sell time portions of themselves in the auction marts
of competition to master bidders, lowering their price in the rivalry
for jobs— for the opportunity to live — until it is just enough to equal
the bare cost of living and reproduction — the iron law of wages.
2. Human labor, applied to natural resources, creates all value.
3. The unpaid portion of labor is surplus value or capital, with
v/hich the exploiting capitalists become masters of land, buildings,
machinery, 'and raw material — all the means of production and dis-
tribution that labor depends upon for existence— therefore masters
also of the wage-slaves.
4. The withholding of this surplus value from labor prevents
the exploited workers from buying or consuming but a fraction of
their full product — hence periodic over-production and consequent
"hard times," ever becoming more severe and chronic, until finally
the whole capitalist system must smother in its own "prosperity."
5. Capitalism is a vampire system. While it absorbs the labor
and life of the competitive wage-slaves, the competing capitalist
masters, preying one upon another, destroy each other until thus
we have but a few monster vampires sucking the last dregs of vitality
from a vastly increased proletariat, and finally comes the crisis —
the sin of wageism is death — the collapse of the capitalist system.
Labor unions and fake legislation for the strangling little capitalists
(like the impotent railroad-control law) may palliate and prolong
the present agony for a brief time, but the end is fatally doomed as
k the diseased person who will not cut out his life-absorbing cancer.
The huge modern plutocratic parasites, inflated with interest, rent,
and profits, must finally expire with the death of what they feed
upon — wageism. So the vampire patricians of ancient Rome sapped
the plebeian and slave basis of their economic system and the empire
fell in 476.
6. No system of civilization can advance or live when a feasting,
reveling class drinks from the toilers' veins while riding on their
backs. The knell of its own death is now being rung by capitalism
which hypocritizes religion ; perverts morality ; makes the law unjust ;
prostitutes education ; promotes war ; corrupts politics ; practices
robbery, swindling, and gambling as a business ; betrays friendship ;
22From Capitalism to Socialism, Flashlight Number 7, 1905.
COMPREHENSIVE SCHEMES OF REFORM 859
sends love out street-walking and makes marriage mercenary ; calls
attic lodgings, slum cellars, corporation shacks, and hobo hovels
"homes"; offers little children to the moloch of commercialism, and
in the mad scramble for its dope incentive — dollars — materializes
the rich, vulgarizes the well-to-do, and brutalizes the poor. Such
is the result of the economic determinism of capitalism.
378. The Capitalist's Ten Commandments-'
BY W. WILLIS HARRIS
I. I am Capital, thy Master, that brought thee out of the Land
of Liberty into a State of Slavery. Thou shalt not become thine
own Master nor have any other Master but me.
IL Thou shalt not create any wealth, nor any likeness of any
wealth that is in Heaven above, or that is in Earth beneath, or that is
in the waters under the Earth, unless I can make a profit out of it.
Thou shalt bow thyself down under my oppression and serve me,
for I, Capital, am a jealous Master and visit the poverty of the
fathers upon the children unto the third and fourth generations of
those that create wealth for me, and show mercy unto the thousands
of sycophants that love me and help me to share the spoils of Labor.
in. Thou shalt not produce wealth for thyself, for I, Capital,
will not hold him guiltless that attempts to do so in vain.
IV. Keep the Labor Days, and sanctify them ; as I, Capital, have
commanded thee, lest I throw thee out of employment. Four and
a half days thou shalt work for me, and one and a half for thyself.
But the seventh day is a rest day for labor to recoup his strength.
In it thou shalt not do any work, thou, nor thy son, nor thy daughter,
nor thy wife, unless they be menial servants or minister to my com-
forts. And remember that thou art my slave, therefore do not
attempt to enjoy thyself lest thou over-exert thyself and be unable
to produce a profit for me next week.
V. Honor Landlordism and Usury, my co-partners, as I, Capi-
tal, have commanded thee, that thy days may be short in the Land
in which thou art born.
VI. Thou shalt commit murder for my sake only.
VII. Thou shalt give thy daughters in prostitution and thy wife
in adultery to me.
VIII. Thou shalt not steal, that being the right divine of
Capital.
IX. Thou shalt bear false witness against thy neighbor — if he
be a Socialist.
23Adapted from Progressive Thought, II (No. 5, 1898), I3-I4-
86o CURRENT ECONOMIC PROBLEMS
X. Thou shalt not desire the full products of thy labor, neither
shalt thou covet the Land of thy birth, nor the stored-up wealth of
past generations, nor the idleness, luxury, and privileges of the
wealthy, nor anything that is in possession of the capitalist.
379. A Confession of Faith^*
I believe in Capital, the ruler of body and mind.
I believe in Profit, His Right-hand Bower, and in Credit, His
Left-hand Bower, both of which proceed from and are one with
Him.
I believe in Gold and Silver, which melted in the crucible, cut
up into bullion, and stamped in the mint, make their appearance in
the world as coin, but, after having rolled over the earth, and being
found too heavy, descends into the vaults of the Banks, and re-
ascends in the shape of Paper Money.
I believe in Dividends, in 5 per cents, 4 per cents and 3 per cents,
and also in smaller per cents, that are sjiaved from notes.
I believe in National Debts, which secure Capital against the
risks of trade, industry and the fluctuations of the money market.
I believe in Private Property, the fruit of the labor of others;
and I also believe in its existence from and for all time.
I believe in the necessity of Misery — the furnisher of wage-
slaves, and the mother of surplus labor.
I believe in the eternity of the Wage System, which setteth the
workingman free from all the cares of holding property.
I believe in the extension of the hours of work, and in the Reduc-
tion of wages ; and I also believe in the adulteration of goods.
I believe in the holy dogma : "Buy Cheap, Sell Dear," and there-
by in the fundamental principles of our sacrosanct Church, as re-
vealed by professional Political Economy. Amen !
E. GILD SOCIALISM
380. The Tendency in Workshop Control-^
BY W. GALLAGHER AND J. PATON
Reconstruction.— We would have it clearly understood by all
whom it concerns that labor has nothing to hope lor and much to
fear from industrial reconstruction, as it is being so freely expounded
"Adapted from Progressive Thought, II (No. 5, 1898), 14.
Wn^^.^Jn^r^^^"l'"•'^ "Tow^'-ds Industrial Democracy: A Memorandum on
cil, J919 ^°"*'''^'' '''"^^ ^y the Paisley (Scotland) Trades and Labor Coun-
COMPREHENSIVE SCHEMES OF REFORM 86 1
at present by managing directors, statesmen, and official trade-union
leaders. These gentlemen unite in declaring that there can be no
return after the war to the old conditions : there must be "a complete
break with the past." But the moment they get down to definite
proposals it becomes evident that not only do they desire to preserve
the very worst evils of the old system, but also to perpetuate as many
of the restrictive regulations of war-time as the workers can be bribed
to submit to. They are weaving snares to our feet in the form of
co-partnership and profit-sharing schemes ; their talk is not of free-
dom, but of security of employment, higher wages, and bonus ; of
harmony between employers and wage-earners; and of that less
abomination, workers' welfare. The central figure of their brightest
vision of the future is the profiteer, swollen with the dividends of
increased production in the national interest. Behind him stretch
his foundries and factories, their furnaces blazing, their machinery
clanking by day and by night, manned by an army of sleek, docile,
contented wage-slaves. In short, the capitalistic system of production
having broken down, we are to be invited to build it up again, and
re-establish it more securely than ever.
It would appear we must do our own reconstruction. It is very
simple ; there is only one thing to be done, and we can begin to do
it now. It is to smash the wage system, and wreck the control of
industry from the capitalists. Nothing else is any use at all. No
"break with the past" is possible under capitalism. Though condi-
tions be "reformed" out of all recognition, so long as wagery re-
mains "the past" is with us still. The more it changes, the more it
is the same thing.
Now the movement for the overthrow of capitalism by an aboli-
tion of the wage system must begin, not at Westminster, not in the
trade-union executive, nor yet in the trade-union branches, but in the
workshops. And it should take the form of the assumption by the
workers of an ever-increasing share in control.
Not peace but a sword. — A share in control does not imply that
the workers should enter into partnership or any sort of alliance with
the employer, or incur joint responsibility with him, or be identified
with him in any way. All forms of co-partnership — collective or
individual — are based on the theory that the interests of the exploiter
and exploited are identical, whereas they are, in fact, mutually antag-
onistic and irreconcilable. All such schemes are cunningly designed
by a plausible appeal to individual cupidity to corrupt the worker and
seduce him from collective action with his fellows. Co-partnership
862 CURRENT ECONOMIC PROBLEMS
multiplies profiteers and nourishes capitalism. And are we not out
to destroy capitalism ?
There must be no alliance or compromise with the employer. We
shall be obliged, indeed, to negotiate with him through his representa-
tives in the daily routine of the workshop, but not to espouse his
interests, or to advance them in any way when it lies in our power
to do otherwise. Our policy is that of invaders of our native province
of industry, now in the hands of an arrogant and tyrannical usurper,
and what we win in our advance we control exclusively and inde-
pendently.
The first step. — The 'first step should be to establish in every
industrial area, and for each industry, a system of workshop com-
mittees, as follows :
I. The works committee. In every work a works committee
shall be elected by and from all the trade-unionists, skilled and un-
skilled, in the various departments. Each department numbering fifty
workers or less shall have one representative on the committee, and
an additional representative shall be granted for every succeeding
fifty or part thereof.
II. Departmental committees. Each department shall appoint
a sub committee to act in conjunction with, and under the direction
of the works committee, and composed of the delegate or delegates
to the works committee, together with two other trade-unionists in
the department.
III. Functions of departmental committees: a) To see that
all trade-union standards and agreements are strictly observed.
b) To represent the workers in all negotiations with the depart-
mental management.
c) To keep a faithful record of all changes in shop customs or
practices ; a copy of all such records to be supplied to the works com-
mittee.
d) To be the sole medium of contract between the firm and the
workers, and to exercise full bargaining powers on behalf of the
men and women in the department in fixing time-allowance where
premium bonus is in operation, and rates where piecework obtains.
That is to say, all individual contracting as it is done at present be-
tween the workmen and the foreman or rate-fixer is to be eliminated.
These negotiations shall in future be conducted only through the
committee.
e) Departmental committee shall report to the works committee
weekly.
COMPREHENSIVE SCHEMES OF REFORM 863
IV. Functions of works committee : a) To see that all trade-
union standards and agreements are strictly observed throughout the
establishment, and to co-ordinate the activities of the departmental
committees.
b) To represent the workers in all negotiations with the works
management.
c) To consult with the works management in all cases where it is
proposed to transfer men or women from craft to craft or from one
department to another, or in any way to depart from established
workshop practice, but to act in these matters only upon representa-
tions made by the departmental committees.
d) To keep a faithful record of all changes m shop customs
and practices. A copy of all such records to be forwarded to and
systematically filed by the Allied Trades Committee mentioned in
clause V hereinafter.
e) The works committee shall report to the Allied Trades Com-
mittee weekly.
V. The Allied Trades Committee. In each district, and for each
industry, an Allied Trades Committee shall be appointed, composed
of the district officials of the trade-unions concerned, skilled and un-
skilled.
VI. Functions of the Allied Trades Committee. To co-ordinate
the methods and activities of the Works Committees, and to act as
court of appeal in all matters relating to conditions in the workshops
in the district, and as sole intermediary between the workshop com-
mittees and joint bodies of employers — employers' federation and the
like, state committees, government departments, etc.
Note. — When the workers have expelled the capitalists and taken
over complete control of the entire industry, the main function of the
Allied Trades or District Committee will be the effective and econ-
omical distribution of labor throughout the district, thus rendering
superfluous anything in the nature of a state labor exchange. For
the present, however, that function should be exercised with caution
and restraint, and only where it will be clearly to the advantage of
labor and not merely of the employer. Skilful manipulation of supply
and demand of labor might be employed strategically over the area
by an alert District Committee as a means of forcing up wages and
strengthening the position of the Works Committees in particular
firms.
In organizing "direct action" the committees will be invaluable.
Solidarity. — Such a system as we have sketched would promote
solidarity amongst the workers by substituting collective for indivi-
864 CURRENT ECONOMIC PROBLEMS
dual bargaining, and amalgamation would be advanced by the simple
method of ignoring craft and class prejudices and working together
as though it were already an accomplished fact. Amalgamation can-
not be brought about in any other way. Trade-union officials will
never give an effective lead to a movement the success of which
involves obscurity or social ruin for great numbers of themselves.
But let the advantages of unity be clearly demonstrated in practice in
the workshops, and the trade-union executives will soon be compelled
by the overwhelming pressure of the rank and file to broaden the
basis of organization. We shall have taken a long stride in the direc-
tion of industrial unionism.
The next step. — After all, committees are but machinery and
solidarity a preliminary to action. Let us see, then, what the further
policy of the committees will be.
Only the apathy or disloyalty of the workers themselves can pre-
vent the Works Committees having in a very short time the experi-
ence and the authority to enable them to undertake in one large con-
tract, or in two or three contracts at most, the entire business of pro-
duction throughout the establishment. Granted an alliance with the
organized office-workers — a development which is assured so soon as
the Shop Committees are worthy of confidence and influential
enough to give adequate protection — these contracts might include
the work of design and the purchase of raw material, as well as the
operations of manufacture and construction. But to begin with, the
undertaking will cover only the manual operations. The contract
price, or wages — for it is still wages — will be remitted by the firm
to the Works Committee in a lump sum, and distributed to the work-
ers by their own representatives or their officials, and by whatever
system or scale of remuneration they may choose to adopt. If, as is
unlikely, a great industrial union has by this time taken the place
of the sectional unions, these financial intromissions may be carried
out by its district executive (which would succeed the Allied Trades
Committee) instead of by the Works Committee. A specially en-
lightened union of this sort would no doubt elect to pool the earnings
of its members and pay to each a regular salary weekly, monthly, or
quarterly, exacting, of course, from the recipient a fixed minimum
record of work for the period.
An important feature of all contracts would be a clause limiting
the responsibility of the committees to the actual business of pro-
duction. That is to say, they would not be penalized for any stoppage
of work from whatever cause, or held liable for losses arising there-
from. Nor would they accept responsibility for the smooth running
COMPREHENSIVE SCHEMES OF REFORM 865
of the works, or for tranquility or efficiency in the industry as a
whole.
The costs of control. — If it is contended that the scheme here
outlined would make extensive inroads upon the time spent by mem-
bers of the Committee at their ordinary occupations, and correspond-
ingly heavy demands upon their fellow-workers who would have to
make good their wages, the reply is that the time is spent in the in-
terests of the workers throughout the industry, and the loss in wages
should therefore be a direct charge upon trade-union funds. Further
that, wisely directed and adequately supported, the committee will
soon see to it that these charges are much more than made good to
the workers in the form of increased wages and contract prices.
The point we have to grasp, however, is that we — the workers —
already pay the expenses of management in industry, although we do
not enjoy the privileges. For whence, if not out of the workers' earn-
ings, come the wages of the army of managers, foremen, bullies,
speeders-up, and spies who throng our modern industries? The
number of these functionaries will be greatly reduced in a demo-
cratized workshop, and many of the species will be entirely eliminated.
The employer on his side, having no longer any interest in control,
will pay only a staff of inspectors to insure that the quality of the
workmanship and material he is being supplied with is in keeping
with the terms of the contract. The functions of management will
have passed to the committees, and it will be their business to see that
contract prices amply cover all the costs of these functions. The
Conveners of the Works Committee and the Departmental Com-
mittee will gradually but surely drive out and supplant the works
manager and departmental foreman. These Conveners then become
full-time officials, and will, of course, be elected periodically like the
rest of the Committee by their fellow-workers.
The knock-out blow. — Now it is true that even when we have
got so far we shall not yet have destroyed the wage system. But we
shall have undermined it. Capitalism will still flourish, but for the
first time in its sordid history it will be in rank jeopardy. With such
a grip on the industrial machine as we have postulated, and backed
by the resources of a great industrial union, or it might even be a
federation of industrial unions, the committee could soon force up
contract prices to a point that would approximate to the full exchange
value of the product, and put the profiteer out of business. In short,
we shall have taken to our hands a powerful economic lever which,
intelligently and resolutely applied, is easily capable of overthrowing
the entire structure of capitalism, and substituting for it a real indus-
trial democracy.
866 CURRENT ECONOMIC PROBLEMS
381. Labor Policy After the War^"'
BY G. D. H. COLE
Along what lines ought the reconstruction of industry after the
war to proceed ? That there must be some reconstruction of industry
we are all agreed ; upon the Hnes along which reconstruction ought to
proceed there is the greatest divergence of opinion. Perhaps we can
best approach the criticism of the rival principles by a survey of the
tendencies that are operating during the war period. I shall begin,
then, with a dogmatic summary of these tendencies as they appear
to me.
I. During the war labor received from the state a fuller recogni-
tion than ever before. This recognition has taken both agreeable and
disagreeable forms. Labor has been consulted more than ever be-
fore, or, again, the labor leader has been called upon to assume a
far greater degree of communal responsibility, and, at least in appear-
ance, of communal power. On the other hand labor — and here I
mean the actual manual workers — has been compelled to submit to
rigorous limitation of its freedom of action, and to a far greater
measure of state control than seemed possible before the war. Spir-
itually labor has both gained and lost : it has gained by the recognition
of its influence and right to power; and it has lost by the inability
to exercise that influence and right of power effectually. Materially,
labor has once more gained and lost: it has gained because, on the
whole, its earning power has increased, and because it will be difficult
for wages to fall again to the pre-war level ; and it has lost because
the strength of trade unionism has been seriously impaired by the
concessions made.
II. Capital, like labor, has received from the state a fuller recog-
nition than ever before. From the beginning of the war the control
of business men over government has increased, until now capitalist
interests have to all intents and purposes a government of their own.
Profits it is true have been limited, but only excess profits have been
touched. Moreover, in return for these limitations, the capitalist has
received both the protection of the state in his business and addi-
tional power over the workers he employs. Capitalism has become
the state's accredited industrial agent, and state control has only
served to strengthen the capitalist control over industry.
III. The state has intervened in industrial questions more than
ever before. It has organized production and directed the productive
28Adapted from an article published in the New Age, January, 1917, and
reprinted in Self -Government in Industry, pp. 322-29. Copyright by G. Bell &
Sons.
COMPREHENSIVE SCHEMES OF REFORM 867
energies of the nation on an unprecedented scale. Throughout, how-
ever, the action of the state has taken such forms as to leave private
capitalism not only the ownership of, but the management of, industry.
The Munitions Department itself employs comparatively few persons.
Only as buyer and seller has it directly assumed functions previously
belonging to the capitalist. It has "controlled" the railways, but the
companies still manage them. It is "controlling" the mines, but the
mine-owners are to "carry-on as usual." In short, its control over
capitalism has not taken the form of expropriation, and has not in-
volved any drastic change in the management of industry. Again,
in relation to labor, the state has assumed large new coercive powers.
But much of this power is exercised, not directly, but in the new
feudal form initiated in the Insurance Act, indirectly through the
employer.
IV. From the point of view of society we may sum up the in-
dustrial effects of the war as these. Private capitalism, as we knew
it before the war, has suffered a shrewd blow, from which it can
hardly recover. But it has been replaced by none of the alternative
systems which, before the war, seemed its only serious rivals. Col-
lectivism, or the direct control of industry by the state ; syndicalism,
or the control of industries by the trade-unions ; and national guilds,
or joint control of industry by the guilds and the state, are as far off
as ever. Instead we have at any rate the beginnings of a new in-
dustrial system, properly to be called state capitalism, under which
private capitalism and profiteering continue with the moral and
physical support of the state.
So far we have been merely diagnosing the existing disease. Now
we must turn to the future. Here again it is most convenient to
divide our subject matter into two main parts — dangers and pos-
sible remedies.
a) First among the dangers is the possibility that state capitalism
may be permanent, or as permanent as a stage in industrial evolution
can be. The danger is the more disturbing because labor may be
brought to acquiesce in the new system. The capitalists and the capi-
talistic state may offer labor a junior partnership in industry. If
such is accepted, goodbye for a while to our hopes of ending capital-
ism and the wage system. Labor may also be offered higher wages,
shorter hours, and better material conditions. It may even, if the
capitalists are wise, be offered these things in return for little apparent
concession on the labor side. It will be enough to secure the triumph
of capital if labor can be drawn into the capitalistic system and con-
verted into an upholder of that which it has hitherto menaced.
868 CURRENT ECONOMIC PROBLEMS
An industrial truce, probably guaranteed by the state ; new and
subtle schemes of profit-sharing with the trade-union instead of the
individual ; bogus schemes of workshop control — these are the most
dangerous because the most specious proposals which may come from
the capitalist side as parts of a general scheme of reconstruction.
Will labor, which has never been strong in a constructive ideal of its
own, have the foresight and the moral force to resist these blandish-
ments? We cannot venture to give an optimistic reply. Only the
folly of capitalism, or a new-found wisdom in the ranks of labor, it
seems, can save us from the regime of state capitalism after the war.
b) Yet we must not be pessimists if we can see that there are
remedies to hand, if labor can only be persuaded to adopt them.
State capitalism steals the thunder of collectivists and national guild-
men alike. It does not give nationalization or state ownership and
administration of industry ; but it gives a form of state control which
the foolish will mistake for nationalization. It does not give trade-
union or guild control of industry ; but it does offer a sort of control
to the workmen in the workshop. National guildsmen, therefore,
must formulate their alternative with a view to both these problems :
to state control and nationalization and to proposals for workshop
control.
1. To me it seems that the whole problem of nationalization has
radically altered as the result of the war. We are faced with two
immediate alternatives in industry — the continuance of private own-
ership backed by state protection under the guise of control or nation-
alization. Of the two I vastly prefer nationalization. Under either
system the power of the state is arrayed on the side of the wage
system ; but the chance of developing the guild idea among the work-
ers seems much greater under national ownership. By it we at least
secure that great step toward our ideal — unified management ; and
if we do not abolish profiteering, we do at least crystallize it into the
form of a fixed rate of interest. At some stage, we agree, the state
must assume ownership of industrial capitalism ; and it appears to me
that it is far better that it should assume ownership now than that it
should stand openly as the protector of private capitalism. In con-
nection with all proposals the guild demand for joint control with
the state must be pressed hard. But, even without that, collectivism
is to be preferred to state capitalism.
2. I now come to the question of industrial control, of which
workshop control is only a part and by no means the greatest part.
The guild ideal is the control of industry by the guilds acting in con-
junction with the state. It is not that of joint control by employers
COMPREHENSIVE SCHEMES OF REFORM • 869
and employed, and such joint control cannot even be a stage in the
evolution of guilds. Joint control cannot subsist between the parties
when one is trying to displace the other altogether, and our ideal is
nothing less than the complete displacement of capitalism. The de-
velopment of trade-unionism toward the guilds must therefore take
the form, not of an acceptance of joint responsibility for the con-
duct of industry, but of increasing interference in the control of in-
dustry. Where a whole province of industrial management can be
taken bodily out of the hands of employers and transferred to the
workers, well and good; that is a stage in the evolution of national
guilds. But until such complete transference can take place in any
sphere, the action of the trade union must remain external and to that
extent irresponsible.
Let us now apply these principles to workshop control. If work-
shop control means the assumption by the trade-union of the responsi-
bility for the discipline and ordering of the workshop, well and good ;
but if what is meant is joint control of the workshop discipline by
employers and employed, ill and bad. Actual suggestions, however,
seem to point less to either of these things than to the adjustment of
workshop conditions and grievances. What is to be the guildsman's
attitude toward such proposals ? It all depends. If it is to be accept-
ible, the Works Committee must be not a joint committee but two
committees meeting for joint consultation. The workers' side must
preserve its separate character and must be linked up with the or-
ganized machinery of the trade-union movement. The Works Com-
mittee must not be so much a legislative body passing laws for the
work as a meeting of the management and the trade-unionists for
adjusting conditions and relations in the workshop. In fact the
trade-unionists must follow the path, not of joint responsibility for
industry, but of collective interference with industry. The attitude
must be the same in relation to proposals for joint action between
employers and employees over areas wider than the single works.
The maintenance of the strength and independence of trade-unionism
must be in all things the first consideration. No immediate step that
seems a gain, however great, must be taken if it involves, even in the
smallest degree, a sacrifice of trade-union irldependence and strength.
These are the main general considerations which are present to
my mind in relation to labor policy after the war. If they seem too
largely negative, I must answer that we cannot hope for great posi-
tive advances while the standards of organization, leadership, and
intelligence in the trade-union movement remain what they are today.
We can only seek such changes as will reorganize trade-unionism
870 • CURRENT ECONOMIC PROBLEMS
internally and equip it intelligently for the task of winning control.
Viewed in the light of this immediate end does the policy put forward
seem so negative after all? Workshop control, if it takes the form
rather of interference than of responsibility, will afford the most
valuable training the workers can have for their greater task, the
more they learn to intervene, and the more continuous their inter-
vention becomes, the more they will be learning how to control.
Actual control they will win only when they have learned to exercise
control; and they can have no better weapon in the conflict than a
fitness for victory.
There are, of course, a thousand and one subsidiary problems. I
have concentrated on the problem that seems fundamental. The real
issue for society is whether industry is to continue its development
along the line of autocratic control from above, or whether industrial
autocracy is to be displaced by the industrial democracy of national
guilds,
F. SOME RECONSTRUCTION PROGRAMS
382. A Business Program"
Pivotal industries. — Conditions brought upon us by the European
war make it of the highest importance that a number of Industrie*
should at once be developed in the United States. Large investments,
both in capital and skill, have been placed in these enterprises. Upon
the production of some of them, relatively small in themselves, the
continuation of some of our largest industries has depended. Some
of the recently developed industries have national importance in
fields much broader than the markets of their products ; for they may
serve, for example, to promote scientific research, which will add
to national efficiency, resources, and wealth in many ways.
It becomes essential, therefore, that the government should at
once ascertain the industries which have been developed during the
European war and those the maintenance of which are indispensable
for the safety of our industrial structure and our military establish-
ment. When these pivotal industries have been ascertained, means
suitable to their nature and situations should at once be provided for
their encouragement and preservation.
Industrial co-operation. — The war has demonstrated that through
industrial co-operation great economies may be achieved, waste elim-
inated, and efficiency increased. The nation should not forget, but
27Adapted from the resolutions on reconstruction passed by the War
Emergency Congress of the United States Chamber of Commerce, which met
at Atlantic City, December 4-6, 1918.
COMPREHENSIVE SCHEMES OF REFORM 871
rather should capitalize these lessons by adapting effective war prac-
tices to peace conditions through permitting reasonable co-operation
between units of industry under appropriate federal supervision.
It is in the public interest that reasonable trade agreements should
be entered into, but the failure of the government clearly to define
the dividing line between the agreements which are, and those which
are not, in unreasonable restraint of trade, or to provide an agency
to speak for it on application of these proposing to enter into such
agreements in effect restricts both industry and the general public of
its benefits. The conditions incident to the period of readjustment
renders it imperative that all obstacles to reasonable co-operation be
immediately removed through appropriate legislation.
Federal Trade Commission. — The Federal Trade Commission
was created to make the administration of our trust legislation ex-
plicit and intelligible, and to provide "the advice, the definite guid-
ance, and information" which business enterprise requires. The
normal importance of the commission's task is now tremendously in-
creased by imperative need for whole-hearted and sympathetic co-
operation between the government and industry especially during the
readjustment period. The vacancies in the commission's membership
should be promptly filled with able men of broad business experience
and clear vision prepared to assist actively in discharging these tasks
along constructive lines.
Industrial relations. — The convention heartily endorses in letter
and in spirit the principles of the industrial creed so clearly and
forcibly stated in the paper read to it Thursday morning by Mr. John
D. Rockefeller, Jr., and urges upon all units of industry where they
may not be employed, the application of such principles.
Public works. — The development of public works of every sort
should promptly be resumed in order that opportunities of employ-
ment may be created for unskilled labor.
Taxation. — The cessation of hostilities brings to business interests
a feeling of deep concern in the matter of taxation. The problems
of readjustment are made more difficult through inequalities in the
present law. We believe, therefore, that in the consideration of
amendments to the present act or the passage of new revenue legis-
lation, the views expressed by organizations of commerce and in-
dustry should be taken into consideration. Ability to pay, inventory
values, and proper reserves, together with careful survey of the
amount of revenue required under the new conditions, are matters of
vital importance to business interests of the nation during the re-
adjustment period.
872 CURRENT ECONOMIC PROBLEMS
Inventories. — We urge that Congress should give grave con-
sideration to the grave menace now facing all industry due to the fact
that both raw materials and finished goods are carried in full measure
to meet the extraordinary requirements of the government and of the
people, and that in large part the stocks have been acquired at ab-
normal cost and are therefore carried into inventories at inflated
values, thereby showing apparent profits which have not been real-
ized, and which probably will never be fully realized. These are
largely bookkeeping profits, and should not be used as a basis for
taxation. We therefore recommend that any tax law shall provide
that during present conditions the taxpayer shall be allowed to make
a deduction from his apparent profit by way of a reserve for a sub-
sequent shrinkage in the value of merchandise.
Railroads. — The Congress of the United States should speedily
enact legislation providing for an early return under federal charters
to their owners of all railroads now being operated by this govern-
ment under federal regulations permitting the elimination of waste-
ful competition, the pooling of equipment, combinations or consolida-
tions through ownership or otherwise in the operation of terminals,
and such other practices as will tend to economies without destroying
competition in service.
Means of communication. — We are opposed to government own-
ership and operation of telegraphs, telephones, and cables.
Merchant marine. — We recommend that the construction of a
great merchant marine be continued and amplified, and that its
operation under American control be kept safe by such legislation as
may be necessary to insure its stability and its lasting value to
American industries.
Public utilitiesi — Public utilities have faced difficult problems,
which have been accentuated by conditions arising out of the war.
The development and efficiency of such a utility as local transportation
has immediate importance for every community. It is recommended
that the Chamber of Commerce of the United States appoint a com-
mittee to investigate and study the question of local transportation
as it relates to the control of rates and services, franchises, taxes, the
attraction of capital into the business, and such other questions as the
committee may find pertinent. Such a committee should report its
recommendations to the board of directors of the National Chamber.
Water pozvers. — Industrial activity is dependent upon the avail-
able supply of power. A bill which would effect the development of
hydro-electric power upon waterways and lands which are subject
to federal jurisdiction is now before a committee of conference of
COMPREHENSIVE SCHEMES OF REFORM 873
the two houses of Congress. It is important that federal legislation
on this subject be enacted without delay.
International reconstruction. — In the war we have made common
cause with the Allies. We should likewise make common cause with
them in seeking the solution of the immediate problems of recon-
struction. These problems peculiarly depend for their solution upon
commerce. Raw materials and industrial equipment which we pos-
sess the Allies urgently require, that they may reconstitute their
economic life. We should deal generously with them in sharing these
resources. We must also provide them with credits through which
they may make the necessary payments.
European commission. — The business men of the United States,
having devoted their energies and resources toward winning the war,
regardless of sacrifices or burdens, in support of the principles for
which this country fought, appreciate the necessity of continuance of
unremitting effort that the world may be restored to normal condi-
tions as soon as possible and the blessings of peace be brought to all
peoples. In the accomplishment of these results the highest efficiency
of the great commercial and industrial powers of our own country
and that of the Allied nations will be developed only through co-
operative effort and common counsel.
In order, therefore, to contribute to the fullest toward the prompt
solution of this problem the Chamber of Commerce of the United
States is requested to enlist the fullest co-operation of national
bodies devoted to the promotion of American commerce and par-
ticularly foreign trade, in the appointment of a commission represen-
tative of American business, which shall proceed without delay to
Europe and establish machinery for the following purposes : ( i ) To
study at first hand the reconstruction needs of European countries
in conjunction with the business men of these nations in order to
advise the business men of the United States as to how they may
be most helpful in meeting the necessities of Europe and caring for
the interests of American industry and commerce; (2) to be avail-
able to the peace delegates of the United States for any needed in-
formation which they may be able to present.
Foreign trade markets. — We strongly urge upon our government
the vital necessity of developing our foreign trade through all ap-
propriate means possible, in order that the production of industry may
afford employment to wage-earners and prosperity to the nation.
South American relations. — It has long been the policy of this
country to cultivate relations of close sympathy with the nations of
the western hemisphere as expressed in the Monroe Doctrine. We
874 CURRENT ECONOMIC PROBLEMS
believe that these relations should be supplemented and strengthened
by a vigorous development of our commercial and financial associa-
tions with our neighbors of North and South America. The govern-
ment's control of shipping should be brought to the accomplishment
of this purpose as soon as it is consistent with other urgent needs,
and the work of the Pan-American Union should be continued and
broadened in scope.
Mexico. — By provisions in a constitution adopted while much of
the country was engaged in civil strife, and through subsequent legis-
lation, Mexican authorities have threatened rights acquired by Ameri-
cans in good faith, especially in minerals, including petroleum.
Against threatened confiscation the American government made
formal protests. The attitude taken by the American government is
heartily commended as in accordance with obvious justice.
Education for foreign trade. — In the larger opportunities which
are to be opened to American business men to play a part in the
international commerce of the world the need will be felt for more
men who are trained to a knowledge and understanding of the langu-
age, the business methods, and the habits of thought of foreign lands.
We urge our industrials to take steps to provide opportunities to
young men to obtain an education in the practices of overseas com-
merce and finance and in the practical uses of foreign languages. We
call the attention of the government and of educators to this matter
and ask that special efforts be made to supplement the valuable work
already done and to open up every facility to the furtherance of a
successful prosecution of this valuable work.
Cost accounting. — It is the sense of this convention that uniform
cost accounting be adopted by industries.
National Trade Association. — The experiences of the war clearly
demonstrated the value of national trade organizations and their
service to the country as well as to industry. This conference heartily
approves the plan of organizing each industry in the country in a
representative national trade association and expresses the belief that
every manufacturer, jobber, and producer of raw materials should
be a member of the national organization in his trade and cordially
support it by his work.
383. A Church Program^^^
Women war workers. — One of the most important problems of
readjustment is that created by the presence in industry of immense
28Adapted from Social Reconstruction: A General Survey of the Prob-
lems and the Remedies, issued by the National Catholic War Council, 1919.
This represents the attitude of the largest single religious body in this country.
COMPREHENSIVE SCHEMES OF REFORM 875
numbers of women who have taken the places of men. Mere justice
dictates that these women should not be compelled to suffer any
greater loss than is absolutely necessary. One general principle is
clear: No female worker should remain in any occupation that is
harmful to health or morals. Women should disappear as quickly as
possible from such tasks as conducting and guarding street cars, clean-
ing locomotives, and a great many other activities for which conditions
of life and their physique render them unfit. Another general prin-
ciple is that the proportion of women in industry ought to be kept
within the smallest practical limits. If we have an efficient national
employment service, if a goodly number of returned soldiers and
sailors are placed on the land, and if wages and the demand for goods
are kept up to the level which is easily attainable, all female workers
displaced will be able to find suitable employment in other parts of
the industrial field or in those domestic occupations which sorely need
their presence. These women who are engaged at the same tasks as
men should receive equal pay for the same amounts and qualities
of work.
Present wage rates. — The general level of wages attained during
the war should not be lowered. In a few industries wages have
reached a plane upon which they cannot possibly continue. But the
overwhelming majority should not be compelled to undergo any
reduction in their rates of remuneration for two reasons : first, be-
cause the average rate of pay has not increased faster than the cost
of living; second, because a considerable majority of the wage-
earners in the United States, both men and women, were not receiving
living wages when prices began to rise in 191 5. In that year four-
fifths of the heads of families obtained less than $800, while two-
thirds of the female wage-earners were paid less than $400. Even
if the present prices of goods should fall to the level on which they
wages would not exceed the equivalent of a decent livelihood in the
were in 191 5 — something unhoped for — the average present rate of
case of the vast majority.
Even if the great majority of workers were now in receipt of more
than living wages, there is no good reason why rates of pay should be
lowered. After all a living wage is not necessarily the full measure
of justice. All the Catholic authorities on the subject explicitly de-
clare that this is only the minimum of justice. In a country as rich
as ours, there are very few cases in which it is possible to prove that
the worker would be getting more than that to which he has a right
if he were paid something in excess of this ethical minimum. Why
then should we assume that this is the "normal share of almost the
876 CURRENT ECONOMIC PROBLEMS
whole laboring population ? Since our industrial resources are suf-
ficient to provide more than a living wage, why should we acquiesce
in a theory which denies them this measure of the comforts of life?
Such a policy is not only of very questionable morality, but is
unsound economically. The large demand for goods which is created
and maintained by the high rate of wages and high purchasing power
of the masses is the surest guarantee of a continuous and general
operation of industrial establishments. It is the most effective in-
strument of prosperity for labor and capital alike. The only persons
who would benefit considerably through a general reduction of wages
are the less efficient among the capitalists and the more comfortable
sections of the consumers. The wage-earners would lose more in re-
muneration than they would gain from whatever fall in prices oc-
curred as a direct result of the fall in wages. On grounds both of
justice and sound economics, we should give our hearty support to
all legitimate efforts made by labor to resist general wage reductions.
The minimum wage. — We are glad to note that there is no longer
any serious objection urged by impartial persons against the legal
minimum wage. The several states should enact laws providing for
the establishments of wage rates that will be at least sufficient for the
decent maintenance of a family, in the case of all male adults, and
adequate to the decent individual support of female workers. In
the beginning the minimum wage for male workers should suffice
only for the present needs of the family, but they should be gradually
raised until they are adequate to future needs as well ; that is, they
should be ultimately high enough to make possible that amount of
saving which is necessary to protect the worker and his family
against sickness, accident, invalidity, and old age.
Industrial management. — It is to be hoped that the right of labor
to organize and deal with representatives will never again be called
into question by any considerable number of employers. In addition
to this, labor ought gradually to receive greater representation in
what the English group of Quaker employers call the "industrial"
part of business management — "the control of processes and machin-
ery ; nature of products; engagement and dismissal of employees;
hours of work, rates of pay, bonuses, etc. ; welfare work, shop disci-
pline ; relations with trade unions." The establishment of shop com-
mittees working wherever possible with the trade-union is the method
suggested by this group of employers for giving the employees the
proper share in industrial management. There can be no doubt that
a frank adoption of these means and ends by employers would not
only promote the welfare of the workers but vastly improve the
COMPREHENSIVE SCHEMES OF REFORM 877
relations between them and their employers, and increase the ef-
ficiency and productiveness of each establishment.
Socialism. — It seems clear that the present industrial system is
destined to last for a long time in its main outlines. That is to say,
private ownership of capital is not likely to be supplanted by a col-
lectivist organization of industry at a date sufficiently near to justify
any present action based on the hypothesis of its arrival. This fore-
cast we recognize as not only extremely probable, but as highly de-
sirable ; for, other objections apart, socialism would mean bureau-
cracy, political tyranny, and helplessness of the individual as a factor
in the ordering of his own life; and in general social inefficiency and
decadence.
Main defects of present system. — Nevertheless the present system
stands in grevious need of considerable modifications and improve-
ment. Its main defects are three : Enormous inefficiency and waste
in the production and distribution of commodities ; insufficient in-
comes for the great majority of wage-earners ; and unnecessarily
large incomes for a small minority of privileged capitalists. The evil
in production and in the distribution of goods would be in great
measure abolished by the reforms that have been outlined. Produc-
tion will be greatly increased by universal living wages, by adequate
industrial education, and by harmonious relations between labor and
capital, on the basis of adequate participation by the former in all
the industrial aspects of business management. The wastes of com-
modity distribution could be practically all eliminated by co-operative
mercantile establishments and co-operative selling and marketing as-
sociations.
The cure for them. — Nevertheless, the full possibilities of in-
creased reduction will not be realized so long as the majority of the
workers remain mere wage-earners. The majority must somehow
become owners, at least in part, of the instruments of production.
They can be enabled to reach this stage gradually through co-oper-
ative productive societies and co-partnership arrangements. In the
former the workers own and manage the industries themselves; in
the latter they own a substantial part of the corporate stock and
exercise a reasonable share in the management. However slow the
attainment of these ends, they will have to be reached before we can
have a thorough, efficient system of production, or an industrial and
social order that will be secure from the dangers of revolution. It is
to be noted that this particular modification of the existing order,
though involving to a great extent the abolition of the wage-system,
would not mean the abolition of private ownership. The instruments
of production would still be owned by individuals, not by the state.
878 CURRENT ECONOMIC PROBLEMS
The second great evil, that of insufficient income for the majority
can be removed only by providing the workers with more income.
This means not only universal living wages, but the opportunity of
obtaining something more than that amount for all who are willing
to work hard and faithfully.
For the third evil mentioned above, excessive gains by a small
minority of privileged capitalists, the main remedies are prevention
of monopolistic control of commodities, adequate government regula-
tion of such public service monopolies as will remain under private
operation, and heavy taxation of private incomes, excess profits, and
inheritances. The precise methods by which genuine competition
may be restored and maintained among businesses that are naturally
competitive cannot be discussed here. But the principle is clear that
human beings cannot be trusted with the immense opportunities for
oppression and extortion that go with the possession of monopoly
power. That the owners of public service monopolies should be re-
stricted by law to a fair or average return on their actual investment
has long been a recognized principle of the courts, the legislatures,
and public opinion. It is a principle which should be applied to com-
petitive enterprises likewise with the qualification that something more
than the average rate of return should be allowed to men who exhibit
exceptional efficiency. However, good public policy, as well as equity,
demands that these exceptional business men share the fruits of their
efficiency with the consumer in the form of lower prices.
Conclusion. — Neither the moderate reforms advocated in this
paper, nor any other program of betterment or reconstruction, will
prove reasonably effective without a reform in the spirit of both
labor and capital. The laborer must come to realize that he owes his
employer and society an honest day's work in return for a fair wage,
and that conditions cannot be substantially improved until he roots
out the desire to get a maximum of return for a minimum of service.
The capitalist must likewise get a new viewpoint. He needs to learn
the long- forgotten truth that wealth is stewardship, that profit-making
is not the basic justification of business enterprise, and that there are
such things as fair profits, fair interest, and fair prices.
384. A Labor Program-''
I. THE TASK OF SOCIAL RECONSTRUCTION
That the task of social reconstruction to be undertaken by the
government ought to be regarded as involving, not any patchwork,
^^Adapted from the resolutions adopted at a conference of the British
Labor Party, 1918. The resolutions omitted refer to matters of merely local
or temporary importance. These resolutions should be compared with the
COMPREHENSIVE SCHEMES OF REFORM 879
jarrymandering of the anarchic individualism and profiteering of the
competitive capitalism of pre-war time — the breakdown of which,
even from the standpoint of productive efficiency, the war has so
glaringly revealed — but the gradual building up of a new social order,
based not on internecine conflict, inequality of riches, and dominion
over subject races or a subject sex, but on the deliberately planned
co-operation in production, distribution, and exchange, the systematic
approach to a healthy equality, the widest possible participation in
power, both economic and political, and the general consciousness of
consent which characterize a true democracy ; and, further, in order
to help to realize the new social order and to give legislative effect
to the labor policy on reconstruction, this conference emphasizes the
necessity of having in Parliament and the country a vigorous, cour-
ageous, independent and unfettered political party.
II. THE NEED FOR INCREASED PRODUCTION
That the conference cannot help noticing how very far from ef-
ficient the capitalistic system has proved to be, with its stimulus of
private profit, and its evil shadow of wages driven down by competi-
tion often below subsistence level ; that the conference recognizes
that it is vital for any genuine social reconstruction to increase the
nation's aggregate annual production, not of profit or dividend, but of
useful commodities and services; that this increased productivity
obviously is not to be sought in reducing the means of subsistence of
the workers, nor yet in lengthening their hours of work, for neither
"sweating" nor "driving" can be made the basis of lasting prosperity,
but in the socialization of industry to secure (a) the elimination of
every kind of inefficiency and waste; (b) the application both of the
most honest determination to produce the very best, and of more
science and intelligence to every branch of the nation's work; to-
gether with (c) an improvement in social, political, and industrial
organization, and (d) the indispensable marshaling of the nation's
resources so that each need is met in the order of, and in proportion to,
its real national importance.
document entitled "Labor and the New Social Order," which was prepared
by a subcommittee of the party. One section of this report is presented in
reading § 387 below. It seems unnecessary to reprint the whole report, since
it is already available in a supplement to the issue of the New Republic for
February 16, 1918, in Clark, Hamilton, and Moulton, Readings in the Eco-
nomics of War, pp. 646-66, in Elisha M. Friedman, Labor and Reconstruction
in Europe, pp. 165-85, and in Monthly Labor Review, Bureau of Labor
Statistics, VI, 63-83.
88o CURRENT ECONOMIC PROBLEMS
III. THE MAINTENANCE AND PROTECTION OF THE STANDARD OF LIFE
1. That the conference holds it of supreme national importance
that there should not be any degredation of the standard of life of
the population ; and it insists that it is the duty of the government to
see to it, that when peace comes, the standard rate of wages in all
trades should, relatively to the cost of living, be fully maintained.
2. That it should be made clear to employers that any attempt
to reduce the prevailing rates of wages or to take advantage of the
dislocation of demobilization to worsen the conditions of labor, will
lead to embittered industrial strife, which will be in the highest degree
detrimental to the national interests ; and the government should
therefore take all possible steps to avert such a calamity.
3. That the government as the greatest employer of labor, should
not only set a good example in this respect, but should also seek to
influence employers by proclaiming in advance that it will not attempt
to lower the standard rates or conditions in public employment, by
announcing that it will insist upon the most rigorous observance of
the fair-wage clause in public contracts, and by recommending every
local authority to adopt the same policy.
4. That one of the urgent needs of social reconstruction is the
universal application of the principle of the protection of the standard
of life, at present embodied in the factories, workshops, merchant
shipping, mines, railways, shops, truck, and trade-board acts, together
with the corresponding provisions of the public health, housing, educa-
tion, and workmen's compensation acts ; that these imperfectly drafted
and piecemeal statutes admittedly require extension and amendment
by new legislation, providing among other industrial reforms, for the
general reduction of the working week to forty-eight hours, securing
to every worker, by hand or by brain, at least the prescribed minimum
of health, education, leisure, and subsistence, and that, in particular,
a system of the legal basic wage needs to be extended and developed,
so as to insure to every worker of either sex, in any occupation, in
any part of the kingdom, as the very lowest statutory base line of
wages (to be revised with every substantial rise in prices), not less
than enough to provide all the requirements of a full development of
body, mind, and character, from which the nation has no right to
exclude any class or section whatever.
IV. THE RESTORATION OF TRADE-UNION CONDITIONS
I. That this conference reminds the government that it is pledged
unreservedly, and the nation with it, to the restoration after the war
of all rules, conditions, and customs that prevailed in the workshops
COMPREHENSIVE SCHEMES OF REFORM 88i
before the war ; and to the abrogation, when peace comes, of all the
changes introduced not only in the national factories and the 5,000
controlled establishments, but also in the large number of others to
which provisions of the Munitions Act have been applied.
2. That the conference places on record its confident expecta-
tion and desire that if any employers should be so unscrupulous as to
hesitate to fulfil this pledge, the government will see to it that there
is no quibbling evasion of an obligation in which the whole labor
movement has an interest.
3. The conference calls upon the government to provide adequate
statutory machinery for the restoration of trade-union customs after
the war: (a) by securing that all provisions necessary to enforce
restoration shall continue in operation for a full year after the re-
strictive provisions abrogating trade-union rules have been termi-
nated ; (b) by removing all restrictions upon the right of workmen to
strike for the restoration of the customs abrogated; (c) by limiting
compulsory arbitration strictly to the war period and providing fully
that the right to prosecute an employer for a failure to restore trade-
union customs shall continue for a full year after the termination of
restrictive powers.
4. The conference calls for the abrogation of the clauses re-
strictive of personal liberty in the Munitions of War Acts and in
the defense of the realm acts immediately upon the conclusion of hos-
tilities.
5. The conference finally urges that if some of the rules, condi-
tions, and customs are, in the industrial reorganization that is con-
templated, inconsistent with the highest production, or injurious to
other sections of workers, it is for the government, as responsible for
the fulfilment of the pledge, to submit for discussion to the trade-
unions concerned alternative proposals for securing the standard
wage and normal day, protecting the workers from unemployment,
and maintaining the position and dignity of the crafts.
V. THE PREVENTION OF UNEMPLOYMENT
That the conference cannot ignore the likelihood that the years
immediately following the war will include periods of grave disloca-
tion of profit-making industry, when many thousands of willing
workers will, if matters are left to private capitalism, probably be
walking the streets in search of employment ; that it is accordingly
the duty of the ministry so to arrange the next ten years' program of
national and local government works and services, including housing,
schools, roads, railways, canals, harbors, afTorestration, reclamation,
882 CURRENT ECONOMIC PROBLEMS
etc., as to be able to put this program in hand, at such a rate and in
such districts as any temporary congestion of the labor market may
require ; that it is high time that the government laid aside the pre-
tense that it has no responsibility for preventing unemployment ; that
now it is known that all which is required to prevent the occurrence
of any widespread or lasting unemployment is that the aggregate
total demand for labor should be maintained, year in and year out, at
an approximately high level, and that this can be secured by nothing
more revolutionary than a sensible distribution of works and services
so as to keep always up to the prescribed total the aggregate public
and capitalistic demand for labor, together with the prohibition of
overtime in excess of the prescribed normal working day, there is no
excuse for any government which allows such a grave social calamity
as widespread or lasting unemployment ever to occur.
VI. UNEMPLOYMENT INSURANCE
That to meet the needs of individuals temporarily out of work,
the labor party holds that the best provision is the out-of-work pay
of a strong trade-union duly supplemented by a government subven-
tion amounting to at least half the weekly allowance ; and that for the
succor of those for whom trade-union organization is not available, the
state unemployment benefit, raised to an adequate sum, should be
'made universally applicable in all industries.
VII. THE COMPLETE EMANCIPATION OF WOMEN
That the conference holds that the changes in the position of
women during the war, in which they have rendered such good ser-
vice, and the importance of securing to women as to men the fullest
possible opportunities for individual development, make it necessary
to pay special attention in the reconstruction program to matters
affecting women ; and, in particular, the conference affirms :
a) With regard to industry on demohilizatiofi:
1. That work or maintenance at fair rates should be provided for
all women displaced from their employment to make way for men
returning from service.
2. That full inquiry should be made into trades and processes
previously held to be unhealthy or unsuitable for women, but now
being carried on by them, with a view to making recommendations
as to the condition of their further employment in such trades.
3. That all women employed in trades formerly closed to them
should only continue to be so employed at trade-union rates of
wages.
COMPREHENSIVE SCHEMES OF REFORM 883
4. That trade-unions should be urged to accept women members
in all trades in which they are employed.
5. That the principle of equal pay for similar duties should be
everywhere adopted.
b) With regard to civil rights:
1. That all legal restrictions on the entry of women into the
professions on the same conditions as men should be abrogated.
2. That women should have all franchises, and be eligible for
. election to all public bodies on the same conditions as men.
3. That systematic provision should be made for the inclusion
of women in committees, national or local, dealing with any subjects
that are not of exclusively masculine interest.
4. That the present unjust provision of the income tax law,
under which the married woman is not treated as an independent
human being, even in respect of her own property or earnings, must
be at once repealed.
VIII. THE RESTORATION OF PERSONAL LIBERTY
That this conference regards as fundamental the immediate repeal
and abrogation, as soon as the war ends, of the whole system of the
military service acts, and of all the provisions of the defense of the
realm acts restricting freedom of speech, freedom of publication,
freedom of the press, freedom of travel, and freedom of choice of
residence or of occupation.
IX. POLITICAL REFORMS
That the conference reaffirms its conviction that no lasting settle-
ment of the question of political reform can be reached without a
genuine adoption of (a) complete adult suffrage; (h) absolute equal
rights for both sexes ; (c) effective provision for absent electors to
vote and the best practicable arrangements for insuring that every
minority has its proportionate representation ; (d) the same civic
rights for soldiers and sailors as for officers ; (e) shorter Parliaments ;
(f) the complete abandonment of any attempt to control the people's
representatives by a House of Lords.
This conference calls for the abolition of the House of Lords
without replacement by any second chamber. The conference further
protests against the disfranchisement of conscientious objectors.
X. IRELAND
That the conference unhesitatingly recognizes the claim of the
people of Ireland to home rule, and to self-determination in all
884 CURRENT ECONOMIC PROBLEMS
exclusively Irish affairs ; it protests against the stubborn resistance to
a democratic reorganization of Irish government maintained by those
who alike in Ireland and Great Britain are striving to keep minorities
dominant ; and it demands that a wide and generous measure of home
rule should be immediately passed into law and put into execution.
XI. CONSTITUTIONAL DEVELOPMENT
That the conference regards as extremely grave the incapacity of
the War Cabinet and the House of Commons to get through even the
most urg(-ii(ly needed work; it considers that some early devolution
from Wcsl minster of both legislation and administration is impera-
livcly called for; it suggests that, along with the grant of home rule
to Ireland, there should be constituted separate statutory legislative
assemblies for Scotland, Wales, and even England, with autonomous
administration in matters of local concern ; and that the Parliament at
Wcslmitislor should be retained in the form of a Federal Assembly
for llic Unik'd Kingdom, controlling the ministers responsible for the
dcparlmcnis of the Federal government, who would form also,
together with ministers representing the dominions and India, the
Cabinet for Commonwealth affairs for the Britannic Commonwealth
as a whole.
XII. LOCAL GOVERNMENT
That in order to avoid the evils of centralization and the draw-
backs of bureaucracy, the conference suggests that the fullest possi-
ble scope should be given, in all branches of social reconstruction,
to the democratically elected local governing bodies.
The conference holds, moreover, that the municipalities and county
councils should not confine themselves to the costly services of educa-
tion, sanitation, and police, nor yet rest content with acquiring con-
trol of the local water, gas. electricity, and tramways, but that they
should greatly extend their enterprises in housing and town planning,
parks, and public libraries, the provision of music and the organiza-
tion of popular recreation, and also that they should be empowered to
undertake, not only the retailing of coal, but also other ser\aces of
common titility. particularly the local supply of milk, where this is not
already fully and satisfactorily organized by a co-operative societ}-.
b""urther. that councils be elected on the principle of proportional
representation, and that to throw the position open to all persons, rich
atid poor, all councilors should be provided with payment for any
necessary traveling e:xpenses and for the time spent on the public
service.
COMPREHENSIVE SCHEMES OF REFORM 885
XIII. EDUCATION
That the conference holds that the most important of all the
measures of social reconstruction must be a genuine nationalization
of education, which shall get rid of class distinctions and privileges,
and bring effectively within the reach, not only of every boy and
girl, but of every adult male citizen, all the training, physical, mental
and moral, literary, technical, and artistic, of which he is capable.
That the conference declares that the Labor Party cannot be satis-
fied with a system which condemns the great bulk of the children to
merely elementary schooling with accommodation and equipment
inferior to that of the secondary schools, in classes too large for
efficient instruction, under teachers of whom at least one-third are
insufficiently trained ; which denies to the great majority of teachers
in the kingdom alike any opportunity for all-round culture, as well
as for training in their art, an adequate wage, reasonable prospects
of advancement, and suitable superannuation allowances ; and which,
notwithstanding what is yet done by way of scholarships for excep-
tional geniuses, still reserve the endowed secondary schools, and even
more the universities, for the most part, to the sons and daughters
of a small privileged class, while contemplating nothing better than
eight weeks a year continuation schooling up to eighteen for 90 per
cent of the youth of the nation.
The conference accordingly asks for a systematic reorganization
of the whole educational system, from the nursery school to the uni-
versity, on the basis of (a) social equality ; (b) the provision for each
age, for child, youth, and adult, of the best and most varied educa-
tion of which it is capable, and with due regard to its physical wel-
fare and development, but without any form of military training;
(c) the educational institutions, irrespective of social class or wealth,
to be planned, equipped, and staffed according to their several func-
tions, up to the same high level for elementary, secondary, or uni-
versity teaching, with regard solely to the greatest possible educa-
tional efficiency, and free maintenance of such a kind as to enable the
children to derive the full benefit of the education given ; and (dj
the recognition of the teaching profession, without distinction or
grade, as one of the most valuable to the community.
XIV. HOUSING
That the conference, noting the fact that the shortage of habitable
cottages in the United Kingdom now exceeds one million, regards
a national campaign of cottage building at the public expense, in
town and country' alike, as the most urgent of social requirements.
886 CURRENT ECONOMIC PROBLEMS
That the attention of the government should be called to the fact
that, until steps are taken to insist that the local auhorities acquire
the necessary sites, prepare schemes, plans, and specifications, and
obtain all required sanctions, actually before the war ends there is
very little chance of the half-a-million new cottages urgently needed
in England, Scotland, Ireland, and Wales during the very first year
of demobilization being ready for occupation within that time.
That it is essential that the "Million Cottages of the Great Peace,"
to be erected during the first two or three years after the war by the
local authorities, with capital supplied by the national government
free of interest, should be worthy to serve as models to other builders ;
and must accordingly be not only designed with some regard to ap-
pearance, not identical throughout the land, but adapted to local cir-
cumstances, and soundly constructed, spacious, and healthy ; includ-
ing four or five rooms, larder, scullery, cupboards, and fitted bath, but
suitably grouped, not more than ten or twelve to the acre; and pro-
vided with sufficient garden ground.
XV. THE ABOLITION OF THE POOR AND THE DEVELOPMENT OF THE
MUNICIPAI^ HEALTH SERVICE
That the conference notes with satisfaction the decision of the
government both to establish a Ministry of Health and to abolish
the whole system and organization of the poor law.
It regards the immediate reorganization, in town and country
alike, of the public provision for the prevention and treatment of
disease, and the care of orphans, the infirm, the incapacitated, and the
aged needing institutional care, as an indispensable basis of any social
reconstruction.
It calls for the prompt carrying out of the government's declared
intention of abolishing, not merely the boards of guardians, but also
the hated workshop and the poor law itself, and the merging of the
work hitherto done for the destitute as paupers in that performed by
the directly elected county, borough, and district councils for the
citizens as such, without either the stigma of pauperism or the hamper-
ing limitations of the poor law system.
XVI. TEMPERANCE REFORM
That the conference records its sense of the great social evil and
national waste caused by the excessive consumption of alcoholic
liquors, and by the unfortunate intemperance of a relatively small
section of the population ; that the conference sees the key to temper-
ance reform in taking the entire manufacture and retailing of alcoholic
COMPREHENSIVE SCHEMES OF REFORM 887
drink out of the hands of those who find profit in promoting the
utmost possible consumption ; and the conference holds that in con-
junction with any expropriation of the private interests the electors
of each locality should be enabled to decide as they see fit : (a) to
prohibit the sale of alcoholic drink within their own boundaries ; (b)
to reduce the number of places of sale and to regulate the conditions
of sale ; (c) to determine the manner in which the public places of
refreshment and social intercourse in their own districts should be
organized and controlled.
XVII. RAILWAYS AND CANALS
That the conference insists upon the retention in public hands of
the railways and canals, and on the expropriation of the present stock-
holders on equitable terms, in order to permit of the organization, in
conjunction with the harbors and docks, and the posts and telegraphs,
of a unified national public service of communications and transport,
to be worked, unhampered by any private interest (and with a stead-
ily increasing participation of the organized workers in the manage-
ment) exclusively for the common good.
The conference places on record that, if any government shall
be so misguided as to purpose to hand the railways back to the share-
holders or should give the companies any enlarged franchise by pre-
senting them with the economies of unification or the profits of
increased railway rates, or so extravagant as to bestow public funds
on the re-equipment of privately owned lines, the Labor Party will
offer any such project its most strenuous opposition.
XVIII. COAL AND IRON MINES
That the conference urges that the coal and iron mines, now under
government control, should not be handed back to their capitalist pro-
prietors, but that the measure of nationalization, which became im-
perative during the war, should be completed at the earliest possible
moment, by the expropriation on equitable terms of all private inter-
ests in the extraction and distribution of the nation's coal (together
with iron ore and other minerals).
The conference asks that the supply of these minerals should
henceforth be conducted as a public service (with a steadying in-
creasing participation in the management of the workers concerned),
for the cheapest and most regular supply to industry of its chief source
of power, the retail distribution of household coal, at a fixed price,
summer and winter alike, and identical at all railway stations through-
out the kingdom, being undertaken by the elected municipal district or
county council for the common good.
888 CURRENT ECONOMIC PROBLEMS
XIX. LIFE ASSURANCE
That the conference declares that, partly as a means of aflfording
increased security to the tens of thousands of policy holders whose
bonuses are imperiled by capital depreciation and war risks, and
partly in order to free the nation from the burdensome and costly
system of the industrial insurance companies, the state should take
over (with equitable compensation to all interests affected) the whole
function of life assurance, giving in place of the present onerous
industrial insurance policies a universal funeral benefit free of charge ;
putting the whole class of insurance agents in the position of civil
servants administering the state insurance business ; developing to
the utmost the beneficial work of the friendly societies in independence
and security, and organizing, in conjunction with these societies, on
the most improved principles, a safe and remunerative investment of
popular savings,
XX. CONTROL OF CAPITALISTIC INDUSTRY
That the conference insists, especially in view of the rapid develop-
ment of amalgamations, on the necessity of retaining after the war,
and of developing the present system of organizing, controlling, and
auditing the processes, profits, and prizes of capitalistic industry ; that
the economies of centralized purchasing of raw materials, foodstuffs,
and other imports must be continued, and, therefore, the "rationing"
of all establishments under a collective control ; that the publicity of
processes thus obtained has a valuable effect in bringing inefficient
firms up to a higher level ; that the "costing" of manufacturers'
processes and auditing of their accounts, so as to discover the neces-
sary cost of production, together with the authoritative limitation
of prices at the factory, the wholesale warehouse, and the retail shop,
affords, in industries not nationalized, the only security against the
extortion of profiteering ; and that it is as much the duty of the gov-
ernment to protect the consumer by limiting prices as it is to protect
the factory operative from unhealthy conditions, or the householder
from the burglar.
XXI. NATIONAL FINANCE
I. That, in view of the enormous debts contracted during the
war, and of the necessity to lighten national financial burdens, this
conference demands that an equitable system of conscription of
accumulated wealth should be put into operation forthwith, with
exemptions for fortunes below ii,ooo, and a graduated scale of rates
for larger totals, believing that no system of taxation of income or
profits only will yield enough to free the country from oppressive
. COMPREHENSIVE SCHEMES OF REFORM 889
debts, and that any attempt to tax food or other necessities of life
would be unjust and ruinous to the masses of the people.
2. That the only solution of the difficulties which have arisen
is a system by which the necessary national income shall be derived
mainly from direct taxation alike of land and accumulated wealth,
and of income and profits, together with suitable import upon luxuries,
and that the death duties and the taxation upon unearned incomes
should be substntially increased and equitably regarded.
3. That the whole system of land taxation should be revised so
that by the direct taxation of the unearned increment of land values
effect should be given to the fact that the land of the nation, which
has been defended by the Hves and sufferings of its people, shall
belong to the nation, and be used for the nation's benefit.
4. That this conference protests against the subjection of co-
operative dividends to the excess-profits tax and against the repeated
attempts to bring co-operative dividends within the scope of the in-
come tax.
5. That the Post Office Savings Bank should be developed into a
national banking system for the common service of the whole com-
munity.
XXII. THE NEED FOR A "PEACE BOOK"
That in the opinion of this conference the problem of the social
and industrial reconstruction of Great Britain after the war is of
such grave importance and of such vital urgency, that it is impera-
tive, in order to avoid confusion in the period of demobilization, that
the main outlines of policy in all branches should be definitely formu-
lated, upon the responsibility of the minister of reconstruction, before
the war ends, so that they can be published in a Peace Book for pub-
lic criticism before being finally adopted by the Cabinet, for the
authoritative guidance of all ministers and heads of departments.
XVII
THE CONTROL OF INDUSTRIAL DEVELOP-
MENT
Again, we must remind ourselves that it is not enough to know that our
system as a whole is in process of development. Novelty and goodness are not
one; the newer society because of its newness is not perforce better than the
old; our world, though transformed, has not of necessity become a better
worldJn which to live. Movement there always is; but movement may or may
not mark an advance. This possible antithesis between development and prog-
ress raises perhaps the most important of all current problems, for in its terms
other problems must find their "solution." Should society allow its develop-
ment to take its "natural course," or should it attempt to control it?
No absolute answer can be given to so universal a question. If the natural
course gives evidence of being the path we would mark out, obviously we
should keep our hands oflf. If for such a reason laissez faire is deliberately
chosen, paradoxical as it seem, it becomes merely a convenient instrument of
control. But if the "system is going awry," what shall we do? Just as
obviously we should, to the extent of our intelligence and power, attempt to
control the process.
But can we control so complex and many-sided a thing as social develop-
ment? Unfortunately to this question we cannot give an unqualified affirma-
time. Many social "forces" are beyond our ken and power ; others, of which
we have some knowledge, cannot be reached by any contrivances which we
have yet perfected; given programs promising definite results have the per-
versity to produce undreamed of complications ; and immediate consequences
have fallen into the disagreeable habit of distracting our attention from more
ultimate and important results. It seems, therefore, that the wholesale pre-
scription of "remedies" and the amateurish tinkering with parts are likely to
prove dangerous. Yet, if we are sufficiently conscious of the limitations
under which we are working, we can do something toward directing the move-
ment. We know something of the elements involved; we have had much
experience that should stand us in some stead ; and we have evolved some
very remarkable agencies of control. If we proceed cautiously, make our
programs flexible, and quickly change our procedure to meet the unexpected
contingencies which are inevitable, there is reason for faith in our ability
eventually to accomplish much. If we essay the task, we shall need a knowledge
of the means of control, a theory of the use of these means, and a conscious-
ness of the "end" for which they are used. Let us consider these in turn.
Even if our desires be quite modest, they will necessitate the use of
numerous and varied means of control. The changes which we wish to effect
may be in the structure of society, in institutions, in activities, or in values ;
they may call for immediate and mechanical action or they may necessitate
slow and gradual adaptations ; they may affect almost the whole of society
or may immediately touch only a single aspect of life. For these and a
myriad other uses instruments of social control are available. The state can
be used to secure quick mechanical changes ; the school and the church can
be used slowly to effect more gradual and organic adaptations ; the labor union,
by sharp, incisive action, can immediately further the interest of a group ;
the interest of a like group may gradually be advanced by a voluntary asso-
ciation using more peaceful methods ; press and public opinion can reach a
large part of society; occupational associations and codes of ethics can exercise
8qo
CONTROL OF INDUSTRIAL DEVELOPMENT 891
a control over particular groups ; and convention and tradition through their
prohibitions and inhibitions, can effectively direct the lives and activities of the
individuals. Each of these agencies in its ow^n way can be used to make the
"system" somewhat different. Because of the multiplicity, variety, and effi-
ciency of these agencies — despite the gravity of our ignorance — we could not
escape social control if we would.
Our theory of the use of these "forces" has been very gradually built up,
and as yet is far from complete. During most of the nineteenth century, when
"the country was in a stage of increasing returns," when self-reliance was
dominant, and when men dared not meddle with the rising machine-system
which they very imperfectly understood, the dominant theory was that of
laissez-faire. This theory overlooked entirely the influence exerted by agen-
cies other than the state, as well as a large number of active functions per-
formed by government, such as the protection of property and the maintenance
of contract. At present the hold of individualistic theory is weakening. The
frontier is gone; we are confronted by the grave problems of a mature
society; we are less prone to attribute success or failure to personal merit or
demerit ; and we talk of "social conditions" and "inequality of opportunity."
All of this inclines us to depend more upon authority, and threatens a radical
extension and state activity. But there are potent checks upon this attitude.
The interpretation of our constitution still proceeds from individualistic assump-
tions ; the pecuniary organization of society still gives great weight to the
views of the owners of "vested wealth" ; and in many places a spirit of
abandon in legislation is doing much to discredit state interference. But we
are quite consciously coming to complement our theory of the province of
government with a theory of the use of other agencies of control. For we
are learning that we must pay for what we get, that legislation cannot produce
Utopias, that good is achieved rather than acquired, and that the less con-
spicuous agencies of control are as certain as they are slow.
A consciousness of the end for which these means are used is hardest for
us to acquire. But, difficult as the task is, we must realize that, if we attempt
social control we must know what we are about; we must have a tentative
goal ; we must appreciate the "end" at which we are aiming. To achieve that
end our proposals must fit together into consistent programs ; the instruments
of control which we use must complement each other. This does not mean
that there must be no element of antagonism in the system, but rather that there
must not be the spoiled work which comes from the confused counsel whose
origin is in dealing with problems in isolation. Consciousness of the "end"
also involves looking beyond immediate, proposals. Beyond conflicting pro-
posals, seemingly unimportant, lie powerful social theories, quite contradictory
in the kind of societies they tend to produce. In many problems, therefore, the
ultimate issue is between different systems. Shall our ideal be that of a
personal and industrial feudalism, an individualistic America of the nineteenth
century, a socialized Germany of the Hohenzollerns, an idealized and Marxian-
ized state, or something else? Upon our conception of the ideal state toward
which "progress" should carry us depends our "solution" of the problems which
we are about to discuss.
But what, then, of the future? What is going to become of society?
When will it solve its problems? When shall we attain unto peace and plenty?
Perhaps we can find some consolation in the fact that even the wisest of men
have constantly despaired of the future of society. Perhaps we can solace
ourselves with hope, which is ours eternally. From the biblical dream of the
"New Jerusalem" to Wells' vision of "A Modern Utopia," we have had pictures
a-plenty of the perfect state which "some day" will be realized. We have
always had, and still have, wise men who furnish us with magical formulae
for finding "the way out." While most of these are so simple as to tax our
credulity, few of them fail to contain some germ of social wisdom.
But, in anticipating the future, we must not forget that our social resources
are — and ever must be — limited. We must not overlook the fact that the inter-
ests of all are not identical. There will ever be the necessity for a struggle
892 CURRENT ECONOMIC PROBLEMS
with finite resources, and consequent economy. There will ever be competi-
tion for the larger shares of social income. If we intelligently attempt to direct
the course of our development, if we try honestly to makethe best possible
contribution to the solution of the world-old enigmas of society, if we do our
best to rid the immediate situation of its grosser incompatibilities, there is
reason for thinking that development will more closely accord with that which
we call "progress," that the newer social world will be somewhat more to the
liking of the people who have to put up with it than the old. We shall not have
freed future generations from having to "solve problems," but perhaps we
shall have given them new problems ictnewhat further removed from "the
margin of life." And thus we come to the end — and to the beginning — of our
study.
A. INDUSTRY AN INSTRUMENT
385. A Functional Society^
BY R. H. TAWNEY
A society which aimed at making the acquisition of wealth con-
tingent upon the discharge of social obligations, which sought to
proportion remuneration to service and denied it to those by whom
no service was performed, which inquired first not what men possess,
but what they can make, or create, or achieve, might be called a func-
tional society, because in such a society the main subject of social
emphasis would be the performance of functions.
The first condition, then, of the right organization of industry is
the intellectual conversion which, in their distrust of principles, Eng-
lishmen are disposed to place last or to omit altogether. It is that
emphasis should be transferred from the opportunities which it offers
individuals to the social functions which it performs ; that they should
be clear as to its end and should judge it by reference to that end, not
by incidental consequences which are foreign to it, however brilliant
or alluring those consequences may be.
What gives it meaning to any activity which is not purely auto-
matic is its purpose. It is because the purpose of industry, which is
the conquest of nature for the service of man, is neither adequately
expressed in its organization nor present to the minds of those en-
gaged in it, because it is not regarded as a function but as an oppor-
tunity for personal gain or advancement or display, that the economic
life of modern societies is in a perpetual state of morbid irritation.
If the conditions which produce this unnatural tension are to be
removed, the change can only be effected by the growth of a habit of
mind which will approach questions of economic organization from
the standpoint of the purpose which it exists to serve, and which will
^Adapted from "The Sickness of Acquisitive Society," Hibbard Journal,
XVII (1919), 356, 358-70. Copyright by Williams and Norgate (London),
and Leroy Phillips & Co. (Boston).
CONTROL OF INDUSTRIAL DEVELOPMENT 893
apply to them something of the spirit expressed by Bacon when he
said that the work of man ought to be carried on "for the glory of
God and the relief of men's estate."
Viewed from that angle, issues which are insoluble when treated
on the basis of rights, may be found more susceptible of reasonable
treatment. For a purpose is, in the first place, a principle of limita-
tion. It determines the end for which, and therefore the limits within
which, an activity is to be carried on. It divides what is worth doing
from what is not, and settles the scale upon which what is worth doing
to be done. It is, in the second place, a principle of unity, because it
supplies a common end to which efforts can be directed, and submits
interests which would otherwise conflict to the judgment of an over-
ruling object. It is, in the third place, a principle of apportionment
or distribution. It assigns to the different parties or groups engaged
in a common undertaking the place in which they are to occupy in
carrying it out. Thus it establishes order, not upon chance or power,
but upon a principle, and bases remuneration, not upon what men can,
with good fortune, snatch for themselves, nor upon what, if unlucky,
they can be induced to accept, but upon what is appropriate to their
function, no more and no less, so that those who perform no function
receive no payment, and those who contribute to the common end
receive honorable payment for honorable service.
The practical expression of the idea of purpose would be a change
in the prevalent conceptions both of ecomonic activity and of prop-
erty. The natural result of emphasizing rights as the foundation of
social organization is to cause industry to be regarded primarily as
a private enterprise in which the interest of the community is indi-
rect, and in which it intervenes only in the case of some special danger
or abnormal abuse. The transference of emphasis from rights to func-
tions would result in industry being considered primarily as a social
service ; and, however the principle that industry is a social service
may be interpreted, there are at any rate three implications that are
involved in it.
The first is that it should be conducted in complete publicity with
regard both to costs of production and to profits. The second is that
the primary consideration in its organization should be that the com-
munity should be offered the best service technically possible at the
lowest price compatible with adequate payment to those who render
it. The third is that, when all charges necessary to the supply of a
service have been met, any surplus which remains should pass to the
public.
Equally radical would be the modifications in the prevalent atti-
tude toward property. A sharp distinction would be drawn between
894 CURRENT ECONOMIC PROBLEMS
property which is used by the owner for the conduct of his profession
or the upkeep of his household, and property which yields an income
irrespective of any personal service. The former, the holding of the
peasant, or the tools of the workman, or the personal possessions
necessary to a civilized life, would be regarded as legitimate, for they
are the condition of service. The latter, of which the most obvious
examples are urban ground rents or mining royalties, would be re-
garded as illegitimate, since they are merely a pecuniary lien upon
the product of someone else's industry, which carries no obligation
of service with it.
A functional society would extinguish mercilessly those forms of
property rights which yield income without service. It would treat
all forms of property other than personal possessions as subject to
the eminent domain of the state ; and though it would not necessarily
retain their administration in its own hands, it would reserve its right
to resume it whenever the function attached to them was not dis-
charged.
It would not seek to establish any visionary communism; for it
would realize that a free disposal of a sufficiency of personal posses-
sions is necessary for a healthy individual life, and would distribute
them more widely by abolishing the property rights in virtue of which
they were concentrated. But there would be no private property in
urban land ; it would be owned by the authorities of the city which
is built upon it, as in many continental towns it is owned today, and
they would be armed with powers of compulsory acquisition to sup-
ply the need for space for a growing population.
There would be question of the right of the owner of agricultural
land to use it for sport. There would be private property — subject
to the right of compulsory purchase — in industrial capital used by the
owners for the purpose of production: the forge of the smith, the
workshop of the carpenter, the factory of the man who is at once
owner and manager. But there would be an end of the property
rights in virtue of which the welfare of the industries on which whole
population depends are administered by the agents and for the profit
of absentee shareholders.
386. The Ethics of Industry-
BY JAMES H. TUFT?
The issues are so involved and both the facts and their interpreta-
tions are in so much controversy that upon most economic problems
we cannot yet formulate sure moral judgments. Yet certain prin-
^Adapted from John Dewey and James H. Tufts, Ethics, pp. 514-22.
Copyright by Henry Holt & Co., 1908.
CONTROL OF INDUSTRIAL DEVELOPMENT 895
ciples emerge with a good deal of clearness. We state some of the
more obvious.
1. Wealth and property are subordinate in importance to per-
sonality. — The life is more than meat. Most agree to this, but many
fail to make the application. They may sacrifice their own health, or
human sympathy, or family life ; or they may consent to this actively
or passively as employers, or consumers, or citizens, in the case of
others. A civilization which loses life in providing the means of life
is not highly moral. A society which can afford luxuries for some
cannot easily justify unhealthy conditions of production or lack of
general education. A society which considers wealth or property as
ultimate, whether under a conception of "natural rights" or other-
wise, is setting the means above the end, and is therefore unmoral or
immoral.
2. Wealth should depend on activity. — The highest aspect of life
on its individual side is found in active and resolute achievement, in
the embodying of purpose in action. Thought, discovery, creation,
mark a higher value than the satisfaction of wants, or the amassing
of goods. If the latter is to be a help it must stimulate activity, not
deaden it. Inherited wealth without any accompanying incitement
from education or class feeling or public opinion would be a ques-
tionable institution from this point of view. As the race has made
its ascent in the presence of an environment which has constantly
selected the most active persons, society in its institutions and con-
sciously directed processes may well plan to keep the balance between
activity and reward.
3. Public service should go along with wealth. — Such service, in
the form of some useful contribution, whether to the production or
the distribution of wealth, to the public order, to education, to the
satisfaction of aesthetic and religious wants, might be demanded as
a matter of common honesty. This would be to treat it as a just
claim made by society upon each of its members. There is, of course,
no legal claim. The law is far from adopting as its motto, "If any
man will not work, neither let him eat." Vagrancy is not a term
applied to all idlers. Modern law, in its zeal to strengthen the insti-
tution of property, releases the owner's posterity from the necessity
of useful service. The old theology used to carry the conception of
inherited or imputed sin and merits to extremes which modem indi-
vidualism rejects. But the law permits inheritors of property to
receive from society without rendering any personal return. Merely
"to have been born" is hardly sufficient in a democratic society.
But there is another aspect — what the service means to the person
himself. It is his opportunity to fulfil his function in the social organ-
896 CURRENT ECONOMIC PROBLEMS
ism. A person is as large as his purpose and will. The person, there-
fore, who identifies his purposes with the welfare of the public is
thereby identifying himself with the whole social body. He is no
longer himself alone ; he is a social power. This is true of the leaders
of society ; of the great inventors and organizers of industry ; and of
the common laborer himself. As each is an active contributor, he
becomes creative, not merely receptive.
4. The change from individual to collective methods of industry
and business demands a change from individual to collective types
of morality. — Moral action is either to accomplish some positive good
or to hinder some wrong or evil. But under present conditions the
individual by himself is practically helpless and useless for either pur-
pose. It was formerly possible for a man to set a high standard and
live up to it, irrespective of the co-operation of others. When a
seller's market was limited to his aquaintances, it might well be that
honesty was the best policy. But with changes in business condi-
tions, the worse practices, like the baser coinage, in many cases have
driven out the better. A merchant desires to pay his women clerks
a living wage. But his rival across the street pays only half the wage
necessary for subsistence, and puts him at a disadvantage. This rail-
road defies the government by owning coal mines as well as transport-
ing the product; that public service corporation has obtained its
franchise by bribery; this corporation is an employer of child labor;
that finds it less expensive to pay a few damage suits than to adopt
devices which protect employees. Does a man, or even an institution,
act morally if he invests in such corporations in which he finds him-
self hopeless as an individual stockholder ? If he sells the stock at the
market price to invest the money elsewhere, is it not still the price of
fraud or blood? The individual cannot be moral in independence.
The modern business collectivism forces a collective morality. Indi-
vidual morality must give place to a more robust or social type.
5. To meet the change to corporate agency and ownership ways
must be found to restore personal control and responsibility. — Free-
dom and responsibility must go hand in hand. The "moral liability
limited" theory cannot be accepted in the simple form in which it now
obtains. If society holds stockholders responsible, they will soon
cease to elect managers merely on the economic basis and will demand
morality. "Crime is always personal," and it is not usual for subordi-
nates to commit crimes for the corporation against the explicit wishes
of higher officials. In certain lines the parties concerned have sought
to restore a more personal relation. It has been found possible to
engage foremen who can get on smoothly with workmen. Labor
CONTROL OF INDUSTRIAL DEVELOPMENT 897
unions are coming to see the need of conciliating public opinion if
they are to gain their contests.
6. To meet the impersonal agencies society must require greater
publicity and express its moral standards more fully in law. — Pub-
licity is not a cure for bad practices, but it is a powerful deterrent
agency so long as the offenders care for public opinion. Publicity —
scientific investigation and public discussion — is indeed indispensable,
and its greatest value is probably not in the exhilarating discharge of
righteous indignation, but in the positive elevation of standards, by
giving completer knowledge and showing the fruits of certain prac-
tices. A large proportion of the public will wish to do the right
thing if they can see it clearly and can have public support.
But the logical way to meet the impersonal character of modern
economic agencies is by the moral consciousness embodied in the
law. The law is not to be regarded chiefly as an agency for punish-
ing criminals. It, in the first place, defines a standard; and, in the
next place, it helps the moral man disposed to maintain this standard
by freeing him from unscrupulous competition.
7. Every member of society should share in its wealth and in
the values made possible by it. — The worth and dignity of every
human being of moral capacity is fundamental in nearly every moral
system of modern times. It is implicit in the Christian doctrine of
the worth of a soul, in the Kantian doctrine of personality, in the
Benthamic dictum, "every man to count as one." It is imbedded in
our democratic theory and institutions. With the leveling and equaliz-
ing of physical and mental power brought about by modern inven-
tions and the spread of intelligence, no state is permanently safe
except on a foundation of justice. Justice cannot be fundamentally in
contradiction with the essence of democracy. This means that wealth
must be produced, distributed, and owned justly ; that is, so as to pro-
mote the individuality of every member of society, while at the same
time he must always function as a member, not as an individaul.
387. Surplus Wealth for the Common Good^
In the disposal of the surplus above the standard of life, society
has hitherto gone as far wrong as in its neglect to secure the necessary
basis of any genuine industrial efficiency or decent social order. We
have allowed the riches of our mines, the rental value of the lands
superior to the margin of cultivation, the extra profits of the fortunate
capitalists, even the material outcome of scientific discoveries — which
ought by now to have made this Britain of ours immune from class
'Adapted from the resolutions adopted at a conference of the British
Labor Party, 1918.
898 CURRENT ECONOMIC PROBLEMS
poverty or from any widespread destitution — to be absorbed by indi-
vidual proprietors; and then devoted very largely to the senseless
luxury of an idle rich class. Against this misappropriation of the
wealth of the community, the Labor party — speaking in the interests,
not of the wage-earners alone, but of every grade and section of pro-
ducers by hand or by brain, not to mention also those of the genera-
tions that are to succeed us, and of the permanent welfare of the
community — emphatically protests. One main pillar of the house
that the Labor party intends to build is the future appropriation of
the surplus, not to the enlargement of any individual fortune, but to
the common good. It is from this constantly arising surplus (to be
secured, on the one hand, by nationalization and municipalization
and, on the other, by the steeply graduated taxation of private in-
comes and riches) that will have to be found the new capital which
the community day by day needs for the perpetual improvement and
increase of its various enterprises, for which we shall decline to be
dependent on the usury-exacting financiers. It is from the same
source that has to be defrayed the public provision for the sick and
infirm of all kinds (including that for maternity and infancy) which
is still so scandalously insufficient ; for the aged and those prematurely
incapacitated by accident or disease, now in many ways so imperfectly
cared for ; for the education alike of children, of adolescents, and of
adults, in which the Labor party demands a genuine equality of oppor-
tunity, overcoming all differences of material circumstances ; and for
the organization of public improvements of all kinds, including the
brightening of the lives of those now condemned to almost ceaseless
toil, and a great development of the means of recreation. From the
same source must come the greatly increased public provision that the
Labor party will insist on being made for scientific investigation and
original research, in every branch of knowledge, not to say also for
the promotion of music, literature, and fine art, which have been
under capitalism so greatly neglected, and upon which, so the Labor
party holds, any real development of civilization fundamentally de-
pends. Society, like the individual, does not live by bread alone —
does not exist only for perpetual wealth production. It is in the
proposal for this appropriation of every surplus for the common
good — ^in the vision of its resolute use for the building up of the
community as a whole instead of for the magnification of individual
fortunes — that the Labor party, as the party of the producers by hand
or by brain, most distinctively marks itself off from the older political
parties, standing, as these do, essentially for the maintenance, unim-
paired, of the perpetual private mortgage upon the annual product of
CONTROL OF INDUSTRIAL DEVELOPMENT 899
the nation that is involved in the individual ownership of land and
capital.
B. CONTROL BY MAGIC— PANACEAS
388. Stable Money and the Future*
BY GEORGE H. SHIBLEY
With a return to the more stable bimetallic standard of prices
and with the principle established that "stability in the measure of
prices (exchange value) is the desideratum," the people of the United
States will insist that the measure be kept practically unfluctuating
through the government controlling the volume of paper money.
THIS WILL MAKE STABLE THE MEASURE OF PRICES THROUGHOUT THE
SPECIE-USING COUNTRIES. In a short time, then, the principle will
become deeply rooted in the ethics of all the advanced peoples that
stability in the measure of prices is just — right. Then shall we have
such co-operation among nations as will keep specie in the money
of the several countries, and by so doing keep an equilibrium in the
export and import prices of these countries through using the specie
in paying balances in trade.
With a stable measure of prices there will be added "a wholly
new degree of stability to social relations." This is equivalent to
saying that with general prices stable there will be steady employ-
ment and the consequent good times and the dropping away of nearly
all the tariff wars, then will the disarming of Europe speedily
COME about and THE ARBITRATION OF ALL FUTURE DIFFERENCES BE
AGREED UPON BY THE LEADING NATIONS. AND WHEN THIS OCCURS
THE LESSER NATIONS WILL BE COMPELLED TO SUBMIT THEIR DISPUTES
TO ARBITRATION.
This is not visionary. It is the direction toward which past events
point. Are we to progress ? Reader, you are one of the factors. Is
it in you to help along the car of progress?
389. The Way Out''
BY JOHN RAYMOND CUMMINGS
In the following pages I undertake to prove these propositions :
That there is a natural money.
^Adapted from "The 50 Per Cent Fall in General Prices, the Evil Effects,
the Remedy, Bimetallism at 16 to i, and Governmental Control of Paper
Money, in Order to Secure a Stable Measure of Prices," in Stable Money:
Monetary History, 1850-1896, pp. 722-23. Copyright by the Stable Money Pub-
lishing Co., 1896.
^Adapted from Natural Money: The Peaceful Solution, pp. 5-6. Copy-
right by the Bankers Publishing Co., 1912. See also the author's Social
Autonomy : The New Economic Dispensation.
900 CURRENT ECONOMIC PROBLEMS
That its adoption will make panics impossible.
That after a term of years natural money will bring our bank-
ing system to such condition that every bank will be able to pay all
its obligations instantly. Banks will then be the accountants, cus-
todians, and clearing-houses for all the people.
That in the course of time (probably within fifty years) natural
money will put all business on a cash basis.
That in a like period the interest rate for property loans will fall
to I or 2 per cent, and probably will disappear from money loans.
Natural money will enable the government to take over all the
land and all the privately owned public utilities on terms very liberal
to present owners, without issuing a bond and without hardship and
injustice.
It will enable the government to build during the same period a
million miles of highway at a cost of $10,000 the mile.
To irrigate and drain a large proportion of the area needing irri-
gation and drainage.
To develop tens of millions of horse power from water and dis-
tribute it throughout the country.
To develop internal waterways on a scale hitherto unattempted
and undreamed of.
It will raise wages and end strikes and lockouts.
It will establish natural wages and secure equity as between
employers and employees.
It will pay off the government debt and make future debt impos-
sible.
It will end our present industrial warfare and bring now dis-
cordant classes into harmonious co-operation, inaugurating an era of
progress and prosperity such as the world has not even conceived of.
390. Universal Federation*^
BY KING C. GILLETTE
"World Corporation" will result in a new civilization, new in
every part of its structure of mind and matter. The whole aspect
of nature will assume new meanings and ends, for it will be seen
by new senses of interpretation. With our present individual knowl-
edge, we cannot conceive it ; or, if we could, we would not believe it
possible.
^Adapted from World Corporation, pp. 216-19. Copyright by the author,
1910.
CONTROL OF INDUSTRIAL DEVELOPMENT 901
Who is there wise enough to predict what will result after "world-
corporation" has been launched, after the people realize what its suc-
cess will mean, what the outcome will be ? Who can foresee to what
degree of enthusiasm the people will rise in their desire and hope for
emancipation ! Man is emotional, and quickly carried forward upon
waves of popular excitement; and it is these great tidal waves of
emotion that mark the revolutionary changes throughout history.
The gradual growth of a thought, an idea which has within it a germ
of human progress, finds its culmination in emotion, and change is
brought about quickly and decisively.
The thought that humanity is on the borderland of a new system,
a new epoch-making period of the world's history, is spreading from
mind to mind, and rapidly changing preconceived ideas of life and
man's relation to man and to nature. The fever of excitement is
already beginning to course through the veins, and only waits on con-
viction to burst into flame.
The elimination of competition by the centralization of industry
into corporations and trusts, and its resulting economies, has set
the individual to thinking. He begins to doubt his old belief that
competition is necessary to progress ; he asks himself questions and
seeks the answers in his own mind, and, when these answers are
not forthcoming, he asks others. Discussions are heard on every
hand in regard to corporations and trusts, and newspapers and maga-
zines are largely devoted to this same subject. All are asking : What
is the outcome of this evolution that is taking place? What is a cor-
poration ? What is a trust ? Are they not miniature corporate gov-
ernments of capital and individuals? And gradually the thought
begins to dawn — the thought which is going to rise to a culminating
point within the next few years, and carry men off their feet ; which
will crowd out every selfish idea — the thought that the emancipa-
tion OF the human race is in our hands. By a single stroke
humanity can change a system of extravagance, disorder, injustice,
and crime into one of order, equity, and virtue. Nothing stands in
the way ; for where is there any difference between the control of a
part of industry by a few individuals and the control of all industry
by all ? This is the thought that will be acted upon ; this is the thought
that will make men forget self and pour their minds and wealth with
equal prodigality into the treasury of "world-corporation."
Enthusiasm is the foundation of power which centralizes force
and destroys every barrier between itself and its purpose. It makes
an army out of scattered parts. It leads to "world-corporation."
902 CURRENT ECONOMIC PROBLEMS
391. A New Earth^
BY L. G. CHIOZZA MONEY
It would be a great pity, if anyone were to imagine that the
changes necessary to secure the just reward of all forms of labor
are either difficult to effect or likely to cause dislocation in the mak-
ing. The greater number of our industrial concerns are already
shaped in the form of limited Hability companies, the shareholders in
which are dumb, while the management is in the hands of paid
officials. The reform which needs to be effected is to substitute the
community at large for the dumb shareholders. Management, ability,
invention, would be properly rewarded, as they are now rewarded
in some cases, and as they are not now rewarded in many cases. The
only change would be the gradual substitution of the community for
the shareholders, and the consequent disappearance of unearned in-
comes. Such portions of the product as were necessary for applica-
tion as new capital would be so applied by the community. For the
rest, the whole of the product would go to labor. Savings, the neces-
sary saving, without which labor would go without tools, would be
simply and automatically effected, and capital would take its true and
rightful place as the handmaiden of labor.
Let us not go farther without a vision and a hope. That vision,
that hope, is not of a regimented society, but of a community relieved
from nine-tenths of its present irksome routine and carking care.
If the individual is to be set free it can only be in a society so organ-
ized as to reduce the labor employed in the production of common
necessities to a minimum. The minimum cannot be secured without
the organization of each of the great branches of production and dis-
tribution. Common needs can be satisfied with little labor if labor be
properly applied. The work of a few will feed a hundred or supply
exquisite cloth for the clothing of fifty. The work of a few hours per
day of every adult member of the community will be ample to supply
every comfort in each season to all. Thus set free, the lives of men
will turn to the uplifting, individual work which is the pride of every
craftsman. The dwellings of men will contain not only the socialized
products within common reach, t^ut the proud individual achieve-
ments of their inmates. The simple and beautiful clothing of the
community will chiefly be made of fabrics woven in the socialized
factories, but it will often be worked by the loving hands of women.
A happy union of labor economized in routine work and labor lavished
upon individual work will uplift the crafts of the future and the char-
acter of those who follow them. The abominations of machine-made
''Adapted from Riches and Poverty, pp. 324-29. Published by Methuen &
Co., 1905.
CONTROL OF INDUSTRIAL DEVELOPMENT 903
urnament will disappear, and art be wedded to everyday life. Each
new invention to save labor in mining, or tilling, or building, or spin-
ning, will be hailed with joy as a release from toil and a gift of more
time in which to do individual work.
The inventor, the originator, now unhappily compelled to hunt
for a capitalist and bow low his genius before some individual dis-
tinguished only for that gift of acquisitiveness, that business ability,
which is the lowest attribute of mankind, will see his idea put to the
test and reap not unholy gains but the honor of his fellows if it is
not found wanting. The painter, no longer compelled to paint por-
traits for the rich and not necessarily beautiful, will ally his gifts
with the common life of men and be carried in triumph before the
enduring monuments of his genius. The organizer, the man of ar-
rangement, will be invited to exercise his talent, not in overreaching
and despoiling his fellows, but in planning their welfare in a thou-
sand new schemes of development.
No host of wasteful workers will be found in the industrial
camp. Accounts will be simple and clerks few. No travelers,
agents, or touts will be needed to push doubtful commodities. The
sham and the substitute will be found only in museums. It will be
obviously ridiculous to employ any but good materials, for labor
can only be economized by producing the things which are the best
of their kind. Policies of insurance, those typical documents of a
community of prey, will be read in the public archives with much the
same feeling as we now read a warrant for the burning of a Bruno.
The young men who now waste their time in ruling up books in'
banks and insurance offices or in serving writs will find manly and
useful work. The production of commodities will be commensurate
with the labor put forth, unemployment will be one of the few
crimes known to the statute-book, and last, but not least, the eco-
nomic dependence of women will cease.
The attainment of such ends will only be difficult as long as we
refuse to apply scientific methods to the ordering of common af-
fairs. It is in the domain of politics alone that men refuse to apply
first principles to the solution of problems. The mental daring
which has accomplished so much in engineering, in astronomy, in
surgery, in every department of science, is replaced in the sphere of
politics by a timorous tinkering with admitted evils. With things
the scientist has worked marvels in a single century. With those
marvels the politician has done little. The scientist has applied his
skill to locomotion ; the politician has refused to avail himself of
that skill in order to distribute the population healthily. The scien-
tist has stated the conditions of health; the politician has refused
904 CURRENT ECONOMIC PROBLEMS
to create those conditions. The scientist has suppHed the tools ; the
poHtician has neglected to take them up.
The problem of riches and poverty is of the simplest. It pre-
sents none of the difficulties which attach to the measurement of
the mass of the sun, or the treatment of such a disease as cancer.
Science has presented us with such instruments that we can easily
create a tremendous superfluity of commodities if we choose to do
so. We know how to produce; we know how to transport the re-
sults of our production. The appliances at our command could fur-
nish many more foot-tons of work than are needed to give proper
housing, suitable clothing and good food to every unit of the com-
munity. There is here no impenetrable secret ; we have read enough
in the book of Nature to control her forces to effect; our power
of production is not too small, but already greater than our need.
If invention went no farther, if science now came to a standstill,
we should have tools more adequate to abolish poverty.
Unfortunately the politicians and the economists have never dis-
cussed the question of poverty from this point of view. Volumes
have been written on such subjects as "rent," "interest," or "value,"
but nothing has been done to enquire how much work is needed to
feed, clothe and house a community, and how best that work may be
accomplished. In designing an engine, the man of science considers
the work to be done and the known means to do it. For want of
that agreement and determination, for want, that is, of a wise col-
lectivism, the greater number of our people are poor. It is a world
of service which a civilization would substitute for a world of serf-
dom and pain. But if, realizing that the world has no room for
the idle, the people would rise to a freedom only bounded by the
knowledge of and necessity for collective decision, then there is the
broadest avenue for hope and the clearest call to action. The
achievements of those who are gone, these are the inheritance of the
people. The only true riches of the nation, men and women, these
are the people themselves. The people have but to will it, and we
set our faces toward a civilization.
C. CONTROL BY METHOD
392. Control— Agitation vs. Method^
BY WESLEY C. MITCHELL
The effect of the war upon our attitude toward the use of facts
for the guidance of policy links the present stake of civilization with
^Adapted by permission from "Statistics and Government," Quarterly Pub-
lications of the American Statistical Association, XVI (1918), 228-32.
CONTROL OF INDUSTRIAL DEVELOPMENT 905
man's savage past. Anthopologists have come to recognize that catas-
trophes have played a leading role in advancing culture. The savage
and the barbarian are such conservative creatures that nothing short
of a catastrophe can shake them out of their settled habits, make them
critical of old taboos, drive them to use their intelligence freely.
In physical science and in industrial technique, it is true, we have
emancipated ourselves largely from the savage dependence upon
catastrophes for progress. For in these fields of activity we have
developed a habit of criticizing old formulations, of testing what our
fathers accepted, of experimenting. We keep discarding the good
for the better, even when not under pressure. The result is a fairly
steady rate of advance — advance so regular that we count upon it in
laying plans for the future. Today we are sure that ten years hence
our present scientific ideas and our present industrial machinery will
be antequated in good part.
In science and in industry we are radicals — radicals relying upon
a tested method. But in matters of social organization we retain a
large part of the conservatism characteristic of the savage mind. A
great catastrophe may force us for a little while to take the problems
of social organization seriously. While under stress we make rapid
progress. But when the stress is past we relapse gratefully into our
comfortable faith in thinking that has been done for us by our
fathers.
I know that there are ardent folk who will challenge these con-
tentions at least for the present. They trust that the outburst of
patriotic fervor brought on by the war will carry us triumphantly
forward for a generation. They count on the generous self-sacrifice
which all classes have shown to solve the problems of peace as they
have solved the problems of war. Certainly we shall never be pre-
cisely where we were before the war. But just as certainly we shall
not remain what we have been during the war. We cannot depend
upon any carrying over of war psychology to organize democracy
in peace.
The "social reformer" we have always with us, it is true, or
rather most of us are "social reformers" of some kind. We all ad-
mire the qualities that go to make the leaders in social reform — warm
sympathy for the oppressed, courage to face ridicule, flaming zeal
in the face of indifference, tact and energy in conducting crusades.
But an indefinite succession of campaigns to secure this, that, and the
other specific reform is what we have been having for a long, long
time. Many of the reforms on which our grandfathers, our fathers,
and our youthful selves have set our hearts have been achieved. Yet
9o6 CURRENT ECONOMIC PROBLEMS
the story of the past in matters of social organization is not a story
that we should like to have continued for a thousand and one years.
Reform by agitation or class struggle is a jerky way of moving for-
ward, uncomfortable and wasteful of energy. Are we not intelligent
enough to devise a steadier and a more certain method of progress?
Most certainly we could not keep social organization what it is
even if we wanted to. We are not emerging from the hazards of war
into a safe world. On the contrary, the world is a very dangerous
place for a society framed as our is, and I for one am glad of it.
The dangers are increased by our very progress in industry and in
democracy. Not long ago an English physicist re-emphasized the fact
that modern Christendom is using up at an ever-increasing pace the
energy stored during long ages in the coal fields, and pictured the
doubtful fate of human kind as hanging on the race between science
and the atom. Has not the time come to apply our intelligence to
taking stock of the resources that the earth still holds and to develop-
ing methods of utilization that will protect our future ? As for demo-
cratic progress, we know that men who can read and vote make rest-
less citizens in a state where their work is not interesting to them
and where their rewards do not satisfy their sense of justice. Such
is the present stage of affairs with millions of aggressive Americans.
They can be counted upon to change things by turmoil if things are
not changed by method.
Our first and foremost concern is to develop some way of carry-
ing on the indefinitely complicated processes of modern industry and
interchange day by day, despite all tedium and fatigue, and yet keep-
ing ourselves interested in our work and contented with the division
of the product. This is a task of supreme difficulty — a task that calls
for intelligent experimentation and detailed planning rather than for
agitation and class struggle. What is lacking to achieve the end,
indeed, is not so much good-will as it is knowledge, above all knowl-
edge of human behavior.
Our best hope of the future lies in the extension to social organiza-
tion of the methods which we already employ in our most progres-
sive fields of effort. In science and in industry, I have said, we do
not wait for catastrophes to force new ways upon us. We do not
rely upon the propelling power of great emotion. We rely, and with
success, upon quantitative analysis to point the way ; and we advance
because we are constantly improving and applying such analysis.
While I think that the development of social science offers more
hope for solving our social problems than any other line of endeavor,
I do not claim that these sciences in their present state are very
CONTROL OF INDUSTRIAL DEVELOPMENT 907
serviceable. They are immature, speculative, filled with controver-
sies. Their most energetic exponents are still in the stage of develop-
ing new "viewpoints," beginning over again on a different plan in-
stead of carrying farther the analysis of their predecessors. In part
the social sciences represent not what is so much as what their writers
think ought to be. In short, the social sciences are still childish. Nor
have we any certain assurance that they will ever grow into robust
manhood, no matter what care we lavish upon them. They are blind
leads of speculation in which past generations have mined industri-
ously for ages with little gain. Perhaps the social sciences will prove
more like metaphysics than like mechanics, more like theology than
like chemistry. The race may always shape its larger destinies by a
confused struggle in which force and fraud, good intentions, fiery
zeal, and rule of thumb are more potent factors than measurement
and planning. Those of us who are concerned with the social
sciences, then, are engaged in an uncertain enterprise ; perhaps we
shall win no great treasures for mankind. But certainly it is our task
to work out this lead with all the intelligence and the energy we pos-
sess until its richness or sterility be demonstrated.
The social sciences, however, cover an immense field, and it is not
probable that we shall encounter failure or success in all its parts.
The parts which are most promising just now include the field of
statistics. Measurement is one of the outstanding characteristics of
science at large, whether in the field of inorganic matter or life pro-
cesses. Social statistics, which is concerned with the measurement
of social phenomena, has many of the progressive features of the
physical sciences. It shows forth right progress in knowledge of
fact, in technique of analysis, and in refinement of results. It is
amenable to mathematical formulation. It is capable of forecasting
group phenomena. It is objective. A statistician is usually either
right or wrong, and his successors can demonstrate which. Statis-
ticians are not continually beginning their science all over again by
developing new viewpoints. When one investigator stops, the next
investigator begins with larger collections of data, with extensions
into fresh fields, or with more powerful methods of analysis. In all
these respects, the position and prospects of social statistics are more
like the position and prospects of the natural sciences than like those
of the social sciences.
Above all, social statistics even in its present stage is directly
applicable over a wide range in the management of practical affairs,
particularly the affairs of government. The practical value of sta-
tistics is readily demonstrable even to a busy executive. Once secure
9o8 CURRENT ECONOMIC PROBLEMS
a quantitative statement of the crucial elements in an official's prob-
lem, draw it up in concise form, illuminate the tables with a chart
or two, bind the memorandum in an attractive cover tied with a new
bowknot, and it is the exceptional man who will reject your aid.
Thereafter your trouble will not be to get your statistics used, but to
meet the continual calls for more figures, and to prevent your convert
from taking your estimates more literally than you take them your-
self.
We may well cherish high hopes for the immediate future of
social statistics. In contributing toward a quantitative knowledge,
of social facts, in putting knowledge at the disposal of responsible
officials, we are contributing a crucially important part toward achiev-
ing the greatest task that confronts mankind today — the task of de-
veloping a method by which we may make cumulative progress in
social organization.
393. The Socialization of Knowledge^
BY J. MAURICE CLARK
As the war rolls over us, and wakes us to the need of doing the
impossible, we suddenly become aware that we have resources of
knowledge that are comparatively little utilized. The consumer
for the most part orders his diet in sublime ignorance of true food
values, and wages an unequal contest with the swiftly changing arts
of adulteration and imitation. Nowadays his guidance requires
mobilized knowledge rather than unmobilized habit, and knowledge
of a detailed scientific character about a multitude of things such as
only specialized researches can supply. The consumer has not hired
these things done for him, partly because he did not know how badly
he needed them, and partly for the reason that knowledge is not
appropriable like the ordinary commodity and its production is largely
an unpaid service. The present wave of public education into the
mysteries of proteins and calories, then, is but a phase of an inevitable
development, due to science and scientific methods of production.
Producers as well as consumers suffer from imperfect utilization
of the existing stock of knowledge of their trade. The "state of the
arts," apart from patents and secret processes, is properly a national
asset, but there is no comprehensive machinery for organizing it on a
national scale. The standardization of methods, combining the best
that is found anywhere, can not only raise the average efficiency of
^Adapted from "The Basis of War-Time Collectivism," American Eco-
nomic Review (December, 1917), pp. 772-90. Copyright by the American
Economic Association.
CONTROL OF INDUSTRIAL DEVELOPMENT 909
industry ; it can even show the most efficient how to improve still
farther by strengthening his weak points. The present channels for
interchange of knowledge are more efficient between producers than
between consumers, and complete pooling might injure the incentive
to private inventiveness in the future. One of the most promising
fields for standardization is that of labor policies, for here the rivalries
between employers do not come into the foreground as they do in the
case of mechanical devices or chemical formulae and they feel that
there is little to lose by the pooling of labor policies. Moreover, the
gain an employer can make from successful treatment of labor has
not, apparently, been an effective enough incentive to get the labor
problem solved for the nations. What is needed here is a discrimin-
ating policy. For the immediate emergency any amount of pooling
that can be secured in any field will be clear gain, and will have no
bad effects on future progress. After the war, if the socializing of
trade knowledge is to be continued in any industries, there will be need
of a more formal system, fortified with more substantial inducements.
Meanwhile the experience of the war, if properly utilized, will be
furnishing valuable testimony as to where the greatest gains are to
be had.
As these words were being written the morning paper arrived,
with the announcement of a new American aeroplane engine, as good
as the best foreign engines, and combining many of their best features,
but capable of being turned out in large numbers by American
standardized machine-process methods, rather than with much hand
labor of many artisan-technicians, as abroad. This achievement^"
seems to have been made possible chiefly by the pooling of engineer-
ing talent and of different designs and trade secrets, under an in-
centive strong enough to spur men to work twenty-four hours a day.
There is a prospect of continued progress, also, but chiefly under the
spur of the most active of all forms of competition ; namely, the com-
petition at the fighting front.
Such things prove that there are unused possibilities for immediate
advancement in private industries where patents or secret processes
are held, or where local producers are out of touch with each other's
achievements. They give one a sense of the sudden liberation of
pent-up forces that reacts into sheer exasperation at the obstacles of
ignorance and inertia which hamper us, and the walls of secrecy and
proprietary prohibition which we erect at such pains and guard so
sedulously. But they do not prove that all competitive incentives
can be discarded and all competitive barriers broken down if we wish
to keep on progressing.
9IO
CURRENT ECONOMIC PROBLEMS
There are certain fields where the progress that is due to the spur
of private incentive is hardly notable enough and rapid enough to be
worth keeping, if keeping it involves sacrificing any experiment
which has a prospect of showing really substantial results. These
backward fields are chiefly those in which business is in the hands of
many small producers, or carried on in small places with the aid of
more handicraft skill than of mechanical devices and engineering or
scientific methods. Very small producers cannot afford to experi-
ment extensively, nor to study the methods of other producers in the
attempt to standardize their own, and it would be ruinously wasteful
duplication of work if they were to do so as individuals. Extremely
small producers cannot even be expected to be in a position to organize
themselves effectively into associations to do this sort of thing for
them, although that is one way in which the dilemma may in many
cases be solved. Another solution, far less desirable, is the extinction
of small producers by larger ones who can afford the study and in-
vestigation required to standardize efficiency and attain it.
This would amount to sacrificing the small producers, not because
they cannot be as usetul, or perhaps more useful, than large ones in
the actual work of production, but because they cannot organize and
standardize their work as well as carry it on. But if the standardizing
can be done for them by some large agency, they may prove, on
account of their more direct contact with the details of the business
and on account of the more intimate relation between owner, work-
man, and consumer, to be better adapted to handling the industrial
problems which hinge on these unstandardized and very human
relations. For example, if systems of accounting, stock keeping,
organization of space, and delivery can be standardized for the var-
ious kinds of retailers by studies made on a large scale, and market
information secured by some large-scale agency, the small retailer
will have presented to him the means of equaling the advantages
which the chain store now has over him in these matters, and he need
not spend his time and energy on the kind of problem at which he is
necessarily working at a very heavy disadvantage, but can spend it
all on the sort of problem which no standardized system can solve
for him, studying his customers' tastes, and adapting his policy to
the peculiarities of his local market.
If local producers are so far out of touch with each other that they
make no attempt to imitate each other's strong points, but each
continues in his own groove, satisfied with the methods he has devel-
oped himself and with his achievements in those parts of the process
in which he himself may be superior, this fact itself is evidence that
CONTROL OF INDUSTRIAL DEVELOPMENT 911
the competitive stimulus is not strong enough to do the work we rely
on it to do. Producers who are in no sharper competition than this
are not receiving the kind of competitive stimulus that is likely to
lead to rapid industrial progress. In such a case one need not be
afraid of the weakening of competitive stimulus which would come
from pooling the knowledge of the trade, for there is so little stimulus
to lose. There would be no grave danger even in going to the length
of standardizing the process and trusting to co-operative enterprise,
or the "instinct of workmanship," or even to governmental experi-
mentation, for the means of future progress.
Beside those cases in which the private incentive system is notably
weak, there are cases in which a co-operative or public agency is
equipped to do the work notably well. Where the chief thing needed
is accuracy, and the most important industrial quality is disinterested-
ness, there is little need of the stimuli of ordinary industrial competi-
tion, and they may, indeed, be fatal to the peculiar reliability of result
that is wanted. In the case of employment agencies, for example, we
are rapidly finding out that the disinterestedness of a public agency
is a far more essential quality than any of the good points which
private enterprise may have in this field. This is in essence simply
another form of the socialization of economic knowledge. The
diffusing of information about prices is an important service which
may in some cases be well rendered by private enterprises, but is by
no means certain to be rendered at all unless some public agency takes
the responsibility.
One clear case of this is the work of testing whether things con-
form to standards where standards have already been established.
In other words, it is the sort of work which the present Federal Bu-
reau of Standards is doing, with an ever-widening scope. The work
of establishing standards themselves, based on the best existing
practice, or on the combination of the best single elements to be found
in existing practice, into a new standard better than anything actually
found ; such work as this, in well-selected fields, is clearly a proper
function of government in the present state of industrial and scientific
development. But how about the work of breaking new ground and
making new discoveries? Is not government proverbially cautious
and unenterprising in its conduct of productive enterprises?
Yes, public enterprise is cautious, and has often proved unenter-
prising, but nevertheless the conclusion which seems so obvious does
not necessarily follow, namely, that it is useless to look to government
for any industrial innovation. When a government official is given
a task it is not the part of caution to do nothing at all. But it is the
912 CURRENT ECONOMIC PROBLEMS
part of caution to see to it that the task is accomphshed with as few
risks as possible of doing anything which may prove to be an ex-
pensive mistake. If the task is the running of an industry or the
rendering of a definite material service, the public manager will stick
to established methods if they work tolerably well, and what experi-
menting he does will involve the risking of the tolerable result al-
ready obtained, or at least will involve an expense which will be a
burden on his financial showing, and so to that extent a risking of
his present tolerable result. And experiments are extremely likely
to go wrong.
But suppose the business with which this public official is charged
is that solely of experimenting? He has no other service whose
results may be endangered by the failure of any given experiment to
materialize. What will he do ? He will do his job, and try to show
results — a thing he can do only by continued achievement. H he is
working in competition with private laboratories, he is under the
genuine competitive stimulus, with all that this implies.
D. CHECKS ON DEVELOPMENT
394. Industrial Freedom and Prosperity^"
BY JAMES J. HILL
Among the radical and permanent, as distinguished from the
partial and temporary, causes of bad times, one stands out pre-
eminent by the volume of its effects and the persistence with which
it has raged all over the country, namely, the legislative crusade
against business. I speak here of no particular act, for the business
interests of the country as a whole have been under fire for more than
ten years. The attack has steadily increased in violence and de-
creased in discrimination. The ingenuity of restless minds has taxed
itself to invent new restrictions, new regulations, new punishments
for guilty and innocent alike.
While existing laws were allowed to fall into more or less disuse,
new laws were heaped on one another. Each of these invaded some
new territory, laid the hand of authority upon some new occupation,
drew closer the circle of business interference to bureaucracy. In-
novation scarcely stopped short of declaring any distinct business
success prima facie evidence of crime! The country is feeling the
inevitable efifect.
i^Adapted from an address delivered before the Rochester Chamber of
Commerce, December 5, 1914.
CONTROL OF INDUSTRIAL DEVELOPMENT 913
When hostile regulation goes to this extent, without promise of
limit to either its objects or its orders, business comes to a halt
though tariff rates are raised to the skies. It cuts down present
activity, and it puts a veto on all expansion. The present may be
obscure, but the future looks black. For here industry begins to
feel the indispensable effects of capital withdrawn, and to realize the
effects that follow its withdrawal.
Nowadays it is the fashion to overlook the claim of capital in
production. The mistake is costly. For new plants will not be built,
raw material will not be bought, wages cannot be paid unless capital
is ready in sufficient quantities. It will be ready only on condition,
that it expects to earn at least a reasonable profit. There is no
reason why it should take the risks present in even the most con-
servative employment unless there is a possibility of commensurate
profit. That possibility must have a promise of continuance suffi-
cient to make it worth while to go into the enterprise at all.
Now it is exactly these indispensables, a fair return and a reason-
able lease of life, that continuous legislation against business has de-
stroyed, or has threatened to destroy. Politicians have acted upon the
theory that it is good to burn down your house because a chimney
smokes. Fire has been started in many places.
Our progress toward a centralized paternalism is so marked and
has gone so far that the Socialist has little reason to complain that
his party has not secured a majority. Every year sees the transac-
tion of business made more expensive by laws prescribing multiplied
and costly reports, ordering expensive improvements or additional
services, laying new taxes, compelling the hiring of additional em-
ployees.
This is the history of paternalism, of centralization, since the
beginning. Under the tribute it attempts to levy, business in the
United States will eventually become unable to conform to the oner-
ous conditions of the new era. It would be some compensation if
the governing system were efficient. But it is as incompetent as it is
expensive. This is not the fault of any man or party ; it inheres
in the method itself, and in the persistent American delusion that
democracy can afford to overlook, in its selection of governing in-
struments, the question of fitness. Nowhere else outside the strictly
barbarous countries is the idea that public place should presuppose
some direct business qualification so contemptuously rejected.
Industries which represent billions of capital, capital belonging
largely to people of moderate means, are under the order of officials
chosen for political reasons, many of whom could not earn on their
914 CURRENT ECONOMIC PROBLEMS
merits a salary large enough to keep them alive in the service of the
concerns which are now at their mercy. It is not malevolence, it is
not corruption, that strikes at the heart of business so dominated;
it is the ignorance of well-meaning men who have been placed, for
political considerations, where they do not belong, where they can
do no good, and may be able to do immense harm.
It is a master-stroke of irony that while business all over the
country has been spending time, effort, and money in an endeavor
to realize efficiency, the governments to which it must render an
account and whose orders it must obey remain the most striking
examples of inefficiency to be found anywhere in the world.
The main outlines of the business situation are clear. The
country may enter, after the close of the European war, upon a
period of remarkable prosperity. So it will be given the task of
providing for a time for a maintenance of a considerable portion of
the world's industry. The great and continued demand should be
a guaranty of a corresponding prosperity. It would be so if no arti-
ficial conditions intervened. But, to realize this, both capital and
business initiative must have reasonable freedom. But it is less easy
to take advantage of opportunities than ever before. At every
promising opening industry sees a sign-board, erected by public
authority, bearing the words "No thoroughfare." If the next five
years are to repeat the history of the last ten, there can be no gen-
eral improvement and no general prosperity in the United States,
These words are not spoken hopelessly. The American people
have an enormous fund of underlying common-sense. It is funda-
mentally conservative, though it loves to follow the circus parade
once in a while, listen to the music, and applaud the clown. Since,
its own well-being is now definitely at stake, it is not unreasonable
to hope that it will take a few simple steps toward the realization
cf its hopes.
The first and indispensable requirement is a respite from attack
for the business interests of the country. So great are its recupera-
tive powers that probably one or two years of freedom from fore-
boding as well as from assault would accomplish great things for
industry.
Subordinate the extension of the sphere of governing power to
an improvement of its quality. It is time for all to remember that
no man has a right to hold public office, from the top to the bottom,
unless he has knowledge of that line of work.
Rest from agitation, intelligent economy, efficiency, harmonious
co-operation for business institutions as well as for political divi-
CONTROL OF INDUSTRIAL DEVELOPMENT 915
sions — these are not abtruse ideas. They are things as long familiar
and as little reverenced by the mass of men as the contents of the
Decalogue. We must go back to them or suffer the penalty paid by
every creative thing that defies the law of the physical or that of
the moral order of the world.
395. The Futility of Utopian Legislation^^
BY ELIHU ROOT
When proposals are made to change our fundamental institu-
tions there are certain general conditions that should be observed.
The first is that free government is impossible except through
prescribed and established governmental institutions, which work
out the ends of government through many separate human agents,
each doing his part in obedience to law. Popular will cannot execute
itself directly except through a mob. Popular will cannot get itself
executed through an irresponsible executive, for that is autocracy.
An executive limited only by the direct expression of popular will
cannot be held to responsibility against his will, because, having
possession of all the powers of government, he can prevent any
true, free, and general expression adverse to himself. We should,
therefore, reject every proposal which involves the idea that the
people can rule only by voting.
A second is that in estimating the value of any system of govern-
mental institutions due regard must be had to the true functions
of government and to the limitations imposed by nature upon what
it is possible for the government to accomplish. We all know that
we cannot abolish all the evils in the world by statute, nor can we
prevent the inexorable law of nature which decrees that suffering
shall follow vice, and all the evil passions and folly of mankind.
Law cannot give to depravity the rewards of virtue, to indolence
the rewards of industry, to indifference the rewards of ambition, or
to ignorance the rewards of learning. The utmost that government
can do is measurably to protect men, not against the wrong they do
themselves, but against the wrong done by others, and to promote
the slow process of educating mind and character to a better
knowledge and nobler standards of life and conduct.
We all know this, but when we see how much misery there is in
the world, and some things that government may do to mitigate
it, we are prone to forget how little, after all, it is possible for any
^^Adapted from Experiments in Government and the Essentials of the
Constitution, pp. 11-22. Copyright by the Princeton University Press, 1913.
9i6 CURRENT ECONOMIC PROBLEMS
government to do. The chief motive power that has moved man-
kind along the course of development that we call the progress of
civilization has been the sum-total of intelligent selfishness in a vast
number of individuals, each working for his own support, his own
srain. his own betterment. It is that which has cleared the forests
and cultivated the field and built the ships and railroads, made the
discoveries and inventions, softened by intercourse the enmities of
nations, and made possible the wonders of literature and art. Grad-
ually, during the long process, selfishness has grown more intelligent,
with a broader view of the individual benefit from the common good,
and gradually the influences of nobler standards of altruism, justice,
and sympathy have impressed themselves upon the conception of
right conduct. But the complete control of such motives will be
the millennium. Any attempt to enforce a millennial standard now
by law must necessarily fail. Indeed no such standard can ever be
forced. It must come, not by superior force, but from the changed
nature of man.
A third is that it is not merely useless but injurious for govern-
ment to attempt too much. It is manifest that to enable it to deal
with the new conditions we must invest government with the au-
thority to interfere with the individual conduct of a citizen to a
degree hitherto unknown in this country. While the new conditions
of industrial life make it plainly necessary that many such steps shall
be taken, they should be taken only so far as they are necessary
and effective. Interference with individual liberty by government
should be jealously watched and restrained, because the habit of
undue interference destroys that independence of character without
which, in its citizens, no free government can endure. Just so far as
a nation allows its institutions to be molded by its weakness of char-
acter rather than by its strength, it creates an influence to increase
weakness at the expense of its strength. Undue interference by
government is at the expense of individual initiative, energy, enter-
prise, courage, independent manhood.
A fourth is that in the nature of things all government must be
imperfect because men are imperfect. Every system has its short-
comings and inconveniences; and these are seen and felt as they
exist in the system under which we live, while the shortcomings and
inconveniences of other systems are forgotten or ignored. It is not
unusual to see governmental methods reformed and, after a time
long enough to forget the evils that caused the change, to have a new
movement for reform which consists in changing back to substan-
tially the same old methods that were cast out by the first reform.
The recognition of shortcomings is not in itself sufficient to warrant
CONTROL OF INDUSTRIAL DEVELOPMENT 917
a change of system. There should be an effort to estimate and com-
pare the shortcomings of the system to be substituted, for although
they may be different they will certainly exist.
A fifth is that, whatever changes in government are to be made,
we should follow the method which undertakes as one of its cardinal
points to hold fast that which is good. When we take account of
all that governments have sought to do and have failed to do in
this world, we find as a rule that the application of new theories,
though devised by the most brilliant constructive genius, have availed
but little to preserve the people for any long periods from the evils
of despotism on one hand or of anarchy on the other, or to raise
any considerable portion of the mass of mankind above the hard
conditions of oppression and misery. And we find that our system
of government, built up in a practical way through many centuries,
has done more to preserve liberty, justice, security, and
freedom of opportunity, for many people for a long period, than any
other system of government ever devised. Human nature does not
change very much. The forces of evil are hard to control, as they
have always been. It is easy to fail and hard to succeed in reconciling
liberty and order.
396. The Price-System and Development^^
BY WALTON H. HAMILTON
A response to immediate pecuniary interest has greater influence
upon the conduct of individuals than a consciousness of their more
ultimate interests as members of competing groups ; yet out of their
responses to individual interest, so diverse and so contradictory, a
coherent social development has sprung.
This coherence has its source in the organization of the personnel
of our industries in the form of a hierarchy. At its apex are the
enterprisers, recipients of large incomes, endowed with comprehen-
sive industrial powers, and, perhaps most important of all, possessed
of unusual control over public opinion. Their vantage position has
come with the great transformation of life and values which we call
the industrial revolution. The nature and scope of this will be made
clear by a brief comparison of the older craft system and the newer
machine process.
The craft system tends to a diffusion of wealth and industrial
initiative. It has its basis in the tool, whose cost is small and
i^Adapted from "The Price-System and Social Policy," Journal of
Political Economy, XXVI (1918), 54-66. Copyright by the University of
Chicago.
9i8 CURRENT ECONOMIC PROBLEMS
whose utility extends to an infinitude of tasks. Where it still
dominates technique, as in agriculture and retail selling, productive
establishments are small, numerous, and widely scattered. The
prevailing type of organization is the personal establishment or
the partnership. Among those engaged in these industries there
may be something of a common viewpoint, system of thought, and
scheme of ideals. Where these exist they are unconsciously held
and owe their strength, not to communication and organization, but
to the influence of similar working conditions. But the disorganiza-
tion attending the multitude of establishments prevents the rise of a
clearly defined group-consciousness which finds expression in a con-
certed program. Nor is there present the host of dependents who
can be persuaded, at least for the moment, that their interests are
identical with those of their employers. Lacking means for forcing
their viewpoint and ideals upon their own and other groups, the
men busied with the craft technique are in positions of small strategic
importance.
The modern industrial system, on the contrary, tends to a con-
centration of wealth and industrial control. It has as its basis the
machine, which is a complicated collection of parts, costing much in
labor and accumulated wealth, and useful for a highly specialized
task. The specific character of its work makes necessary in a single
establishment a large number of machines differentiated in function.
The small contribution which can be allowed it for the work which it
performs upon a single unit of product inhibits its use in any save
large establishments. Accordingly plants using the new technique
are likely to be of immense size, small in number, and highly con-
centrated. Their corporate form of organization puts control of
them in the hands of a small number of men. This, with the small
number of really large establishments, gives rise to a group differing
from others in wealth, in industrial function, and in habits of life.
The small number and the identity of function facilitate communi-
cation and lead to the informal rise of common habits of thought,
industrial ideals, and methods of action. In time there arises among
them a conscious sense of solidarity of interests. However much
they compete with each other, they are alike opposed to legislation or
informal action designed to increase the prices of cost goods. Like-
wise they are agreed as to the desirability of any proposal promising
a further expansion of business. The ease of communication and
the identity of interests permit these and similar beliefs and desires to
find expression in a consistent program. A connection between the
realization of this program and the dividends which they regularly
CONTROL OF INDUSTRIAL DEVELOPMENT gig
expect is sufficient for its diffusion in the much larger circle of the
owners of the industries.
The vantage-point held by the enterprisers is further emphasized
by the unique position which the industries that they command
occupy in the public mind. The concern of the American intellect
is distributive rather than collective; particular rather than general.
It thinks in terms of the single establishment which it sees rather
than of the nation-wide industry which it can perceive only in the
abstract. It attributes immense importance to manufacturing be-
cause of the vast smokestacks, the massive piles of brick, and the
hosts of laborers of the single establishment. It denies a like social
importance to agriculture because it cannot escape the picture of two
buildings upon a hundred acres, an assortment of small tools, and
an antiquated use of horse-power. Its un familiarity with totals leads
it habitually to see in every new establishment an increase in wealth
rather than a mere diversion of capital from other lines of endeavor.
So firm is the conviction that machine industries are all good that
one finds no city insisting that its importance is to be measured by
other things than the number of its factories and population. He
detects no evidence of a civic pride which insists that problems are
growing faster than they can be solved and that industrial expansion
be halted until they be got in hand. On the contrary, convention is
giving an even added importance to machine industry. The public,
for instance, sees in the industrial plant the city possessed of its wide
variety ; in the farm, the country with its dull monotony. Likewise
it attributes the great increase in material wealth and the advance
in the standard of living entirely to the machine process, oblivious
alike to the contributions of the industries still using the tool and
to the gifts of a benevolent nature.
The strategic position of the managerial class makes easy the
dissemination of their viewpoint and would-be policies. The very
nature of the productive process which runs its interminable length
from raw materials to finished goods furnishes many opportunities
for propaganda. Only a few of its many operations are performed
in establishments making large use of machinery. It connects at
many points with businesses in which the newer technique has only
a nominal hold. These smaller concerns are under the necessity of
disposing of their products and of securing profits regularly. In
many cases they produce raw materials which the larger concerns
use; in others they sell to laborers employed in the large establish-
ments ; in still others they turn out goods whose uses are complemen-
tary to those of the products of large businesses. With an eye to
920 CURRENT ECONOMIC PROBLEMS
immediate profits they see a benefit to themselves in the advancement
of the pecuniary interests of the large establishments. They are thus
disposed to the favorable reception and advocacy of proposals promis-
ing immediate pecuniary returns to the larger concerns.
A second connection favorable to the dissemination of such
views is the existence of industries and professions subsidiary to
technical production. In the development of the industrial system
a number of such complementary businesses have grown up. Chief
among them are the agencies for credit, such as banks, loan and
mortgage associations, insurance companies, and the exchanges.
Their common concern with finance unites them into a single com-
pact group in which the larger establishments are dominant, and
which penetrates into every nook and corner of the industrial system.
The larger establishments perform functions essential to large-scale
industrial operations and derive their profits from that source. In
many cases they are creatures of manufacturing, mining, and trans-
portation companies. Their connections result in an identification
of their interests with those of large industrial corporations. Their
position in the financial system makes easy a dissemination of their
opinions among the men in smaller establishments. Finally the
intimate connections of the financial system with all kinds of busi-
nesses give opportunity for a general circulation of managerial theory
and opinion.
A kindred subsidiary interest is the legal profession. In the
transformation which has come over it in the last half century, law
has become an adjunct to business. Its practitioners have constant
association with members of the managerial class, they are fre-
quently called to managerial positions, the possibility of the most
lucrative employment comes from that source, and the career of
the lawyer of importance is spent in advancing business interests.
As a complement to personal interest the nature of the system in
terms of which the lawyer does his thinking makes him a ready,
even if unconscious, agent of propaganda. For it is evident that
the individualistic assumptions of the law, with their implication of
the substantial immutability of social arrangements, are strikingly in
harmony with the managerial theory of the universe.
Ihe press constitutes a third vehicle for the dissemination of
this theory. Both the magazine with its country-wide circulation
and the newspaper whose influence is confined to a single city have
fallen under corporate ownership. While the personal traditions
of an earlier age have not entirely departed, the concern is organ-
ized as a money-making venture, its stockholders cry aloud for
CONTROL OF INDUSTRIAL DEVELOPMENT 921
dividends, and its policy tends to be regulated by business princi-
ples. To this end it must have both advertising and subscriptions.
But its revenue comes largely from the former, and the latter is of
importance only as indicative of a circulation that can be made to
appeal to the advertiser. In view of this, the independence of the
editors has been giving way to a subordination to the business office.
The latter has come to exercise a censorship both over news and
over editorial expression. The first, taking the form of standards
of taste as to what is to be published, becomes a matter of aesthetics
rather than one of liberty of utterance. The restraints upon editorial
utterance are more open, but even here the question is merely one of
maintaining the traditional policy of the paper. Because of these
changes a large part of the press has come to a willing, even if un-
conscious, instrument for the dissemination of fact and fiction favor-
able to the immediate pecuniary interests of the managerial class.
All of these, bankers, brokers, lawyers, advertising managers, editors,
and what-nots, have intimate personal relations with responsible
business men. These tend to a common viewpoint, common habits of
thought, and a common theory of social welfare.
The social policy which the price-system permits to be formu-
lated accordingly meets two requirements. The first is a demand
for a preservation against collective action seeking to change con-
ventional arrangements, for a change in the fundamental conditions
under which industry is carried on is accompanied by radical dis-
turbance in the structure of prices. These are manifest in financial
disorder, friction, scrapping of capital, unemployment of labor, and
other disadvantages pertinent to the temporary breakdown of the
system. The second is an approval of a program of exploitation
or expansion which gives promise of increases in pecuniary incomes.
In anticipation of these the members of all social groups regard
the disorganization incident to enlargement as a slight inconven-
ience. Thus the immediate interests of the groups unite in a pro-
gram favorable to the creation of new money-making opportunities
and opposed to changes in institutions.
Thus the price-system plays a conservative role in social develop-
ment. It is true, as has been so ably argued, that men do not renounce
radical programs because of any conscious fear that their realization
will bring economic disorganization and social chaos. Yet, if we were
possessed of the eighteenth-century belief in the moral efficacy of
man's instincts, we might argue that intuitively men obey just this
restraint. Each is conservative in action lest radical changes sweep
922 CURRENT ECONOMIC PROBLEMS
away his income. But one's income is but an aspect of the price-
system, and its disappearance a mere incident of a more or less gen-
eral disintegration of the price-structure. Hence the instinct which
leads one to protect his income really functions to the preservation
of the price-system against radical changes bringing with them gen-
eral economic demoralization. On this basis one who believes in the
system as ordained can easily see in the scheme of articulated prices a
safety device, an institution whose function is the preservation of
industrialism by protecting it against innovation. Certainly we may
concur by admitting that the price-system imposes restraint upon
innovation and thus gives continuity to industrial development.
E. CONTROL BY EDUCATION
397. Education and ControP^
Education is much more than a scheme of formal instruction.
It includes all those agencies which help the individual to adapt him-
self to his social and intellectual environment. It comprehends all
those institutions which supply him with an understanding that en-
ables him to co-operate with his fellows in changing that environment.
In this sense, in addition to the formal system of schools, it includes
many activities of the church, the stage, the press, and the pulpit.
Its domain extends into office and factory; its tools include many
parts of the business and industrial process. In short, it includes all
the instruments and agencies which are used for the organization and
dissemination of knowledge, thought, and opinion.
In this larger sense education is an effective antidote against an
attempt to dispose of our complicated problems of social well-being
by superstitious and magical processes. Ignorance has always had
a welcome for panaceas and has always arduously believed that al-
most anything is the better for a little "tinkering." Now that the
war is gone, there is too generally a disposition to think that all our
ills can be cleared away by the use of "industrial councils," "a League
of Nations," or a return of the party in opposition to power. If the
periodicals are to be believed, "The Tinkers' Chorus" might well
become the national anthem. At such a time it is well to remember
that new ways of doing things cannot be made to work at the hands
of those whose minds cannot comprehend them or whose hearts are
hardened against them. Understanding sets the eft"ective limit of
accomplishment. As individual knowledge and vision is limited,
action for the common good is inhibited. A program for improve-
^3An editorial, 1918.
CONTROL OF INDUSTRIAL DEVELOPMENT 923
ment has an effective check in public opinion. Since, under most
favorable circumstances, understanding moves slowly from point to
■point, we will never lack a plethora of problems.
If, then, "understanding" is the "limiting factor" in social and
economic development, it is well to note particularly the contribution
which it makes to the social process, and to determine how that con-
tribution can be increased. In a society such as ours the functions of
education can be briefly set forth as follows :
1. It is necessary to the conservation of our human resources.
Every child born into the world brings with him a bundle of latent
resources. Some of these will be developed in any environment;
some become atrophied, whatever the conditions of life. What talents
and aptitudes are developed depend upon the conditions of develop-
ment. For the sake of the child it is imperative that he be given
the opportunity to develop the highest talents he possesses which
can be of use in the society in which he lives. This opportunity
should not be contingent upon his desire or the choice of his parents.
Compulsory education is not the imposition of an obligation ; it is
a right. Only by its exercise can justice be granted to the individual.
Only through it can society enjoy its resources. Ours is an inter-
dependent society in which each enjoys the fruits of the other's labor.
If all are to live well, it is imperative that the human resources used
in the industrial process shall be developed resources.
2. It is necessary to the utilization of knowledge. The basis of
our society is a complicated machine technique. Every occupation,
profession, and activity in life is hedged about with a complicated
body of knowledge and procedure. Agricultural experts tell us that
knowledge of agriculture is a generation or two in advance of its
application. Students of medicine insist that their science is many
decades in advance of everyday hygiene. Accountants have devised
systems of business records far in advance of those in general use.
Education must bring to all sorts and conditions of men both the
knowledge needed in their occupations and the more complex
technique which has to do with health, leisure, and enjoyment in the
great society.
3. It is necessary to the organization of opinion. In an autocracy
knowledge of the decorous process of state and the devious ways
of industry can remain the property of the few. The small group
which acts for all alone needs to be informed and to make up its
mind. In a democracy, where rulers keep their "ears to the ground,"
public opinion is the ultnnate basis of policy. If all are to decide
about what concerns all ; and if they are to decide wisely and well,
they must be informed. But this is not enough. On vital points
924 CURRENT ECONOMIC PROBLEMS
there must be agreement of opinion. Your opinion is not mine, and
mine is not that of another. If each remains what it is, there is no
basis for action. But if there can be discussion, understanding will
emerge, out of which intelHgent action can spring. In a democracy
education is essential to a public opinion, based upon knowledge,
which can control the development of industrial society.
4. It is necessary to make democracy real. The society in which
we live is a complicated one. Almost all questions relating to the
commonwealth are intricate and baffling. The opinions we pick up
on the street or the intuitions we glean from our inner conscious-
nesses about monopoly, taxation, and industrial relations, are vague
and undependable. Since the people control, the people must have
knowledge and understanding if they are to choose wisely. In ig-
norance they can impose conditions upon the organization of industry
or of life which will cost dearly. Only through education can they
free themselves from the tyranny of the demagogue and impose upon
all conditions for the good of all. Above all, in a democracy, it is
necessary for them to see common problems in terms of the complex
industrial society within which we have our precious existences.
Only such education will protect all of us against the ill and mistaken
judgments of the great mass of men. Without it, the ignorant will
enslave themselves and us. With it they have the key to freedom.
In brief, education serves the double function of protecting the
individual and society. It enables him to make the most of his latent
talents and to chose his course of life intelligently. It enables all
of us to enjoy the goods and services produced by developed human
beings adopted to their environment, rather than the far smaller gifts
of crude human material unfitted to its work. It permits the organi-
zation of knowledge and of opinion which are indispensable to a
control of the common arrangements under which we work and live.
Without it there can be no freedom in a democracy.
398. The Function of Vocational Training^*
BY EDWIN F. GAY
It IS evident that our educational organization has not kept pace
with our industrial organization. The surrender of its educational
function by industry and trade was apparent with the advent of the
industrial revolution, and has become more obvious with its progress
from country to country, from industry to industry, and from in-
i*Adapted from "Preparation for Trade, Domestic and Foreign," Pro-
ceedings of the Second Pan-American Scientific Congress (1915), sec. iv. Part
I, pp. 50-52.
CONTROL OF INDUSTRIAL DEVELOPMENT 925
dustry to commerce. Meanwhile, the educational system with its
conservative ideas and traditional methods has only commenced to
adjust itself to the radically changed conditions of the industrial
environment.
The older social organization of Europe had evolved an educa-
tional equipment fairly sufficient to its needs. It was a society pre-
dominantly agricultural, with industry and trade limited to small
individual units operating in local or restricted markets, and with
a small governing class assisted by a group professionally trained
for the church, the law courts and the public administration. Its
agricultural workers were largely illiterate, but the traditional lore
of husbandry and housewifery was passed on securely from genera-
tion to generation. The hard labor of the fields and the home, to-
gether with the proverbs and tales of the fireside, long furnished
the schooling of the masses.
Even the educational institutions of the time were adjusted to
the requirements of the agricultural community. Our long summer
school vacation, now an absurd anachronism, is the survival from
what, to use a modern term, we may call a part-time system. The
young recruits from the handicraft shop and the trader's counting-
house were trained by a system of long-time apprenticeship, under
the eye of the master in shop and home, which gave the necessary
but not highly specialized proficiency and returned in labor ^ fair
compensation for the time and trouble of instruction. For this group
and for a small part of the agricultural class the rudiments of read-
ing, writing, and arithmetic came gradually to be provided by sup-
plementary teaching.
The higher schools for the few of the upper classes, following
mediaeval and humanistic models, were not merely engaged in pre-
serving the thin classical tradition as a veneer to the leisure class,
but gave the essential foundation for a professional career. Latin,
for instance, was a necessary tool for the churchman, the lawyer,
the administrator, and the diplomat. The education of the univer-
sity was vocational. The whole educational system, crude and im-
perfect as it was, was firmly rooted in a relatively stable social organ-
ization and was adapted to its simple needs. From its long per-
sistence it developed on its formal side a traditional authority and
prestige which, upheld zealously by its university leadership, has been
maintained, with perhaps some impairment, through a century of
defective readjustment.
Compared with the slow-moving industrial changes of earlier
periods, the modern factory system, with its sudden and eruptive
926 CURRENT ECONOMIC PROBLEMS
force and its enormous social reactions, may justly be called revo-
lutionary. It has undermined and is still undermining theoretical
education for the working life which was given under the older
order, and it is now making great demands upon the school, formerly
only a subordinate adjunct, which the school has been unprepared
to meet. The extreme subdivision of labor which characterizes
modern business organization has inevitably destroyed the institution
of apprenticeship. Factory products have supplanted the diversified
handiwork of the home. The new marketing methods, reaching a
wider and denser mass of consumers, like the large-scale production
which called them into being, are developing large distributing or-
ganizations within which the giving of a comprehensive trade educa-
tion is increasingly impossible. Even in agriculture the new spirit
of scientific method and commercial enterprise is displacing old
custom. The farmer's children can no longer trust the wise saw
and ancient precept handed down from the elders.
The business man is apt to take the schoolmaster to task for a
great gap in our educational equipment, the absence of a satisfactory
vocational training, for which the business man's modern methods
are responsible. The school must take up this burden, almost en-
tirely relinguished by industry and trade.
The democratic ideals of the young republic have combined with
educational conservatism to check an early differentiation in the
character of training. Such differentiation is easier in a stratified
society with clearly marked class distinctions, but in one in which
the ideal of equality of opportunity exists and where newly settled
regions have opened wide to all the door of opportunity, there is
reluctance to force the child to an early choice of occupation. Parents
tend to choose for their children that school which keeps the choice
of career open rather than that which definitely determines it. This
helps to account for the acquiescence in the non-vocational character
of much of our education. The school has hesitated to assume the
increased responsibility of directing the vocational destiny of its
pupils. Until, therefore, the higher school has come under the
serious pressure of its social and economic environment, it has been
content to follow the scholastic ideals appropriate to the different
social class for which in earlier times its educational facilities were
provided.
It is clear that for mastery in any occupation there must be syste-
matic training in the chosen vocation. Our difficulty has been that,
with the unavoidable withdrawal of the business man from direct
educational guidance and with the reluctance of the school to under-
CONTROL OF INDUSTRIAL DEVELOPMENT 927
take the new responsibility, the boy and the girl were ill equipped
for the work of life. Too often there has been no systematic training
at all. Not only was there a failure to meet the economic needs
of the world outside the school, but with the absence of a definite
vocational motive there was also a failure to interest the student in
the deferred values of the studies pursued within the school. The
school was rendering service with its broadening cultural studies,
but it was not satisfactorily fulfilling its fur^tion eitner to society
or to the individual.
399. Education and Social Theory*^
BY A. GLUTTON BROCK
Behind all educational theory there must be social theory. We
must know what we wish society to be before we can know what
we wish education to be. All ideas about education are based upon
ideas about society, even where no social theory is consciously ex-
pressed. Thus there is a view of society as a machine existing for
some material purpose, either for national survival or the survival
of the human race, and of -every individual as a part of that machine.
Where that view of society is held, education is conceived of as a
means of discovering what part each individual is by nature suited
to play in the machine, and of training them all for their parts when
their fitness has been discovered.
With this theory of education is commonly associated the idea
of the educational ladder, which many people believe to be demo-
cratic. By means of this ability is discovered in all classes, and an
able boy has his chance of becoming a member of the governing class,
no matter who his parents may have been. The educational ladder
existed in some form, in the Roman Empire and in the Catholic
Church of the Middle Ages. It still exists, to some extent, in the
Roman Church, so that a peasant may become a pope. But, while
it may raise an able boy out of his class, the educational ladder does
not necessarily improve the circumstances of those who remain in
the class of their birth, and, according, to all mechanical theories of
society, that improvement is not, of itself, to be aimed at. Society
is in the first place a machine, and the first necessity is to train all
to play their parts in that machine. If they are lowly parts, then
the more narrow and specialized the training, the better. It would
i^Adapted from "Two Views of Society — and Education," Workers' Edu-
cation Association Yearbook for 1918, pp. 33-.18. Copyright by the Workers'
Educational Association.
928 CURRENT ECONOMIC PROBLEMS
be folly to educate them to become discontented with the functions
they have to perform. For the good of the machine they are neces-
sarily sacrificed, as human beings, to their mechanical efficiency.
They are broken in like domestic animals and trained to expect only
the amount of happiness compatible with the proper performance
of their functions.
Again, there is the humanistic conception of society and of educa-
tion. The essence of humanistic education is, not merely that it
should not be vocational — in some cases it might be vocational — but
that what is learned should be learned for the love of the subject.
In humanistic education all thought of the struggle of life is banished,
and it seems desirable only to those who believe that the universe
is so happily constituted that an individual and a society can be
fitted for the struggle of life by an education which ignores it. It
is based, therefore, upon a certain faith, a faith contrary to the belief
that society is a machine constructed for success in some form of the
struggle for life. According to that faith a society so constituted will
not in the long run win the success it aims at. He that would save his
life shall lose it. Rather the popular aim of society is to sacrifice
no one individual, either to other individuals or to a general efficiency.
This education is called humanistic because it is based on the
belief that men are first of all men, not animals, servants, or tools.
This belief we all profess to hold in so far as we accept the Christian
view of life ; but in practice most of us are a little afraid of it. Where
this view of life is held, the mechanical theory of society must be
rejected. Society must be regarded, not as a machine constructed
for some definite material purpose, but as an association of human
beings. Being alive, then, it is not fully aware of its purpose. All
living things discover the purpose of their life, so far as they do
discover it, by living. It is not made for them as for a machine.
They grow in consciousness as in other things, and always there is
before them a goal of which they are never conscious.
Society, then, being composed of human beings, exists for them,
for all and each of them, in the present. Its test is their happiness,
which is not to be sacrificed to any theory about the future of society
or to any hard and fast definition of its end. For we know this,
at least, that the aim is to be discovered, so far as it is discoverable,
by all the members of society, and not by any select body of men
scientifically observing society as if it were a foreign and inferior
object. And the members of society have the best chance of dis-
covering its end, and of achieving it, if they are themselves happy,
if they are all living well in their relations with each other, if all
CONTROL OF INDUSTRIAL DEVELOPMENT 929
have opportunity for the development and exercise of the highest
faculties.
For, since society is itself a living thing, its life is the life of
all its members. None of them can be unhappy or unwise without
communicating unhappiness and unwisdom to the whole. That so-
ciety is the best and healthiest in which the higher functions are most
generally distributed, and in which all men are educated with a view
to the exercise of those higher functions. That, I need hardly say,
is the democratic theory. It is based upon the conception of society
as a living thing, not as a machine, and we must judge all theories
and measures which profess to be democratic by this test.
Now if we apply the democratic theory to education we shall
find that we are led to certain difficult and dangerous conclusions.
For the educator every child will be, not the raw material out of
which a part of the social machine can be made, but a human being
whose life is to be part of the life of society. And to the educator
all these children, being human beings, will be equal. His business
is to develop them as human beings without regard to the particular
stations they may have to occupy when they are grown up. To him
these differences in station and in functions will be evils, even if
necessary evils.
Thus, if people tell him that the children of the poor ought not
to be taught music, since music will be of no use to them in the fac-
tory, his answer will be that to him they are not the children of
the poor, but children, and that children should be taught music. If
our present society is of such a nature that music is of no use to the
poor, then by learning music the poor will become aware of the de-
fects of our society, will see that it treats them as parts of a machine,
not as living beings with the higher human desires. And, if they
are aware of these defects, they may themselves attempt to remove
them. We have to choose at present between a society in which the
poor are aware of higher desires unsatisfied and one in which they
are not aware of higher desires at all. It is a choice of evils, but
the question is, which choice will lead to greater evils ?
One who holds the humanistic theory of education will not ask
himself whether his teaching is likely to produce discontent, for he
does not see society as a machine or education as a means of making
the machine run smoothly. If he arouses discontent in his pupils
by arousing their higher desires, then it is the business of society,
including his pupils, to remove the causes of discontent. Such dis-
content is to him divine.
930 CURRENT ECONOMIC PROBLEMS
If, accepting the machine theory, we educate the masses of the
people so that they are fit only for a low quality of labor, we train
them also to a misapplication of labor, and so to an inevitable war
of class against class, carried on by them with a blindness equal to
our own. There is no way out of it except to see them in their
childhood just as we see our own children, to see them as members
of our own family, and to deny ourselves for their education as we
should deny ourselves for the education of our own children. For
if we as a society are not a machine for the turning out of trash and
the fomenting of a class war, we are a family, which is the type of
all living societies, and the happiness of the family depends on the
education of all its members. You cannot turn some of them into
tools or drudges without making the life of the rest duller and poorer
and less happy. You cannot escape from your poor relations, how-
ever much you may try to forget them. At least, the more you suc-
ceed in forgetting them, the more, and the more bitterly, they will
remember you.
400. A Primary Culture for Democracy^*
BY CHARLES H. COOLEY
One who looks even a little beneath the surface of things may
see that there is no question more timely than that of culture, and
none which has more need of fresh and fundamental conceptions.
It is by no means merely a question of the decoration of life, or of
personal enjoyment ; it involves the whole matter of developing large-
minded members for that strong democracy which we hope we are
building. Without such members such a democracy can never exist,
and culture is essential to the power and efficiency, as well as the
beauty of the social whole.
We may all agree that culture means the development of the
human and social, as distinct from the technical, side of life. Our
recent growth, so far at least as it is realized in our institutions, has
been mainly technical, the creation of an abundant economic system
and a marvellous body of natural science, neither of them achieve-
ments of a sort to center attention upon what is broadly human.
Our democracy, in spite of its supposed materialism, has long
had at heart the ideal of culture. We are not satisfied with beholding
the multiplication of material things, nor even with the hope of
greater justice in their distribution; we want joy, beauty, hope,
i^Adapted from an article with the foregoing caption in Publications of the
American Sociological Society, XIII (1918), 1-17. Copyright.
CONTROL OF INDUSTRIAL DEVELOPMENT 931
higher thoughts, a larger life, a fuller participation in the great human
and divine whole in which we find ourselves. Even those popular
movements which formulate their ends in material terms are not
really materialistic but get their strongest appeal from the belief
that these ends are the conditions of a fuller spiritual life.
Another reason for turning our thoughts to culture is that the
economic outlook demands it. We are apparently entering upon a
period of cheap, standardized production upon an enormous scale,
which will multiply commodities and perhaps increase leisure, but
will make little demand upon the intelligence of the majority of
producers and offer no scope for mental discipline. Work is becom-
ing less than ever competent to educate the worker, and if we are to
escape the torpor, frivolity, and social irresponsibility engendered
by this condition, we must offset it by a social and moral culture
acquired in the schools and in the community life.
Our culture must be a. function of our situation as a whole. If it
does not function in the whole, it is nothing. I am in sympathy with
those who cling to the great humanistic traditions of the past. There
can be no real culture that is altogether new ; it can only be a fresh
growth out of old stems ; but it must be that; it must be new in the
sense that it is wholly reanimated by the spirit of our own time. Any
attempt to impose an old culture upon us merely because the educated
class cherish it, or because it can be supported by general arguments
which have no reference to our needs, must fail. Through control
of institutions the classicist, the scientist, or the religionist may for
a time force the forms of an old learning upon a new generation ; but
before long all that does not vigorously function in the life of the
day will slough off and be forgotten.
Certainly no culture can be real for us that is not democratic
This does not mean, however, that it must be superficial, or com-
monplace, or uniform. Democracy is at bottom a humane, inclusive,
and liberal organization of life, and a democratic culture will be
based upon large conceptions, meeting the needs of the plain people
as well as of the privileged classes, and worked out largely through
the schools and other popular institutions. The idea that such a
culture must lack refinement and distinction has no basis in sound
theory. An undemocratic humanism, in our time, is not humanism
at all.
We should recognize, however, that such traditional culture as
we have is not democratic for the most part, but involves the inheri-
tance, through an upper class, of the conceptions of an outworn
society. The very word "culture" is in somewhat bad odor with
932 CURRENT ECONOMIC PROBLEMS
people of democratic sympathies, because it suggests a parasitic
leisure. Nothing could be more timely than that the plain people
should take up the idea, re-interpret it from their point of view, and
give it a chief place on the program of reform.
A living culture is not only an organic part of life as a whole,
but it is a complex thing in itself. It must embrace two main aspects :
a common or primary culture of knowledge and sentiment diffused
through the whole people, and a variety of more elaborate culture
processes, informed with the common spirit but developed by small
groups in diverse fields of achievement. The aim of a common
culture must be a humane enlargement of the thought and spirit of
the people, including especially primary social knowledge and ideals ;
inculcated in no abstract form, but appealing to the imagination and
assimilated with experience.
Of the studies now pursued in our primary schools those most
plainly suited to be the means of culture are language and history,
because they deal directly with the larger human life. Language
studies should make the individual a member of the continuing
organism of thought and enable his spirit to grow by interaction with
it. For our people this means self-expression and a beginning ap-
preciation of literature. Other languages, modern and ancient, be-
long to specialized culture, not to that of the whole people.
It might perhaps be thought that history would be a study of
the humane development of mankind in the past, bringing home to our
knowledge and sympathy the common life and upward struggle of the
people, and so leading to an understanding of the social questions of
our own day. But it is not that in any great degree at the present
time. Although some teachers of history are striving to reanimate
their subjects in accordance with modern social conceptions, it is my
impression that this movement is only beginning and that the study
of history in the schools conduces little to an understanding of mat-
ters of social and economic betterment.
The central thing in the study of the past common to all Amer-
ican children should be the history of our own country, conceived in
a social spirit as our part in the universal struggle for humane ideals
of life, political democracy and federation, economic opportunity,
social freedom, and higher development of every sort. It should be
easy to treat American history in this way and to keep it in constant
relation to the ideals and endeavors of our own day.
No aspect of history is better suited to the uses of culture than
is the economic aspect, the age-long striving for material support,
comfort, and leisure, along with the development and mutations of
CONTROL OF INDUSTRIAL DEVELOPMENT 933
social classes, leading to our own problems of social justice. These are
cultural because, on the one hand, they appeal to actual interest and
daily observation, while, on the other, they lead directly to the most
urgent questions of social progress. The fact that history has slighted
these things, and that men may pass as experts in it who have made no
serious study of them, is itself explicable only by historical causes.
However this may be, it is clear that on grounds of culture every
child ought to know something of the struggles of the unprivileged
masses to gain a share of the opportunity and outlook achieved by a
privileged few. Our middle and upper classes are still, for the most
part, limited to a view of such matters that is both undemocratic and
uncultured, and which the schools do little to correct.
It seems that instruction in economics and sociology, of a simple
and concrete kind, must be a part of universal democratic culture.
How this should be related to history is perhaps an open question,
but certainly the latter, as it is now understood, is wholly inadequate.
When all these studies are informed by a common spirit it may be
possible to unite them.
So intimate and so abiding is our relation to nature that natural
science may well claim a place in any scheme for a basic humane
culture. It would include enough of this to impress the mind with
the rule of law in nature and to enable it to understand the experi-
mental method by whichjman discovers this law and adapts it to his
ends.
I must add that any school culture depends for its reality upon
the personality of those who impart it. If the teachers and textbook
writers were overflowing with those larger views and sentiments that
are culture, the students would invariably get them. This in turn
depends upon that more adequate recognition by the public of the
place of teachers as leaders and exemplars of culture, from which
intelligent selection and support would flow. The whole question is
one that we cannot solve by any mere change in the curriculum, but
is implicated with the spirit and organization of the community.
401. The Function of the College^^
BY ALEXANDER MEIKLEJOHN
Let Other men do what they may ; we have a task that overtops
them all. We have a part, a leading part, to play in making a mind
for a nation. That is the goal on which our eyes are fixed, the
1^ Adapted from "The Mind of the Nation," an address delivered at a
dinner of the Amherst College Alumni Association of Boston, February 4, 1916.
934 CURRENT ECONOMIC PROBLEMS
adventure in which, student and teacher alike, we are engaged. And
so I take this as my theme, the mission of the college in helping to
make a mind for this nation.
Has this nation a mind of its own? I fear not. A mind is an
activity which gathers up disconnected opinions, impulses, desires,
doubts, theories, and brings them into correlation and unity. Ideas,
when they are within the same mind, become responsible one to an-
other. Each of them must pay regard to all the rest. They cannot
live in isolation, nor yet in little separate groups. The mind de-
mands of them that they shall come together in genuine unity of
spirit and of truth. This seeking after unity is the very essence of
the thought-life of an individual, and only in the measure in which
one achieves it can he be said to be alive at all. Just so it is in the
thought of a nation. If we as a people can succeed in making our
separate thinking responsible one to another, then as a people we
have a mind. But if our thinkings fall apart, we are without a
common mind and we must suffer all the ills of those who go through
life not knowing what they do nor seeing where they go.
Is the place of judgment to be found in the newspaper? My im-
pression is that we do not so regard it. Do we not commonly think
of it as a special pleader, as representative of some "interest," as
used by forces to further their ends, rather than as judge and critic
rising above all interests and seeking to assign to each its due measure
of significance and truth ? It may be that we are not fair in thinking
this. But whether it is fair or not, so long as this opinion prevails,
the newspaper cannot be for us the maker of understanding. Nor
can the magazine or book perform this service. And for another set
of reasons neither the church nor yet the home can furnish what we
need. No one of these commands our thinking as a whole. And
even less our public men are able to bring our thinking under their
control. They too are talked about, not as the men we trust to lead
and guide us, but as the advocates of parties, sections, interest, creeds.
Where then shall we find the place of understanding, where go
that judgment may be given upon the issues of our common life?
More than any other institutions, it seems to me, the school and
college must assume the task. And especially the liberal college
must endeavor to become the place where the common mind is made
and moulded. The liberal college is a place where men are trying
to gather up the elements of our common life, of our moral, religious,
aesthetic, political, economic, and social experience, so that we may
understand them, may bring them into relation, may make of them an
interpretation of human living. And for this task we must have
CONTROL OF INDUSTRIAL DEVELOPMENT 935
within the college leaders of men's thought. The liberal college
cannot be merely a teacher of boys. It can teach boys properly only
as it becomes a place of counsel and guidance for men. The college
teacher must win and keep the confidence of his fellows as one who
leads them in the work of understanding. He must command their
trust both by integrity and by power. No man may say of him that
he is the servant of an interest. Rich and poor, radical and con-
servative, the breaker down and builder up, alike must find him
square and true and free. And in intelligence, as well as in integrity,
he must be leader of his fellows. He' is a man set apart to learn, to
think, to study, to inquire, to question, to conclude — a man whose
thinking on the matters he considers should be better than that of
other men, just as the cobbler's shoes are better than those which you
or I would fashion if we tried to make them for ourselves. To lead
in thinking through the fundamental issues of our common life — that
is the task of liberal college and of liberal teacher. And they must win
the confidence of men that they can guide in making up the people's
mind upon the things which are most precious and significant within
the nation's life.
E. THE FUTURE OF INDUSTRIAL SOCIETY
402. Progress and Discontents^
/ BY THOMAS BABBINGTON MACAULAY
It may at first sight seem strange that society, while constantly
moving forward with eager speed, should be constantly looking
backward with tender regret. But these two propensities, incon-
sistent as they may appear, can easily be resolved into the same
principle. Both spring from our impatience of the state in which
we actually are. That impatience, while it stimulates us to surpass
preceding generations, disposes us to overrate their happiness. It
is, in some sense, unreasonable and ungrateful in us to be constantly
discontented with a condition which is constantly improving. But,
in truth, there is constant improvement precisely because there is
constant discontent. If we were perfectly satisfied with the present,
we should cease to contrive, to labor, and to save with a view to the
future. And it is natural that, being dissatisfied with the present,
we should form a too favorable estimate of the past.
In truth, we are under a deception similar to that which misleads
the traveler in the Arabian desert. Beneath the caravan all is dry
and bare ; but far in advance, and far in the rear, is the semblance of
i^Adapted from History of England, I (1848), chap. iii.
936 CURRENT ECONOMIC PROBLEMS
refreshing waters. The pilgrims hasten forward and find nothing but
sand where an hour before they had seen a lake. They turn their
eyes and see a lake where, an hour before, they were toiling through
sand. A similar illusion seems to haunt nations through every stage
of the long progress from poverty and barbarism to the highest de-
grees of opulence and civilization. But, if we resolutely chase the
mirage backward, we shall find it recede before us into the regions
of fabulous antiquity. It is now the fashion to place the Golden
Age of England in times when noblemen were destitute of comforts
the want of which would be intolerable to a modern footman, when
farmers and shopkeepers breakfasted on loaves, the very sight of
which would raise a riot in a modern workhouse, when to have a
clean shirt once a week was a privilege reserved for the higher class
of gentry, when men died faster in the purest country air than they
now die in the most pestilential lanes of our towns, and when men
died faster in the lanes of our towns than they now die on the coast
of Guiana. We, too, shall, in our turn, be outstripped, and in our
turn be envied. It may well be, in the twentieth century, that the
peasant of Dorsetshire may think himself miserably paid with twenty
shillings a week; that the carpenter at Greenwich may receive ten
shillings a day; that laboring men may be as little used to dining
without meat as they now are to eat rye bread ; that sanitary police
and medical discoveries may have added several more years to the
average length of human life ; that numerous comforts and luxuries
which are now unknown, or confined to a few, may be within the
reach of every diligent and thrifty workingman. And yet it may
then be the mode to assert that the increase of wealth and the progress
of science have benefited the few at the expense of the many, and
to talk of the reign of Queen Victoria as the time when England was
truly merry England, when all classes were bound together by
brotherly sympathy, when the rich did not grind the faces of the
poor, and when the poor did not envy the splendor of the rich.
403. The Banquet of Life^^
BY WILLIAM GRAHAM SUMNER
In 1886 a society published a set of analytical topics covering the
field of social science. Among the topics which the student is invited
to discuss is this : "The Banquet of Life, a Collation or an Exclusive
Feast." The antithesis which is intended is undoubtedly that between
isAdapted from "The Banquet of Life" (1887), reprinted in Earth-Hunger
and Other Essays, pp. 217-21, from the Independent, XXXIX, jy^. Copyright
by the Independent and Yale University Press.
CONTROL OF INDUSTRIAL DEVELOPMENT 937
»
a supply for all and a supply for a limited number. If there is any
banquet of life, the question certainly is, whether it is set for an
unlimited or for a limited number.
If there is a banquet of life, and if it is set for an unlimited num-
ber, there is no social science possible or necessary ; there would then
be no limiting conditions on life, and consequently no problem of how
to conquer the difficulties of living. There would be no competition,
no property, no monopoly, no inequality. Fresh air and sunlight are
provided gratuitously and superabundantly, not absolutely, but more
nearly than any other material goods, and therefore we see that only
in very exceptional circumstances, due to man's action, do these things
become property. If food were provided in the same way, or if land,
as a means of getting food, were provided in the same way, there
would be no social question, no classes, no property, no monopoly, no
difference between industrial virtues and industrial vices, and no
inequality. When, therefore, it is argued that there is, or was, or
ought to be, a banquet of life, open to all, and that the fact that there
is no such thing now proves that some few must have monopolized it,
it is plain that the whole notion is at war with facts, and that its parts
are at war with each other.
The notion that there is such a thing as a boon of nature, or a
banquet of life, shows that social science is still in the stage that
chemistry was in when people believed in a philosopher's stone ; or
medicine, when they believed in a panacea ; or physiology, when they
believed in a fountain of youth, or an elixir of life. Many of the
phenomena of the present seem to indicate that this group of facts
is just coming under the dominion of science. The discord and con-
fusion which we perceive are natural under the circumstances. Men
never cling to their dreams with such tenacity as at the moment when
they are losing faith in them, and know it, but do not yet dare to
confess it to themselves.
If there was such a thing as a banquet of life, open to all comers,
to which each person was entitled to have access just because he was
born, and if this right could be enforced against the giver of the
banquet, that is, against nature, then we should have exactly what we
want to make this earth an ideal place of residence. We should have
first of all, a satisfaction which cost no effort, which is the first de-
sideratum of human happiness, and which we have not hitherto ever
seen realized at all except in the narrow domain of luck. Secondly,
we should have abstract justice in nature, which we have never had
yet, for luck is of all things the most unjust. We should also have
equality, which hitherto we have never found in nature. Finally, we
938 CURRENT ECONOMIC PROBLEMS
should have a natural right which could be defined and enforced, not
against men, but against nature — the trouble with natural rights
hitherto has been that they could not be defined, that nature alone
could guarantee them, and that against nature they could not be en-
forced.
If we take the other alternative and conceive of the banquet of
life as a limited feast, then we see at once that monopoly is in the
order of nature. The question of weal or woe for mankind is : what
are the conditions of admission? How many are provided for?
Can we, by any means open to us, increase the supply? But when
we take the question in this form we see that we are just where we
and our fathers always have been ; we are forced to do the best we
can under limited conditions, and the banquet of life is nothing but
a silly piece of rhetoric which obscures the correctness of our con-
ception of our situation.
When men reasoned on social phenomena by guessing how things
must have been in primitive society, it was easy for them to conceive
of a "state of nature" or a "golden age" ; but, as we come to learn
the facts about the primitive condition of man on earth we find that
he not only found no banquet awaiting him here, and no natural
rights adjusted to suit him, but that he found the table of Nature
already occupied by a very hungry and persistent crowd of other
animals. The whole table was already occupied — there was not room
for any men until they conquered it. It is easy for anyone now to
assure himself that this is the true and only correct notion to hold on
that matter. If land ever was a boon of Nature to anybody it was
given away to the plants and animals long before man appeared here.
When man appeared, he simply found a great task awaiting him : the
plants and animals might be made to serve him, if he could conquer
them ; the earth would be his if he could drive off his competitors.
He had no charter against Nature, and no rights against her ; every
hope in his situation had an "if" in it — if he could win it.
We look in vain for any physical or metaphysical endowment with
which men started the life of the race on earth. We look in vain for
any facts to sustain the notion of a state of primitive simplicity and
blessedness, or natural rights, or a boon of material goods. All the
facts open to us show that man has won on earth everything which
he has here by toil, sacrifice and blood ; all the civilization which we
possess has been wrought out by work and pain. All the rights, free-
dom, and social power which we have inherited are products of his-
tory. Our institutions are so much a matter of course to us that it is
only by academic training that we learn what they have cost ante-
CONTROL OF INDUSTRIAL DEVELOPMENT 939
cedent generations. If serious knowledge on this subject were more
widespread, probably we should have a higher appreciation of the
value of our inheritance, and we should have less flippant discussion
of the question : What is all this worth ? We should also probably
better understand the conditions of successful growth or reform, and
toleration for schemes of social reconstruction.
Civilization has been of slow and painful growth. Its history
has been marked by many obstructions, reactions, and false develop-
ments. Whole centuries and generations have lost their changes on
earth, passing through human existence, keeping up the continuity
of the race, but, for their own part, missing all sliare in the civiliza-
tion which had been previously attained, and which ought to have
descended to them. It is easy to bring about such epochs of social
disease and decline by human passion, folly, blunders, and crime.
It is not easy to maintain the advance of civilization ; it even seems
as if a new danger to it had arisen in our day. Formerly men lived
along instinctively, under social conditions and customs, and social
developments wrought themselves out by a sort of natural process.
Now we deliberate and reflect. Naturally we propose to interfere
and manage according to the product of our reflection. It looks as
if there might be danger soon lest we should vote away civilization
by a plebiscite, in an effort to throw open to everybody this imaginary
"Banquet of Life."
404. Wanted: A New Symbolism^^
BY ALVIN S. JOHNSON
The aristocracies have vanished, we shall never know them again.
The work of supplying the world, now and for the future, has become
one of such complexity, requiring so broad a diffusion of general
'"ntelligence, that merely personal dignitaries can never again acquire
their ancient influence over man's mind, their ancient hold on his
conduct. There remains in the world only the common man. Differ-
ences in natural endowment, in culture and in wealth persist; but
these can not alter the fact of a fundamental democracy. So far as
we serve, we serve the common man.
But — and this we must fix in our minds — the common man of
today is not the obscure citizen of earlier epochs. The same com-
mercial process which has broken down the earlier class organiza-
tion has produced a differentiation in economic structure, an interde-
pendence of parts, which compels us to conceive of economic society
2oAdapted from "An Ethical Aspect of the New Industrialism," South
Atlantic Quarterly. XII, 9-1 1. Copyright, 1912.
940 CURRENT ECONOMIC PROBLEMS
as a living organism. The common man of today compares with
his prototype of yesterday as the cell in an organized tissue com-
pares with the cell in the half-coherent mass of protoplasm. The
functions of the individual are now organic functions, far transcend-
ing the narrow confines of his own personality. The pilot, the en-
gineer, the steel worker, the coal-heaver, are significant, not in them-
selves, but in the social work they perform. With the progress of
time, a constantly increasing share of the population assumes func-
tions essentially social.
In serving the common man, then, we are performing a work
far more worth while than that of supplying the needs of an indi-
vidual, of whatever personal worth. We are serving a social func-
tionary in the last analysis, society itself. Our work, then, is sig-
nificant or meaningless according as we conceive society itself as
worthy or not. If we are constrained to think of our society as ninety
million persons, chiefly knaves and fools, the service will be irksome,
to be shirked, if possible. If the society we serve is full of brutality
and injustice, disfigured with poverty and ignorance, corrupted with
cynicism and self-indulgence, it can not inspire us with loyalty in
its service. The exhausting toil of the long day, the hopeless mis-
ery of the sweatshop, the sordid depravity of the slum, can not much
longer cumber the earth if society is to command the best efforts
of its servitors. We are not now concerned with the question of
justice to those who live and toil in wretchedness. That question
is worth considering in its proper place ; it is sufficient here to indi-
cate that, for the orderly progress of industry in the coming era, we
must remove conditions that destroy our faith in society. Men in
the service of society will give their best efforts only if society is
worth serving.
But it is not sufficient that society should be worth serving, the
worth of society and the worth of work in its service must be given
concrete expression if these values are to mold men's conduct. Today
these values are perceived, but dimly ; they exercise an influence in
limited fields. Men in the service of the railways, as a rule, endeavor
honestly to realize the ideal of continuous and adequate service. Coal
miners are loth to strike at the opening of winter. Their social func-
tion plays a part — though unfortunately a minor part — in controlling
their economic policy. As a rule, however, the servants of society,
employers and employees alike regard any peculiar dependence of
society upon their services as an element strengthening their bar-
gaining position, a peculiar opportunity for gain. The wheat is fall-
ing from the head ; the fruit is rotting on the tree ; an excellent time
«p
CONTROL OF INDUSTRIAL DEVELOPMENT 941
for a concerted demand for higher wages! An industrial city has
been built upon the expectation of the continuous supply of material :
what an opportunity for the material producers to levy tribute ! A
whole nation lives from day to day upon the fruits of its mechanical
industries ; coal is its bread. A dazzling prospect of gain lies before
those who can possess themselves of the mastery of the mines. Re-
sponsibility of function is oportunity for gain ; so prevalent is this
conception that when we assert that the use of responsibility for gain,
not for service, is a species of treason, we seem to be harking back
to the middle ages. And so we are. But there is much in the mediaeval
industrial spirit that is eternal : much that must be restored to our
society after the disorders of an era of expansion and exploitation.
The worth of society and of work in its service — these are the
social values that must govern in the new industrialism. As mere
abstract ideas they can have no potency. As abstract ideas the kings
and nobles of an earlier age had no potency ; they were invested with
the power of social values by the work of architects and sculptors,
poets and philosophers. The poets, as it were, created kings and
knights — ideals toward which actual rulers and nobles sought to
elevate themselves. Architects and sculptors, painters and poets, can
transform social man and society into values capable of dominating
industry. The task may be difficult ; but it is no more difficult than
that of vesting glory in the House of Atreus or the House of Bourbon.
The ultimate need of the new industrialism, then, is not more
trained skill, more applied science — although these two are good
things in their way — but artists and poets who shall translate society
and social man into terms of values worth serving. When these have
done their work we shall hear less of the deterioration of labor and
the abuse of responsibility, of industrial decay and social corruption,
of irreconcilable conflict and threatened revolution. A revolution
will have been accomplished : a revolution in ideals and in values.
APPENDIX A
READINGS OMITTED IN REVISION
The following list includes the readings in the first edition of this
book, for which space could not be found in the revision. While they are
less relevant than the readings included in this volume, most of them still
possess value. They are given here for the convenience of readers who
have access to the first edition:
I. The Antecedents of Modern Industrialism p^^^ ^^^
Reading First Edition
2. Christian Teaching and Industrial Development. William
Cunningham 5
17. The Usurer's Fate. Caesarius of Heisterbach 32
18. Usury versus the Boycott. Innocent III 33
19. The Characteristics of Mercantilist Doctrine. John Kells
Ingram 33
II. The Industrial Revolution
20. The Characteristics of the English People. Alfred Marshall. . . 37
25. The Significance of the Revolution. Grant Robertson 51
III. Social Control in Modern Industrialism
51. The Unscientific Character of Laissez Faire. J. E. Cairnes... 105
56. Social Reform and Self-Reliance. W. Lyon Blease 115
58. A Program of Social Reform. Woodrow Wilson 120
59. Arrested Constitutional Development. Myron T. Watkins.... 123
60. The Anti-Paternalism of the Government. Missouri Supreme
Court 124
62. Public Enemies. Walt Mason 128
63. The Dominance of the Entrepreneur View-Point 128
IV. The Pecuniary Basis of Economic Organization
73. The Ethics of Competition. J. A. Hobson 152
76. Price-Fixing by Commission. Martin Luther 158
85. The Utility of Cotton Futures. Alfred B. Shepperson 170
89. The Experience of Germany with Stock Exchanges. The
Hughes Committee 178
042
APPENDIX 943
V. Problem of the Business Cycle p^^j, jj,
Reading First Edition
93. The Ethics of Corporate Management. Henry Rogers Seager. . 187
94. The Corporation and Personal Efficiency. George W. Perkins . . 189
100. The Periodicity of Commercial Crises. J. S. Nicholson 208
102. The Causes of the Panic of 1893. W. Jett Lauck 216
104. Industrial Conditions Preceding the Panic (1907). Moody's
Magazine 221
ic6. The Course of the Panic of 1893. Alexander D. Noyes 225
109. A Week of Financial History. Commercial and Financial
Chronicle 232
no. General Industrial Conditions in a Crisis. Bradstreet's 233
111. The Premium on Currency in 1893. Commercial and Financial
Chronicle 235
112. The Hoarding of Currency in 1893. J. DeWitt Warner 235
113. Estimate of Money Hoarded in 1907. Moody's Magazine. .. . 236
114. Economies in Credit. Atlanta Clearing House 236
115. Shipment of Currency to the Interior. Commercial and Finan-
cial Chronicle 237
118. The Fruits of the Exploitation of Labor. Frank K. Foster 240
119. The Impossibility of Over-Production. John Stuart Mill.... 242
120. Sun-Spots and Crises. W. Stanley Jevons 243
121. The Neo-Jevonian Theory. Alvin S. Johnson 245
122. Capitalization and Crises. Frank A. Fetter 246
123. The Lagging Adjustment of Interest. Irving Fisher 247
124. Inelasticity of Credit under the National Banking System.
Harold G. Moulton 249
126. Provisions for Elasticity in the New Currency Act. L. M.
Jacobs, Jr 253
128. Emergency Elasticity of Note Issue. Fred M. Taylor 257
130. The Part of Individual Responsibility. Theodore E. Burton. . . 260
VI. Problems of Inxernational Trade
136. The Theory of International Exchange 275
139. The Reciprocal Character of International Trade. Fred M.
Taylor 281
141. Remember Colorado. Denver Times 286
144. What the State Owes to Industry. George B. Curtiss 289
148. The Universal Fruits of Free Trade. Andrew Yarrington 294
149. Protection and Industrial Transformation. Friederich List. . . 295
151. Present Validity of the Young-Industry Argument. Frank
William Taussig 298
162. American Free Trade and American Prosperity. George
Baden-Powell 324
944 CURRENT ECONOMIC PROBLEMS
Page in
Reading First Edition
165. Woolens and Welfare. N. T. Folwell 328
170. Producers' Costs and Tarifif Duties. William C. Redfield 335
171. Investigation and Tariff Legislation. Henry C. Emery 340
VII. The Problem of Railway Regulation
173. The Extent of American Railway Interests. I. Leo Sharfman. . 346
177. Types of Railway Discrimination. George H. Lewis 355
178. Discrimination Between Commodities. Albert N. Merritt.... 357
179. Discriminations in the Transportation of Oil. Commissioner
of Corporations 358
180. Recent Forms of Railway Discrimination. William Z. Ripley. . 361
187. Competitive Factors in Rate-Making. Emery R. Johnson and
Grover C. Huebner 372
195. The Drift Toward Government Ownership. Frank Haigh
Dixon 388
196. Government Ownership as a Refuge. Railway World 389
197. The Economies of Government Ownership. Frank Parsons... 391
198. The Inexpediency of Government Ownership. Samuel O. Dunn 392
VTII. The Problem of Capitalistic Monopoly
207. The Law of Monopoly Price. Henry Rogers Seager 418
208. The Limits of Monopoly Price. J. A. Hobson 420
216. Dissolution of the Standard Oil Company. H. C. Folger, Jr. . . 435
217. The Result of the Dissolution. Arthur Jerome Eddy 436
IX. The Problem of Population
224. The Social Crises at the Time of Malthus. Francesco S. Nitti . . 455
231. American Appraisals of Immigration 472
234. Living Conditions Among Home Laborers. Charles Dickens. . 477
235. The Standard of Living of the New Immigrants. I. A.
Hourwich 478
236. Immigration and Wages. I. A. Hourwich 480
240. The Menace of the Immigrant Farmer. Robert D. Ward 489
242. Consular Inspection as a Means of Regulation. Broughton
Brandenburg 490
245. Wanted — An Immigration Policy. New Republic 496
X. The Problem of Economic Insecurity
258. Wanted : A Labor Exchange. Gregory Mason 526
260. Insurance Against Unemployment. William F. Willoughby, . 533
261. An Appraisal of Unemployment Insurance. William F. Wil-
loughby 533
APPENDIX 945
Page in
Reading First Edition
270. Old- Age Pensions in New Zealand. W. P. Reeves 548
272. A Wage-Earner's Budget. Louise Boland More 552
273. Life at $1.65 a Day. Margaret F. Byington 554
274. A "Fair Living Wage." Louise Boland More 557
277, The Progress of the Minimum Wage. Florence Kelley 562
279. Wage-Settlement by External Authority. S. J. Chapman 567
281. Arbitration in New Zealand. Hugh H. Lusk 571
XL The Problem of Trade Unionism
287. The Sons of Martha. Rudyard Kipling 588
290. The Undemocratic Character of Trade Unions. Charles W.
Eliot 596
291. An Employer's View of Trade Unions. Andrew Carnegie. . . . 599
309. The Monopoly of Labor. William H. Taft 630
310. The Charter of Industrial Freedom. Samuel Gompers 632
311. Legal Exemption of Labor Combinations. Allyn A. Young... 634
313. Industrial versus Trade Unionism. Mary K. O'Sullivan 641
315. The General Strike. Arthur D. Lewis 644
XII. Social Reform and Legal Institutions
320. The Development of the Right of Property. George B. New-
comb 658
321. Property and Stewardship. Saint Basil 660
322. The Ethics of Property. Pierre Joseph Proudhon 660
327. Contract and Co-operation. Henry Sidgwick 670
3326. The Supremacy of the Police Power. Nebraska Supreme Court 679
334. The Danbury Hatters' Case. Harry W. Laidler 682
335. A Legal Criticism of the Injunction. Charles Claflin Allen... 685
338
339
342
343
344
345
346
347
348
350
XIII. Social Reform and Taxation
Taxation as a Means of Social Control. Adolph Wagner 693
Taxation and Technical Development. J. R. McCuUoch 695
Incidence and Industrial Organization. A. W. Flux 699
The Burden of the Tariff Tax. Liberal Party Pamphlet 702
The Incidence of the Customs Tax. Edwin R. A. Seligman. .. 704
Defects of the General Property Tax. National Tax Asso-
ciation 706
Multiple Taxation. Theodore Sutro 708
The Massachusetts Corporation Tax. Commissioner of Cor-
porations 710
The Federal Income Tax. Edwin R. A. Seligman 713
The Increase in Land Values 720
946 CURRENT ECONOMIC PROBLEMS
Page in
Reading First Edition
351. The Social Injustice of Rent. Harry George 724
352. The Theoretical Basis of the Single Tax. C. B. Fillebrown. .. 725
353. A Criticism of the Single Tax. Charles J. Bullock 726
XIV. Comprehensive Schemes of Social Reform
357. Scrub-Humanity. Solon Lauer 736
358. The Promise of Co-operation. Francis G. Peabody 737
359. "U. S. Steel" and Labor. Raynal C. Boiling 739
360. Labor and "U. S. Steel." John A. Fitch 742
361. Marx's Theory of the Development of Capitalism. Werner
Sombart 745
363. The Distinction Between Socialism and Communism. M.
Tugan-Baranowsky 751
365. Property and Industry under Socialism. John Spargo 754
367. "My Papa Is a Socialist." Harvey P. Moyer 758
370. The National Platform of the Socialist Party 761
371. Municipal and State Program. Socialist Campaign Book.... 766
374. Some Objections to Socialism. William Graham 773
INDEXES
INDEX TO AUTHORS
[The references are to pages]
Acworth, W. M., 392
Adams, Henry Carter, 161, 798
Adams, Thomas Sewall, 821
Amonson, Louis S., 515
Amos, 832 •
Andrews, John B., 556
Aquinas, St. Thomas, 91
Aristotle, 432, 482
Arnold, Edwin, 120
Ashley, Sir William J., 61, 72
Ayres, Clarence E., 256
Bagehot, Walter, 240
Baker, S. Josephine, 606
Ball, John, 833
Bastiat, Frederic, 324
Benedict, Roswell A., 323
Benson, Allan A., 121
Bentham, Jeremy, 36
Beveridge, W. H., 554
Blackstone, William, 32
Brandeis, Louis D., 449, 791
Brown, William Garrott, 48
Brown, W. Jethro, 57
Bryce, James, 18, 22, 47, 130
Biicher, Carl, 64, 112
Bullock, Charles J., 443
Burgess, George K., 270
Campbell, Janet M., 671
Cannan, Edwin, 30, 118, 142, 374
Canning, J. B., 192
Carver, Thomas Nixon, 293
Chamberlain, Joseph P., 580
Chapman, S. J., 160, 803
Chevrillon, Andr6, 274
Child, Sir Josiah, 482
Chiozza-Money, L. G., 902
Claghorn, Kate H., 514
Clapham, J. H., 107
Clark, J. Maurice, 166, 412, 908
Clay, Henry, 195
CIutton-Brock, A., 927
Cole, G. H. D., 866
Colver, William B., 366
Commons, John R., 641
Conant, Charles A., 183
Conway, Sir Martin, 528
Cooke, Maurice L., 707
Cooley, Charles H., 158, 620, 930
Coulton, G. G., 83
Crowder, General Enoch, 279
Culpepper, Sir John, 434
Cummdngs, John Raymond, 899
Cunningham, William, 102
Davenport, Herbert J., 115, 807
Dawson, Miles M., 572
Defoe, Daniel, 321, 482
Dicey, Albert V., 38
Downey, E. H., 566, 575
Drew, Walter, 695
Dunn, Samuel O., 405
Dunne, Peter Finley, 47, 354
Durand, E. Dana, 474
Engels, Frederick, 836
Fairbanks, Arthur, 156
Fairbanks, Charles W., 315
Farnam, Henry W., 518
Fetter, Frank A., 522
Field, James A., 532, 541
Fisher, Irving, 729
Fitch, John A., 421
Forrest, J. Dorsey, 71, 74, no
Frankel, Lee K., 572
Frankfurter, Felix, 691
Friday, David, 299
Gallacher, W., 860
Gates, John W., 173
Gay, Edwin F., 924
Gettell, Raymond Garfield, 364
949
950
CURRENT ECONOMIC PROBLEMS
Gide, Charles, 309
Gillette, King G., 900
Giovannitti, Arturo M.,j377
Godwin, William, 35
Goldsmith, Oliver, 834
Gower, John, 432
Green, Thomas Hill, 52, 775
Gunton, George, 435
Hadley, Arthur T., 230, 384, 769, 777
HaU, P. E., S13
Hamilton, Walton H., 550, 917
Hammond, M. B., 393
Harris, Ralph Scott, 228
Harris, W. Willis, 859
Hastings, Charles J., 605
Hauser, Henri, 134
Hill, James J., 912
Hirst, Frances W., 180
Hobhouse, L. T,, 19, 54, 490
Hobson, John A., 197, 549, 841
Holcombe, A. N., 591
Holmes, Oliver W., 757
Howland, Harry J., 173
Hoxie, Robert F., 622, 628, 638, 711
Hoyt, Homer, 471, 758
Hughes, Elizabeth, 26
Hull, George H., 232
Hume, David, 433
Huxley, Thomas, 481
Ingalls, John J., 37
Isaiah, 832
Jacobstein, Meyer, 452
Jeffrey, Richard, 834
Johnson, Alvin, 137, 280, 328, 337, 423,
827, 939
Jones, Grosvenor M., 360
Kellogg, Paul M., 598
Kellor, Frances A., 539
Kendall, Henry P., 739
Kennedy, William, 800
Kingsley, Charles, 159
Kirkup, Thomas, 547, 849
Lape, Esther Everett, 520
Lauck, W. Jett, 510
Luaer, Solon, 652
Laughlin, J. Laurence, 596
Lee, Frederic S., 714
Leffingwell, Albert J., 326
Le Rossignol, James Edward, 602
Levine, Louis, 681
Littlefield, George E., 858
Loria, Achille, 753
Lough, W, H., Jr., 222
Lum, Dyer D., 657
Luther, Martin, 321, 434
Lyon, W. Hastings, 188
McAdoo, William G., 411, 418
Macaulay, Thomas Babington, 47, 76,
935
Macdonald, J. Ramsey, 847
Mclntire, Ruth, 608
McMaster, J. B., 835
McPherson, Logan G., 397, 398
Macrosty, Henry W., 439
Magee, James D., 426
Malthus, Thomas Robert, 485
Marshall, Leon C, 215, 278, 288
Meiklejohn, Alexander, 933
Mill, John Stuart, 40
Miller, A. C, 809
Miller, Frieda S., 131
Mitchell, John, 636, 650
Mitchell, Wesley C, 190, 200, 206, 208,
216, 239, 245, 904
Montagu, Edwin, 26^
More, Paul Elmer, 762
More, Sir Thomas, 833
Moulton, Harold G., 211, 243, 275, 281,
286
Mudge, George P., 529
Mun, Thomas, 315
Nitti, Francesco Saverio, 660
North, S. N. D., 352
Nourse, Edwin G., 171
Ogbum, W. F., 588
Ogg, F. A., SCO
Orth, Samuel P., 126
Parry, David M,, 764
Paton, J., 860
Paton, W. A., 248
Paul, St., 90
INDEXES
951
Pierson, N. G., 852
Plato, 521
Portenar, A. J., 654
Pound, Roscoe, 754, 780
Powell, Thomas Reed, 793
Ravenstone, Piercy, 36, 488
Regensburg, Berthold von, 83
Ripley, William Z., 386
Roberts, Peter, 502
Root, Elihu, 915
Ross, Edwin Allsworth, 492, 504, 507
Rossiter, William S., 505
Rousseau, J. J., 33, 834
Rubinow, I. M., 581
Ruggles, C. O., 388
Salzman, L. F., 85
Seager, Henry Rogers, 454
Seligman, Edwin R. A., 226, 811, 815
Shadwell, Arthur, 122
Sharfman, I. Leo, 379
Shibley, George H., 899
Simons, A. N., 837
Skelton, O. D., 857
Smalley, Harrison S., 185, 338
Smith, Adam, 33, 252, 435, 802
Smith, Constance, 593
Smith, J. Russel, 372
Sombart, Werner, 617
Sprague, O. M. W., 804
Stephens, Albert C., 178
Steuart, Sir James, 484
Stevens, W. H. S., 456, 458, 468, 469
Stewart, William Downie, 602
Stocks, Mary, 673
Stockton, Frank P., 644
Stoddard, William Leavett, 823
Streightofif, Frank H., 586
Sullivan, Mark, 266
Sumner, William Graham, 936
Sydenstricker, Edgar, 584
Tawney, R. H., 892
Taylor, Fred M., 311
Taylor, Frederic W., 705
Temple, Sir William, 483
Thomas, James H., 659
Thompson, R. E., 349
Thompson, Warren S., 583
Toynbee, Arnold, 98
Tryon, Rollo Milton, 69
Tufts, James H., 648, 894
Underwood, John Curtis, 610
Underwood, Joseph H., 46
Van Metre, T. W., 415
Veblen, Thorstein, 113, 204, 284, 697,
783
Wame, Frank J., 496, 651, 655
Warren, B. S., 584
Washington, George, 169
Webb, Beatrice, 561, 619
Webb, Sidney, 561, 619
Weber, Adna F., 577
Webster, Daniel, 334
Wells, H. G., 516
Weyl, Walter E., 524, 530, 535
W^hately, Richard, 144
Whitman, William, 352
Whitten, Robert H., 404
Williams, Sidney Charles, 389
Willis, H. Parker, 357, 359
Willoughby, William F., 552
Wilson, Woodrow, 437, 515, 560
Withers, Hartley, 170, 316
Witherspoon, John, 165
Wolman, Leo, 626
Wright, Chester W., 441
Wyman, Bruce, 459
Young, Allyn A., 464
Young, Arthur, 482
INDEX TO SUBJECTS
[The references are to pages]
Ability theory, 804
Accountancy, 146, 208, 299, 359, 377,
400, 403, 476, 874
Adamson Act, 401
American Alliance of Labor and Democ-
racy, 660
Americanization, 518-22
Arbitration, compulsory, 602
Assumption of risk, 573
Balance of trade, 315, 316, 324
"Banquet of life," 936
Boycott, 654
British Labor Party, program of, 878-89,
897
British National Insurance Act, 582
Business activity, rhythm of, 217
Business barometers, 245
Business cycle, 203-50, 561
Business enterprise, 144, 150, 197, 206,
307, 847, 892, 917
Canons of taxation, 802
Capital, no, 328, 423
Capitalism, 1 10-15, 488, 847, 858, 888.
See also Socialism
Catholic church, 72, 74, 83, 91, 874
Chamber of Commerce of United States,
634, 870
Chargmg what the traflSc will bear, 393
Child labor, 605-14
Class consciousness, 617-20
Classification of freight, 386
Clayton Act, 468, 469
Closed shop, 644, 648, 709, 788, 791
Collective bargaining, 641, 787, 788
College, function of, 933
Colorado plan, 736
Combination. See Monopoly
Commercial research, 368
Comparative costs, law of, 311
Compensation, workmen's. See Indus-
trial accident
Competition, 144, 156, 159, 161, 195, 384,
439. See also Laissez faire
Competition, unfair, 452-59
Complaints against railroads, 395
Concessions, 131
Conscription: of income, 804, 805; of
industries, 281; of men, 279
Constitutional law, 94, 95, 401, 408, 463,
612, 757, 769, 785, 786, 788, 791
Contract, 630, 775-84, 912
Control: agencies of, 26; basis of free-
dom, 57; by education, 922-34; in
gild period, 85; individualistic basis,
52; of industrial development, 890-
941; in industrial society, 1-56; need
for, 8, 48; within industry, 686-750
Co-operation, international 309; prin-
ciple of, 144, 158, 195. See also
Laissez faire
Corporation, 185-94, 378
Costs. See Accountancy, Incidence,
Price-fixing, Prices, Rates, War
Craft economy, 64, 69, 80, 85, 115, 709
Credit: elasticity of , 243 ; mechanism of ,
211
Crises, 215, 222, 226, 230, 248
Dartmouth College case, 773
Declaration of Independence, 93
Demobilization, 295
Depressions, 216, 232, 233
"Dilution of labor," 666
Discriminations in railroad rates, 383
Doctrine of stewardship, 91, 892
Domestic system, 98, 115
Economic cycle. See Business cycle
Economic insecurity, 545-614
Economic organization, 2, 141-62, 195-
202, 203-22, 251-306, 309-11, 798
Education, 874, 885, 908, 922-35
Efficiency, 122, 126, 284, 288, 449, 705-16
Eight-hour day. See Hours of labor
Elkins Act, 397
952
INDEXES
953
Emigration, 539
Employer's liability. See Industrial
accident
Employment management, 713, 745
Employment service. See Labor ex-
changes
Espionage, 653
Ethics: of competition, 159; of indus-
trialism, 892, 894, 921, 939; of specu-
lation, 176
Eugenics, 527-35
Evolution. See Progress
Excess-profits tax, 815, 821
Exchanges. See Speculation
Export associations, 369
Factory system, 112
Faculty theory, 803 ^
Family, 29
Federal Trade Commission, 469, 871
Fellow-servant rule, 574
Finance: national, 797-830, 888; war,
804-23; 839-47
Free trade, 313, 323, 324, 331, 35o, 372 374
Freedom of contract. See Contract
Germany, 126, 134, 284, 286, 361
Gild ordinances, 66, 68, 69, 83
Gild socialism, 860-70
Government, theory of, 30-59, 161, 751-
96, 847-70, 892-99, 917
Handicrafts. See Craft economy
Health, 578-86, 671, 714, 886
Hedging, 178
Hepburn Act, 398
Hours of labor, 401, 742, 743, 747, 784-87
Housing, 885
Immigration, 496-527, 53°, 59^
Incidence: of industrial accidents, 574;
of sickness, 580; of war finance, 807
Income tax, 811, 821
Increasing returns, 382
Individualism, 5, 32-52, 122, 284-95,
632, 762-96, 800, 912-17. See also
Competition, Laissez faire
Industrial accident, 566-78
Industrial arts, 61-71, 103-18, 252-64,
628, 697-716
Industrial councils, 716, 722, 731, 736,
739
Industrial development, 5, 60-140
Industrial organization. See Economic
organization
Industrial physiology, 714
Industrial revolution, 97-140
Inflation, 809
Inheritance tax, 827
Insecurity, 545-614
Instincts, 729
Insurance, social, 552, 581, 582, 584, 888
International labor standards, 746
International peace, 131, I37, 372, 374
International trade, 306-75, 873
Interstate Commerce Act, 397
Interstate Commerce Commission, 393,
397-401
Japan, 366, 535, 608
Key industries, 870
Labor, 46, 89, 118-22, 278, 502-21, 545-
796, 831-39
Labor exchanges, 556, 560
Labor policy, 663, 866
Laissez faire, 5, 32-59, i44, 754, 757-
See also Competition, Individualism
Law, function of, 758
Legal system, 751-796
Liberty. See Bill of Rights, Freedom of
contract, Individualism, Laissez faire
Literacy test, 513-16
Local trade, 80, 319, 353, 354
Luxuries, tax on, 819
McAdoo plan, 418 "
Machine. See Industrial arts, Technique
Malthus, theory of, 485-96
Malthusians, 490
Mann-Elkins Act, 400
Manorial economy > 61-77
Mediaeval church. See Catholic church
Middlemen, 169, 170, 171
Mid vale plan, 731
Minimum wage, 591-605, 742, 744, 793,
876
Mobilization, 274-95
Modern industrialism: antecedents, 60-
140; characteristics, 2. See also
Economic organization
Money economy. See Pecuniary organi-
zation
954
CURRENT ECONOMIC PROBLEMS
Monopolization, conditions of, 439-52
Monopoly, 380, 429-78, 596
Munitions, 264-74
National Association of Manufacturers,
632
National budget, 823
National defense, 370, 372
National Industrial Parliament, 727
National minimum. See Minimum wage,
Standards
Natural rights, 32, 92, 93, 764
Negligence, theory of, 572
Nonessentials, 286, 290, 293, 819
Opportunity, 6, 37, 48
Organic nature of society, xi, 3, 90, 204,
215, 892, 927
Ostracism, 655, 657
Panaceas, 899-904
Panics, 228, 240, 241
Peace. See International peace
Pecuniary organization, 141-202, 256,
917. See also Competition, Economic
organization
Physiology, industrial, 714
Plantation economy, 89
Plumb plan, 421
Politics in industry, 686-750
Population, 479-544
Pre-industrial society, 5, 60, 98
Price-fixing, 163-66, 476
Price-system, 146-56, 208, 917
Primitive culture, 130-40
Priorities, 280
Production, 180, 234, 239, 299, 443, 700,
879. See also Restriction of output
Programs of reconstruction, 870-89
Progress, 18-26, 156, 762, 834, 935
Property, 17, 91, 762-75
Prosperity, 321, 912
Protection, 249, 270, 319, 334, 351-60
Public expenditures, 798
Railroad Administration, United States
410-18 '
Railroads: plans for return to owners,
418-28; rates, 386-95; regulation,'
376-428; valuation, 402-10
Rates, railroad, 386-410
Reconstruction, 5, 13, 161, 197-202, 240-
50, 295-306, 370-375, 418-28, 471-79,
516-27, 539-44, 545-614, 666-76, 686-
750, 762-96, 822-30, 839-57, 860-941
Restriction of output, 631, 695-700. See
also Sabotage
Restriction of trade, 452-59, 462-70
Rights, Bill of, 92-96
Sabotage, 677, 680, 697
Saving. See War thrift
Scab, 652, 655, 657
Scientific management. See Efficiency
Sex war, 673
Sherman Anti-trust Act, 462, 464
Shipping, 364
Sickness. See Health
Social insurance. See Insurance
Social order. See Economic organization
Social reform schemes, 528, 751, 797,
831-89
Social surplus, 897
Socialism: gild, 860-70; state, 847-60,
877
Socialization of knowledge, 908
Speculation, 173-85
Standard of living, 586-91, 610, 880
Standardization, 113, 471
Standards: for children in industry, 741-
for women in industry, 743
Standards, international labor, 746
State. See Government
State vs. federal control, 388, 825
Statute of Laborers, 163
Stewardship, doctrine of, 91, 892
Strike, 650, 651, 653
Supreme court. See Constitutional law
Symbolism, 939
Syndicalism, 624, 677-685, 838
Tariff, 306, 375
Tariff Commission, United States, 347
Tariff history, 338-44, 347
Taxation, 797-830, 871
Technique, 46, 103, 107, 113, 270, 284,
549, 566
Tieing agreements, 456
Towns, mediaeval, 66-69, 80, 85
Trade agreement, 641
INDEXES
955
Trade conflict, 130-40, 360-75
Trades, organization of, 195, 197, 204
Trade-unionism, 615-85, 880
Transportation, 100, no, 376-428
Tricks of trade, 83, 357, 432
Underwood-Simmons Act, 344
Unemployment, 121, 197, 222, 231, 554-
66, 610, 749, 881
Unionism. See Trade-unionism, Syn-
dicalism
Unrest, 687-95, 832-34, 935
Utopias, 481, 529, 899-904, 915
Valuation of railroads, 402-10
Vocational education, 924
Voluntary enlistment: of factories, 275;
of industrial laborers, 278; of men, 274
Wage contract, 615-85, 784-96
Wage system, 64, 121
Wages, 334-38, 875. See also Wage con-
tract. Minimum wage
War: amateurs at, 288; business cycle
during, 234-40; casualties, 596, 839;
child labor, 606; concessions and,
137, 372, 374; cost of, 839-47;
economic strategy, 259, 286; finance,
804-23; labor policy in, 663; na-
tional unity during, 687; organiza-
tion for, 251-306; population and, 492,
541; price-fixing during, 166; rail-
roads in, 410-18; standard of living
during, 588; thrift, 290-95; unionism
in, 659-66; unrest during, 691
Webb-Pomerene Act, 369, 473
Whitley councils, 716, 722, 725
Women in industry, 666-76, 743, 874, 882
Works committees, 716, 722, 860, 876
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