,:{:;.•■;' . 'l'', '.■';:'■{' -Y>« wm,:-: ■'-:.::'^. •■;'*■ ;'■;.'■ ;-:. "■ /■ ■>',.'■::■ • ::\.:rv' ? . , ) r • ■ .' i; -J; ' ("^ '■" , _: ■ 0:.:'i a' ■'. ^ .^ ■ ."■ 1.', !'i ■•■-,'■ ^V;-;(t-^ ])[>:■•'':■>: :■■' ' ■'■-' -: .('..V.;;:' ; ' . . '^ ; -' - ■ >' ■ A ,- \' ... -■Vr^\\ ■■I ■.' ■/■: T 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 NEW TORK THE CAMBRIDGE UNIVERSITY PRESS LONDON THE MARUZEN-KABUSHIKI-KAISHA TOKYO, OSAKA, KYOTO, FUKUOKA, BBNDAl THE MISSION BOOK COMPANY 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^ 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