fc ilTY OF CALIFORNIA LOS ANGELES OVER-PRODUCTION AND COMMERCIAL DISTRESS. BY URIEL H. CROCKER. There is that scattereth, and yet increasetb; and there is that withholdeth more than is meet, but it tendeth to poverty. — Proverbs xi. 24. BOSTON ( i. a RK1 \ \ I) < \ i; i: i in. , i w \-hi ■<■. roa Stbbbt. 1-7. • • • • • • * • • • , . . University Phess: John Wilson and Son, Cambridge. H3 3 7 I I 2 V PREFACE. ""HE pages here presented to the public contain a revised and, it is hoped, an improved state- ment of certain views and arguments previously set 5: forth by the author in a pamphlet published in 1886, and entitled: "The Depression in Trade, and the Wages of Labor." Similar views and arguments have been the subject of various communications to newspapers and periodicals, written by the author dur- ing the last ten years, and collected and published by him in 1884 in a pamphlet entitled: "Excessive Saving a Cause of Commercial Distress." URIEL H. CROCKER. Boston, October, 1887. 386440 OVER-PRODUCTION XD COMMERCIAL DISTRESS. "^HE general and widespread depression in trade which, with the exception of short intervals of business prosperity, has now continued since 1873, has given rise to much discussion. The phenomena which are the evidences of this depression have been generally recognized, and people are in the main eed as to their character. Few persons will deny thai during a large portion of the period referred to, more products of almost every description have been created thau it has been possible to dispose of at a profit over the cost of production. Among the so- called raw materials, more iron, coal, cotton, and wheal have been produced than the market has nidi to call for. while of manufactured products greater quantities have in many cases hern supplied by thr factories than could be sold, except at a loss i<> the owners of the Factories. It has been the general complaint among tradesmen thai the margin of profii derivable from business has been small, and among capitalists that they could find for their funds no investments which promised favorable returns. These phenomena, however, might not have called for serious attention, except for certain other phe- nomena by which they have been accompanied. In the midst of all these evidences of plenty, in the midst of an abundance of the products of the earth and of labor, large numbers of the laboring-classes, though ready and eager to work, have often, by rea- son of the lack of any demand for their services, been compelled to sit in idleness, surrounded by an abun- dance in Avhich they had no share. This has certainly been a condition of affairs demanding attention from the student of political science, — a condition in which general abundance has existed only to cause general embarrassment, in which the rich have been com- plaining of the abundance because it has prevented them from disposing of their goods at a profit, and the poor have been complaining likewise, not only because the abundance has caused their labor to be unsought, but also because it has spread before them, as before the eyes of Tantalus, the things which they longed for, but were not permitted to touch. 1 1 The Keport of the minority of the recent Commission on the De- pression of Trade and Industry in England clearly recognizes these facts. This Report says (paragraph 57): " The great difficulty consists no longer, as of old. in the scarcity and dearness of the necessaries and conveniences of life, but in the struggle for an adequate share of that employment which affords to the great bulk of the population their only means of obtaining a title to a sufficiency of those necessaries and con- veniences, however plentiful and cheap they may be. Without that adequate share of employment, increasing masses of the people must Many theories to account for these unusual phe- nomena have been proposed. In this country it has been said that the trouble has been due to our protective tariff, which, it is claimed, has limited the market for the sale of our products. But the fact that the depression has been felt even more Beverely in free-trade England than in the United States, indicates that this theory cannot be the true one. In England, on the other hand, it has been urged that the trouble has been due to the free- trade policy of that country, which has flooded it with the products of other nations. But those who urge this view forget that the United States, whose policy has been to exclude foreign products, have been suffering from the same trouble, though proba- bly in a less degree. The professors of political economy have told us, in the language of Professor Bonainy Price in the "Contemporary Review' for April, 1877, that the cause of our trouble u is one and one only, — over- spending, over-consuming, destroying more wealth than is reproduced; and its necessary consequence, poverty." But if we have been suffering from past a precarious and miserable existence in the midst of plenty, no matter what the increase of the total wealth of the nation." In the tinted States the Buffering from want of employment has not re as elsewhere; but in the First Annual Ete- of our National Buret t Labor, the commissioner (Hon. Carroll D. Wright) estimates thai during the year ending July 1. 1885, there were in the l nited States a million of people who were seeking employment, were unable to and it; and he adds: "A million of people out of employment, crippling all dependeut upon them, means a loss to the con- ■umptive po I the country of at leasl $1,000,000. 00 per day, or a crippling of the trad.- of the country of o I, 1,000.00 per year." 8 extravagance, if we have been "destroying more wealth than is reproduced," surely we ought, as a result, to have found ourselves in the midst of a scarcity rather than an abundance of the products of labor, and instead of there being any difficulty in finding employment for all who wish to labor, every one ought to have plenty to do, and to be hard at work in making good the waste of the past. Indeed this theorv is so far at variance with the facts that it seems now to have been abandoned. Another favorite theory with the economists has been that the trouble has been due to mis-produc- tion ; or, in other words, to a foolish over-production of some things, while there has been a corresponding under-production of other things. But this theory also may fairly be set aside as unsatisfactory, unless those who advance it are able to point out, as it is evident they cannot do, what the articles are that have not been produced in quantities sufficient to meet the demands of the times, or at least to ex- plain how it is that, if there is any considerable amount of under-production (corresponding to the evident over-production of many articles), the many shrewd and watchful capitalists, whose money has been lying idle for want of investment, have not used their funds, and why the many laborers, who have failed of employment, have not employed their labor in relieving the scarcity of the under-produced articles ; scarce articles or, in other words, articles the demand for which is in excess of the supply, being exactly what all men, capitalists and laborers alike, 9 have in recent years been endeavoring, though sel- dom with success, to discover. Another theory has traced all the trouble to the disinclination of the business community to engage in new enterprises by reason of a fear that the continued coinage of silver would lead to a shifting of our cur- rency from a gold to a silver basis, whereby the value of the dollar would be diminished by some twenty per cent, and much confusion and disaster thereby brought upon all kinds of business. The objections to this theory are numerous. In the first place, the most active business men usually trade on borrowed capital, and the prospect that they would be able to pay their debts in a depreciated currency would naturally induce them to extend rather than to diminish their opera- tions. In the second place, common observation of the talk of business men shows that the prospect of trouble from this cause has been to their minds too remote to influence largely their conduct. And thirdly, those who are accustomed to loan money, although they are the class who arc sure to suffer from a depreciation of the currency, and although they are always on the look-oul tor symptoms of a coming depreciation, have not frit thai the danger of such a result was greal enough to prevenl them from loaning their funds at Ve|-\' low PateB of interest, or tO lead them, except in rare instances, to insist, when making a, loan, thai the borrower should agree to repay it in gold. Finally, a th •y which is in some respects more plausible than any of those before mentioned, has re- cently been advanced by the economists. This theory 10 represents the depression in trade to be due to the de- monetization of silver, which, by increasing the value of gold, has diminished the value, as measured in dol- lars, pounds sterling, or francs, of all other articles, and thus has discouraged and depressed trade by giving it a continually falling market for all kinds of merchan- dise. With regard to this theory it may be remarked, in the first place, that the improved methods and in- creased facilities for exchange and for the payment of debts without the actual use of gold or silver, which have been brought about in recent years, must have gone very far to counteract, if they have not more than counterbalanced, any tendency in gold to increase in value. Secondly, a falling market was a result which might naturally have been expected to follow a cause very different from that suggested by those who advance this theory. A falling market was a necessary result of the cheapening of products caused by the great in- crease which has taken place in the effectiveness of the machinery of production and distribution, and which has largely reduced the price of every article that is produced by machinery or transported by railroad or steamship. Indeed, we may well wonder that a fall in prices, greater than that which has actually been ex- perienced, has not been brought about by our factories, railroads, and steamships. A third objection to this theory is to be found in the fact that the demonetiza- tion of silver could have increased the value of gold only by increasing the demand for the latter metal ; and that during the time when this demand was in- creasing, those who felt the increasing want of gold 11 must have been willing to pay more liberally than be- fore for the use of it, — in other words, must have been ready to agree to pay higher rates of interest when they borrowed it. Under these circumstances the gen- eral rate of interest would have tended to be, for the time, higher than it had previously been. But as a matter of fact, the last ten years have been notable, not for high, but for low, rates of interest. None of the usual symptoms of a scarcity of money have been observed. Speculators and the debtor class have not been specially embarrassed. There has been no un- usual number of failures, and no general want of confi- dence in the solvency of the business community. For these reasons, this theory, like the others, fails to meet the conditions of the problem. 1 It is quite common for those who write concerning the causes of the depression in trade to begin their essays on the subject with some remark to the effect that many people suppose the trouble to be due to general over-production, but that any such idea as that could be entertained only by ignorant persons, who, if they were acquainted with the simplest prin- ciples of political economy, would know that general over-production is, in the nature of things, an absolute impossibility. 2 When the theories of the learned con- 1 The objections to this theory have been very well stated in an article by Dr. Th. Barth, in the Berlin " Nation " <>f Dec. 5, 1885, a translation of which article appeared in the •' New York Evening Post " of Dec. 30, l--:.. 2 Thus, in an article by Moreton Frewen on " Gold Scarcity and the 1 depression "f Trade," in the " Nineteenth Century" for October, 1885, %ve read: " People of little education are accounting for low prices on tin' hypothesis of :i general over-production ; but it is hardly necessary to point 12 flict with popular ideas, it sometimes turns out in the end that the learned were wrong, and the people right, — that the finely drawn arguments, on which the former built their theories, involved fallacies fatal to the truth of their conclusions, while the rougher rea- soning processes of the latter led them by a sort of instinct to true results. By general over-production is meant, not a production in excess of mankind's readiness to consume, if products were to be distributed gratuitously, but a production in excess of the demand which is backed by both the inclination to acquire and the ability to pay for the things demanded ; 1 and those who claim that such over- out that, while over-production in any particular trade is frequent, and quickly adjusts itself, general over-production is impossible." And Mr. Edward Atkinson, in an address on the " Statistics of Consumption," printed in the Boston " Sunday Herald " for July 5, 1885, says: " I desire to examine the outside of the head of any one who pleads a general over- production, in order to see how his brain is constituted, and what element of common-sense has been omitted in his make-up." 1 That it may not be supposed that this use of the words "general over-production " is peculiar to the writer of these pages, the follow- ing quotation from Mill's "Elements of Political Economy" is given: "Because this phenomenon of over-supply and consequent inconvenience or loss to the producer or dealer may exist in the case of any one com- modity whatever, many persons, including some distinguished political economists, have thought that it may exist with regard to all commodi- ties, — that there may be a general over-production of wealth, a supply of commodities in the aggregate surpassing the demand, and a consequent depressed condition of all classes of producers. . . . There may easily be a greater quantity of any particular commodity than is desired by those who have the ability to purchase, and it is abstractly conceivable that this might be the case with all commodities. The error is in not perceiving that though all who have an equivalent to give might be fully provided with every consumable article which they desire, the fact that they go on adding to the production proves that this is not actually the case." — " Elements of Political Economy," by John Stuart Mill, Book III., ch. xiv, sections 1 and 3. 13 production is possible, certainly have an appearance of facts in their favor. They say that it is possible, be- cause it has actually existed ; and as evidence of the truth of this assertion they point to the fact that the chief producers in every branch of industry (and these men may well be supposed to be acquainted each with the state of the market for his own products) have long been asserting that in their respective lines of business there has been an evident over-production. Factory- owners have, for this reason, been working their fac- tories below their full capacity, and have endeavored to reduce the aggregate of production by agree- ments with others in the same business, whereby the products of each should be limited to a prescribed amount. If there has been evident over-production in all the more important branches of business, what can be the brandies in which there has been an amount of under-production sufficient to redress the balance and leave the world with, on the whole, no excess of pro- duction beyond the demands of the market? Unless such instances of under-production can be pointed out, it is evident that general over-production, as an act mil and existing fact, must be admitted. 1 1 Among the evidences of the actual existence of this over production we may refer t" l>"th tie- majority and minority Reports of the English "Commission on the Depression of Trade ami Industry." The majority Report -ays (paragraphs 61 66): - One of the coramonesl explanations of this depression or absence of profit is thai known under tin- name of ' over- production;' by which we understand the production of c modi ties, or even the existence of a capacity tor production, at a time when the i\>- mand i- not sufficiently brisk to maintain a remunerative price to the pro- ducer, and to afford him an adequate return on his capital. We think thai Buch an over-production ha- been one of the prominent featun the> during recent years, and that the depression under 14 If, then, general over-production is apparently an existing fact, it will be well to examine the argu- ment which has been supposed to prove it to be in the nature of things an impossibility. The argument upon which all modern economists rest for this proof is that which was furnished many years ago by John Stuart Mill, and is in substance as follows : No man labors to produce anything unless he expects either to consume it himself or to exchange it for something; else which he expects to consume. In other words, pro- duction never exists unless an equivalent demand for consumption exists at the same time ; and therefore which we are now suffering may be partially explained by this fact. . . . The remarkable feature of the present situation, and that which in our opinion distinguishes it from all previous periods of depression, is the length of time during which this over-production has continued. A tem- porary excess of supply over demand will naturally occur from time to time in the case of all commodities. . . . But it is more difficult to account for systematic over-production continued during a long period, and re- sulting, according to the unanimous testimony of the witnesses who appeared before us, in little or no profit to the producing classes." Similar statements may be found in the Report of the minority of the Commissioners. That Report says (paragraphs 71-75) : " One of the com- monest explanations of the depression of trade and absence of profit is that which attributes it to over-production ; by which we understand the production of commodities (or existence of the agencies of production) in excess, not of the capacity of consumption, if their distribution were gratuitous, but of the demand for export at remunerative prices, and of the amount of income or earnings available for their purchase in the home market; that is, of profitable employment for the population. The de- pression under which we have so long been suffering is undoubtedly of this nature. . . . The remarkable feature of the present situation, and that which, in our opinion, distinguishes it from all previous periods of depression, is the length of time during which this over-production, or existence of the capacity of over-production, has continued. There must be some special cause for systematic over-production, or over-provision of the agencies of production, continued during so long a period, and result- ing, according to the unanimous testimony of the witnesses who appeared 15 production can never exceed in amount that demand for consumption, — can never be developed into gen- eral over-production. According to Mill, those who assert the possibility of general over-production are involved in the absurdity of assuming that people will go on producing articles which they do not ex- pect to use themselves, or to exchange for other articles which they do expect to use ; and their error lies — to quote his own words — "in not perceiving that, though all who have an equivalent to give might be fully provided with every consumable ar- ticle which they desire, the fact that they go on before us, in an entire absence of profit on large classes of commercial operations." Again, this Report says (paragraph 106): " We have shown . . . that the demand for commodities does not increase at the same rate as for- merly, and that our capacity for production is consequently in excess of our home and export demand, and could, moreover, be considerably in- creased at short notice by the fuller employment of labor and appliances now partially idle." Hon. Carroll D. Wright, in his Report before referred to, says (p. 254): " It is apparent, from the statistical illustrations given in the pre- ceding chapters, that the family of manufacturing states, Great Britain, France, Belgium, Germany, and the United States, if not also Austria, Russia, and Italy, are suffering from an industrial depression, novel in its kind, and yet having characteristic features of similarity throughout the whole range of states. It seems to be quite true that in those states the volume of business and of production has not been affected disastrously by the depressii m, but that prices have been greatly reduced, and margins of profits carried to the minimum range. Over-production seems to prevail in all alike, without regard to the system of commerce which exists in either." And again, on p. 261: "The besl European authorities agree that the circle of producing nations bas been so enlarged as to make the means of production far in excess of the i Is of consumption." The evidences of general over-production are also Bet forth with much detail in the articles on "The Economic Disturbances Bince 1873," l>v Hon. David A. Wells, now appearing in the " Popular Science Monthly" and in the "Contemporary Review." 16 adding to the production proves that this is not the case." * As applied to a simple state of society, where pro- ducts are created without much division of labor and without much aid from machinery, the application and the force of this argument can readily be seen. Where one man makes hats, another coats, another boots, another raises wheat, another bakes bread, and so on, through the varied round of industries, it is evident that the maker of hats will work only so long as he may be in want of and intending to ob- tain — as soon as by the sale of hats he shall have supplied himself with the means of purchase — other consumable articles ; namely, coats, boots, bread, etc. As under these circumstances the production of con- sumable articles is called into action only by the desire and intention of the producer forthwith to ob- tain other consumable articles, the demand for con- sumption must always be as large as the production. Such a simple state of society, however, no longer exists. Modern society has brought in, to complicate the problem which Mill attempted to solve, at least one new and important element ; namely, the immense amount of machinery which now increases a hundred- fold the effectiveness of human labor. And the use of machinery has had one curious effect which Mill entirely overlooked ; namely, that its owner finds an inducement to employ it in the production of con- sumable articles even when he has no hope or expectation that he can by such production supply i See Mill's Elements of Political Economy, Book III., ch. xiv. 17 himself, directly or indirectly, with any consumable article for his own use. The factory-owner, for in- stance, has upon his hands a piece of property which, if idle, will involve him in continual expense for its care and its protection from the weather, from fire, and from thieves, and which, in spite of all that he can do to preserve it, will rapidly deteriorate through rust and decay. The owner of an idle factory must also suffer a further injury from losing the skilled workmen who have been accustomed to run his machinery, and from forcing the customers, who have been in the habit of buying his products, to patronize rival manufacturers ; for to fill the places of those workmen and to find new customers, when his factory starts up again, must necessarily involve him in great trouble and expense. Thus we see that the owners of machinery — a large and powerful body in the modern world — have a sufficient inducement to "go on adding to the production ' even when they are •• fully provided with every consumable article which they desire." In order to avoid the loss which must necessarily come to them if their machinery is allowed to renin in idle, they will employ that machinery in production even when they know that the articles pro- duced must he sold for less than the cost of produc- tion. They will produce simply in order to save what they already possess, and with no thought or hope to gain anything which they desire, hut do not possess. Production, therefore, is found to have a possible origin in :i source other than the desire to obtain consumable articles; and .Mills argument fulls to the ground as 18 completely as it would if men had begun to labor for production merely from a love of exercise and with no care for the products of their labor. Not only is it possible, theoretically, that men may thus labor and produce without any purpose or hope thereby to acquire consumable articles for their own use, but it is evident that during recent years much machinery has in fact been run without profit, or at a loss, to its owners, — run simply because those own- ers believed that they would suffer a smaller loss if they should continue to run it than if they should allow it to lie idle. It has in recent years been a matter of common observation that most kinds of machinery have been created of a capacity in excess of the demands of the market for the products which the machinery has been adapted to produce. There has been hardly a branch of manufacture, open to free competition, in which the machinery has not within the last ten years been run for long periods at a loss, simply because its owners have hoped to "kill off" rival manufacturers, to "hold the market" in antici- pation of better times, or to avoid the deterioration and expense necessarily attendant upon idleness ; and there is hardly any branch of manufacture to-day — unless it is, through a patent right or otherwise, in the enjoyment of a monopoly — which is not endeavor- ing to limit production by all sorts of mutual agree- ments, known as "pools," "trusts," etc., and thereby to prevent the continuance or recurrence of the troubles which it has experienced and of the losses which have resulted from the excessive amount of its machinery 19 and from its general capacity of production in excess of the demands of the market. If, then, general over-production is not, as Mill and the economists generally have supposed it to be, a natural impossibility, but a condition of affairs which might reasonably be expected to result from causes that we know to be at the present time active and pow- erful, it becomes important to consider whether the phenomena which constitute what is known as the depression in trade are such as might naturally have grown out of a general over-production. As has been before stated, the most noticeable phe- nomena involved in the recent depression have been, first, the supply of manufactured products in excess of the demands of the market ; second, the inabil- ity of the laboring-classes to find employment ; and third, the loss of income by the rich, and of wages by the poor, and the general decline in the profits derivable from all kinds of business. Over- production plainly accounts for the excessive supply of products; but the manner in which the other phe- nomena mentioned have arisen out of over-produc- tion calls tor .some explanation. This explanation, however, it is not difficult to give. It is a matter of common observation that whenever articles are pro- duced in excess of the market demand for them, there must result a competition among the different owners of those articles, whereby prices will be re- duced and profits destroyed; and thai soon the I able or less enterprising producers musl bo driven t<> abandon production, and thereby to throw out of 20 employment the laborers who had previously worked for them. At the same time the fact that the owners of the existing machinery of production and distri- bution cease to derive their usual income from that machinery, must tend to stop the building of new machinery ; and thus large numbers of men, ordinarily employed in the erection of new factories, the build- ing of new railroads, etc., must find that they too have lost their employment. In these facts we have a simple explanation of the manner in which general over-production must necessarily bring about a loss of employment and of wages for the laboring- classes, and a loss of income for the rich ; and when both rich and poor have lost their usual ability to purchase such consumable articles as they may desire, it is plain that all kinds of business must be depressed, for the profits of business must depend upon the number of customers and upon their ability and will- ingness to purchase. If general distress and embarrassment have thus been caused by the attempt of the owners of the world's vast amount of machinery to save themselves from the losses which must necessarily arise out of the excess of the capacity of that machinery for production beyond the demands of the market for the products, an interesting question arises as to the causes which have called into being this excessive amount of machinery. These causes, however, are not difficult to discover. In recent years there has been, in the principal nations of the world, an almost universal struggle among men to obtain what we may call income- 21 producing investments; that is, investments which will during future years render annual returns to their owners, and thereby enable those owners to avoid, in whole or in part, the burden of labor for their daily support. Such investments necessarily consist in the main, either directly or indirectly, of the ma- chinery of production and distribution, — of factories, warehouses, railroads, steamboats, etc. The acquisi- tion of these income-producing investments has been thought to be almost, if not quite, the chief end of man. The most generally accepted gospel of these latter days has been that of economy, and the duty most urged upon men from the Pulpit and by the Press has been that of saving rather than spend- ing, — the duty of self-denial of present enjoyment of the good things of life, in order to accumulate a store of good things or a means of acquiring good things in the future. No man has been thoroughly respected by his neighbors unless he has, according to his means, been adding to his store of income-pro- ducing investments. The well-to-do mechanic has been adding to his by deposits in the savings-bank. The citizen that has accumulated investments to the amount of ten thousand dollars, has been endeavor- ing, by a life of self-denial, to increase those invest- ments to a hundred thousand. lie that 1ms had a hundred thousand has been looking forward to and laboring to brine: about the time when he could enroll himself among the millionnaires. He that has had ;i million has been hoping and working to treble <>r quadruple his million before he died. And Vanderbilt, 22 with his reputed two hundred millions, was recently saving up each year many millions out of his income, that he might therewith acquire new machinery of production and distribution. While there has been no attempt to fix a limit to the extent to which this mania for accumulating invest- ments might be carried, the law has been set at work to curb any who might be inclined to go too far in the other direction. He that has been desirous of spend- ing more than his income, has been put under guar- dianship as a spendthrift; and the father who has feared that his children would be too free in the use of the investments that he had accumulated, has left his estate in the hands of trustees, that thereby the possibility of encroachment on the principal might be prevented. Thus men have gone on increasing their investments in the machinery of production, un- mindful of the fact that such machinery is valuable only so far as it creates products for which there is a demand in the market, and that if the demand for consumption fails to keep pace with production, the machinery of production must be, to just the ex- tent by which that demand lags behind, superfluous, useless, and without profit. Men have acted as if they supposed it to be possible to cut down to the lowest limits the consumption of consumable articles, and at the same time to afford the largest field for the profitable employment of machinery and of labor in the production of those consumable articles. Under these circumstances it is surely no wonder that machinery has been created with a capacity of 23 production far in excess of the demands of the mar- ket for its products, and that products of all kinds have actually been created in excess of those demands, — in a word, that general over-production, with its train of resulting evils, has become an existing fact. Products of all kinds have filled the markets in continu- al lv increasing quantities, while the market demand for those products has fallen short of a corresponding increase by reason of the non-existence of an in- creased ability in all, the rich as well as the poor, to purchase the products, — the ability of the rich hav- ing been restricted by the loss of the dividends from their investments, and by the loss of the profits of business generally; while the ability of the poor has been cut down by lowered wages and by the want of employment due to the closing of factories, to the stoppage of operations for the creation of new ma- chinery of production and distribution, and to the smaller calls made by all kinds of business for the assistance of labor. One peculiar instance of the correspondence of observed facts with results to be anticipated theoreti- cally, remains to be mentioned. If the recent depres- sion in trade has resulted from over-investment and consequent over-production, any particular country, tin' circumstances of which had given exceptionally large opportunities \'<>v investment and for consump- tion, might be expected t<> have been, in comparison with other countries, relatively exempt from the <'\il symptoms of the depression. Fortunately for our argument, the history of recent years furnishes a 24 striking example of exactly this phenomenon. At the conclusion of the war between France and Ger- many, the former country was left with its territory devastated by the armies which had fought within its borders, - - its factories, its warehouses, its dwell- ings, and its railroads had been laid waste. Germany, however, had suffered comparatively little ; the war had not been fought on its soil, and the expenses which it had incurred had been in large part repaid to it by the millions of the indemnity which it had extorted from its fallen foe. But notwithstanding all these facts, which, according to all accepted principles of political economy, ought to have caused the war to be followed by prosperity in Germany and by dis- tress in France, history shows that it was Germany that suffered, while France prospered, — the general depression in trade at that time having been felt more severely in Germany than in England or in the United States, while France was wholly exempt from it, all her people being able to find work and employment in repairing and making good the waste of the war. We believe that this fact, though easily explained upon the theory which is here advanced, is wholly inexplicable upon any other theory that has ever been suggested. Before leaving this branch of our subject it may be well to suggest that the views here presented in- volve no denial of the fact that the desire to acquire income-producing investments is an element of the greatest importance for the development of human progress. Substantially all the advance that has thus 25 far been made in civilization has been built on this foundation. The only claim here presented is that this element may, like almost everything else in human affairs, be so excessive in amount as to be, for a time at least, mischievous rather than benefi- cial in its effects. One need not be supposed to deny the benefit or the necessity of food for the human body, because he claims that the gratifica- tion of an inordinate desire for food mav result in injur}' to health, or even in the destruction of life itself. If the arguments and conclusions set forth in the preceding pages are sound, many questions arise as to the future workings of the natural laws, the exist- ence of which we have sought to establish, and as to the possible remedies, if any there are, for the present troubles. The doctrine of the impossibility of general over-production is one that lies at the basis of the whole of the accepted system of political economy; and if the doctrine is proved to be false, the greater pari of that system will have to be reconstructed. Mill himself says: "The point is fundamental; any difference of opinion on it involves radically different conceptions of political economy, especially in its practical aspect. On tin; one view, we have only to consider how :i sufficient production may he com- bined with the best possible distribution; hut, on the other, there is ;i third thing to he considered, — how ;i market can be created tor produce, or how pro- duction can lie limited to the capabilities of the 26 market." ' If, as we have endeavored to prove, it is possible that there should exist a production which should for a time be, in its general aggregate, in ex- cess of the demands of the market, it is evident that, as Mill asserts, many new questions, which have here- tofore been ignored by the economists, come to the front and call for an answer; and if, as we claim is the fact, production has in recent years exceeded the demand for consumption, whereby much em- barrassment to business and much suffering for the laboring-classes have resulted, it is evident that the even balance that should be kept between produc- tion and the demand for consumption cannot be re- stored unless either the latter element is increased, or the former one diminished. There are evidently many ways of reaching either of these results. On the one hand, the demand for consumption may be increased by the action of gov- ernment through the waging of costly and destruc- tive wars, the maintenance of large armies and navies in time of peace, or the erection of costly public buildings and public works. It may be in- creased by the richer classes through a more liberal expenditure on luxuries, or through a more generous use of their wealth in the distribution of charities among the poor. It may be increased by the poorer classes through a fuller enjoyment of the comforts of life ; but this mode of increase is not directly dependent on the simple volition of the persons com- posing those classes, for before they can increase 1 Mill's Elements of Political Economy, Book III. ch. xiv. sect. 4. 27 their demand for consumption, it is necessary that they should receive larger wages than at present, or at least washes which, if not larger as measured in dollars, will be larger in purchasing power. Finally, the demand for consumption may be increased through the opening of new fields for the investment of capital, — as, for example, if a new mode of transportation should be invented which should serve as a substitute for railroads. On the other hand, production may be diminished ; and this also may be accomplished in various ways. Production may be diminished through the destruc- tion of the machinery of production and distribution by war, riots, floods, or conflagrations. It may be diminished through the refusal of mankind to avail itself of the assistance of labor-saving machinery. It may be diminished by the enforced idleness of large classes of people, as by preventing convicts in prisons from performing any useful labor, or by the tempo- rary closing of factories and the temporary stoppage of machinery. This closing of factories, however, though it has been practically tried more than any other Bupposed remedy, is liable to the objection that, while diminishing production, it reacts upon and at th<' same time diminishes the demand for consump- tion ; For. by throwing Large numbers of working people out of employment, and thereby depriving them of the means of purchasing the articles which they desire, the demand for consumption is dimin- ished, and the total result of the process may well he to increase the disproportion between production 28 and the demand for consumption, rather than to lessen it. Finally, production may be diminished by reduc- ing the hours of labor through the adoption of eight- hour laws or otherwise. Most of these methods of increasing the demand for consumption or of diminishing production are lia- ble to evident objections that prove them remedies to be avoided rather than sought for, — remedies which are in fact worse than the disease which we wish to cure. There are, however, two of these sug- gested modes of relief which may w r ell engage our attention. If we can hope to relieve the troubles of the time by increasing the consumption of the good things of life by the poor, or by reducing their daily hours of labor; or by a combination of these two remedies, whereby the poor shall both enjoy more and work less, — have more to enjoy, and more time to enjoy it in, — we surely shall have reached a result much to be desired. If, however, the res- toration of the equilibrium between production and the demand for consumption is not gained in any other way, it will necessarily be reached at last by the decrease in the desire for income-producing in- vestments, which must follow a large decrease in the amount of income derivable from those investments. If, by reason of the over-crowding of the field of investment and the consequent competition between the owners of the various kinds of invested property, the usual rate of annual returns from such property shall be reduced to one or two per cent, many per- sons will feel that, rather than save a thousand dollars, 29 for instance, for the sake of the ten or twenty dollars of annual income to be derived from it, they will do better if they spend their thousand in articles of present enjoyment, — if they make sure of a large present good rather than trouble themselves with efforts to secure what can at best be but a trifling income for their later years. Nor should we overlook the fact that the process of the reduction of the rate of income to be derived from invested property, though bringing us in the course of its development, as we have endeavored to show, to times of general distress for all classes, is, in its final result, a beneficent process. A reduction in the rate of income from invested property means in the final analysis that the world pays less than it has before been paying for the use of its machinery ; that labor is obtaining a larger share, and capital a smaller share of the compensation paid for produc- tion ; that of the price of every article purchased for consumption by the rich or by the poor, a greater proportion goes to pay for the labor, whether of hand or of Inain, that has been expended in its production or transportation, and less for the use of the machin- ery which lias helped to produce it or to transport it to the consumer. The evils, then, which result from an excessive investment of capital in machinery are only temporary. The evils of general over-produc- tion, of glutted markets, and of enforced idleness and consequent u;mt among the poor, are only the re- sults of tin- irregular flowing <>! a stream whose genera] course tends surely towards the improve- 30 ment of mankind and the lessening of the inequali- ties between the rich and the poor. It has been the purpose of this essay to show how the irregularities in the flow of this stream, the temporary chokings of its current, have been caused, and how depression in trade has resulted from these irregularities in the working of a process which, if it were regular, could operate only to the good of mankind. Our theory teaches us also that mankind, in failing to avail itself more fully of the facilities for comfort and for enjoy- ment which a full use of its machinery and of its laboring men, anxious for employment, would give, is almost wantonly wasting its opportunities. If such be the fact, to find out and to promote the means best fitted to bring this waste to an end is surely a subject most worthy of our thought and our labor. APPENDIX. "'HERE are several collateral results of the views developed in this pamphlet to which it may be well briefly to refer. First. It may be remarked that although in the future a largely increased demand for the machinery of production and distribution may be brought about by a general in- crease in the wages of labor, or by other causes, the desire to obtain income-producing investments is so powerful and so general among all classes of people that it is probable that the field of investment will hereafter remain permanently over- crowded, except when it may be cleared for a time by the destruction due to a great war, or by an invention which shall call for a large investment of capital in a new kind of machinery. Such over-crowding must mean great competi- tion within the field, wherever competition is possible, and great competition must mean small profits for the competitors. Manufacturing business, therefore, in the future, when it bas no monopoly, but is open to the competition of all com- ers, may be expected to return only small profits. Railroads, however, when free from competition, as they must often be, and when free also from legislative interference, may be ex- pected to pay large dividends, tor their business must con- tinue to increase in volume. For real estate, advantageously situated, a Large increase in value may be anticipated, unless too great a portion of the rents is taken by taxation to be 32 wasted or squandered by incompetent or corrupt govern- ments. Under such circumstances money can of course command only low rates of interest. Periods of relief from this general condition of affairs may, however, be expected to occur whenever people are led (as they were in 1881 and 1882) to make a sudden and general move in the direction of accumulating stores of manufactured products in preparation for an anticipated rise in their value. But any such period must always be followed by a time of reaction, when a gen- eral desire to dispose of the accumulations will glut the mar- kets with the products that have been accumulated, and thus will interfere with the regular disposal of the usual products of the year. Second. Another consideration resulting from the views set forth in this pamphlet is this : If the closing of factories and the throwing of laborers out of employment finds its original cause in an excessive desire on the part of the general pub- lic to acquire income-producing investments, it would seem that the sufferers from the results thus brought about might fairly have some claim on that public, as represented in and by the government of the state or nation, for relief from the suffering thus created. If the action of the community as a whole, through the general excess of the desire to accumu- late, is such as to leave labor unemploj - ed and starving in the midst of abundance, may not the idle and starving labor- ers fairly claim that the government, which represents the community at large, shall find and supply them with that employment, that means of earning a livelihood, which indi- viduals have failed to furnish? A new light is thus thrown on the question of the policy of establishing public work- shops and carrying on public improvements for the purpose of giving employment to the idle. The objections to such measures, on grounds not here noticed, may be insuperable ; but the above considerations afford a strong argument in 33 support of the view that under certain circumstances it may be the duty of a government to relieve public distress in this way. Third. It may be remarked that the theor}^ here ad- vanced suggests a way in which a protective tariff may bene- fit the country which imposes it. If a country, on account of its undeveloped condition, or for any other reason, affords greater opportunities and a larger field than other countries for the profitable investment of capital, it may, by lim- iting as far as possible, through tariffs or otherwise, its communication with those countries where the field of invest- ment has been more crowded, postpone the time when the effects of the competition among investors will cause depres- sion in trade and general distress within its own borders. Perhaps, however, this merely shows that a country may by a protective tariff delay the march of its own progress in civil- ization, and thereby postpone the time when it is to suffer from some of the necessary, though unpleasant, incidents of that progress. America, with its less-crowded field for investment, may, by a tariff, prevent the capital of Great Britain from compet- ing with its own capital on equal terms, and may thereby keep its rate of income from investments up to a higher figure than the English rate. In ocean commerce English and American capital have competed on exactly equal terms ; and the former, being the cheaper capital, — that is, the capital thai was content with the lower rate of interest, — has neces- sarily driven nut of the field the dearer capital of America. So if, by the removal of existing duties. English capital shall be enabled to comjpete in American markets in the produc- tion of any given article of manufacture, with (inly a slight item of ili'- cosl of transportation from England t<> America operating against it. it may be expected (<> be < •< j 1 1 :i II %■ ef- fectual in driving American capital out of thai field, or ;ii 34 leas-t in forcing it to be content with a lower rate of profit than it had previously been accustomed to. But while this latter result might be, for reasons before stated, in certain ways productive in the end of good, it would, for a time, at least, cause a stoppage of our factories, a dismissal of our laborers from employment, and a general disturbance in our prosperity. The general movement which has lately begun in the prin- cipal nations in favor of protective taiiffs is a natural result of the desire to avoid the evil effects of over-production. Each nation has been endeavoring to sell its superfluous pro- ducts to its neighbors, while each neighbor has felt that any foreign products which were admitted within its borders tended only to increase its own glut of products, to destroy the profits of its manufacturers, and to lower the wages of its laboring-men. Under these circumstances it has readily seemed to be the true policy of each nation to receive as little as possible of the products of other nations, and at the same time to supply other nations with the largest possible amount of its own products. Such a policy might, for a time at least, help the nation that should adopt it, if other nations did not retaliate by the adoption of a similar policy. But if a protective policy is generally adopted by the principal nations, as present indications suggest that it may be, the only result will be that each, while it secures the whole of its own mar- ket, will lose the foreign markets for its products ; and thus no one nation will make any gain on the whole, except that if it has been receiving from abroad more products than it has sent abroad, it may relieve or delay for a time the mischiefs of over-production within its own borders. Fourth. The theory presented in these pages throws a new light on a question that has of late been much mooted ; namely, that of the policy of restricting immigration. If the people of the United States have been suffering from a 35 general over-production which has rendered it for a time impossible for large numbers of our laboring-classes to obtain employment, it is evident that this mischief must be intensified, and that any distress inflicted on our laborers by their want of employment must become sharper and more widespread if additional laborers are brought from abroad to compete with and to take the places of the laborers previ- ously here. This view of the question is in accord with that taken by the laboring-classes themselves, who have felt the effects of the competition of the newly imported labor- ers. Political economy, however, has taught that this is only a superficial view of the matter, and that a more thor- ough understanding of the subject should satisfy us that every addition to a nation's muscle, able and willing to labor, must necessarily and under all circumstances be benefi- cial to the nation. Our theory shows that the popular view is not so faulty after all, and that, under such circumstances a- have recently existed, an added force of imported laborers may for a time work injury rather than benefit. Fifth. The fact that the mischievous consequences of general over-production are being developed at a time when the laboring-classes (who are the chief sufferers from it) are beginning to find that the actual control of the world is in their hands, it' they only have the inclination and (lie intelli- gence to grasp that control, is an important element not t>» lost sight, of in any consideration of the subject. The laborin sea are everywhere struggling in a blind way bring about some amelioration <>f theii social condition, and there will always be leaders ready to turn their honest efforts I'm- that end to tie- work of murder, rapine, and anar- chy. Those who would keep the masses back from following these leaders musl be prepared to hold out to them some hope of relief from their troubles. If all that the educated classes, if all that political science, can say to the poor and 36 the ignorant is that they must, by reason of some past errors of legislation concerning the currency or the tariff, submit to starve in the midst of abundance, we may well fear that there will be shortly a sudden upheaval and an outburst of ter- rible forces. There is no subject calling more urgently for immediate and careful study to-day than this of the causes of the present labor-troubles; but the subject is a difficult one, and there is a very general disinclination to discuss it except in the most superficial manner. Educated people suppose that the professors of political economy have a thor- ough knowledge of the whole matter, and that this knowl- edge is so deep and so abstruse that it cannot be acquired by those who have not made a special study of economic science. The professors, on the other hand, go blindly ahead, working out their old regulation theories, unwilling to re- examine the foundations of those theories, and turning aside with silent contempt from any one who suggests that there are truths in economic science of which they are as yet ignorant. There is much in the present condition of affairs that sug- gests a comparison with the condition of France prior to the great Revolution of 1789. Then, as now, social inequalities had become strongly marked and exceedingly offensive. The masses, in their blind struggle to overthrow the " divine rights " of kings and the privileges of the nobility, burst all barriers and created for a time a reign of terror. The result was, however, in the end a large recognition of the equal rights of men throughout the civilized world. Since that time, and until recently, men have had fair opportunities to create their own position in the world, to rise by their own exertions from the lowest to the highest ranks. But latterly a new barrier has been growing, and the distance betw r een the rich and the poor has been widening. Vanderbilt, Gould, and a few others, have seemed to be in a fair way to absorb into their own possession all the income-producing wealth of the 37 country, — at least all that large part of it which takes the form of the ownership of railroads ; while great numbers of the poor have been so situated that, though anxious to earn their living, and though surrounded by abundance, they have been forced to starve in idleness. Can it be expected that now, any more than in 1789, the masses will submit quietty to a lot of suffering and privation which they feel is due to no fault of their own, while wealth, and the comforts and luxuries which wealth gives, concentrate themselves in the hands of a few, and those few apparently not the most deserving? It is to be hoped that the vis medicatrix naturae will soon cure our present troubles, and that an improved condition of the masses will come without active interference from any man or body of men ; but if relief does not come in this way, if an application of the heartless laissez-faire principles of the economists does not soon work out re- lief, we may expect to hear of vigorous efforts on the part of the sufferers to obtain that relief by violent measures. The recent riots in London and in Belgium, the strikes and boycottings in England and in this country, the threatenings of murder and rapine by Socialists and Anarchists, may be but the mutterings before a storm that is to break upon us as unexpectedly as, to the great body of our people, the fierce storm of our Civil War broke upon and swept over a country to which such horrors had been so long unknown that they seemed an impossibility within its borders. i86440 UNIVERSITY OF CALIFORNIA AT LOS ANGELES THE UNIVERSITY LIBRARY This book is DUE on the last date stamped below OCT 23 1M MAY 3 1 19S1 1 XfrUft. mw MAY 2 3 \0 *& ;o v$ .^ :'•» • jt>™ Form L-9 20m-l, '42(8519) [VERSITY OF CALIFORNIA AT LOS ANGELES MRRARY UC SOUTHERN K AA 000 560 311 3 I PLEA C E DO NOT REMOVE THIS BOOK CARD ^t-UBRARYOc >* u ~ O =» ^KMITCHO^ University Research Library 2 I -4 t CI 2 (X -J O