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AMERICAN CITIZENSHIP AND 
 ECONOMIC WELFARE 
 
J. H. FURST COMPANI, PRINTERS, 
 BiLTIMORE. 
 
AMERICAN CITIZENSHIP 
 
 AND 
 
 ECONOMIC WELFARE 
 
 THE WEIL LECTURES, 1919, 
 DELIVERED AT THE UNIVER- 
 SITY OF NORTH OAROL^^l^A. 
 
 BY 
 
 JACOB H. HOLLANDEE, Ph. D. 
 
 PBOFBSSOB OF POLITICAL ECONOMY IN THE JOHNS HOPKINS 
 UNIVKESITY 
 
 Baltimobe 
 
 The Johns Hopkins Press 
 
 1919 
 
f40/6^ 
 
 
 • *•.•# 
 
 COPYBIGHTBD, 1919, BY THE JOHNS HOPKIMS PRESS 
 
 ^H' 
 
TO THE LONG SUCCESSION 
 
 OF 
 TEACHERS AND STUDENTS 
 
 WHO FOR MANY YEARS BY VISIT AND RESIDENCE 
 HAVE MAINTAINED AT BALTIMORE AND CHAPEL HILL 
 
 THE BEST TRADITIONS 
 
 OP 
 
 ACADEMIC INTERCHANGE 
 
 ^47122 
 
CONTENTS 
 
 PAGE 
 
 I The Weal of the Nation ... 1 
 
 II The Laborer's Hire 41 
 
 III The Sinews of Peace .... 81 
 
 Notes 115 
 
THE WEAL OF THE NATION 
 
AMERICAN CITIZENSHIP AND 
 ECONOMIC WELFARE 
 
 THE WEAL OF THE NATION 
 
 In the ** Memorials of his Time '' Lord 
 Cockburn tells us that when in the winter 
 of 1800 Dugald Stewart, the biographer of 
 Adam Smith and the titular successor of 
 Adam Ferguson in the Chair of Moral 
 Philosophy in the University of Edin- 
 burgh, delivered his first separate course 
 of lectures in Political Economy, the early 
 reaction of the public mind was a sense 
 of impropriety: ** It was not unusual to 
 see a smile on the faces of some, when 
 they heard subjects discoursed upon seem- 
 ingly beneath the dignity of the Academical 
 Chair. The word corn sounded strangely 
 in the Moral Class, and drawbacks seemed 
 a profanation of Stewart's voice." ^ 
 
2' '' ^ ' llftEEiCAN CITIZENSHIP 
 
 ' ' In other times, the attempt of a political 
 economist to give counsel in the matter of 
 American Citizenship, under the auspices 
 of a foundation finely conceived and not- 
 ably maintained, might invite like experi- 
 ence. Civic idealism, political integrity, 
 unselfish public service — these are the ab- 
 stractions proper to the ofl&ce, not affairs 
 of dollars and cents, even though pre- 
 sented in the spiritualized garb of econo- 
 mic productivity, industrial peace and 
 fiscal justice. 
 
 O Trade! O Trade! would thou wert dead! 
 The Time needs heart — 'tis tired of head : * 
 
 It would be sheerest aifectation to ven- 
 ture such apology in the present juncture 
 of our country *s life. In baldest terms, 
 the world has suffered a supreme cata- 
 clysm. The United States has been in- 
 volved in this convulsion — ^by the pres- 
 sure of direct interest as by the links of 
 world solidarity. The first acute phase 
 over, we face the reckonings of adjustment 
 and the penalties of aftermath. 
 
AND ECONOMIC WELFARE 3 
 
 The issues at stake are nothing less than ^ 
 
 the continued possession and future en- 
 largement of those satisfactions and op- 
 portunities which democratic institutions, 
 bountiful nature and a resourceful popu- 
 lation have permitted us heretofore to 
 enjoy. We have seen the unexpected with- 
 drawal from accustomed economic life of 
 millions of producers, and their equally 
 unexpected return. We have suffered the 
 diversion of industrial capital from peace 
 production to war requirement, and an 
 abrupt reversal of the process. We have 
 imposed great burdens of taxation; we 
 have incurred huge volumes of debt; we 
 have expanded our circulating medium ; we 
 have inflated our banking credit. 
 
 Business has been subject to feverish 
 stimulations and industrial intensities. 
 War brides have conferred the beatitudes 
 of excess profits upon enterprisers, and of 
 over-time payments upon wage-earners. 
 The laboring world has tasted the pleas- 
 antnesses of larger expenditure and has 
 
4 AMERICAN CITIZENSHIP 
 
 glimpsed vistas of ampler income. Spirits 
 of unrest have been loosed in remote parts 
 of the world, and the swift contagion of 
 industrial radicalism has threatened estab- 
 lished canons of economic relativity and 
 social development. In a word, the econo- 
 mic structure has been shaken to its base, 
 and the world stands hesitant and anxious 
 as to whether the subsiding tremor is the 
 prelude to renewed convulsion or to re- 
 turning stability. 
 
 These are the days in which earnest men 
 — young men — ask for rules of conduct. 
 The modes of right living and the ideals 
 of civic obligation are at all times inter- 
 twined with the standards of economic 
 duty. There is a fine sanity in the tradi- 
 tional scope of Moral Philosophy exem- 
 plified in the teaching of Adam Smith 
 himself, as dealing in turn with Ethics, 
 Politics and Economics — man's relation to 
 God, to the state and to his associates.^ 
 But the accent of wise teaching is not al- 
 ways uniform. In times past men groped, 
 
AND ECONOMIC WELFARE 5 
 
 now for ethical counsel, now for political 
 precept ; in our own day the imperious call 
 is for economic guidance. 
 
 May I add that this is pre-eminently true 
 of the young men of the South. In econo- 
 mic affairs, your problems are greater, 
 your opportunities are larger, your re- 
 sponsibilities are more immediate. Barely 
 emerged from the shadow of a great eco- 
 nomic change, the course of economic di- 
 versification still in early stage, a land and 
 a people whose powers have not been im- 
 agined — you face tremendous potentiali- 
 ties awaiting the touch of leadership and 
 knowledge to spring into force. 
 
 Urgent as is the summons for positive 
 action rather than for sentimental appeal, 
 let us forego the hope of economic necro- 
 mancy. Sir William Osier has spoken of 
 the desire to take medicine — in particular, 
 bitter tasting medicine, he might have 
 added — as a deep-rooted infirmity of the 
 human species.^ A like obsession of the 
 popular mind is that economic philosophy 
 
6 AMERICAN CITIZENSHIP 
 
 and its devotees, properly encouraged, may 
 be relied upon to produce a curative white 
 rabbit from a professional silk hat. This 
 expectancy even penetrates into higher 
 places. Henry Adams records how ** he 
 plunged deep into statistics '' and how 
 ** Nothing came out as it should.'' ** One 
 revelled at will in the ruin of every society 
 in the past, and rejoiced in proving the 
 prospective overthrow of every society that 
 seemed possible in the future; but mean- 
 while these societies which violated every 
 law, moral, arithmetical, and economical, 
 not only propagated each other, but pro- 
 duced also fresh complexities mth every 
 propagation and developed mass with 
 every complexity. ' ' ^ 
 
 There is, alas! no prospect of trade se- 
 crets to be imparted, or ready-to-use cure- 
 alls to be dispensed. The stock in trade 
 of the economist is not a bag of tricks, but 
 only a mental habit built of the stuff of 
 which common sense is made — orderly 
 thinking, acquaintance with a wider range 
 
AND ECONOMIC WELFARE 7 
 
 of related facts in balance of intimacy with 
 local minutiae, some historical equipment 
 and a profound sense of the organic inter- 
 dependence of the business world. 
 
 It is in something of this spirit, in ful- 
 fillment of the academic office with which 
 you have so greatly honored me, that I 
 shall venture to examine the present duty 
 of the American citizen in securing and 
 enlarging the economic well-being of the 
 nation. That duty is indeed manifold. 
 But out of its wide range three conspicu- 
 ous obligations loom forth: participation 
 in economic production, the relation of 
 employer and employee, and equitable con- 
 tribution to the support of the state. In 
 the successive meetings which I am to have 
 with you, I hope to consider- in turn the 
 citizen as producer, as employer and as 
 taxpayer — each in relation to present con- 
 ditions and with respect to individual 
 obligations. 
 
 Like an earlier economist, John Craig, 
 writing a century ago at the close of an- 
 
8 AMERICAN CITIZENSHIP 
 
 other world-war, in troubled wonderment 
 tliat Peace instead of assuming *^ her 
 genuine character of parent of industry 
 and nurse of commerce '^ appeared as ** a 
 demon of destruction/' I can only plead: 
 ** In what I have to oifer on this difficult 
 and important subject, I am not aware 
 that I shall bring forward any view that 
 will have novelty to recommend it, far less 
 any specific nostrum from which a speedy 
 recovery may be anticipated ; though I hope 
 to correct some misapprehensions that 
 have prevailed, and shall endeavor to com- 
 bine whatever in the several theories seems 
 to be founded in truth. ' ' ^ 
 
 A careful historian of economic thought 
 has pointed out that the concept of national 
 wealth as an annual fund rather than as 
 an accumulated stock marks the transi- 
 tion from older economic philosophizing 
 to modern economic opinion.'^ Influenced 
 by the physiocratic doctrine of an annual 
 * * reproduction, ' ' Adam Smith insisted that 
 
AND ECONOMIC WELFARE 9 
 
 it is the annual industry of the nation 
 ^^ which originally supplies it with all the 
 necessaries and conveniences of life which 
 it annually consumes/' A century and a 
 half of economic thinking has made no 
 change in this simple axiom, and the home- 
 ly phrasing that according as this annual 
 produce *^ bears a greater or smaller pro- 
 portion to the number of those who are to 
 consume it, the nation will be better or 
 worse supplied with all the necessaries 
 and conveniences for which it has occa- 
 sion * ' ^ — gives a proper starting point for 
 our inquiry. 
 
 There is no need of harking back to that 
 naive Crusoe philosophy — peopled with 
 primitive fisherman and thrifty sluice 
 builders to which economists become meta- 
 physicians,^ or men of affairs turned soci- 
 ologists^^ are fond of reverting and at 
 which a keen mind has jeered so genially 
 as ** conjectural history'' — to see that 
 the first summons is upon Father "Work 
 and Mother Earth.^^ The wastages and 
 
10 AMERICAN CITIZENSHIP 
 
 losses of the war years have been of goods 
 and services begotten of the soil and its 
 contents by the * ^ skill, dexterity and judg- 
 ment " ^2 of our man power, applied under 
 gifted leadership with the aid of ingenious 
 devices. Only by the same methods can 
 the gap be repaired and the larger divi- 
 dend — if there is to be one — supplied. 
 There is neither short cut nor royal road. 
 Emerson bewailed that Political Economy 
 was not reducible to lyrical form,^^ but no 
 lilting verse would change its work-a-day 
 burden. 
 
 Both as to Labor and as to Land the 
 United States has suffered far less than 
 any of the great belligerents. Our man 
 power has not been decimated and our soil 
 has not been laid waste. During the period 
 of hostilities, our productive force in re- 
 lation to national well-being may be re- 
 garded as reduced to the extent that work- 
 ers were withdrawn from industry for 
 military service or for the production of 
 war supplies — uncompensated by increased 
 
AND ECONOMIC WELFARE 11 
 
 effort, lessened unemployment or dimin- 
 ished consumption. Of our estimated 
 total population of some 100,000,000, pro- 
 ductive labor — represented by the number 
 of men, women and young persons engaged 
 in gainful occupations — is roughly 40,000,- 
 000.1^ Of this total there were called to 
 the colors during the period of belligerency 
 some 4,800,000 and there were absorbed in 
 specialized war industries another 8,000,- 
 000.^^ As against this aggregate diversion 
 of 12,800,000 there was increase of labor 
 power — primarily in the war industries 
 but to some extent in the general field — 
 due to speeding up effort, overtime work 
 and virtual conscription of the idle, the 
 leisured and the parasitic. No quantita- 
 tive data are here available and we must 
 venture an intelligent guess rather than 
 attempt a formal estimate. If we assume 
 a compensating influence from these quar- 
 ters of 25 per cent., it would follow that 
 during the war period our annual peace- 
 time production was impaired on the score 
 
12 AMERICAN CITIZENSHIP 
 
 of labor power by the withdrawal of some 
 9,500,000 workers. 
 
 Since the signing of the armistice, the 
 process of demobilization — ^military, naval 
 and industrial — has gone on swiftly. On 
 May 1, 1919, there still remained in the 
 military and naval services over 2,000,000 
 men and in war industry perhaps some 
 250,000. Taking into account a gross toll, 
 direct and indirect of 250,000 war casual- 
 ties, it is likely that the available labor 
 force of the nation was at that time about 
 2,500,000 less than at the outbreak of 
 hostilities with tendency towards further 
 rapid reduction of the differential. By 
 October 1, 1919, this number had declined 
 to approximately 500,000. 
 
 If we turn to the earth and its treasures 
 — agriculture and extractive industry — 
 the exhibit is likewise less depressing than 
 might be supposed. Our soil has not been 
 laid waste, our mines have not been gutted, 
 our forests have not been fire-swept. On 
 the contrary, production has gone forward 
 
AND ECX>NOMIC WELFARE 13 
 
 with tremendous pace and the war-time 
 output of fields and mines has reached 
 fairly staggering proportions. It is likely 
 there has been some cropping with neglect 
 of upkeep in the form of fertilizing and 
 rotation, and some over-exploitation with 
 prodigal disregard of future development. 
 But on the other hand there has been a 
 great extension of cultivated areas, an in- 
 tensive development of theretofore un- 
 profitable uses and a productive working of 
 undeveloped deposits. In the sense in 
 which agronomists and geologists place 
 ultimate limit upon the earth's resources, 
 we are definitely the poorer for every 
 bushel of food material and every ton of 
 mineral wealth taken from the earth to 
 meet war needs. But in relation to cur- 
 rent production we emerge from the war 
 with fields and mines ready to pour forth 
 their bounties not only as before, but in 
 the larger measure of extended use and of 
 stimulated production. 
 Men work neither bare-handed nor with- 
 
14 AMERICAN CITIZENSHIP 
 
 out leadership. The nation's labor force 
 will be productive, its natural resources 
 will be transmutable, according as in- 
 struments of production — mills, factories, 
 stocks of materials, fluid capital — abound, 
 and as directive intelligence is obtainable. 
 As to the second — the Business Enterprise 
 of our economic text-books — whatever 
 change the war has wrought has been 
 largely gain. A swift process of natural 
 selection has tested business ability, un- 
 covering new talent here, discarding pro- 
 prietary interest there, sobering by greater 
 responsibility and dignifying by larger 
 obligation. Probably as never before the 
 nation is equipped with captains of indus- 
 try ready for return to old courses or for 
 venture into uncharted seas. 
 
 Much more difficult to estimate are the 
 effects of the war and of its abrupt ending 
 upon the economic capital of the nation. 
 Certain tendencies, however, stand out 
 clear. As industry passed from peace to 
 war footing, ploughshares were beaten 
 
AND ECONOMIC WELFARE 15 
 
 into swords, with attendant waste, cost 
 and delay. During the war, moreover, the 
 normal processes of capital renewal and 
 capital formation were suspended. Mills 
 and factories underwent depreciation, rail- 
 roads and terminals suffered wear and tear 
 without customary replacement, in order 
 that the materials and labor needed for 
 such purposes might be used for war pro- 
 jects. More than this, the unconsumed, 
 that is, the ** saved '^ part of the industrial 
 product ordinarily applied to the extension 
 and improvement of production were 
 gulped in the same ravenous maw. 
 
 Eough criteria of these changes may be 
 sought in the relative amounts of capital 
 annually absorbed by building operations 
 in the United States, and in the expendi- 
 tures of the national government before 
 and during the war. 
 
 In 1917 the outlay for building opera- 
 tions in 284 cities was $816,609,111 against 
 $1,137,160 in 1916 or a diminution of 28.2 
 per cent, and against an average of $990,- 
 
16 AMERICAN CITIZENSHIP 
 
 366,614 in the eight year period, 1909-1916, 
 or a diminution of 17.2 per cent. Despite 
 the fact that 1917 building represented in 
 large part war construction, we must go 
 back, to find anything like the same con- 
 traction of operations, to the post-panic 
 year 1908 when, with 206 cities reporting, 
 the aggregate outlay was $730,081,871, 
 rebounding to $1,013,785,972 in 1909.1^ 
 
 The normal expenditures of the Govern- 
 ment on a peace basis for the fiscal years 
 1917 and 1918, it is estimated, would have 
 been $1,000,000,000 for each year. The 
 actual expenditures for the two years were 
 some $15,000,000,000, making the total es- 
 timated war expenditure up to June 30, 
 1918, some $13,000,000,000.1^ g^t only three 
 months of the fiscal year 1917 were war 
 months, and on July 1, 1918, the Govern- 
 ment was only beginning to reach its full 
 stride in war expenditure. If it be assumed 
 that the expenditures of the Government 
 on a peace basis would have been at the 
 rate of $1,000,000,000 a year, then the gross 
 
AND ECONOMIC WELFARE 17 
 
 cost of the war from April 6, 1917 to June 
 30, 1919 is estimated to have been $30,177,- 
 000,000 as compared with a probable peace 
 expenditure of $2,250,000,000.^« 
 
 Two obvious considerations suggest 
 themselves in connection with such ex- 
 hibits. An appreciable part of govern- 
 ment war expenditures — docks, ships, 
 housing projects — are either productive 
 investments or can be salvaged and con- 
 verted into peace purposes, becoming in so 
 far a form of new capital. The Secretary 
 of the Treasury has lately estimated that 
 of the government's war expenditures dur- 
 ing the fiscal year 1918, nearly $6,500,- 
 000,000 or some fifty per cent, were of this 
 character.^^ More important, a large part 
 of that which the Government has taken 
 in taxes or borrowed in loans comes not 
 from capital but from augmented net in- 
 come — consequent upon greater effort in 
 production and greater restraint in ex- 
 penditure. Such enlarged income is, of 
 course, potential peace capital, and one 
 
 2 
 
18 AMERICAN CITIZENSHIP 
 
 of the economic tragedies of the war is 
 that more of the results of war toil and 
 thrift do not inure to the lasting benefit of 
 society. But to the extent that war earn- 
 ings are used for war needs, encroachment 
 upon the country's industrial capital is 
 reduced. 
 
 We have no means of determining what 
 part of the capital losses of the war have 
 been corrected in this manner by new capi- 
 tal formation. The ordinary index of 
 relative scarcity or abundance — the money 
 rate — has been so deflected by public bor- 
 rowing, credit expansion and direct control 
 — as to offer little aid. If economic history 
 count for anything it will surely hereafter 
 appear, when in the course of the business 
 cycle years of famine succeed years of 
 plenty — that some part of the depression 
 is imputable to war w^astage. Our present 
 concern is with the short swing and as to 
 this, so much at least may be ventured: 
 that, whether by reason of the greater 
 efficiency of our banking mechanism or in 
 
AND ECONOMIC WELFARE 19 
 
 consequence of our new position as a 
 creditor nation, the supply of capital now 
 available for business resumption is ready 
 and ample. 
 
 With our labor force but slightly re- 
 duced, with our natural resources unim- 
 paired, with our industrial leadership 
 quickened and with a seemingly adequate 
 capital supply — what is the menace to which 
 our economic welfare is exposed? It con- 
 sists largely in the inability of the business 
 world to absorb quickly and successfully 
 the shocks and strains, first of war and 
 then of peace. Like some great complex 
 machine — jarred, jolted, strained, put to 
 strange uses, sections taken apart and 
 relocated — the productive mechanism is 
 functioning badly. All the essential parts 
 are present; but there is creaking and 
 jerkiness, uncertainty as to what is amiss, 
 fear lest outright breakdown follow. 
 
 The disorder is thus psychological rather 
 than physical. It is akin to that form of 
 
20 AMERICAN CITIZENSHIP 
 
 shock-caused paralysis wherein sound or- 
 gans and healthy members function imper- 
 fectly because the central intelligence, 
 jarred into disorder, fails to correlate and 
 coordinate. 
 
 For this disorder hortatory invocation 
 will, I take it, prove no corrective. There 
 is something touchingly naive about much 
 that is said and done in the domain of in- 
 dustrial hypnotics. Like the '^ sunshine 
 societies '' which were to revive business 
 from the post-panic depression of 1908, and 
 the ** business as usual '* propaganda 
 which was to avert war-time curtailment 
 in the autumn of 1914, we hear now of 
 price reduction by common agreement and 
 of business resumption by an infectious 
 optimism. We shall never raise ourselves 
 by tugging at our bootstraps in this man- 
 ner. Mental depression is to be relieved 
 less by rhetorical suggestion than by direct 
 reaction to external stimuli. We may 
 * * rezoloot till the cows come home ' ' ^^ 
 and the economic transition from war to 
 
AND ECONOMIC WELFARE 21 
 
 peace will continue painful and costly 
 unless definite policies be initiated and 
 specific remedies be applied, in direct cor- 
 rection of the arrest which has descended 
 upon the business world and of the depres- 
 sion which threatens its further course. 
 
 The definite measures which economic 
 analysis suggests as likely in this juncture 
 to make for business stability are (1) con- 
 sistent government policy, (2) courageous 
 deflation of credit, (3) retrenchment in 
 public and private expenditure and (4) 
 arbitral adjustment of industrial disputes. 
 
 (1) The essence of business enterprise 
 is ability to anticipate and provide for 
 prospective events. This skill in ** dis- 
 counting ' ' — seen in almost uncanny form 
 in stock and produce exchange operations 
 — figures in ordinary business affairs. 
 The manufacturer buys his materials now, 
 with an eye to what the corresponding 
 costs are likely to be a six months hence. 
 He fashions his wares with respect to de- 
 
22 AMERICAN CITIZENSHIP 
 
 mands that will appear hereafter. He 
 determines his cost sheets and fixes his 
 price schedules upon an estimate of pros- 
 pective operating changes. In a word he 
 plans, fashions and ventures in the light 
 of his insight or forecast as to what 
 impends. 
 
 If these uncertainties are the normal 
 risks of business activity he is inspired by 
 the prospect of competitive gain. To an- 
 ticipate more accurately, to provide more 
 successfully means larger sales and greater 
 profits and these are the lure of legitimate 
 enterprise. But if the future be clouded 
 and uncertain, passing from the ordinary 
 dynamics of modern social life to a con- 
 fused vacillating riot of governmental dis- 
 turbance and administrative change, busi- 
 ness will halt and enterprise mark time. 
 
 This is the plight in which the business 
 world now finds itself. The enterpriser 
 released from the pressure of war industry 
 desires instinctively to resume acustomed 
 business life. If a merchant, his inclina- 
 
AND ECONOMIC WELFARE 23 
 
 tion is to turn from depleted shelves and 
 hand-to-mouth replacement to early order- 
 ing and large buying. If a manufacturer, 
 his impulse is to reconvert his plant as 
 swiftly as possible, to place contracts for 
 materials, to assume financial commit- 
 ments, to reassemble his working body and 
 to disperse his selling force over the seven 
 seas. 
 
 But at the very start his wings are 
 clipped and his feet lead- weighted by doubt 
 as to the trend of governmental policy. 
 As to materials, is a free market to be re- 
 established or is public price fixture in 
 some form or other to continue? As to 
 capital, is war-time inflation and credit 
 rationing to persist or is a period of defla- 
 tion in sight! As to labor, are wages to 
 accommodate themselves to a lower level 
 of commodity prices or are newer stan- 
 dards of subsistence to be maintained by 
 governmental intervention 1 Beyond these 
 are specialized alternatives. Are the 
 railroads to continue under government 
 
24 AMERICAN CITIZENSHIP 
 
 operation or to be returned to corporate 
 control? Is the newly created marine to 
 be subsidized or to remain independent! 
 Is the protection of war blockade and con- 
 trolled tonnage to be continued by higher 
 tariffs in aid of war stimulated industries ? 
 Direct and immediate as is the influence 
 of each such policy upon industry, the 
 important consideration to the business 
 man is not so much as to which particular 
 policy be adopted — ^but rather that he be 
 advised as to the nature of the choice and 
 that the choice having once been made 
 there be no abrupt and erratic departure 
 therefrom. This does not mean artificial 
 stability. The enterpriser is quite pre- 
 pared to cope with the ordinary risks and 
 uncertainties of the business cycle. That 
 which lies beyond his ken and rather than 
 struggle with which he is likely to remain 
 inactive are the vagaries of political op- 
 portunism, the shifts of partisan jockey- 
 ing and the uncertainties of administrative 
 ineptitude. In times such as these gov- 
 
AND ECONOMK; welfare 25 
 
 ernments like individuals will in many 
 particulars feel their way. Nor is the busi- 
 ness man clamorous for a final undeviating 
 chart. What occasions resentment and 
 begets stagnation is doubt and change 
 made necessary not by the complexities of 
 swift moving events but by the mean pur- 
 poses of political manoeuvre and by the 
 petty gains of party strategy. 
 
 (2) Of the various uncertainties with 
 which the business man is at this time 
 plagued, the most immediate is the range 
 of prices. Unrest in the labor world, re- 
 straint in the consuming public, caution 
 among retailers and jobbers, hesitation 
 and check in manufacturing — are all trace- 
 able to bewilderment as to the price move- 
 ment : the cause of the past rise, the dura- 
 tion of the present stubborn resistance to 
 fall, the occurrence and extent of the future 
 decline. 
 
 The monthly index number of wholesale 
 commodity prices compiled by the U. S. 
 Bureau of Labor rose, as compared with 
 
26 AMERICAN CITIZENSHIP 
 
 100 for 1913 prices, from 182 in May, 1917, 
 to 219 in July, 1919— the latest date for 
 which figures are available — or 20.3 per 
 cent. The movement in retail food prices 
 was from 151 in May, 1917, to 192 in 
 August, 1919, or 27.2 per cent.^i Since 
 August 1, there has been some recession, 
 wholesale commodities, according to Brad- 
 street's being 2.6 per cent, lower on Sep- 
 tember 1, and food-stuffs, 9.2 per cent, lower 
 on September 25.^^ But the drop has only 
 partly overcome the 1919 advance in whole- 
 sale prices and has actually left prevail- 
 ing food-stuff prices higher than the war 
 range. 
 
 A full analysis of the price movement 
 of the past two years would bring upon 
 the table many factors the respective con- 
 tributions of which are often debated or 
 challenged, and always intricate and com- 
 plex. But that some part of it is the 
 result of credit inflation is the common 
 opinion of economists. The ^* money in 
 circulation " in the country, that is the 
 
AND ECONOMIC WELFARE 27 
 
 general stock of money, less the amount 
 held in the Treasury as assets of the 
 Government and the amounts held by the 
 Federal Eeserve Banks and Federal Ee- 
 serve Agents against issues of Federal 
 Reserve Notes — has increased from $4,- 
 736,841,963 or a per capita circulation of 
 $45.61 — on May 1, 1917, just before our 
 entry into the war, to $5,841,026,528, or 
 a per capita circulation of $54.28 on July 
 1, 1919.2^ In other words, the country is 
 carrying on its business with approxi- 
 mately twenty per cent, additional circu- 
 lating medium. 
 
 As to the increase of deposit currency: 
 the individual deposits subject to check of 
 the national banks increased from $6,627,- 
 833,000 on May 1, 1917, to $8,479,747,000 
 on June 30, 1919 — something more than 
 $1,850,000,000. To this must be added the 
 increase in like deposits of the state banks 
 and trust companies, as to which no final 
 data are now available. Making the most 
 conservative allowance, it is safe to as- 
 
28 AMERICAN CITIZENSHIP 
 
 sume that the deposit currency of the 
 country is more than $2,000,000,000 greater 
 than at the time of our entry into the war 
 two years ago.^* 
 
 Not only has the bank credit of the 
 country increased in volume, but it has 
 undergone important change in texture 
 and in structural support. At the out- 
 break of the war the ratio of gold reserves 
 to net deposits and Federal Eeserve Note 
 liabilities combined was 80 per cent.; on 
 July 18, 1919, the corresponding ratio was 
 50 per cent. At the outbreak of the war 
 the Federal Eeserve Banks held in their 
 portfolios $104,000,000 of discounted bills 
 of which $84,000,000 had been bought in 
 the open market. On July 18, 1919, the 
 Federal Reserve Banks held $2,200,428,000 
 bills, of which only $372,353,000 were open 
 market purchases and of which $1,579,- 
 728,000 were war paper — the notes of 
 member banks and other customers secured 
 by government war obligations.^^ 
 
 It is a seemingly inevitable consequence 
 
AND ECONOMIC WELFARE 29 
 
 of war financing, be its chief reliance bor- 
 rowing or taxation or a rational combina- 
 tion of the two — that there is injected into 
 the exchange mechanism of the country a 
 volume of fiat credit or a mass of addi- 
 tional circulating medium in excess of that 
 required by the increase in production or 
 by the greater activity of trade.^^ In the 
 experience of the United States this tend- 
 ency has been aggravated by our policy 
 of anticipatory borrowing taking the form 
 of the creation of huge volumes of bank 
 credit as government deposits in payment 
 of Treasury certificates of indebtedness. 
 Moreover the continuation of this policy 
 of anticipatory borrowing, even after the 
 suspension of active hostilities, has oper- 
 ated to delay and counteract the natural 
 course of credit deflation and price de- 
 cline-^*^ 
 
 It is of vital importance to the labor 
 world, to business circles and to the gen- 
 eral public that in the borrowing opera- 
 tions in which the government is about to 
 
30 AMERICAN CITIZENSHIP 
 
 engage there should be no further re- 
 course, direct or indirect, to such methods. 
 Further inflation once checked by cessa- 
 tion of credit-paid borrowing, we should 
 enter promptly and courageously upon the 
 course of deflation. This will entail con- 
 traction of note circulation and liquidation 
 of rediscounted war paper, by adequate 
 taxation, savings-paid borrowing and stif- 
 fened discount rates. The process may be 
 gradual; but it should be begun early and 
 continued steadily. To assume that by 
 any other method can general prices be 
 substantially reduced and the supersensi- 
 tiveness of an expanded credit situation 
 be eliminated is to neglect historical prece- 
 dent, theoretical analysis and contempo- 
 rary evidence. 
 
 (3) A nation at war spends lavishly. 
 The need is so dire, the urgency so great, 
 the revenue so ready that old canons of 
 caution and restraint are cast to the winds, 
 and public disbursement comes to be lim- 
 ited only by the physical power to spend. 
 
AND ECONOMIC WELFARE 31 
 
 It is not easy to revert to the older caution, 
 even with the return of peace. Like some 
 Lord Bountiful rioting with free purse for 
 a season and then face to face with a daily 
 stint, the country finds it hard to forego 
 accustomed largeness — even to discontinue 
 tolerated looseness. Quite apart from the 
 carry-over of war contracts and commit- 
 ments and the continuing charge of war 
 indebtedness, this heritage of easy expend- 
 iture is a grave fiscal penalty of the war. 
 No exchequer could pass from a pre-war 
 expenditure of $1,000,000,000 a year to a 
 war expenditure of $1,000,000,000 a month, 
 and not develop habits of prodigality and 
 laxity — sadly inconsistent with a period of 
 after-war adjustment. 
 
 Reckon as we will, industry and indus- 
 trial income face a long period of drastic 
 taxation. The business man will not be 
 crushed by the reality, but he is not exhila- 
 rated by the prospect. He faces the bur- 
 dens of peace time as he did those of war 
 time, resignedly — it is too much to hope, 
 
32 AMERICAN CITIZENSHIP 
 
 uncomplaiiimgly — in so far as he is con- 
 vinced that they are necessary in amount 
 and equitable in distribution. Let him see 
 evidence of this in curtailment and econ- 
 omy, and he bends to his task with grim 
 acceptance passing into venturesome enter- 
 prise. 
 
 The complement of public retrenchment 
 is private thrift. Each policy is likely to 
 excite outcry. If Congress provide for no 
 new postoffices nor customs-houses, what of 
 the bricklayers and carpenters ; and if more 
 of our wages and earnings are put away as 
 savings, how are mills to resume and mer- 
 chants to prosper? The answer is as old 
 as Bastiat's window-glazier. ^^ The diver- 
 sion of income from spending to saving 
 means not lessened production, but changed 
 production. The dollars and the pennies 
 that find their way into deposit accounts 
 will be used by the banks in loans, direct 
 or through bond purchases, to manufac- 
 turers, merchants, farmers, railroads, 
 public utilities and industrial enterprise 
 
AND ECONOMIC WELFARE 33 
 
 in general. Demand will be created and 
 business stimulated quite as much as in the 
 case of direct expenditure ; but the ultimate 
 outcome will be much to the advantage of 
 the saving policy. By the mere deferring 
 of the enjoyment it becomes possible for 
 desirable addition to be made to the 
 nation's industrial capital. Even though 
 the war years have not wrought a crip- 
 pling impairment of industrial plants, 
 there has been abnormal depreciation suf- 
 fered through the intensity of war produc- 
 tion and the disregard of upkeep. The 
 classical doctrine as to the advantage of 
 saving has been questioned in more recent 
 economic writing on the score that spend- 
 ing both stimulates a higher standard of 
 life and averts congestion of production 
 goods. ^^ Whatever possibility may exist 
 in this direction under normal industrial 
 conditions does not obtain in a post-war 
 period after the capital equipment of the 
 country has been possibly starved and cer- 
 tainly unaugmented. 
 3 
 
34 AMERICAN CITIZENSHIP 
 
 (4) The resumption of industry will be 
 hastened or delayed, and once resumed will 
 gain in activity or suffer check — accord- 
 ing as the prospect of labor disturbance 
 threatens or its presence dislocates. In a 
 succeeding meeting, I hope to consider cer- 
 tain notable features of the present labor 
 situation and the obligations imposed upon 
 the state and upon the citizen. At this time 
 I am concerned only with the direct depend- 
 ence of business resumption upon labor 
 adjustment. 
 
 It is an amazing instance of the prone- 
 ness of the American mind to pursue the 
 mote and neglect the beam, that at a time 
 when feeling is intense and widespread 
 that wars and alarms of war must at any 
 cost be averted by the establishment of 
 international tribunals, there should be 
 only a vague and uncertain demand for the 
 prevention of industrial war within the 
 country by means of arbitral intervention. 
 War is as definite an anachronism in indus- 
 trial relations as in international affairs. 
 Its Heedlessness is as gross; its demorali- 
 
AND ECONOMIC WELFARE 35 
 
 zation as wide ; its penalties as acute. For 
 employers and workmen to fail to adjust 
 differences as to wage rates or condi- 
 tions of employment without resorting to 
 primal methods, euphemistically termed 
 ** economic weapons/' and for an indus- 
 trial society to tolerate such failure with 
 its attendant social injuries and industrial 
 wastes — is economic barbarism. In ordi- 
 nary times the business world, rather than 
 forego its outworn creed, may persist 
 in this costly bungling, and society may 
 acquiesce. In a period as critical as that 
 which we now confront, with the welfare 
 of the nation for a decade to come in the 
 balance, some part of that moral force 
 which is relentlessly driving the nations of 
 the world into a greater society dominated 
 by justice may surely be invoked to impose 
 a reign of law upon the opposed elements 
 of the industrial world. A great social 
 achievement of the war period was the gen- 
 eral suspension of industrial conflict by 
 generous concessions on both sides. Democ- 
 racy may properly demand an extension of 
 
36 AMERICAN CITIZENSHIP 
 
 this industrial " treuga Dei '' over the 
 period of after-war adjustnient, perhaps 
 even into the years beyond. 
 
 Wise statesmanship, sound finance, pub- 
 lic and private economy, industrial peace — 
 these are after all common rubrics of an 
 old homily. But perhaps to the political 
 economist, no more than to any other free- 
 born American citizen is it forbidden 
 upon right occasion to '' calmly drink and 
 jaw. ' ' ^^ You who have listened so patiently 
 must seek comfort in Thackeray ^s promise 
 that * * The Reverend Mr. Malthus shall be 
 burned annually, instead of Guy Fawkes " 
 — when Punch is king.^^ Even two centu- 
 ries ago, when giants stalked in the land — 
 ** the sagacious Petty and the experienced 
 Child, the profound Temple and the intelli- 
 gent Davenant,*' in Chalmer^s discriminat- 
 ing phrases ^^ — the Spectator could class 
 political arithmetic as ** an art of greater 
 use than entertainment."^^ 
 
 There may be a shorter road to Robin 
 Hood 's barn. Napoleon entertained * * utter 
 
AND ECONOMIC WELFARE 37 
 
 horror ' ' of Political Economy, because 
 *' on such subjects he trusted to common 
 sense. ' ' ^^ And even our own Daniel Web- 
 ster protested, ^ ' For my part, though I 
 like the investigation of particular ques- 
 tions, I give up what is called the science 
 of political economy — if I were to pick out 
 with one hand all mere truisms, and with 
 the other all doubtful propositions little 
 would be left." ^^ But Napoleon's *^ com- 
 mon sense " and Webster's ** investiga- 
 tion ' ' was each sufficient economic endow- 
 ment of its own. To coarser clay — 
 Malthus's citizen *' who has retired and 
 whose ideas, perhaps scarcely soar above, 
 or extend beyond his little garden, pud- 
 dling all the morning about his borders of 
 box ' ' — there is no like escape. We may 
 fall far short of John Adams' gracious 
 tribute to Daniel Eaymond, * * You have 
 indeed cracked the shell of political 
 economy and extracted the purest oil from 
 the nut " ^^ — ^but there will have been disci- 
 pline and service in the endeavor. 
 
THE LABORER'S HIRE 
 
II 
 
 THE LABORER'S HIRE 
 
 To those who fear that the occasional 
 conflicts of economic inquiry and public 
 opinion bode ill for the future of intellec- 
 tual freedom in the social sciences, there is 
 much reassurance in the changed attitude 
 of constituted authority towards the study 
 of popular unrest. 
 
 In 1794 Dugald Stewart, writing to Lord 
 Craig in defence of the favorable senti- 
 ments he had expressed as to the French 
 Economistes ''most of whom are long since 
 dead," added: ** I have been so uniformly 
 impressed with a sense of the importance 
 of my situation, that among all the inter- 
 esting questions which have, during the 
 last nine years, divided our political par- 
 ties, I have never introduced the slightest 
 reference to any of them excepting in the 
 single instance of the African trade, on 
 
 41 
 
42 AMERICAN CITIZENSHIP 
 
 which I formerly expressed myseK with 
 some warmth; — and even these expres- 
 sions I dropped from my course, as soon 
 as it became matter of popular discussion. ' ' 
 Even a generation later when the English 
 mind was less perturbed as to * * the French 
 philosophers in general, and the tendency 
 of their sceptical doctrines to corrupt the 
 morals, and to poison the happiness of 
 mankind, ' ' ^ and within a few years of the 
 time when political economy had attained 
 such vogue that Maria Edgeworth could 
 note that it was the fashion for **blue 
 ladies to make a great jabbering on the 
 subject '' ^ — ** Prize " Pryme, the first lec- 
 turer on Political Economy at Cambridge, 
 recorded in his * * Autobiographic Eecollec- 
 tions ' * : ^ ^ In my early courses I vindicated 
 Brutus from an accusation of an usurious 
 transaction preferred against him by Adam 
 Smith in his Wealth of Nations. On its 
 being suggested to me that this might 
 induce a supposition of political bias on 
 my part, I expunged the passage.'** 
 
AND ECONOMIC WELFARE 43 
 
 In the round century that has since 
 passed, there has been successive reaction 
 in the current estimate of economic study. 
 This is evidenced by the changing epithet 
 of the day. The * ^ gospel of Mammonism, ' ' ^ 
 having lapsed into a chapter of ** the his- 
 tory of political blindness,"^ now appears 
 as * * a rich field for the activities of creative 
 genius." ^ No one in these times — Bourbon 
 or Bolshevik — would dare to discuss 
 matters of social policy without regard to 
 economic opinion. The economist may be 
 damned as a professor or canonized as a 
 lawgiver; he will not be neglected as an 
 outsider.^ 
 
 It would thus be a crude avoidance — ^both 
 as a scientific requirement and as a prac- 
 tical service — ^to deny large place in any 
 study of the present economic obligations 
 of American citizenship to that which, un- 
 happily enough, is described as * ' the labor 
 problem'' — or to refuse to do this in 
 specific terms and with respect to recent 
 events and to immediate prospects. There 
 
44 AMERICAN CITIZENSHIP 
 
 is widespread, insistent concern as to what 
 have been the changes which the war has 
 wrought in the wage-earner's state, and as 
 to what constitute the unstable elements of 
 the present labor situation.^ 
 
 Here again it is right to warn at the 
 outset against any hope of ready-at-hand 
 explanation or of panacea-like solution. In 
 1813 Robert Owen put forth his '' New 
 View of Society *' with a far more com- 
 forting certainty: ** The knowledge, how- 
 ever, which is about to be introduced will 
 make it evident to every understanding, 
 that by far the greater part of the misery 
 with which man is encircled may he easily 
 dissipated and removed; and that with 
 mathematical precision he may he sur- 
 rounded with those circumstances which 
 must gradually increase his happiness. ' ' ^^ 
 Even when reminded by Francis Place of 
 an Edinburgh Reviewer's use of the Mal- 
 thusian argument in criticism there was no 
 recession. ** He tells me, as he has all 
 along done, ' ' noted Place in uncomplaining 
 
AND ECONOMIC WELFARE 45 
 
 mildness, ** that he has made no mistake 
 but that I am ^ ignorant '.'' ^^ 
 
 In economics as in ethics and in politics 
 the world needs its prophets — ^to scourge 
 what is, to emblazon what might be — ^Leigh 
 Hunt's **men who in their own persons, 
 and in a spirit at once the boldest and most 
 loving, dared to face the most trying and 
 awful questions of the time. ' ' ^^ But it 
 needs too its slow, cautious students who 
 shall search the problem with careful eye 
 to what has gone before, who shall know 
 and profit by what is happening elsewhere 
 and who shall give guarded counsel as to 
 remedy and treatment. This preeminently 
 in discussion of the labor problem is the 
 role of the political economist. 
 
 A reaction from war-time depression has 
 been the consolatory proposal that a conse- 
 quence of world convulsion is economic 
 advance. Not only is recourse had to 
 familiar social philosophizing — the theory 
 of recurrent over-population, the theory of 
 
46 AMERICAN CITIZENSHIP 
 
 social evolution and the theory of personal 
 fortitude and industrial diversity ; ^^ but a 
 considerable body of evidence is adduced 
 in support of the contention that if not a 
 condition, war is at least an incident of 
 economic progress. Thus in Great Britain 
 the testimony of the Ministry of Labour 
 is that there has been a *^ steady decline 
 in destitution during the war ' ' — and a 
 marked decline as compared with ante- 
 bellum conditions.^^ In the United States 
 the computations of the Bureau of Social 
 Statistics of New York City indicate that 
 the amount of general dependence in that 
 city at the end of 1917 was only one-third 
 of that existing at the end of 1914.^^ 
 
 It seems reasonably certain that for the 
 immediate duration of the war, and in the 
 area of belligerency rather than in the zone 
 of hostilities, the volume of social depend- 
 ence was reduced, and the well-being of 
 certain working groups above the poverty 
 line enhanced. That the same gain was 
 achieved by the laboring world generally 
 
AND ECONOMIC WELFARE 47 
 
 is by no means as clear. To a very con- 
 siderable extent the benefit of increased 
 earnings was lost by rising living costs, 
 extending in cases to outright net disad- 
 vantage. The United States Bureau of 
 Labor Statistics has computed that the 
 wages per hour in certain organized trades 
 for which data have been collected were 
 33 per cent, higher in 1918 than in 1913 
 and 48 per cent, higher than in 1907, but 
 that a far greater change took place in 
 retail prices of food — ^the increase from 
 1913 to 1918 being 68 per cent, and from 
 1907 to 1918, 105 per cent. In other words, 
 an hour's wages in 1918 purchased but 79 
 per cent, as much food as in 1913 and but 
 72 per cent, as much as in 1907.^® Such 
 comparisons must be further modified by 
 allowance for more regular employment 
 and for more overtime work in 1918 than 
 in earlier years ; but the general character 
 of the exhibit is not likely to be thereby 
 reversed. 
 
 For the long run, economic law holds the 
 
48 AMERICAN CITIZENSHIP 
 
 bank. With the world struggle in its tense 
 industrial aspect over, and labor facing the 
 trials and strains of readjustment and 
 reconstruction, the deep-rooted, traditional 
 sense of mankind has again been justified : 
 that war is a bitter social calamity, that it 
 works peculiarly to the economic injury of 
 wage-earning classes, and that it does this 
 by reason of its wastage and destruction, 
 its feverish stimulation and its social after- 
 math.i^ 
 
 Nothing need be said of the great untabu- 
 lated social losses — ^the unrecorded, unre- 
 cordable deductions from the well-being of 
 the race — devastated areas, outright fatal- 
 ities, the maimed and the mutilated, stricken 
 homes, widowhood and orphanhood, the 
 moral laxity and the religious unsettlement 
 of nations warring and warred against, 
 even that which to those who have conse- 
 crated their lives to the search for truth 
 is the greatest injury of all — ^the under- 
 mining of intellectual idealism, the denial 
 
AND EC50N0MI0 WELFARE 49 
 
 of scientific verity, the mockery of world 
 altruism. These woes may neither be 
 inventoried nor tabulated. They make up 
 a great total of ill-being or ** illth/^ only 
 to be left out of the reckoning from sheer 
 lack of a common denominator. The world 
 is the poorer for such calamities, and all 
 who live in it suffer because they have 
 happened. 
 
 It is with the direct palpable effects of 
 war upon the well-being of wage-earning 
 classes that our inquiry lies. In how far, 
 if at all, is the toiler in the United States I 
 the worse for the events of the world con- 
 vulsion? 
 
 The elements which make the laborer's 
 well-being difficult and insecure in the pass- 
 ing of an industrial state from war back 
 again to peace may be summarized as (1) 
 unemployment, (2) wage reduction, (3) 
 price inflation and, negatively, (4) the 
 restricted social activities of the state. 
 
 (1) After-war unemployment is due in 
 4 ' 
 
60 AMERICAN CITIZENSHIP 
 
 part to the stoppage of war industries, in 
 part to the demobilization of armed forces 
 and war-time administration, in part to 
 the restricted production consequent upon 
 the reduced purchasing power of the wage- 
 earners so discharged. Much of this is 
 inevitable. Munition plants cannot con- 
 tinue making shells ; nor emergency facto- 
 ries gas masks. Armies must be demobil- 
 ized and administrative bureaus disbanded. 
 The labor supply thus abruptly released 
 cannot be, under the most favorable cir- 
 cumstances, immediately absorbed. The 
 phrase ^* waiting jobs '* is for any but the 
 individual laborer a kindly figure of speech. 
 Jobs cannot wait. They are either filled 
 when vacated, or they cease to be. If they 
 are filled, the return of the absentee in- 
 volves a displacement of the temporary 
 incumbent; if they have been abolished, 
 restoration is uncertain and conditional. 
 
 Organized labor will struggle bravely, 
 and in a measure successfully, against this 
 drift. It wiU be able here and there to 
 
AND ECONOMIC WELFARE 51 
 
 substitute part-time employment of an 
 entire labor force for outright unemploy- 
 ment of some part of that force. It will 
 be able to resist unnecessary encroachment 
 upon its wage scales, and most important 
 of all it will be able to maintain its exist- 
 ence as an instrumentality for collective! 
 bargaining. But the larger penalties it ^ 
 cannot escape.^^ 
 
 (2) It is not only from the unemploy- 
 ment or reduced employment of demobili- 
 zation that working class incomes are 
 bound to suffer. Peace pricks the bubble 
 of war gains, be they excess profits or 
 bonus wages. With the nation's existence 
 in the balance there is neither time nor 
 warrant for that competitive higgling 
 which in the long run is the safeguard of 
 society. War loans and war taxes supply 
 seeming limitless funds; and the govern- 
 ment, always a generous employer, is, 
 under the critical stress, less than ever dis- 
 posed to drive a hard bargain. The rule 
 
52 AMERICAN CITIZENSHIP 
 
 of commercial employment is different. The 
 margin is scantier, the pressure stronger, 
 the competition fiercer. Just as profits 
 pass from the years of plenty to the years 
 of famine, so the labor world confronts the 
 changed conditions of a reduced social sur- 
 plus and a more rigorous division. 
 
 (3) The hardships of unemployment and 
 the suffering of falling wages are exag- 
 gerated by the vicious relation of war 
 financing and credit expansion. ^^ The 
 result, as we have already noted, is a sharp, 
 continuous, widespread rise in prices — 
 wholesale and retail, commodities and 
 foodstuffs — extending far beyond the range 
 of those goods immediately subject to war 
 demands and of those the supply of which 
 has been reduced by war operations. Such 
 rise will be restrained, but not prevented, 
 with respect to a limited number of com- 
 modities by governmental price fixing. Yet 
 the general trend is unaffected. With the 
 termination of war dislocation this rising 
 
AND ECONOMIC WELFARE 53 
 
 movement is arrested and prices tend to 
 decline. But the descent will be in the 
 nature of gradual fall rather than abrupt 
 drop — a fall held in check by the continua- 
 tion of heavy government borrowing, and 
 affecting wholesale prices first and retail] 
 living costs but slowly thereafter. The| 
 wage-earner is thus caught between the 
 upper millstone of slackening employment 
 and reduced wages and the lower millstone 
 of sustained prices. Eventually equilibrium 
 will return ; but the interval is a costly and 
 painful one, fraught with possibilities of 
 enduring mischief as to living conditions 
 and moral stamina. 
 
 (4) Unemployment, lower wages, threat- 
 ened living standards are positive injuries. 
 But the largest ill which the wage-earner 
 will suffer from the economic sequel of war 
 is negative — the impairment of the state's 
 power to engage in those projects of social 
 betterment which have become the distin-l 
 guishing marks of economic progress. The 
 
54 AMERICAN CITIZENSHIP 
 
 ' Spread of education, the wiser provision 
 for dependence, programmes of social in- 
 surance, plans for reclamation and conser- 
 vation, the increase of public utilities, 
 better highways, improved dwellings, more 
 libraries and galleries — all that wise public 
 policy might do to make residence in town 
 and country more wholesome and more 
 lovely; all these are deferred for decades 
 to come by the incredible squandering of 
 the world ^s wealth in war expenditure and 
 the mortgaging of its future accumulation 
 in war indebtedness. The injury done 
 extends beyond the wage-earner, to his 
 children and to his children's children. A 
 fractional part of the billions that have 
 been wasted might have realized for the 
 present happiness and the future better- 
 ment of the world's masses things beyond 
 our imagining. Eapine, murder, mutila- 
 ,tion are the spectacular horrors. This is 
 
 j the real social loss of the war. 
 
 It is against this background that the 
 present unrest of the laboring world must 
 
AND ECONOMIC WELFARE 55 
 
 be projected. Business arrest has brought 
 with it discharge of workmen, part-time 
 employment, lessened earnings and un- 
 changed living prices. As industry strug- 
 gles to readjust itself, the bolder enter- 
 prisers seek to achieve lower production 
 costs through the fancied line of least 
 resistance — resistance to demands for 
 higher money wages. Beset from two 
 quarters — lessened employment and wage 
 loss — the laborer, remembering what he 
 had during the war and how he won it, 
 backs against the wall. His counter 
 proposals are in lieu of labor discharge, 
 shorter working hours; instead of reduc- 
 tion in real wages, lower profits and higher 
 selling prices. The stage is set for indus- j 
 trial conflict. 
 
 In casting about for a wise social policy 
 in this state of affairs, it is vital to remem- 
 ber that, although more frequent and per- 
 haps more intense in periods of business 
 change labor disputes are a consequence 
 not of the recurring intensity, but of the 
 
56 AMERICAN CITIZENSHIP 
 
 essential form of modern industry. Periods 
 of readjustment offer greater occasion and 
 tactical opportunity; they do not create 
 real cause. The stirring of the wage- 
 earner is an habitual element in modem 
 industrial life — more conspicuous at certain 
 times than at others, but always present. 
 
 Moreover, such discontent exists as a 
 I social phenomenon quite apart from the 
 bitterness traceable to poverty, and from 
 the unrest bom of radicalism. The com- 
 plaint of the working poor — those whose 
 wage income is less than enough for decent 
 and wholesome life — is a part of the larger 
 problem of poverty. The discontent of 
 working class radicals — those to whom 
 social reconstruction seems practical and 
 desirable — ^belongs to the discussion of 
 economic specifics. The labor problem 
 proper lies intermediate. It is constituted 
 of the restlessness of working classes to 
 secure more favorable terms of employ- 
 ment, when the impulse is neither the sting 
 of poverty nor the lure of utopia. 
 
AND ECONOMIC WELFARE 57 
 
 The concern of society in this disquiet is 
 great and direct. It operates as a repres- 
 sive influence upon industry and enterprise. 
 It entails heavy expenditure by workmen 
 and employers in preparation for strife. 
 It involves recurring strikes and lock-outs 
 with enormous wastes of interrupted pro- 
 duction and demoralizing toleration of 
 violence and riot. It is the counterpart in 
 the industrial world of militarism and war- 
 fare in international affairs. 
 
 Employers' associations and trade 
 unions, the devices of collective bargain- 
 ing, wage agreements, mediation and 
 arbitration have affected the manner in 
 which this strife is carried on; they have 
 not removed its occasion nor prevented its 
 renewal. Society is still harassed by the 
 struggles of unorganized or organized 
 laborers to secure what are or what are 
 conceived to be more favorable terms of 
 employment, in face of the resistance of 
 individual or grouped employers. 
 
 The occasion of such disputes is various — 
 
58 AMERICAN CITIZENSHIP 
 
 wage demands, union recognition, shorter 
 hours, shop rules, jurisdictional conflicts. 
 The United States Bureau of Labor classi- 
 fied the 36,757 strikes in the United States 
 in the twenty-five years, 1881-1905, accord- 
 ing to fourteen distinct or grouped causes^) 
 and the record of current strikes published' 
 by the same agency found some eleven 
 causes responsible for 79 strikes in Decem- 
 ber, 1915.^^ The Massachusetts Bureau of 
 Statistics assigned the 294 strikes occur- 
 ring in that state in 1912 to seven principal 
 and nineteen sub-grouped causes,^^ and the 
 New York State Department of Labor 
 similarly allotted the 124 disputes begun 
 in 1914 to nine principal causes.^^ 
 
 If such elaborate classification be reduced 
 to a simpler grouping — disputes due (a) 
 wholly or in part to wage demands and ^^ 
 (b) to other causes — ^we find that in the 
 United States from 1881 to 1905, 40.7 per 
 cent, of all strikes were attributable in 
 whole or in part to demands for increased 
 wages, and that the corresponding per- 
 
AND ECONOMIC WELFARE 59 
 
 centages for the strikes in the United 
 States in December, 1915, in Massachusetts 
 in 1912 and in New York in 1914 were 55.7, 
 53.4 and 36.3 per cent., respectively. 
 
 It thus appears that a very large pro- 
 portion of the labor disputes with which 
 n industrial community is beset have to 
 with wage demands. Over and above 
 the conflicts growing out of class antag- 
 onism and personal bias, there is a chronic 
 recurrence of industrial warfare because 
 of an apparently irreconcilable difference 
 as to a new rate of wages. 
 
 No real or lasting service to the cause of 
 industrial peace is rendered by clouding 
 this issue. Industrial distribution is in 
 the last instance the opportionment of a 
 definite product. The loaf is of given 
 size; if a larger portion be assigned one 
 claimant, a smaller remains for the other. 
 It is a misleading half-truth to declaim as 
 to the harmony of interest between labor 
 and capital — as unsound in fact and as 
 reactionary in effect as the contentions of 
 
60 AMERICAN CITIZENSHIP 
 
 older generations that there was harmony 
 between the traditional insistences of dog- 
 matic theology and the modern disclosures 
 of natural science. Certainly it is to the 
 advantage of both contending parties that 
 the loaf be larger — ^but to whatever size it 
 may be augmented, division must ensue 
 and the gain of one is the loss of another. 
 In a word, absolute increase may for a 
 time obscure; it cannot correct relative 
 disparity. 
 
 The occasion for this insistence is the 
 recurrent vogue of palliative devices. In 
 the swift succession of changing fashion, 
 patronal activities, bonus systems, scien- 
 tific management, * * instinct in industry ' ' 
 have figured in such advocacy far beyond 
 their legitimate province, in attempted 
 avoidance of the real issue. 
 
 The factors ultimately responsible for 
 industrial clash are the lack of bargaining 
 equality between employer and employed, \\ 
 the failure of prompt resort to arbitral 
 
AND ECONOMIC WELFARE 61 
 
 determination in labor disputes, and the 
 absence of an accepted wage principle for 
 arbitral use in wage issues. The situation 
 is analogous to what might be expected to 
 develop in conflicts of personal rights and 
 property interests if one and the same 
 party were habitually armed and the other 
 bare-handed, and if the court to whose 
 determination the controversy — through 
 social intervention at the eleventh hour — 
 was finally referred, should be governed in 
 its decisions neither by statutory enact- 
 ment, nor by common law, nor by judicial 
 precedent. 
 
 In another place I have sought to make 
 clear that the relatively weaker position 
 in industrial bargaining of the individual 
 wage-earner as compared with the capi- 
 talist employer can be corrected by the 
 organization of the labor supply into a 
 comparatively equal unit : ^^ 
 
 ** The necessity for concerted action on 
 the part of the laborer has been recognized 
 almost from the beginning of sound think- 
 
62 AMEEICAN CITIZENSHIP 
 
 ing in the field of economic distribution. 
 Even before the advent of capitalism and 
 the factory system, Adam Smith noted 
 that * tacit, but constant and uniform com- 
 bination ^ of employers, and the consequent 
 disadvantage of unorganized workmen in 
 wage disputes. ^^ With the repeal of com- 
 bination laws a generation later, a narrow 
 economic philosophy sought to justify 
 the contemporary disadvantage of wage- 
 earners in industrial bargaining by the 
 concept of a wage fund, with its implica- 
 tion of a rigid predetermined rate of wages 
 that neither trade unions nor collective 
 action could affect. The reaction came, 
 first, in admission of the actual achieve- 
 ment of trade-unionism, then in recognition 
 of its tactical necessity in wage bargaining, 
 culminating in radical reconstruction of 
 the theory of wages. From the time of 
 Longe and Thornton, * the verdict of the 
 economists, ' ^^ has been virtually unani- 
 mous in insisting that a necessary assump- 
 tion of free competition in wage con- 
 
AND ECONOMIC WELFARE 63 
 
 tracting is the organization of labor for 
 purposes of collective bargaining. In 1892 
 it was possible for a lay witness to testify : 
 ** After about tbree-quarters of a centurj^ 
 of taboo, trade unions had now for a dozen 
 years ceased to be regarded as associations 
 of anardhistic criminals. * ' ^^ This has not 
 involved approval of all the policies nor 
 indorsement of many of the devices of 
 modern trade-unionism. But there is 
 essential agreement as to the primary con- 
 tention, that collective bargaining is neces- 
 sary for the workman to secure as wages 
 at least that part of the product of industry 
 which free competition tends to award him. 
 ** Probably less than one-third of the 
 industrial wage-earners of the United 
 States are organized in form or in spirit 
 for purposes of collective bargaining. The 
 remaining two-thirds receive compensation 
 for their services upon the basis of indi- 
 vidual bargaining, ordinarily under term® 
 of disadvantageous inequality on the part 
 of the employee. If regard be had to the 
 
64 AMERICAN CITIZENSHIP 
 
 entire body in receipt of wages, the per- 
 centage of organization is probably not 
 greater than one-fifth. 
 
 ** Under such conditions the wages of 
 most workers are maintained above, or 
 even at the level of, economic sufficiency 
 only by the competition of employers and 
 the relative scarcity of labor. To the extent 
 that employers act in concert, tacit or 
 avowed, or that the labor supply is con- 
 gested locally or industrially, or that an 
 industrial class have degenerated into 
 parasitic dependence, the share of the 
 wage-earner sinks to the poverty line. For 
 the great body of those in receipt of 
 wages, an effectively organized, intelli- 
 gently administered trade-unionism offers 
 the surest remedy against capitalistic 
 exploitation and social parasitism. In so 
 far as this protection does not exist, the 
 toiler is exposed to oppression by the 
 enterpriser, on the one hand, and to spoilia- 
 tion by society, on the other.'' 
 
AJSTD ECONOMIC WELFARE 65 
 
 Bargaining equality involves not only 
 an arbitral tribunal but a principle of wage 
 determination for the final settlement of 
 industrial controversies not adjusted by 
 competitive higgling. It is in this way that 
 individual redress of injury has been dis- 
 placed in the course of social progress by 
 courts of justice, and that the wars of 
 nations are about to yield to a league of 
 states. In the absence of an arbitral court 
 the outcome of the wage dispute is deter- 
 mined as in other forms of warfare by 
 the relative strength and endurance of the 
 contending parties. If there be a court 
 and no code, the decision is in the nature 
 of compromise — the usual procedure being 
 the easy and workable device of * * splitting 
 the difference.'' A decision on the merits 
 of the case is impossible since no standard 
 of reference obtains. 
 
 This has been the experience of those 
 
 who have been brought face to face with 
 
 the task of wage adjustment.^"^ The Board 
 
 of Arbitration in the 1912 controversy 
 
 5 
 
66 AMERICAN CITIZENSHIP 
 
 between the Eastern Eailroads and the 
 Brotherhood of Locomotive Engineers 
 sought in vain for '^ some theoretical rela- 
 tion ' ' upon which to base their award, and 
 ultimately took refuge in a makeshift com- 
 promise.^^ The sponsors of the ' ' industrial 
 constitution/' devised in 1915 for the 
 settlement of the bitter labor struggles of 
 the Colorado Fuel and Iron Company, 
 turned from '' an unthinkable counsel of 
 despair ' ' — that * * there is no way out 
 except through constant warfare between 
 Labor and Capital " — only to record the 
 conviction that ' * the problem of the equit- 
 able division of the fruits of industry will 
 always be with us. ' ' ^^ 
 
 Economic science has been unable, up to 
 the present time, to supply this deficiency. 
 Since the day of Adam Smith every treatise 
 on political economy has set forth, under 
 the caption * * theory of wages ' ' some 
 concept as to what part of the product 
 of industry tends to be paid to the wage- 
 earner under conditions of bargaining 
 
AND ECONOMIC WELFARE 67 
 
 equality. Suc^li formulae have ranged from 
 ** cost of subsistence '' to ** marginal pro- | 
 ductivity/' But the wage doctrines of 1 
 political economy still represent philo- 
 sophical hypotheses. The lack and fault 
 of statistical material, the tolerance and 
 vogue of economic theorizing have hindered i 
 the analysis of actual wage rates and the i 
 recognition of a natural law of wages.^^ 
 
 Even had such a result been attained, 
 even though we knew to What principle 
 wages tended to conform — it is by no means 
 clear that such a natural standard would 
 be acceptable. If, for example, the conten- 
 tion of the Marxian socialists were true 
 that normal wages in competitive industry 
 approximate bare subsistence, it is incredi- 
 ble that any arbitral board would sustain V 
 this standard in case of wage dispute. j 
 
 Opposed to the doctrine of natural law 
 in wage determination is the principle of 
 social expediency. Briefly stated, this 
 maintains that the wages paid in modern 
 industry should attain the level which will 
 
AMERICAN CITIZENSHIP 
 
 realize the largest social good as consti- 
 tuted of the well-being of wage-earners, 
 enterprisers and consumers, and that this 
 criterion should determine arbitral awards 
 in wage controversies. The essence and 
 form of this socially desirable wage rate 
 brings us to the crux of the problem.^^ 
 
 It is obvious, in the first place, that an 
 identical rate paid in different occupations, 
 on the one hand, or to different workmen 
 in the identical occupation, on the other 
 hand, is fanciful. A century and a half 
 ago Adam Smith ascribed the difference in 
 wages in various trades to the agreeable- 
 ness or disagreeableness of the employ- 
 ments themselves, the easiness or cheap- 
 ness of learning them, the constancy or 
 inconstancy of employment, the small or 
 great trust which must be reposed and the 
 probability or improbability of success.^^ 
 This analysis, with minor addition, still 
 serves to explain and justify a differing 
 social valuation of labor service in various 
 occupations. 
 
AND ECONOMIC WELFARE 69 
 
 In much the same way all industrial 
 observers have recognized varying degrees 
 of energy, skill and intelligence as between 
 laborer and laborer in the same occupation, 
 for which society makes corresponding 
 payment. The scale of wages thus repre- 
 sents a function of two variables. The 
 labor force of an industrial coromunity is 
 distributed over a series of occupations of 
 ascending social importance, while within 
 each occupation the laborers are ranged in 
 a gradation of personal efficiency. 
 
 There is thus (1) a basic wage, paid for 
 unskilled service; (2) a trade gradation, 
 adjusted to the social estimate put upon 
 superior kinds of industrial work, and (3) 
 a personal differential, measuring degrees 
 of efficiency within each occupation. 
 
 Of these three constituents of real wages, 
 the third element — representing individual 
 differences — lies without the range of 
 social concern. In the case of piece-work 
 pay, the question does not even arise; 
 differences in individual efficiency register 
 
70 AMERICAN CITIZENSHIP 
 
 themselves automatically. In the case of 
 time-work pay, the issue turns upon the 
 wages demanded by the average workmen 
 in the occupation — the ** standard rate *' 
 of trade union practice, less than which no 
 workman may accept but for more than 
 which the exceptional artisan is free to 
 engage. 
 
 Wage controversies and arbitral awards 
 centre about the first two elements — the 
 basic rate and the trade gradation. The 
 essential questions are : what is the proper 
 wage for unskilled day labor, and, this 
 being determined, how much more than 
 such minimum is the artisan in a skilled 
 trade or occupation entitled to receive? 
 
 The principle which at this time seems to 
 have most to commend it both from the 
 standpoint of economic practicability and 
 social advantage is the doctrine of a pro- 
 gressive standard of life, with a base line 
 of minimum requirement. This means that 
 a disputed wage scale should be determined 
 by the arbitral body to which it has been 
 
AND ECONOMIC WELFARE 71 
 
 referred at that level which will permit the 
 industrial group involved to maintain its 
 accustomed standard of life — assuming 
 this to be at least at or above a necessary 
 minimum — together with some addition 
 for the general social progress attained 
 since the time of last fixture. As to the 
 basic rate, the least skilled class of labor 
 regularly employed in industry should be 
 paid as wages at least enough to make 
 possible, in the long run, decent, self| 
 suporting existence for the average worki 
 man and those necessarily dependent upon 
 him. As to the trade gradation, the more 
 favorable standard of life enjoyed by any 
 skilled group — as compared with the basic 
 rate — should be retained as an approxi- 
 mate measure of the greater social utility 
 of that particular service. 
 )^An arbitral board would thus refuse to 
 sanction a reduction of wages below pre- 
 vailing rates, if so determined, and would, 
 on the other hand, award an increase 
 demanded by reason of the greater money 
 
72 AMERICAN CITIZENSHIP 
 
 cost of those things upon which the wage 
 income is spent. In economic phrase, real 
 wages would at least be maintained even 
 though money wages be increased. 
 
 We have left unanswered the most per- 
 plexing element in the problem — w^hat 
 increase in wages may the laborer prop- 
 erly claim as his share in general social 
 progress! The answer is easy when we 
 have to do with a period of active business 
 revival. Profits are then large, labor is in 
 active demand, the industrial outlook is 
 bright and wage increases are voluntarily 
 granted or easily ceded in compromise 
 amount. 
 
 Far more difficult of adjustment is the 
 laborer's demand in times of normal rather 
 than exceptional business activity. Grant- 
 ing the general propriety of an increase, 
 the particular amount to be granted in 
 each such case will stand in some definite 
 relation to the heightened productivity of 
 the industry as evidenced by larger profits, 
 greater output, or lower prices. There is 
 
AND ECONOMIC WELFARE 73 
 
 no universal formula and the actual award 
 will call for competent and painstaking 
 arbitral determination. But the difficulties 
 are of a kind with those with which juris- 
 prudence has not hesitated to grapple, with 
 substantial and acceptable social results. 
 
 The actual procedure implied in the fore- 
 going may be summed up as follows: 
 Every industrial dispute involving wage 
 demands should be referred by pressure of 
 public opinion and provision of positive 
 law, to mediating effort and arbitral deter- 
 mination. The final arbitral award should 
 be based upon the principle of a progres- 
 sive standard of life. This implies: (1) 
 there should be no sanction of wage reduc- 
 tion, other than the withdrawal in periods 
 of business reaction of the bonus-like 
 increases associated with abrupt business 
 revival; (2) the wages of unskilled labor 
 should be at least enough to maintain 
 decent family existence; (3) the wages of 
 more skilled groups of workmen should be 
 enough to maintain the standard of life 
 
74 AMERICAN CITIZENSHIP 
 
 enjoyed by the most favored groups of like 
 social utility; (4) in the foregoing regard 
 should be had to real, that is, commodity 
 and service wages, and not to nominal, 
 that is, money wages; (5) wage increases 
 demanded on the score of general social 
 progress should be granted in some rela- 
 tion to the heightened productivity of the 
 industry in question. ^ 
 
 The adoption of this program carries 
 with it no rule-of- thumb solution of indus- 
 trial strife. But for a considerable propor- 
 tion of such disputes — probably no less 
 than one-half — it offers in lieu of outright 
 warfare or makeshift compromise an 
 economically sound, socially acceptable 
 principle of adjustment which arbitral 
 discretion may forthwith apply and ulti- 
 mately develop into a code of wage award. 
 For the large proportion of labor contro- 
 versies not turning upon wage demands, 
 such a procedure will at least encourage 
 like resort to arbitral determination and 
 gradual acceptance of a socially service- 
 able principle of award. 
 
AND ECONOMIC WELFARE 75 
 
 In the matter of collective bargaining, in 
 the arbitral determination of labor disputes 
 and in the validation of the standard of life 
 as a wage principle — the industrial expe- 
 rience of the war years have resulted 
 in notable progress. ^^ As to collective 
 bargaining, the device of a local shop com- 
 mittee has been planted ^* so well and so 
 broadly throughout industry — as hardly to 
 seem eradicable. * * ^^ The arbitral adjust- 
 ment of wage differences is in practice 
 a necessary corollary of the waiver of 
 primary economic weapons and of a joint 
 covenant as to uninterrupted production. 
 In one form or another such procedure 
 obtained over a great part of war-time 
 industry. Different in form and in effective- 
 ness, marred by occasional refusal or non- 
 compliance, the actual mechanism played 
 an immense part in the industrial mobiliza- 
 tion of the nation. 
 
 A somewhat less sweeping statement is 
 possible as to the use in wage awards of a 
 standard of life, turning upon a decent 
 
76 AMEEICAN CITIZENSHIP 
 
 subsistence minimum in the lower levels 
 and upon the increased cost of living in the 
 higher. The evidence is but partly collected 
 and but imperfectly analyzed. But it is 
 clear that in important awards, the Rail- 
 road Wage Commission award of April 30, 
 1918, and in the various awards of the 
 National War Labor Board, the principle 
 was definitely used as the basis of settle- 
 ment.^^ 
 
 The war drum beats no longer — in tlie 
 market place as in the battle ground. The 
 strain has passed, and with it many of the 
 old sanctions. There is the travail of read- 
 justment, and keen competitive intensity 
 instead of patriotic cooperation. In this 
 industrial ** Devil take the hindmost," is 
 the wage-earner doomed to lo|se a large 
 part of his strategic gains — collective bar- 
 gaining, arbitral adjustment, living wage? 
 * * Demand and supply ' ' comes the grim 
 answer from one quarter: 
 
AND ECX)NOMIC WELFAEE 77 
 
 " And the kilns and the curt-tongued mills say Go. 
 There's plenty that can, if you can't: we know. 
 Move out, if you think you're underpaid. 
 The poor are prolific; we're not afraid; 
 Trade is trade." ^ 
 
 But the challenge clatters as an outworn 
 creed, not to be reviled as * * a pig philoso- 
 phy ' ' ; ^"^ but to be calmly put aside as men 
 give over things of a past day. A great 
 captain of industry has spoken of ** the 
 standpatters, who ignore the extraordinary 
 changes which have come over the face of 
 the civilized world and have taken place in 
 the minds of men; who, arming themselves 
 to the teeth, attempt stubbornly to resist 
 the inevitable and invite open warfare with 
 the other parties in industry ; and who say, 
 ** What has been and is, must continue to 
 be — ^with our backs to the wall we will fight 
 
 it out along the old lines or go down in 
 defeat? "38 
 
 Of another period of readjustment 
 Francis Place wrote, in moving words, 
 long after he had left its miseries behind : 
 *' I have seen a vast many such, who when 
 
78 AISIERICAN CITIZENSHIP 
 
 the evil day has come upon them, have kept 
 on working steadily but hopelessly, more 
 like horses in a mill, or mere machines than 
 human beings ; their feelings blunted, poor 
 stultified moving animals, working on, yet 
 unable to support their families in any- 
 thing like comfort ; frequently wanting the 
 common necessaries of life, yet never 
 giving up until * misery has eaten them to 
 the bone,' none knowing, none caring for 
 them ; no one to administer a word of com- 
 fort, or, if an occasion occurred which 
 might be of service to them, none to rouse 
 them to take advantage of it; all above 
 them in circumstances calumniating them, 
 classing them with the dissolute, the profli- 
 gate, and the dishonest, from whom the 
 character of the whole of the working 
 people is taken. ''^^ 
 
 Not the fear but the faith of men will 
 keep society from such things in the coming 
 years. Let so much at least be salvaged 
 from the welter of the world's blood and 
 treasure. 
 
THE SINEWS OF PEACE 
 
in 
 
 THE SINEWS OF PEACE 
 
 There is fervent agreement in the public 
 mind as to the obloquy properly attaching 
 to matters of taxation. Literature is illum- 
 inated by such objurgations and history 
 has more than once been deflected by their 
 entry. Something of this disfavor has 
 grown out of the manner in which taxes, in 
 times past, have been collected. Macauley 
 declared that ** a farmer of taxes is of 
 all creditors proverbially the most rapa- 
 cious,^'^ and Adam Smith, enriching 
 philosophic calm with vigorous phrase, 
 maintained as to tax-gatherers that * * the 
 uncertainty of taxation encourages the 
 insolence and favours the corruption of an 
 order of men who are naturally unpopular, 
 even where they are neither insolent nor 
 corrupt. ' ' 2 
 
 Sometimes the particular form of tax 
 
 6 81 
 
82 AMEEICAN CITIZENSHIP 
 
 has been. the object of wrath. The remark- 
 able philosopher and scientist, member of 
 that notable company of physician-econo- 
 mists in which Petty, Mandeville, Barbon 
 and Locke figure, whose versatility is sug- 
 gested by the mere signature to his * * Lec- 
 tures on the Elements of Political Econ- 
 omy ' ' published in Columbia, S. C, in 
 1829— *^M.D., President of the South 
 Carolina College and Professor of Chem- 
 istry and Political Economy ' ' — ^Thomas 
 Cooper, taking a long back swing for a free 
 trade clout, declared: ** Suppose a man 
 robbed, is he not the poorer? Why? Be- 
 cause he loses his money without receiving 
 value in return. Where is the difference 
 to the individual when he pays a tax? To 
 be sure the equivalent is, or is said to be, 
 the supply of national wants; but this 
 extends no further than the smallest 
 amount of taxation necessary for the 
 purpose: all the rest is of the nature of 
 robbery. ' ' ^ 
 
 So, too, the most competent writer on 
 
AND ECONOMIC WELFARE 83 
 
 American taxation has appraised in terms 
 not conducive to popular regard the fiscal 
 device upon which almost every State, city 
 and minor civil division of the Union relies 
 for its essential revenue: ** It puts a 
 premium on dishonesty and debauches the 
 public conscience ; it reduces deception to a 
 system, and makes a science of knavery ; it 
 presses hardest on those least able to pay 
 it; it imposes double taxation on one man 
 and grants entire immunity to the next. 
 In short, the general property tax is so 
 flagrantly inequitable, that its retention 
 can be explained only through ignorance or 
 inertia. ' ^ * 
 
 On the other hand, more than one lance 
 has been broken in support of the social 
 and economic advantage of taxation. Some- 
 time the reported gain has been specific. 
 David A. Wells tells us that when the 
 internal revenue tax on distilled spirits 
 was increased in 1862-65 from 20 cents to 
 $2 per gallon: ** The popular hair prepara- 
 tions into which alcohol entered largely as 
 
84 AMEEICAN CITIZENSHIP 
 
 a constituent vanished from the market; 
 and manufacturers of patent medicines 
 and cosmetics generally abandoned their 
 old preparations and adopted new ones ' ^ — 
 and that : ^ ' The manufacturer of horse 
 medicines, who used 50,000 gallons of 
 spirits in 1863, woefully testified in 1865 
 that his business was destroyed."^ 
 
 More often the imputed advantage has 
 been general. Writers of the seventeenth 
 and eighteenth centuries urged that taxes 
 on the necessaries of life gave ** a great 
 stimulus toward an improvement in the 
 condition of the laborer, in sobriety, care- 
 fulness and efficiency."® And to provide 
 for lihe other contingency David Hume, 
 writing in 1753, observed that : * * Where 
 taxes are moderate, are laid on gradually, 
 and affect not the necessaries of life — such 
 difficulties often serve to excite the indus- 
 try of a people, and render them more 
 opulent and laborious, than others, who 
 enjoy the greatest advantages. '* "^ 
 
 Whatever illusions may have existed as 
 
AND ECONOMIC WELFARE 86 
 
 to taxes and disguised blessings were 
 effectually dispelled by the fiscal expe- 
 riences of the Napoleonic contest. In 1817 
 David Eicardo summed up the matter 
 squarely in a dictum from which there has 
 since been little dissent : * * There are no 
 taxes which have not a tendency to impede 
 accumulation, because there are none which 
 may not be considered as checking produc- 
 tion, and as causing the same effects as a 
 bad soil or climate, a diminution of skill or 
 industry, a worse distribution of labour, 
 or the loss of some useful machinery ; and 
 although some taxes will produce these 
 effects in a much greater degree than 
 others, it must be confessed that the great 
 evil of taxation is to be found, not so much 
 in any selection of its objects, as in the 
 general amount of its effects taken collec- 
 tively. ' ' ^ 
 
 The experience of the United States in 
 matters of revenue and the obligations of 
 the American citizen as to federal taxation 
 
86 AMERICAN CITIZENSHIP 
 
 have been kaleidoscopic in change and tre- 
 mendous in import since 1914. In these 
 four years and a half the successive phases 
 of American involvement in the world 
 war — neutrality, belligerency, readjust- 
 ment — have been as sharply defined and as 
 clearly reflected in public finance as in 
 national industry and in social economy. 
 
 From the outbreak of the war in August, 
 1914, to the entry of the United States into 
 the struggle in April, 1917, our problem 
 was to replace accustomed sources of 
 revenue which, with the international 
 blockade and the swift passing of Europe 
 into an armed camp, had dried up almost 
 over night, with new fiscal devices that 
 would both supply the gap in the nation's 
 budget and at the same time provide, even 
 though inadequately, for possible eventu- 
 alities in our relation to the international 
 situation. From the events immediately 
 preceding the passage of the joint resolu- 
 tion by Congress on April 6, 1917, declaring 
 that a state of war with the Imperial Ger- 
 
AND ECX)NOMIC WELFARE 87 
 
 man Govermnent had been forced upon the 
 United States, up to the granting of the 
 armistice in November, 1918, our concern 
 was, first, to determine what part of the 
 colossal expenditures which the Treasury- 
 was called upon to meet should be defrayed 
 by taxation rather than by borrowing ; and, 
 second, to devise and impose the particular 
 taxes necessary for this purpose. From 
 the cessation of active hositilities through 
 the signing of the formal peace treaty up 
 to a point still in remote prospect, our task 
 is and will be to provide revenue sufficient 
 for the huge totals of war commitments 
 and demobilization costs, and to do this 
 with the economic life of the nation in the 
 stress and travail of after-war readjust- 
 ment. 
 
 Our minds have become so dulled to 
 what a few years ago would have seemed 
 incredible magnitudes that it is not easy 
 to grasp the changes which the past four 
 years have wrought in the nation ^s tax 
 revenue. In the fiscal year 1913-1914 the 
 
88 AMERICAN CITIZENSHIP 
 
 ' ' total ordinary receipts ' ' of the Treasury 
 were $734,673,166; in 1914-1915, $697,910,- 
 827; in 1915-1916, $779,664,552, and inV 
 1916-1917, $1,118,174,126. In 1917-1918 
 this had shot up to $4,174,010,585, and 
 in 1918-1919, had the war continued, the 
 prohable aggregate would have been 
 $8,000,000,000. Even with hostilities sus- 
 pended before the fiscal year was half over, 
 the actual receipts for 1918-1919 were some 
 $4,500,000,000. In other words, the country 
 is now paying as much in taxation every 
 eight weeks as it did, before the world was 
 set ablaze, each year.^ 
 
 Nor is the prospect of early or substan- 
 tial relief encouraging. The Secretary of 
 the Treasury estimates that for the fiscal 
 year 1919-1920 taxation should supply 
 $5,200,000,000.10 Many things, political and 
 economic, may transpire to affect this fore- 
 cast. But plan and fashion as we will, the 
 country is in for a proloned period of rela- 
 tively heavy taxation. 
 
AND ECONOMIC WELFARE 89 
 
 There is no valid escape from this neces- 
 sity. The homely rules of a safe private 
 economy — spend less, earn more, or go into 
 debt — are at bottom the maxims of secure 
 public financing. Curtailment in expendi- j 
 ture, increase in revenue, incurring of 
 indebtedness — exhaust the possibilities of 
 sound public housekeeping. 
 
 We have already considered the vital 
 importance of governmental retrenchment 
 with regard to business readjustment. As 
 a part of the country's financial program 
 the relation is direct. The abrupt cessation 
 of hostilities has left the Treasury bur- 
 dened with commitments incident to a war 
 economy and now devolving upon a peace 
 budget. Even though the knife be applied 
 swiftly and heroically, to a point beyond 
 which injustice and hardship would be 
 done, there will still remain extraordinary 
 charges of war-incurred obligation. More- 
 over, the final settlement of returned peace 
 carries with it new disbursement. The 
 country can never hope to return to its old 
 
90 AMERICAN CITIZENSHIP 
 
 seclusion in the family of nations. Larger 
 responsibilities have been incurred, calling 
 for heavy outlay in preparation. Even 
 with cautious economy it seems certain 
 that the most we can hope for will be some 
 reduction in the amount of this prospective 
 additional burden. There will be cheese- 
 paring attempted in other directions, if 
 only for sentimental effect. But the results 
 are likely to be counterbalanced by the 
 normal increase in governmental require- 
 ments. 
 
 If despite all practicable retrenchment 
 the nation will be obliged to spend more 
 even after the return of peace than it did 
 before the advent of war, heavier taxation 
 is inevitable — not indeed as severe as dur- 
 ing the period of war disbursements, but 
 substantially greater than in the pre-war 
 period. The only alternative is a continua- 
 tion of deficit financing. Professor Basta- 
 ble has described popular borrowing as 
 * * an agreeable process. ' ^ ^^ Two centuries 
 ago Pope sang of 
 
AND ECONOMIC WELFARE 91 
 
 Blest paper credit! last and best supply! " 
 
 and this temptation to continue defraying 
 some part of our after-war expenditure 
 from the proceeds of further loans will 
 inevitably present itself. But it is a 
 vicious policy which pursued beyond th( 
 bounds of drastically restricted expendij 
 tures and maximum tax revenue, means) 
 only postponing the day of reckoning, withi 
 added penalties of rationed commercialj 
 credit and delayed deflation. 
 
 Called upon then, as the nation will be, 
 in the coming years to contribute a much] 
 greater sum in taxation to meet an inevit-/ 
 ably larger public expenditure, what atti-w 
 tude should intelligent citizenship assume/ 
 both as to the general taxing policy to be 
 pursued and as to the specific tax devices 
 to be adopted. 
 
 In the first place, let us clear the fore- 
 ground by a frank rejection of fiscal oppor- 
 tunism. "We have not made very great 
 progress in scientific knowledge of taxa- 
 
92 AMEEICAN CITIZENSHIP 
 
 tion. ** It is here then that the most per- 
 fect knowledge of the science [political 
 economy] is required," wrote David 
 Eicardo to Hutches Trower ^^ — and this 
 perhaps explains our shortcoming. But 
 some things we do know, and it behooves 
 us to hold fast to that which we have. 
 
 An *^ agnostic '' theory implying that 
 any exact knowledge of tax incidence is 
 hopeless, ** a diffusion'' theory setting 
 forth that any tax will in the long run be 
 evenly distributed — are veritable hand- 
 maidens of legislative disingenuousness, of 
 administrative convenience or, more sin- 
 ister, of class exploitation. If fiscal expe- 
 rience is to be jettisoned and all scientific 
 doctrine to be abandoned, it is much better 
 to do this under the time-honored dictum 
 * * pluck the goose with minimum squawk, ' ' 
 or the Bonnybrook Fair slogan, ** when 
 you see a head tax it.'' 
 
 As a matter of fact, there are certain 
 well defined fiscal principles, justified by 
 theoretical analysis and verified by histori- 
 
AND ECONOMIC WELFAKE 93 
 
 cal experience, which can properly influ- 
 ence wise fiscal policy. They are not of 
 that wrapped and tied quality for which 
 the economic practitioner is always so 
 pathetically eager, and which the economic 
 scientist is ordinarily so resolutely unwill- 
 ing to supply. But they indicate a true 
 course, warning against reefs and shoals, 
 and leaving the way open for precise reck- 
 oning. 
 
 In the first rank is the cardinal doctrine 
 that tax revenue must ultimately come from 
 accumulated capital, customary income or 
 a new surplus made available by increased 
 production. Of the three possibilities the 
 third conforms closest to fiscal wisdom. 
 Taxes which are finally paid out of accumu- 
 lated capital or out of accruing income may 
 be desirable in the interest of wealth diffu- 
 sion or of social equalization. They will, 
 to some extent, be inevitable by reason of 
 the requirements of the exchequer. But in 
 so far as they are used, the future produc- 
 tive power of the country is impaired as to 
 
94 AMEEIOAN CITIZENSHIP 
 
 capital, and the present living standards 
 of its citizenry reduced as to income. On 
 the other hand, if an accompaniment of the 
 taxation imposed be increased production 
 there is constituted a new fund from out of 
 which the requisition may be regarded as 
 ultimately paid, with the further advantage 
 of an enlarged national dividend. 
 
 On its face this smacks much of a counsel 
 of perfection. Even if it were possible to 
 find taxes which would neither encroach 
 upon capital nor make inroads upon income 
 but actually encourage greater industry 
 and a larger national dividend, the chance 
 of reconstructing an existing fiscal system 
 to this end would be inconsiderable. For 
 we are not permitted to write on Petty 's 
 ** white paper. '^1* Our system of taxation 
 is, despite its abrupt twists, an historical 
 product, largely determined by, as in turn 
 it has largely determined, the nation's 
 economic growth. 
 
 Complete revision may be fanciful. But 
 we may reasonably hope to influence 
 
AND ECONOMIC WELFARE 95 
 
 amendment and addition and above all to 
 deflect supplementary financing from un- 
 wise drift. Such negative service is no 
 mean thing in a period of emotional urging 
 and swift change. The state like the indi- 
 vidual is tempted with get-rich-quick 
 devices — ^fiscal nostrums, new and untried, 
 or old and revamped. Herein lies the use- 
 fulness of a scientifically accredited, his- 
 torically validated canon of taxation. If 
 encroachment upon productive capital is 
 economically hurtful, the state may well 
 hesitate to impose a direct capital levy 
 even for so worthy a purpose as the extinc- 
 tion of war incurred indebtedness. If 
 deduction from income operate like any 
 other economic drag to reduce the sum of 
 social enjoyment and to check capital 
 accumulation, sur-taxes cease at least to be 
 fiscally virtuous in themselves. This is no 
 final verdict against either a capital levy 
 or the maximum schedule of an income sur- 
 tax. Other considerations, political and 
 social, will enter into play. Let us only be 
 
96 AMERICAN CITIZENSHIP 
 
 sure that the economic element is given due 
 regard, and that the course finally elected 
 represents a deliberate calculus. 
 
 In matters of taxation the complement 
 of sound incidence is wide distribution. 
 The tax burden which is to be put 
 upon us should not only be wisely but 
 generally imposed. With mere revision of 
 emphasis this may be read into Adam 
 Smith's fourth maxim that ** the subjects '^ 
 of every state — rather than any particular 
 group of them — ought to contribute to its 
 support.^^ 
 
 Universality in tax contribution is com- 
 monly urged on civic rather than on fiscal 
 grounds. Here as elsewhere mankind is 
 peculiarly sensitive to any excitation of its 
 * ^ pocket nerve. ' ' In no way, it is con- 
 tended, can the ordinary citizen be so 
 effectually roused to a sense of political 
 obligation or made to concern himself so 
 intelligently with civic issues as by the 
 regular presentation of a tax bill. 
 
AND EC50N0MIC WELFARE 97 
 
 But on fiscal grounds alone a wide distri- 
 bution of the tax burden, to the point even 
 of universal contribution, will commend 
 itself to an enlightened citizenry. No free 
 people ever rebelled against evenly dis- 
 tributed taxation, whatever its absolute 
 amount. Sir William Petty made this clear 
 two centuries ago : * * Let the tax be never 
 so great, if it be proportionable unto all, 
 then no man suffers the loss of any riches 
 by it. ' ' ^^ Democracy realizes, even though 
 inarticulately, that where the gift, there 
 the burden. It will chafe under a crudely 
 imposed load ; it will become bitter if there 
 be gross inequality. But let the humblest 
 tax-payer be assured that there is to pre- 
 vail in the support of the state that prin- 
 ciple which the progress of the race has 
 taught him works out best in all asspciated 
 effort — the rule of * * tote fair ' ' — and he 
 will assume his quota with nothing worse 
 that the degree of grumbling which in 
 matters of taxation is the symptom of a 
 decent self-respect. 
 7 
 
98 AMERICAN CITIZENSHIP 
 
 The practice of tax exemption has under- 
 gone a curious cycle in the history of organ- 
 ized society. In the classical world the 
 obligation of citizenship was military 
 service, and tax liability the badge of servi- 
 tude. The feudal polity had little occasion 
 for compulsory revenue until the rise of 
 statehood encouraged the commutation of 
 service into charge. With the recognition 
 of crown prerogatives and the sharper defi- 
 nition of class exemptions, the increasing 
 fiscal needs of the state were transferred 
 to the third estate. The dawn of the new 
 industrial era, lighted by the fire of politi- 
 cal revolution, found the main charge of 
 state support everywhere resting upon the 
 mass of common people. 
 
 The century that followed was destined 
 to witness almost a complete reversal of 
 the tendency. Justified by a political 
 economy that made clear the futility of 
 taxes upon minimum subsistence, inspired 
 by a social humanitarianism that sought to 
 compensate in dynamic vigor for belated 
 
AND ECONOMIC WELFARE 99 
 
 appearance, the reaction expressed itself in 
 the middle of the century in the repeal of 
 the English corn laws and in the general 
 incorporation into tax codes of the prin- 
 ciples of minimum exemption. 
 
 The propriety of group exemption once 
 admitted, the enlargement of the class and 
 the diversification of the warrant have fol- 
 lowed. If toilers in receipt of bare living 
 wages should pay no taxes whatever, cer- 
 tain sections of the country and particular 
 classes of producers less preferred or less 
 fortunate than others might hope at least 
 to be relieved from additional burdens of 
 taxation. Sectional diversity, congres- 
 sional government and indirect taxation, 
 involving ' * compensatory ' ' imposts, have 
 encouraged the tendency. 
 
 Up! up* again! ye rents, exalt your notes, 
 Or else the Ministry will lose their votes." 
 
 The consequence has been to make the task 
 of obtaining additional revenue less a 
 matter of apportionment and distribution 
 
100 AMERICAN CITIZENSHIP 
 
 than of finding a hapless group of taxables 
 who can be noiselessly mulcted. 
 
 Like every device of fiscal preferment 
 and class differential, tax exemption in this 
 larger and less valid sense works its own 
 undoing. The basis of public contribution 
 is narrowed, sectional opposition is 
 aroused, class hostility is accentuated and 
 the whole process of public "contribution is 
 vulgarized. 
 
 Universality in taxation does not imply 
 identical imposition nor even proportional 
 contribution. From the time of Adam 
 Smith fiscal justice has been conceived as 
 tax payment according to ability.^ ^ The 
 maxim that every man should contribute to 
 the support of the state according to his 
 faculty is embodied in our constitutions 
 and bills of rights side by side with pro- 
 visions to secure freedom of speech and 
 trial by jury. Eealized at first in a propor- 
 tional levy upon the capital value of real 
 and personal property, the diversity of 
 
AND ECONOMIC wi:LFA^K *. : • { ; im • 
 
 wealth forms and the increase of intangible 
 capital evidences made of the general prop- 
 erty tax an utterly inequitable device in 
 developed industrial communities. Its 
 crude injustice was only avoided by a 
 subtle form of capitalization whereby intan- 
 gible personal property acquired a higher 
 capital value, relative to its net income, by 
 reason of popular acquiescence in the 
 escape from assessment and taxation — 
 actual though illegal — of such evidences of 
 ownership. Falling short even of propor- 
 tional contribution, the road to reform 
 blocked by rigid constitutional bars — 
 direct taxation in the United States had 
 drifted far in practice from the principle 
 of payment according to ability which the 
 f ramers of our political creeds in the flush 
 of eighteenth century philosophy had so 
 finely acclaimed. 
 
 The transition came with the successful 
 entry of the federal government into the 
 field of direct taxation — direct none the 
 less though the word was inhibited. In lieu 
 
102 AMERICAN CITIZENSHIP 
 
 of capital, income was taken as the criterion 
 of economic ability. But of far greater 
 importance, progressivity was accepted in 
 place of proportionality as the theory of 
 equal contribution. 
 
 Of the many definitions of progression 
 in taxation none has the penetrating suc- 
 cinctness of John Stuart Mill's : * ^ It means, 
 apportioning the contribution of each per- 
 son towards the expenses of government, 
 so that he shall feel neither more nor less 
 inconvenience from his share of the pay- 
 ment than every other person experiences 
 from his. ' ' ^^ From * ^ the early legisla- 
 tion of Solon down to the present time '' 
 progression has figured in fiscal practice. 
 That which has been written for and 
 against constitutes a veritable literature, 
 the mere historico-critical examination of 
 which at the hands of an accomplished 
 student of public finance has required a 
 stout volume of three hundred pages.^^ 
 
 As realized in the war revenue legisla- 
 tion of the United States progression as to 
 
AND ECONOMIC WELFARE 103 
 
 income, excess profits and inheritance 
 taxes lias meant the arrangement of the 
 taxable basis into ascending groups and 
 the imposition of successively higher per- 
 centages upon each group — with an allow- 
 ance of the lower rates upon such parts of 
 the basis as were included within the corre- 
 spondingly lower groups. We have no 
 means of knowing in how far the groupings 
 and the rates represented a deliberate 
 attempt to conform to the principle of 
 identical sacrifice. It is certain that this 
 consideration was not ignored. Bearing 
 in mind the novelty of the endeavor, the 
 urgency of the requirement and the hur- 
 riedness of the legislation — the results 
 attained, in this particular at least, are 
 entitled to something very much more than 
 the reception accorded the war revenue 
 measure as a whole. 
 
 The defect of progressive taxation is the 
 difficulty of putting its principle into 
 proper working effect in consequence of 
 the varied sources of economic income and 
 
104 AMERICAN CITIZENSHIP 
 
 of the lack of any practicable measure of 
 personal sacrifice. Identity of sacrifice is 
 an easy phrase — just as is * * tote fair. ' ' 
 But how shall it be realized? "What shall 
 be the stages of progression and what the 
 ascending percentages of the levy? If 
 incomes of $2,000 are to be taxed one per 
 cent., is a corresponding burden upon 
 incomes of $5,000, two per cent, or three 
 per cent., and upon incomes of $25,000, five 
 per cent, or twenty-five per cent. ? Obviously 
 these are not the ordinary difficulties of 
 fiscal technique that may properly be left 
 to the ingenuity and skill of the tax admin- 
 istrator. They fairly raise the question 
 as to whether progression is not — pace 
 the philosophers — ^^ conceptual '' rather 
 than ^ ' real. ' ' Grave obstacles such as these 
 have led the financial expert — ^who has 
 made the subject peculiarly Eis own — to 
 conclude that although *' progression of 
 some sort is demanded from the standard 
 of ideal justice, the practical difficulties in 
 the way of its general application are well 
 
AND ECONOMIC WELFARE 105 
 
 nigh insuperable.'' And again, ^^ it is 
 doubtful whether greater individual justice 
 will be attained by a system of progression 
 than by the simple rule of proportion ; and 
 it is highly questionable whether the ideal 
 advantages of progression would not be 
 outweighed by its practicable shortcom- 
 ings. ' ' 2^ 
 
 The American citizen will be reluctant — 
 unwilling, it might be safely ventured — to 
 accept this conclusion. If it be true that 
 ** equality of taxation, as a maxim of 
 politics means equality of sacrifice," and if 
 equality of sacrifice entail in all modern 
 industrial societies progressive contribu- 
 tion, fiscal progress will not be shunted on 
 to a wrong track by reason of grades and 
 turns. *^ This standard, like other stand-, 
 ards of perfection,'' wrote Mill with a fine 
 sanity, * * cannot be completely realized ; 
 but the first object in every practical dis- 
 cussion should be, to know what perfection 
 is." Knowing what perfection is — he 
 might have added — men will not cease 
 striving for it.^^ 
 
106 AMERICAN CITIZENSHIP 
 
 The danger to be guarded against in the 
 use of tax progression is that the device 
 be extravagantly employed to accomplish 
 other than fiscal ends — ends attractively 
 set forth in such phrases as ** diffusion of 
 wealth ' ' and ^ ^ social equalization. ' ' Pro- 
 gressive taxation is justified not on the 
 ground that large incomes, huge industrial 
 profits, great estates are a menace to the 
 public, but on the theory that the ability to 
 contribute to the support of the govern- 
 ment grows more rapidly than the amount 
 of the income or the size of the estate, and 
 that only by graduated rates can approxi- 
 mation be had to identical sacrifice.^^ 
 
 All sound opinion is in agreement that 
 the accumulation, even more the perpetua- 
 tion of colossal fortunes is socially unde- 
 sirable, and that a narrowing of the 
 economic gulf would enhance the nation's 
 well-being. But the remedy lies in preven- 
 tive rather than in positive treatment. For 
 the evil which already exists, the fiscal use 
 of progression is likely to more than keep 
 
AND ECONOMIC WELFARE 107 
 
 pace with the healthy advance of social 
 opinion as to wealth distribution. The 
 '^ social equalization '^ theory of taxation 
 is a Frankenstein which in these days is 
 not likely to be invoked. 
 
 A further over-use of the restrictive pos- 
 sibilities of taxation has been in connection 
 with its assumed check upon popular non- 
 essential expenditure.^* A glaring fact in 
 the war experience of the United States as 
 of every belligerent state has been the 
 imperfect appreciation of the doctrine that 
 national effectiveness means spending less, 
 quite as much as producing more, and that 
 every unit of productive force required in 
 supplying dispensable needs — every ounce 
 of raw material, fuel, convertible machin- 
 ery engaged in making things and services 
 without which we could subsist — even sub- 
 sist comfortably — is just so much reduction 
 of the nation's war power. 
 
 Much has been said and written of the 
 usefulness of heavy taxation in war finance 
 in correcting this tendency, and such is 
 
108 AMERICAN CITIZENSHIP 
 
 undoubtedly the case if taxation be widely- 
 distributed and paid for from income. That 
 part of the national dividend surrendered 
 to the state in taxation which would other- 
 wise have been needlessly consumed effects 
 a corresponding release of productive 
 energy for the national defense. But it is 
 equally certain that the same result can 
 attend wisely devised public borrowing and 
 that the largest part of that which the 
 Treasury receives from loans can come 
 from the income rather than from the 
 credit of those who subscribe to bonds. 
 This is the distinction between ** credit 
 loans '' and ** savings loans. '^ If bonds 
 are paid for out of current income that 
 would othermse have been spent upon non- 
 essentials the result is the same, as to the 
 release of industrial labor and capital for 
 war service as though this sum had been 
 taken in taxation. Indeed, to the extent 
 that the war taxes are of so restricted a 
 kind and rest in the main upon so limited 
 a class that payments will be effected by 
 
AND ECONOMIC WELFARE 109 
 
 the aid of bank loans or at the expense of 
 further savings, there is strong likelihood 
 that the resultant curtailment of unneces- 
 sary production will be less than that 
 growing out of a widely distributed bond 
 issue paid for out of current savings. 
 
 It is possible to apply this experience 
 with advantage to the problem of after- 
 war financing. We have already discussed 
 the importance of public retrenchment and 
 private thrift in relation to current expend- 
 iture. But the nation must also repay what 
 it has borrowed. The more completely 
 the processes of debt reduction and debt 
 extinction can proceed by a diversion of 
 income from spending to payment, the 
 more rapidly will the wastage and wear of 
 war be repaired. This is even more impor- 
 tant if after- war reconstruction entail — as 
 it is certain to do in this country or else- 
 where — further funding and refunding 
 operations. Unless there be a diversion 
 of income — voluntary or enforced — from 
 spending to debt discharge, the mischievous 
 
110 AMERICAN CITIZENSHIP 
 
 war cycle of credit expansion and price 
 inflation is likely to be again renewed. 
 
 Taxation as snch offers no automatic 
 escape from this evil. It would probably 
 be better to continue our large debt intact 
 with a very gradual amortization hereafter 
 or to refund it at a lower interest rate by 
 the continuing * * over the counter ' ' sale 
 of popular bonds paid for from out the 
 nation's income — than to attempt quick 
 liquidation by drastic taxation certain to 
 involve further resort to bank borrowing 
 and credit expansion. Better than either 
 of these is courageous but not reckless 
 amortization by means of widely distrib- 
 uted, equitably imposed taxation — the 
 incidence of which shall be upon increased 
 production or at least current revenue and 
 not upon working capital or bank reserves. 
 
 These, then, are the principles to which 
 American revenue policy in the years that 
 lie immediately before us should seek to 
 conform and in the enforcement of which 
 
AND ECONOMIC WELFARE 111 
 
 tlie efforts of a wise citizenship may prop- 
 erly be expended : sound incidence, univer- 
 sal contribution and progressivity — taxes 
 which shall fall, in so far as may be, upon 
 an enlarged national dividend rather than 
 upon productive capital or upon current 
 income, which shall rest upon the entire 
 citizen body, but with such a distribution 
 of burdens as to require from every man — 
 rich or poor, capitalist or wage-earner — a 
 sacrifice of like relative intensity. How- 
 ever, we fall short, a fiscal program of this 
 sort — of any sort — is infinitely better than 
 opportunism or convenience. There is as 
 definite a place for idealism in the economy 
 of the state as in its government and in its 
 administration. Fiscal justice is on all 
 fours with political equality and civic 
 integrity. It is not a corollary of democ- 
 racy; it is democracy. 
 
 And now I am done. For my parting 
 word, may I hark back again to Sir William 
 Petty, the many-sided genius of late seven- 
 
112 AMERICAN CITIZENSHIP 
 
 teenth century economics : ^ ^ say I what I 
 will or can, things will have their course, 
 nor will nature be cozened : wherefore what 
 I have written (as I said before) was done 
 but to ease and deliver myself, my head 
 having been impregnated with these things 
 by the daily talk I hear about advancing 
 and regulating Trade, and by the murmurs 
 about Taxes, &c/'25 
 
 * * I wish for my own part there were no 
 such thing as Political Economy,' ' lamented 
 Archbishop Whately — hastening to add 
 that it was the occasion not the thing that 
 he would have vanish. Only the Spectator's 
 devil could transmute ^^ Political Arith- 
 metic * ' into * ' Poetical Arithmetic. ' ' ^e 
 Ardent devotee that he was, Joseph Massie 
 confessed that ^^ it is not easy for a Man 
 to figure to himself a literary Pursuit more 
 disagreeable than is the Study of Com- 
 merce as a national Concern. " ^"^ If much 
 of what I have said has seemed dull, 
 remember WhewelPs solemn apology: 
 * * they are commonplaces which young men 
 
AND ECONOMIC WELFARE 113 
 
 of rank, such as those to whom these 
 Lectures were addressed, ought to know, 
 and which they were not likely to learn 
 unless they were brought before them in 
 some such way as this.^'^^ Finally, if 
 everything else fail, let there be solace in 
 Walter Bagehot's assurance that ** no real 
 English gentleman, in his secret soul, was 
 ever sorry for the death of a political 
 economist; ... he may be useful, as 
 drying machines are useful ; but the notion 
 of crying about him is absurd. ' ' ^^ 
 
NOTES 
 
 *John Veitch, "A Memorial of Dugald Stewart," in 
 Collected Works of Dugald Stewa/rt (ed. Hamilton, 
 Edinburgh, 1851-8), vol. x, li-lii. 
 
 'Sidney Lanier, "The Symphony" in Poems (New 
 York, 1898), p. 60. 
 
 'John Rae, Life of Adam Smith (London, 1895), 
 pp. 54-55. 
 
 *" Teaching and Thinking" in Aequanirndtas (Phila- 
 deli^hia, 1904), p. 131. 
 
 ' The Education of Henry Adams ( Boston and New 
 York, 1918), pp. 351-352. 
 
 •John Craig, Remarks on Some Fundamental Doc- 
 trines in Political Economy (Edinburgh, 1821), pp. 
 162-163. 
 
 ^ An Inquiry into the Nature and Causes of the 
 Wealth of Nations (London, 1776) ; ed. Cannan (Lon- 
 don, 1904), vol. 1, rp. 1 note. 
 
 ^Ihid., vol. 1, p. 1. 
 
 °F. A. Walker, Political Economy (3rd edit., New 
 York, 1888), pt. 1, chap. iii. 
 
 "Fred I. Kent, "Foreign Investments in their rela- 
 tion to the Future of this Country"; an address deliv- 
 ered before the Maryland Bond Buyers' Association, 
 Baltimore, February 27, 1919. 
 
 "James Bonar, Malthus and his Work (London, 
 1885), book ii, chap. ii. 
 
 115 
 
116 AMERICAN CITIZENSHIP 
 
 "Aw Inquiry into the Nature and Causes of the 
 Wealth of Nations (ed. Cannan), vol. 1, p. 1. 
 
 "Ralpli Waldo Emerson, Journals, 1849-1855 (Cam- 
 bridge, 1912), vol. viii, p. 389. 
 
 ^* Thirteenth Census of the United States, 1910 
 (Washington, 1914), vol. iv, p. 53. 
 
 "This estimate of the number absorbed in specialized 
 war industries can claim no higher warrant than that 
 of " an intelligent guess." 
 
 ^^ The Financial Review, Annual — 1918 (New York, 
 1919), pp. 70-71. 
 
 ""Report of the Secretary of the Treasury, 1918" 
 in Annual Report on the State of the Finances (Wash- 
 ington, 1918), p. 4. 
 
 " " Letter from the Secretary of the Treasury to the 
 Chairman of the Committee on Ways and Means," 
 Washington, July 9, 1919. 
 
 " " Report of the Secretary of the Treasury," op. cit., 
 p. 5. 
 
 ^John Hay, " Banty Jim" in Poetical Works (Bos- 
 ton, 1916), p. 13. 
 
 ^Monthly Labor Review, August-October, 1919. 
 
 '^ Bradstreet's, September 27, 1919. 
 
 ^ " iCirculation Statement" (Division of Loans and 
 Currency, Treasury Department), May 1, 1917 and 
 July 1, 1919. 
 
 ^"Abstracts of Reports of Condition of National 
 Banks," No. 106 (May 1, 1917); No. 119 (June 30, 
 1919). 
 
 ^Federal Reserve Bulletin, May, 1917, p. 411-2; 
 August, 1919, pp. 796-7. 
 
 *'See the present writer's War Borrowing: A Study 
 of Treasury Certificates of Indebtedness of the United 
 
AND ECONOMIC WELFARE 117 
 
 States (New York, 1919) ; also a paper on " Fiat Credit 
 and High Prices," in New York Times, October 29, 1919. 
 
 "War Borrowing, chap, v ('The Price Level'). 
 
 '^Essays on Political Economy (ed. Wells; New 
 York, 1877), pp. 72-74. 
 
 **The argument is forcibly presented in John M. 
 Robertson, The Fallacy of Savings (London, 1892). 
 
 ^John Hay, "The Mystery of Gilgal " in Poetical 
 Works (Boston, 1916), p. 14. 
 
 ^ W. M. Thackeray, The Book of Snohs, chap. 33. 
 
 ''George Chalmers, An Estimate of the Comparative 
 Strength of Britain (London, 1782), p. 48. 
 
 ^No. 200; October 19, 1711. 
 
 ** Nassau W. Senior, An Introditctory Lecture on 
 Political Economy (London, 1827), p. 31 ; used again in 
 Richard Whately, Introductory Lectures on Political 
 Economy (London, 1831), p. 95. 
 
 ^Publications of American Economic Association, 
 vol. 1 (Baltimore, 1888), p. 10. 
 
 * Daniel Raymond, The Elements of Constitutional 
 Law and of Political Economy (Baltimore, 1840), vlii. 
 
 II 
 
 ^John Veitch, "A Memoir of Dugald Stewart," in 
 Collected Wiorks of Dugald Steuyart (ed. Hamilton), 
 vol. X, Ixxiv. 
 
 'Ibid., vol. X, Ixxii. 
 
 'Life and Letters of Maria Edgeworth (ed. Hare, 
 1895), vol. 2, p. 65. 
 
 * Autobiographic Recollections of George Pryme, Esq. 
 M.A. (Cambridge, 1870), p. 124. The allusion is to 
 Wealth of Nations (ed. Oannan), vdl. i, p. 96. 
 
118 AMERICAN CITIZENSHIP 
 
 'lOarlyle, Past and Present (1843), book iii, chap. ii. 
 
 "W. H. Mallock, Labour and the Popular Welfare 
 (London, 1894), p. 308. 
 
 'J. Taylor Peddie, Economic Reconstruction (Lon- 
 don, 1918), p. 180. 
 
 * For a dissenting argument character i2:ed by such 
 statements as : " Most employers are too busy and 
 their time is too valuable to society to be spent on 
 academic study of sociological questions. When the 
 theorists mix in, they usually make a mess of it " — 
 see Dorr E. Felt, " College Made Utopias and Labor 
 Unrest" (1919). 
 
 ' The argument of the following pages was presented 
 by the writer in a public address on "War and Want," 
 delivered in New York and Rochester in the winter 
 of 1918. 
 
 " [Robert Owen], A New View of Society (London, 
 1813), pp. 20-21. 
 
 "MS. Note in Place's copy of Owen's New View of 
 Society, in the present writer's library. 
 
 "Quoted by J. D. Rogers in the excellent memoir of 
 Robert Owen in Palgrave, Dictionary of Political 
 Economy. 
 
 " " War and Want " ; see note 9, above. 
 
 ^*The Labour Gazette, February, 1918, pp. 52-53. 
 
 "I. M. Rubinow, "Dependency Index of New York 
 City, 1914-1917," in American Economic Review, 
 December, 1918. 
 
 ^Monthly Labor Review, March, 1919, pp. 119-120. 
 
 " " War and Want ; see note 9, above. 
 
 " The present insistent demand of the stronger trade 
 unions for a shortening of the working week is to be 
 interpreted as an endeavor " to make the work go 
 
AND ECONOMIC WELFAKE 119 
 
 round" now and hereafter, rather than as a deliberate 
 limitation of output. 
 
 "See above, pp. 26-30. 
 
 ^Monthly Review of the Bureau of Lalor Statistics, 
 Felruary, 1916, p. 36. 
 
 '^Report on the Statistics of Labor (Boston, 1912), 
 p. 97. 
 
 "Report of the Comrmssioner of Lalor (Albany, 
 1914), p. 224. 
 
 ''"See the present writer's The Abolition of Poverty 
 (Boston, 1914), pp. 53-59. 
 
 '^ An Inquiry into the Nature and Causes of The 
 Wealth of Nations (ed. Cannan), vol. i, p. 68. 
 
 **lSidney and Beatrice Webb, Industrial Democracy 
 (London, 1897), Part iii, chap. i. 
 
 * Arnold Bennett, These Twain (New York, 1915), 
 p. 233. 
 
 "See J. Noble Stockett, Jr., The Arbitral Determinor 
 tion of Railway Wages (Boston, 1918) — the brilliant 
 essay of a gifted student cut off at the very threshold 
 of a scientific career. 
 
 ^Eastern Engineers' Association (1912), Report of 
 Board, p. 47. 
 
 **John D. Rockefeller, Jr., The Colorado Industrial 
 Plan (1916), pp. 13, 31. 
 
 ^'See a paper by the present writer on "Economic 
 Theorizing and Scientific Progress," presented at the 
 Twenty-ninth Annual Meeting of the American Eco- 
 nomic Association. 
 
 ^The succeeding argument was first presented by the 
 writer in paper bearing the title of the present lecture 
 ('The Laborer's Hire') read before the Economic 
 Seminary of The Johns Hopkins University in 1914. 
 
120 AMERICAN CITIZENSHIP 
 
 ^ An Inquiry into the Nature and Causes of the 
 Wealth of Nations (ed. Cannan), vol. 1, pp. 102-112. 
 
 ^George E. Barnett, "American Trade-Unionisin and 
 the Standardization of Wages during the War," in 
 Journal of Political Economy, October, 1919. 
 
 **Ix)uis B. Wehle, "War Labor Policies and Their 
 Outcome in Peace " in Quarterly Journal of Economics, 
 February, 1919. 
 
 » Alexander M. Bing, "The Work of the Wage- 
 Adjustment Boards " in Journal of Political Economy, 
 June, 1919. 
 
 "Sidney Lanier, "The Symphony" in Poems (New 
 York, 1898), p. 61. 
 
 ^Carlyle's epithet for. Utilitarianism; compare 
 James Bonar, Philosophy and Political Economy (Lon- 
 don, 1893), pp. 230 n., 235-236. 
 
 '^ John D. Rockefeller, Jr., Representation in Industry 
 (Atlantic City, 1918), p. 29. 
 
 *• Graham Wallas, The Life of Francis Place (London, 
 1898), pp. 13-14. 
 
 Ill 
 
 *iC. J. Smith, Synonyms Discriminated (New York, 
 1910), suh. "Tax." 
 
 ^ An Inquiry into the Nature and Causes of the 
 Wealth of Nations (ed. Cannan), vol. ii, p. 311. 
 
 'Thomas Cooper, A Manual of Political Economy 
 (Washington, 1833), p. 66. The inspiration was per- 
 haps Whately's " There is nothing else that distin- 
 guishes taxation from avowed robbery " ( Introductory 
 Lectures on Political Economy, 2nd edit., London, 1832, 
 p. 11 n.). 
 
AND ECONOMIC WELFARE 121 
 
 * Edwin R. A. Seligman, Essays in Taxation (8th 
 edit., New York, 1913), p. 62. 
 
 "David A. Wells, Practical Economics (New York, 
 1887), p. 161. 
 
 •Edwin R. A. Seligman, The Shifting and Incidence 
 of Taxation (2nd edit.. New York, 1899), p. 30. 
 
 'David Hume, Essays, Moral, Political and Literary 
 ("Of Taxes"); ed. Green and Grose (London, 1875), 
 Y<A. 1, p. 356. 
 
 "David Ricardo, On the Principles of Political Econ- 
 omy and Taxation (London, 1817), p. 189. 
 
 ^Annual Report of the Secretary of the Treasury on 
 the State of the Finances for the fiscal year ended June 
 30, 1918 (Washington, 1918), p. 481; "Letter of the 
 Secretary of the Treasury to the Chairman of the Ways 
 and Means Committee of the House of Representatives, 
 June 5, 1918, ibid., p. 47; "Letter of the Secretary of 
 the Treasury to the Chairman of the Ways and Means 
 Committee of the House of Representatives, July 9, 
 1919" in Federal Reserve Bulletin, August, 1919, p. 
 725 ; " Daily Statement of the United States Treasury," 
 June 30, 1919. 
 
 ""Letter of the Secretary of the Treasury to banks 
 and trust companies of the United States, July 25, 
 1919" in Federal Reserve Bulletin, August, 1919. 
 
 ^^ Public Finance (London and New York, 1892), 
 p. 635. 
 
 "Alexander Pope, Moral Essays (Epistle iii; 'Of the 
 Use of Riches ' ) . 
 
 ^ James Bonar and J. H. Hollander (ed.), Letters of 
 David Ricardo to Hutches Trower (Oxford, 1899), p. 93. 
 
 "Sir William Petty, A Treatise of Taxes and Contri- 
 butions (London, 1667), Preface. 
 
122 AMERICAN CITIZENSHIP 
 
 ^ An Inquiry into the Nature and Causes of the 
 Wealth of Nations (ed. Cannan), vol. ii, p. 310. 
 
 "Sir William Petty, A Treatise of Taxes and Contrir 
 hutions (London, 1667), p. 14. 
 
 "Byron, The Age of Bronze (London, 1823), lines 
 602-603. 
 
 ^ An Inquiry into the Nature and Causes of the 
 Wealth of Nations (ed. Cannan), vol. ii, p. 310. 
 
 ^'Principles of Political Economy (London, 1848), 
 book V, chap, ii, § 2. 
 
 * Edwin R. A. Seligman, Progressive Taxation in 
 Theory and Practice (2nd edit., Princeton, 1908). 
 
 "Ibid., p. 324. 
 
 " Principles of Political Economy, book v, chap, ii, § 2. 
 
 ^Report of the Special Tax Commission of the State 
 of New York (1907), pp. 10-12; quoted in Seligman, 
 Progressive Taxation, p. 322. 
 
 " See the present writer's " War Borrounng : A Study 
 of Treasury Certificates of Indebtedness," pp. 208-9; 
 also "Do Government Loans Cause Inflation?" in The 
 Annals of the American Academy of Political and 
 Social Science, January, 1918. 
 
 » Sir William Petty, A Treatise of Taxes and Contri- 
 butions (London, 1667), Preface. 
 
 * Riciliard Whately, Introductory Lectures on Poli- 
 tical Economy (London, 1831), p. 92; The British 
 Essayists (ed. Berguer; London, 1823), vol. ix, table 
 of contents. 
 
 "Joseph Massie, A Representation concerning the 
 Knowledge of Commerce as a National Concern (Lon- 
 don, 1760), dedication. 
 
 *W. Whewell, Six Lectures on Political Economy 
 (Cambridge, 1862), viii. 
 
 ^"The First Edinburgh Reviewers" in Works 
 ^Hartford, 1891), vol. i, p. 22. 
 
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