SOUTHERN BRANCH, UNIVERSITY OF CALIFORNIA, LIBRARY, iLjOS ANGELES, CALIF. OUR ECONOMIC AND OTHER PROBLEMS OTTO H. KAHN OUR ECONOMIC AND OTHER PROBLEMS A Financier* s Point of View BY OTTO H. KAHN NEW S&WJr YORK GEORGE H. DORAN COMPANY COPYRIGHT, I920, BY GEORGE H. DORAN COMPANY PRINTED IN THE UNITED STATES OF AMERICA CONTENTS PART ONE: THE LAST FIGURE OF AN EPOCH PAGE I The Last Figure of an Epoch .... 13 Edward Henry Harriman 2 PART TWO: CONCERNING BUSINESS AND ECONOMICS II Strangling the Railroads 67 III Government Ownership of Railroads . 95 IV Suggestions Concerning the Railroad Problem 108 V High Finance 119 VI The New York Stock Exchange and Public Opinion 144 VII Two Years of Faulty Taxation, and the Results 163 v, VIII The Need for National Efficiency . . 214 * IX The Menace of Paternalism .... 235 X The Task Ahead 276 XI Roosevelt and Business 317 PART THREE: CONCERNING WAR AND FOREIGN RELATIONS XII France 323 XIII When the Tide Turned 326 XIV Great Britain .342 v VI CONTENTS PAGE XV An Open Letter 346 XVI A Golden Book of Soldiers' Letters . 351 XVII America and the League of Nations . . 354 XVIII A Letter to an Englishman .... 368 PART FOUR: CONCERNING ART XIX Some Observations on Art in America . . 379 XX An Experiment in Popular Priced Opera . 393 XXI Art and the People 406 PART ONE: THE LAST FIGURE OF AN EPOCH "His death coincided with what appears to be the ending of an epoch in our economic development. His career was the embodiment of unfettered individualism. For better or for worse — personally I believe for better unless we go too far and too fast — the people appear determined to put limits and re- straints upon the exercise of economic power just as in former days they put limits and restraints upon the absolutism of rulers. Therefore, I believe there will be no successor to Mr. Harriman; there will be no other career like his." {January, 1911.) THE LAST FIGURE OF AN EPOCH EDWARD HENRY HARRIMAN I FIRST met Mr. Harriman in the year 1894. At that time what moderate degree of importance at- tached to his person in the financial community rested mainly upon the fact that he was chairman of the finance committee of the Illinois Central Railroad. It was then a well known circumstance among bankers that the Illinois Central's finances were managed with remarkable skill and foresight. Somehow or other, it never had bonds for sale except in times when bonds were in great demand ; it never borrowed money except when money was cheap and abundant; periods of storm and stress ever found it amply prepared and fortified ; its credit was of the highest. The few acquainted with the facts conceded that Mr. Harriman was a shrewd financial manager, but he had reached the age of nearly fifty years without at- tracting any general attention. In later life, when in reminiscent mood, he used to say that the fact that he had been born and bred in New York, and had done his work right here in the midst of people, many of An address delivered before the Finance Forum, New York, Janu- ary 25, 1911. 13 14 THE LAST FIGURE OF AN EPOCH whom had known him a great number of years, had militated considerably against his recognition. He thought if he had "blown" into New York from the West, his rise would have been a good deal more rapid. It was the old story of the prophet having little honor in his own country. Even after he had started on his course of achievements in the Union Pacific Rail- road those of us who then began to speak about the man's marvellous capacities, used to be met frequently with remarks such as : "Ned Harriman ! Why, I knew him years ago as a little 'two dollar broker.' What should he know about practical railroading 4 ? How could he suddenly be de- veloping these wonderful qualities you speak of *? You can't make me believe that a man can have lived in this community for nearly fifty years, have been known to lots of people, have made a fairly successful career, and then all of a sudden turn out to be a genius." My first vivid impression of Mr. Harriman dates back to a hot summer afternoon in 1897, when, looking pale, weary and tired out, he came to my firm's office to induce us to take an interest with him in a certain business. We did not particularly care for it, and told him that we preferred not to join in the transaction. He argued to convince us of its merits, and, finally, not having made any headway, he desisted. I thought he had accepted our refusal. He got up to go, but turned around at the door and said : "I am dead tired this afternoon, and no good any more. I have been on this job uninterruptedly all day, taking no time even for luncheon. I'll tackle you again EDWARD HENRY HARRIMAN 1 5 to-morrow, when I am fresh. I'm bound to convince you and to get you to come along." He did. He came again the next day, and finally we yielded to the sheer persistency of the man, and to the lucidity of his arguments. It is worth mentioning, by the way, that his judgment was right; the business turned out very well. The incident has impressed itself upon my mind be- cause though of small importance in itself, it was so characteristic of the man. There was first of all the correct judgment as to the merits of a proposition and as to its outcome — a judgment marvellously clear and sure, almost infallible. There was, secondly, the iron determination — so conspicuously in contrast to his frail appearance — the dogged persistency in pursuing and carrying out his purpose. He did not know the meaning of the word "defeat." He never "threw up the sponge." His power of will was nothing short of phenomenal ; and by its exercise, coupled with his indomitable pluck and amazing brain faculties, I have seen him perform veritable miracles in the way of making people do as he wanted. One in- stance as an illustration; and please bear in mind that the incident which I am about to relate occurred at a time when Mr. Harriman was but at the threshold of his successes, and had not yet acquired the commanding prestige which came to him in later years, and which, when once attached to a man's name and personality, naturally adds very greatly to his influence over other people. In 1898 (or it may have been early in 1899) he had l6 THE LAST FIGURE OF AN EPOCH been invited to take an interest in a certain property, and though not greatly caring for the proposition, had accepted. A few months afterward the people who had sought Mr. Harriman's co-operation suddenly sold out their holdings in the property to a group of men who thereupon proceeded to assume the control now right- fully theirs, and to substitute themselves and their ap- pointees in place of Mr. Harriman and his colleagues. Having, myself, a somewhat indirect interest in the situation, I had occasion to discuss it with him, and re- ferred to the cessation of his short-lived connection with the property, which I took as a matter of course. To my surprise, he interrupted me: "Hold on! Not so fast! I am not through with this thing yet, by any means. I can't be played fast and loose with like this. I did not care particularly to go into it, as you know ; but, having been urged to do so and hav- ing done so, I am in it to stay." "Of course, you have a just grievance against the men who have quit," I replied. "Having asked you of their own initiative to co-operate with them, it was a mean and improper act on their part to sell out without first conferring and consulting with you. But it's done, the newcomers are in rightful control, it's no use making a fuss, and it seems to me that the best, and indeed the only thing for you to do is to look pleasant and get out. As a matter of fact, why should you care? That property is of very little interest to you." He reiterated his view, and his determination not to give in. "Well," I said, "what are you going to do about it? They have the right to turn you out with- EDWARD HENRY HARRIMAN 17 out ceremony, if you do not give way gracefully." "I don't know yet," he answered. "I'll just stand pat and not budge, and watch." After a while the newcomers found out that, while all the others concerned accepted the situation, Mr. Harriman would not quit without a fight. Though they were clearly in a position to win, as far as their immediate object was concerned, they hesitated to attack so determined an opponent. Things went on like this for several months, Mr. Harriman retaining an attitude of quiet but uncom- promising defiance. The newcomers somehow or other began to feel uncomfortable. Here was a man who was beaten, yet did not know it, did not get out of the way of a steam roller, as he obviously ought to have done, according to all the rules of self-preservation; and who now and then, metaphorically speaking, made a significant movement toward his hip pocket. His attitude disturbed them. They could not make it out. It was contrary to all logic, experience and usage that a man should flatly and obstinately decline to step out when they had the actual power by the simple process of casting their votes to throw him out. What did it all mean 1 ? Was there any weak point in their position, which they had overlooked*? They had the votes, a clear majority; yet Harriman must have some good counter-move up his sleeve, something which gave him that calm confidence to stand up and jauntily invite a fight. A bluff, perhaps"? They were pretty good at that game themselves, but they argued that manifestly it l8 THE LAST FIGURE OF AN EPOCH would have been too easy to call that hand to warrant reliance on the diagnosis of a mere bluff. Moreover their guess was not so very far from right. There were, it is true, some of the ingredients of bluffing in his attitude, but. if it had come to a fight, Mr. Harri- man would have given them a pretty lively tussle, even though ultimately, if they saw it through, they were bound to win. Mr. Harriman was not averse to something resembling bluffing, in fact he rather en- joyed the sport; but he never indulged in that pastime without having previously been careful to put himself in such a position that, if a test of strength was called for, he could, if not win, at least give such an account of himself that his opponent would become imbued with a wholesome respect for his fighting capacity, and would be extremely disinclined to tackle so for- midable and resourceful an antagonist in the future. However, in this instance no fight occurred. The hostile armies kept confronting each other — Mr. Harri- man immovable and inscrutable; the enemy hesitant and rather troubled. One morning he called me on the telephone to ask me to accompany him to a con- ference at the enemy's headquarters. I went, some- what in the capacity of second at a duel. He gave me no indication as to what the proceedings were to be. The conference lasted three hours. Most of the talking was done by the other side. Mr. Harriman did not threaten or cajole or make promises. He sim- ply brought to bear, upon these men, the stupendous force of his will and personality. When the confer- ence broke up, not only was there no longer any EDWARD HENRY HARRIMAN 19 question of his retiring, but the newcomers had agreed to turn over to him their votes and proxies, and to let him run the property. The object in itself was by no means great or impor- tant or essential to Mr. Harriman's plans. It became important to him when he found that its attainment was difficult, when he found himself confronted with obstacles and opposition. He positively loved obsta- cles, and the harder to surmount, the more they allured him. Difficulties, risks, dangers were not only no de- terrents, but rather inducements to undertake a task. When there was an easy way to accomplish a thing, and also a difficult way, Mr. Harriman's inclination would be to take the latter. I once told him I sus- pected him of purposely creating difficulties and ob- stacles for himself for the mere sport of overcoming them, as a keen horseman will go out of his way to jump hurdles and fences, as a mountain-climber will test his skill and daring by deliberately choosing a difficult and dangerous ascent. II The particular incident which I have related, espe- cially impressed itself upon my mind in all its details, because it was the first time I had seen Mr. Harriman in action. I witnessed many similar cases in the fur- ther course of his career, during which it was my privi- lege to be closely affiliated with him. Over and over again did I observe him bending men and events to his determination, by the exercise of the truly wonderful 20 THE LAST FIGURE OF AN EPOCH powers of his brain and will; powers which accom- plished their fullest potentialities because they were united with unwavering loyalty under all circumstances and with a sacred respect for any commitment entered into. A moral obligation, to him, had the same force and meaning as a legal contract. Not infrequently he would come to meetings at which ten or twelve men sat around the table with him, — men, too, of no mean standing in the business community, — a large majority of whom were opposed to the measures he would propose. Yet, I know of hardly an instance of any importance where his views did not prevail finally, and, what is more, generally by unanimous vote. If he did not succeed in what he had set himself to achieve at the first attempt, or the second, or the third attempt, he would retreat for a while, but he never gave up; he moved on toward the attainment of his object, undismayed, resourceful, re- lentless as fate, with that supreme patience which, ac- cording to Disraeli, is "a necessary ingredient of genius." When Mr. Ryan bought the control of the Equitable Life Assurance Society, Mr. Harriman claimed to share in the purchase. Mr. Ryan refused positively and publicly. For five years nothing more was heard of the matter, and even Mr. Harriman's intimate asso- ciates thought he had dropped the idea. Only a short while ago it became known that a year before his death Mr. Harriman had finally succeeded in his object, having purchased from Mr. Ryan one-half of his hold- ings at their original cost. EDWARD HENRY HARRIMAN 21 A high placed personage temporarily residing in Japan during the year 1905 told me that the most amazing thing he had ever witnessed was the way in which Mr. Harriman in the course of a ten days' visit to Tokio made a whirlwind campaign among the lead- ing men and succeeded in carrying away from the wily, wary, slow-moving Orientals a most important con- tract — so important and so far-reaching that, had it been carried out (and it was no fault of Mr. Harri- man's that it was not), the course of Far Eastern diplomacy in recent years would have been different in some essential aspects. I was asked sometimes, when things that had seemed utterly improbable of realization were finally accom- plished by Mr. Harriman, to give a reason why the parties concerned had yielded to him. What was the inducement? What the motive of their action? Why had they done finally what they had declared they would not do, or what there was no plausible ex- planation for their doing? My answer was: "Simply because Mr. Harriman had set his will and mind to work to make them do it." He once said to me, early in our acquaintance: "All the opportunity I ask is to be one among fifteen men around a table." Yet he had neither eloquence nor what is ordinarily called tact or magnetism. His were not the ways or the gifts of the "easy boss." Smooth diplomacy, the talent of leading men almost without their knowing that they are being led, skillful achievement by win- ning compromise were not his methods. His genius 22 THE LAST FIGURE OF AN EPOCH was the genius of the conqueror, his dominion was based on rugged strength, iron will, irresistible deter- mination, indomitable courage, tireless toil, amazing intellect and, last but not least, upon those qualities of character which command men's trust and confi- dence. He was constitutionally unable either to ca- jole or to dissemble. He was stiff necked to a fault. It would have saved him much opposition, many ene- mies, many misundertandings, if he had possessed the gift of suavity, of placing a veneer over his domineer- ing traits, so as to make the fact of his chieftainship less overt, and thereby less irksome. Sometimes, when even some of his close associates would chafe under his undisguised authoritativeness, I ventured to plead with him that the results he sought could just as surely be obtained by less combative, more gentle methods, while at the same time avoiding bad blood and ill feeling. Invariably his answer was : "You may be right that these things could be so accomplished, but not by me. I can work only in my own way. I cannot make myself different, nor act in a way foreign to me. They will have to take me as I am, or drop me. This is not arrogance on my part. I simply cannot achieve anything if I try to compromise with my nature and to follow the notions of others." Ill To a man thus constituted, the world did not yield its rewards easily and willingly. The way to the heights of power leads always through the valleys of EDWARD HENRY HARRIMAN 23 envy, jealousy and animosity; but in Mr. Harriman's case the opposition, the enmities, the hatreds, which disputed and contested his progress were bitter, violent and numerous, far beyond ordinary measure. Yet, by the irresistible force of his genius, he acquired in the space of but ten years a position in the railroad world such as no man had held before him, and no man, I believe, will hold again. , Though he was lacking in the faculty of attracting men in general (I say "in general," because upon those who came close to him the spell of his personality was most potent), he did have the gift in a most marvellous degree of attracting power as the magnet attracts iron. At the time of his death, the papers were full of com- ments as to the vastness of the territory in which his influence was potent or controlling; but the most re- markable thing, to my mind, was not the extent of his power, but the fact that his commanding position, his control over so many undertakings, rested not on money, but on personality. I do not think that the greater part of his fortune was invested in railroad stocks, and, if every cent of it had been so invested, it would have amounted to but a small fraction of the share capital of the properties in which his influence was predominant. He became gradually the centre of railroad power, and at the same time one of the greatest powers in finance, because his masterful ability, his constructive genius, the farsight- edness and correctness of his vision, his faithfulness to trust reposed in him, impressed themselves finally upon friend and foe alike. 24 THE LAST FIGURE OF AN EPOCH He had measured strength with all those who cared to cross swords with him, and out of every fight he had come, if not invariably victorious, invariably un- scathed, bigger and stronger than before. The rail- road properties in his charge had grown and prospered beyond all others. There were enemies left, but none that cared any longer to try conclusions with him. Not a few, even, of those formerly hostile, and many of those formerly indifferent, aloof or suspicious, felt at last compelled to acknowledge the genius of the man, and to pay him the tribute of seeking his co- operation. During the last year of his life, his office, or more correctly his library, uptown (for at that period he did not usually go downtown oftener than once or twice a week) resembled the office of a famous physi- cian during consultation hours. Properties in feeble health were brought to him by anxious parents for pre- scriptions and treatment. Intricate corporation prob- lems were submitted to him for diagnosis. Some enter- prises that he had treated and restored to good health presented themselves for inspection, having learned the wisdom of remaining under his care. Even big, strapping concerns apparently in perfect health, would drop in and have themselves looked over, as a precau- tionary measure, and take advice how to guard against sickness and keep in good trim. As his fame increased, owing to some particularly brilliant cure or the patronage of some especially im- portant patient, the number of those that flocked to his consultation rooms became greater and greater — ■ EDWARD HENRY HARRIMAN 2$ so much so that, to my personal knowledge, many had to be turned away, simply because the famous physi- cian could not possibly find time to attend to them. This was Mr. Harriman's situation from the spring of 1908 to the time of his lamented, untimely death in September, 1909, less than twelve years after his great opportunity had come to him in his election to the Board of the Union Pacific Railroad. Contrary to the general impression, he had had noth- ing to do with the financial reorganization of that property consummated in 1897. That measure — after years of receivership during which the system had be- come dismembered through the secession of its most important branches, feeders and outlets until nothing was left of the old Union Pacific System but the bare trunk stem, after infinite delays, complications and difficulties — was finally accomplished by a Committee consisting of Messrs. Louis Fitzgerald, Jacob H. Schiff, T. Jefferson Coolidge, Jr., Chauncey M. De- pew, Marvin Hughitt and Oliver Ames, with Mr. Winslow S. Pierce as counsel, and Messrs. Kuhn, Loeb & Company as financial managers. After the property had been acquired by the Reorganization Committee at foreclosure sale, Mr. Harriman was elected a mem- ber of the First Board of Directors in December, 1897, in compliance with a promise which Mr. Jacob H. Schiff had made to him in the course of the reorganiza- tion proceedings. Almost all the members of the Board had been pre- viously connected with the Union Pacific, either through old affiliations or through membership in the 26 THE LAST FIGURE OF AN EPOCH Reorganization Committee. Mr. Harriman was a newcomer, and by several members of the Board his advent was not regarded with friendly eyes. He was looked at askance, somewhat in the light of an intruder. His ways and manners jarred upon several of his new colleagues, and he was considered by some as not quite belonging in their class, from the point of view of business position, achievements or financial standing, a free lance, neither a railroad man nor a banker nor a merchant. Within one short year he had placed himself at the head of the board, and become the ruling spirit, the dominating force of the enterprise. If you ask me how this amazing transformation was accomplished, I can only refer you to other examples which history records of the phenomenal rise of those exceptional beings whom Providence has endowed with such quali- ties as to compel the acceptance of their leadership by their contemporaries. IV The story of the rise and development of the Union Pacific under Mr. Harriman's magic guidance; the metamorphosis by which the rather pathetic object which emerged from the receivership, stripped of its outlets and most important branches, ending rather helplessly at the borders of the Great Salt Lake, was turned in an incredibly short time into the magnificent system of today ; the startling, almost uncanny rapidity with which Mr. Harriman assimilated and mastered all EDWARD HENRY HARRIMAN I'J the intricate details, problems and difficulties of rail- roading, and from having been all his life a financial man (except for a very short term as vice-president of the Illinois Central in Chicago) became an acknowl- edged master in that science; the boldness and accuracy of his conceptions and visions, the daring of his strat- egy, the dramatic incidents which accompanied his conquering career — all this has been so fully and fre- quently told in newspapers and magazines that I need not repeat it here. I will only point to the fact that in the first fiscal year following Mr. Harriman's election to the Union Pacific board the surplus earnings of the system ap- plicable to $107,000,000 of common stock were $5,800,000. Today, taking the figures of the last fiscal year, the surplus earnings of the Union Pacific system (excluding the Southern Pacific), applicable to $216,000,000 of common stock, are $41,500,000. From the time Mr. Harriman assumed the direction of affairs to the time of his death $127,000,000 were spent in improving the property, for three-quarters of which sum (to be exact, $94,000,000) not one dollar of capitalization was created. The free assets held absolutely unincumbered in its treasury have an aggre- gate value of $210,000,000. It is essential to remember, in contemplating these truly astounding results, that they were achieved, not only with no increased burden to the public, but on the contrary the shippers and others using the lines of the Union Pacific system were benefited alike with the stockholders. Indeed, whenever there was a question 28 THE LAST FIGURE OF AN EPOCH between increased returns to the stockholder and in- creased efficiency to the Railroad, Mr. Harriman in- variably chose the latter course. As a matter of fact, he cared altogether more for the approbation of the people served by the lines of his railroads than for the applause of the financial or any other part of the com- munity. I have sometimes heard it said that the remarkable accomplishments indicated by the figures above quoted were due mainly to the unprecedented growth in wealth and prosperity of the territory served by the Union Pacific system, and not to the genius of Mr. Harriman; that the country made the Union Pacific and would have made the Union Pacific, Harriman or no Harriman. There is just a sufficient modicum of truth in this assertion to deserve contradiction. That the growth and prosperity of its territory were indispensable to the growth and prosperity of the Union Pacific goes without saying; but this growth and prosperity during the past decade were universal throughout the country west of the Missouri River, and their benefits were available to all other Western railroads to the same extent as to the Union Pacific. Yet, there is not a single line that comes close to equaling the record made by the Union Pacific, and it is the uniqueness of the Union Pacific's attainments, considering not only the financial results to the stock- holders, but also the standard of efficiency, service to the public, physical condition, financial strength and resources, which measures the uniqueness of Mr. Harri- man's genius. EDWARD HENRY HARRIMAN 29 I will cite a characteristic instance of how he began his campaign of efficiency: Immediately after he had succeeded in having him- self elected chairman of the executive committee, in 1898, and while the superior office of chairman of the board (later on occupied by him) was still held by another (Mr. Winslow S. Pierce), he started on a tour of inspection of the property, going over every mile of the line, taking the measure of the officials in charge, interviewing shippers, establishing his authority with the surprised and somewhat reluctant personnel of the organization in the West, who had hardly heard his name before, and did not quite know what to make of, and how to act toward the nervous, rapid-fire, little man who came blown in like a whirlwind, sweeping fresh currents of air into all sorts of dusty nooks and corners. After a few weeks he telegraphed to the Board of Directors in New York asking for authority to pur- chase immediately a large quantity of cars, locomo- tives, rails, etc., and to start various works of improve- ment, the total aggregating, as I remember, something like $25,000,000. The telegram was followed by a written communication setting forth the reasons for his requests and the main details of the proposed ex- penditure. The reasons, in short, were that he clearly discovered signs of returning prosperity after the long period of depression, that he believed this prosperity would as- sume proportions corresponding to the depth and ex- tent of the long drawn out and drastic reaction which 30 THE LAST FIGURE OF AN EPOCH preceded it, that labor and materials were then exceed- ingly cheap, but would begin to advance before very long, that the Union Pacific should put itself in shape to take care of the largely increased traffic which he foresaw, and to attract business to its lines by being better prepared for it and thus affording shippers better facilities than its neighbors. At that time the Union Pacific had just emerged from receivership. During the years of the receivership all of its surplus earnings had been spent on increasing its rolling stock, improv- ing its physical condition, etc., so that it was supposed to be amply supplied with facilities to handle its then existing volume of traffic. And $25,000,000 in those days was a vastly greater sum than nowadays, when the stupendous development of the country has made railroad expenditures of proportionate size familiar. It seemed a pretty hazardous thing to venture upon this huge outlay simply on a guess of coming unprece- dented prosperity. There was much doubt in the board as to whether Mr. Harriman's recommendation should be followed. I remember that the statement was made that if it were followed the Union Pacific would find itself in re- ceiver's hands again before two years had passed. The decision was reached finally to take no action of either approval or disapproval, but to let the matter stand over until Mr. Harriman's return to New York. He came home, and after long and strenuous argument he carried the day. The appropriation for the expendi- tures advocated by him was made, though with con- siderable headshaking and misgiving. Events there- EDWARD HENRY HARRIMAN 31 after proved that it was this courageous outlay at a time when the dawn of the unexampled prosperity which was to come was barely discernible, and the intelligent and efficient application of these funds, that started the new Union Pacific on its amazingly suc- cessful career and placed it, with one bound, in the forefront among western railroads. Incidentally, I may mention, as characteristic of the man, that Mr. Harriman felt so certain of the cor- rectness of his judgment, and of his ability to carry the board with him (though he had no illusions as to the sentiment of some of its members regarding him and of the fatal consequences to his career in case his forecast should turn out to have been mistaken or even premature) that, in order not to lose time and oppor- tunity while he was still in the West, he took upon himself the responsibility, at his personal risk, of con- cluding various contracts for purchases and work in- cluded in the program advocated by him. Some months before, he had caused, his associates to wonder and doubt, by buying all of the Union Pacific common stock he could accumulate, up to the price of 25 or thereabouts. He must have acquired many thousands of shares, for the stock had long been selling freely between 15 and 20. It was considered to have very little intrinsic value, and no dividends were in sight even for the preferred, much less for the common stock. I recollect an influential financial personage saying to me about these purchases, which at the time attracted a good deal of comment : "You see, the man is essentially a reckless speculator. He is putting 32 THE LAST FIGURE OF AN EPOCH everything he has and more into Union Pacific stock at these prices. He will come to grief yet." When I referred to the subject of these purchases in conversation with Mr. Harriman, he said calmly: "Union Pacific common is intrinsically worth as much as St. Paul stock. With good management it will get there." It seemed pretty wild talk, and even though at that time already I had conceived great admiration for him and great faith in him, I did not take it very seriously. Union Pacific, just emerged from wreck and ruin: St. Paul, an old seasoned dividend payer that had passed with ease through the panics and devastations of the preceding years, and was even then selling above par ! But within less than ten years from the time Mr. Har- riman had made what then appeared a preposterous prediction, Union Pacific had been placed upon an annual dividend basis of 10%, was selling in the mar- ket at close to 200, and had left the price of St. Paul far behind. Those who are familiar with Wall Street events will know that in August, 1906, the Union Pacific dividend was jumped from an annual rate of 6% to 10%. This act unchained a storm of criticism against Mr. Harri- man. He was accused of having perpetrated a stock jobbing trick — as the property, it was thought, could not possibly maintain that rate of dividend, and of having bought stock on his advance knowledge, imme- diately preceding the declaration of the increased dividend — so as to profit from the rise in the market which was bound to follow, at the expense of other EDWARD HENRY HARRIMAN 33 holders who had no knowledge of what was contem- plated. Both accusations were unjustified. No property for the management of which Mr. Harriman was respon- sible ever reduced its dividend, and the Union Pacific Railroad has maintained with ease a distribution of 10% per annum, derived to the extent of 6% from the earnings of the railroad, and to the extent of 4% from its investment holdings. Anybody who knew anything of Mr. Harriman's methods knew that his acts were not the results of sud- den impulse, but of plans long prepared and deter- mined on; that he had gone on record at every oppor- tunity as advising owners of Union Pacific stock to retain their holdings, and that if he wanted to increase his own holdings he would do so (as, in fact, he in- variably did) in times of depression and not wait to rush in a few days or weeks before the advent of some favorable consummation. At one of the hearings, in the course of which he was examined later on, he was asked whether it was not a fact that he had bought Union Pacific stock in antici- pation of the 10% dividend declaration, the meaning of the question being of course the accusation that he had unfairly taken advantage of his advance knowl- edge of the contemplated increase. To everyone's surprise, Mr. Harriman calmly answered "Yes." The examiner turned toward the audience with a trium- 34 THE LAST FIGURE OF AN EPOCH phant smile and continued: "Mr. Harriman, as you have been thus frank, would you mind telling me ap- proximately when and at what prices you bought that stock which you have just admitted you acquired in anticipation of the increased dividend*?" Mr. Harriman smiled faintly in his turn as he an- swered: "Certainly, I shall be glad to tell you. Let me think back a minute. I bought most of that stock, many thousand shares of it, in anticipation of the 10% dividend declared August, igo6, some eight years be- fore, mainly in 1898, and I paid all the way from 20 to 30 for it. And I bought more of it in subsequent years, whenever prices were low, many thousand shares more; and all the time while I was accumulating it I anticipated the declaration of that dividend." In telling this story, I do not wish to be* understood as endorsing the wisdom and propriety of the increase of the Union Pacific dividend from 6% to 10% at one jump. It was one of the few instances in which I ventured to differ from Mr. Harriman's judgment. A man at the head of a great corporation, must not only do right, but he must be very careful to avoid even appearances tending to arouse the suspicion of his not doing right. The fact and manner of that particular act lent themselves to sinister interpretations, unjusti- fied though they were. But regard for appearances was not one of Mr. Harriman's strong points. He had little patience with such considerations, and de- clined to recognize their importance. While he was a gentleman by birth and breeding, by instinct, intent EDWARD HENRY HARRIMAN 35 and principles, yet he rode roughshod over convention- alities and amenities. While he was inwardly a man of genuine kindliness, of whom many a generous and warmhearted action might be related, and would not for the world know- ingly have hurt any one's feelings, he had an extraor- dinary faculty for doing that very thing, for rubbing people the wrong way, for causing himself and his actions to be misunderstood and misjudged. He was a master of what Whistler called "the gentle art of making enemies." His manner was brusque; he was short tempered, though he had his temper under per- fect control, and never lost it whatever the provoca- tion — in fact the greater the strain the more perfect his calm and self-possession. He had infinite patience in working out plans, in biding his time, but very little in intercourse with men. His mind worked so rapidly, his thoughts crowded upon him at such a rate, that his words could not come anywhere near keeping pace with the working of his brain. The consequence was that in discussions he raced for the points he wanted to make, taking short cuts of thought and expression, expecting the bewil- dered listener to keep up with the chase, with the result that not infrequently he was but half understood, or not at all understood, by those who had not, through prolonged association, acquired the faculty of reading his mental shorthand. He desired, like every nor- mally constituted man, to possess the good opinion of his fellow men, yet he had not only a strange inepti- tude for getting on friendly terms with public opinion, 36 THE LAST FIGURE OF AN EPOCH but on the contrary a veritable genius for what is com- monly called getting himself into hot water, and of lay- ing his motives and his acts open to misconstruction. This was due in the first place to a highly honorable trait in his character: he utterly despised and abhorred hypocrisy and opportunism, he resolutely declined to stoop to any artifices to curry favor, in fact leaned over backward in his dislike of all methods of self-adver- tising. Conscious of his worth, of his achievements, and of his rectitude of purpose, he scorned to defend himself against accusations and intrigues. It was due secondly to the magnetic attraction which difficulties, obstacles and particularly everything in the nature of a combat had for him. If there was any fighting going on within earshot, however little it might concern him, he was tempted to take a hand in the fray, and the greater the odds against his side, the better; the natural result being that in addition to the number of adversaries and detractors whom a man normally meets in the struggle for success and power, he was continually recruiting enemies in quarters that lay outside his regular marching route, not all of whom fought fairly. A good instance of this propensity is afforded by his participation in the fight which arose from the antago- nism of the Alexander and Hyde factions in the Equi- table Life Assurance Society in 1905. Mr. Harriman had had nothing whatever to do with the original trouble or with the Equitable itself except that he was one of about sixty trustees of the concern, and a very inactive one at that. There was no earthly reason EDWARD HENRY HARRIMAN 37 why he should have been drawn into the fierce and bitter contest which arose, but in he jumped with both feet and laid about with such vigor that in the end he became almost the principal and probably the most attacked figure of the conflict, both the warring fac- tions pausing in their fight against each other to pour their fire of abuse and innuendo upon him. Probably, of the many campaigns of vituperation of which he was the object in the course of his career, none succeeded so well in poisoning and embittering the public mind against him. Under this avalanche of unfair, baseless accusations he kept the even tenor of his way, declining to dignify them by defending him- self in public. On this and similar occasions I urged him to speak out, to make use of the means at his command for hitting back at his detractors, and those who willingly and eagerly gave circulation to their slanders. I was never able to move him. "Let them kick," he used to say. "It's all in the day's work. After a while they will tire of it. Noth- ing tires a man more than to kick against air. More- over, it disconcerts him, and not finding any point of resistance he is very apt to intensify his kicks beyond all measure and at some movement of particular vio- lence to kick himself off his feet. Besides, for imme- diate effect, they have the advantage because they will tell lies about me, and I won't about them. And as for the effect in the long run, why, the people always find out what's what in the end, and I can wait. Let those fellows continue to shout and to kick against air. I need my time and energy to do things." 38 THE LAST FIGURE OF AN EPOCH The third reason for the widespread and long-con- tinued popular misconception in respect of Mr. Harri- man's motives, character and methods, arose from the fact that he failed to recognize, as indeed most finan- ciers of his day failed to recognize, that a man holding the power and occupying the conspicuous place he did was a legitimate object for public scrutiny in respect of his ways, purposes and actions, and that if oppor- tunity for such scrutiny were denied, if the people were met instead with silence, secrecy, impatience or resent- ment of their proper desire for information, the pub- lic mind very naturally would become infected with suspicion and lend a willing ear to all sorts of gossip and rumors. The temptation to the arbitrary, exces- sive or selfish exercise of power is so strong, the menace of its abuse is so ever-present to the public conscious- ness, that the burden of proof that they can be safely trusted with its possession is rightly laid upon those in high positions. It is for them to show cause why they should be looked upon as fit persons to be entrusted with authority, the test being not merely ability, but just as much, if not more, character, self-restraint, fair- mindedness and sense of duty toward the public. Mr. Harriman's attitude toward the law of the land has been much misinterpreted and misunderstood. To begin with, he had profound respect for the moral, the ethical law, and under no circumstances and under no temptation would he ever do anything which was not justified before the tribunal of his own conscience, his own honest conception of right and wrong. To that conviction of the rectitude of his purpose EDWARD HENRY HARRIMAN 39 and actions was added the firm belief in himself which is a characteristic of all strong men. He was actuated by a profound and unwavering faith that what he, after mature thought, felt should be done, was best for the properties of which he was the directing head, was of benefit to the communities which they served as well as to the country at large and was ethically right and proper to be done. He chafed and fretted strenuously when the letter of some statute, possible drawn without a full realiza- tion of its practical effects, stood in the way of what he considered to be absolutely proper and beneficial objects to accomplish. He was irritable and impa- tient at stupid laws, as he was at all stupidity. He had to be shown to his entire conviction that the law did clearly stand in the way before he would desist from a purpose which he deemed just and right, but the realization of which would not have been in ac- cordance with existing statutes. If there were substantial doubt he would be tempted to resolve the doubt in favor of his purpose and go ahead; whenever possible, he would be a law unto him- self, but he never consciously went counter to any ex- isting law — except that, to be entirely veracious, he may have winked at the infraction of certain provisions which for many years, with the full knowledge and sanction of the constituted authorities, had lain dor- mant, and for lack of enforcement had come to be looked upon as unenforceable and as hardly less obso- lete than the old Puritan blue laws. Nevertheless, somehow or other, true to his fatal 4-0 THE LAST FIGURE OF AN EPOCH gift of getting into trouble, he managed to become the storm-centre around which the agitation for reform in railroad laws raged most violently. He was held up to execration as the arch-type of law-defying corpora- tion managers, he was singled out as a horrible exam- ple, especially in connection with the Chicago and Alton re-adjustment, for which, by the way, he was only partly responsible, but for which he, character- istically, took upon himself the full responsibility as soon as it was attacked, as he realized that the attack, though nominally directed against that re-adjustment, was really directed against himself personally. This is not the place to discuss the conception, the execution, and the ethics of the Chicago and Alton re- adjustment. It was planned and carried out during the years 1899 and 1900 in accordance with the then prevailing laws and following a formula which was not, at that time, regarded as objectionable. Every step in connection with it was done publicly in the full light of day. All stockholders were treated alike. The service of the railroad was improved, the capacity increased, the average rate decreased. In the course of the fight made on Mr. Harriman in 1907, this transaction was gone over with a fine-tooth comb by the federal as well as the state authorities to discover ground for a suit; but no point whatever was found in which the law had been disregarded or vio- lated. Since the time of the planning and consummation of the Chicago and Alton re-adjustment, public opinion and the law have decreed changes in corporate meth- EDWARD HENRY HARRIMAN 4I ods. A transaction of this kind would, could and ought not to be effected now in the same way in which it was effected then. But it was and is entirely unfair to judge actions by standards other than those prevail- ing at the time, to make Mr. Harriman the scapegoat for practices and usages which had not then fallen under the ban of public disapproval, and to judge with retroactive moral severity, in the light and according to the measure of latter-day standards, business meth- ods which, with universal knowledge and tolerance on the part of the public and the authorities, had prevailed in the past for many years. The land was set ringing with denunciations of him ; he was made the text for violent tirades against the iniquity and lawlessness of American methods in gen- eral, and of Harriman methods in particular. Mr. Harriman was an intensely patriotic man, proud of his country, its institutions, and its achievements, jealous of his own honor and of America's fair fame abroad, always willing and eager to do his full duty as a citizen as he saw it, and he resented deeply, and so did his friends, the efforts of his detractors to represent him as a lawbreaker, and his phenomenal success as due, at least in part, to his having managed to evade/*; or set at naught the laws of his country. VI I have spoken of Mr. Harriman's love for a fight, but — lest this be misunderstood — I should add that, like every truly brave and strong man, he never picked 42 THE LAST FIGURE OF AN EPOCH a quarrel. On the contrary, he looked upon war as waste, and he abhorred waste as a cardinal economic sin. One of the characteristics of the old methods of railroad management was for each company to seek by every means, and not infrequently by underhand and unfair practices, to advance its own interests at the expense of the others, and there existed among the dif- ferent companies a constant state of warfare or armed neutrality. The true interests of all of them, and often the in- terests of the public, were sacrificed for the purpose of obtaining some supposed advantage by one company at the expense of another. Mr. Harriman was fore- most among those who advocated and worked for the more enlightened policy of "live and let live," of fair and frank dealing and legitimate co-operation among railroad managers in the interests both of the railroads and of the public. He was unsparing of his time and his efforts in working for that cause. He never started hostilities except as an ultimate resource in self-defense, or to safeguard what he con- ceived to be vital interests of the properties entrusted to his care. Yet he was a born fighting genius, and had he lived in an earlier age he probably would have ranked among those who with their swords carved kingdoms for themselves out of the map of Europe and founded dynasties. It is no mere phrase to say, that he never knew the meaning of the word "fear" — either physical or moral. And, whatever the provocation or danger, whatever the weapons used by the enemy — and EDWARD HENRY HARRIMAN 43 sometimes they were poisoned weapons — he always fought fair ; he never struck a foul blow. His word was equally good to friend and foe, and it was truly as good as his bond. No one, not even his bitterest opponents, ever accused him of having gone back on or given a twisted meaning to his words. Never did he break faith — nor consider himself free to do so in the remotest degree toward those even who had flagrantly broken faith with him. He was loyal to a fault. In more cases than one I have known him to take upon himself the whole brunt of defense or attack, from a fine feeling born of chivalrous considera- tion for those on whom he might have unloaded part of the burden, and from a proud consciousness of his ability to cope with difficult situations single-handed and unaided. Never have I met any one more utterly free from vindictiveness and malice. Whether from religious sentiment (for he was deeply and genuinely religious), from principle, or simply because his nature happened to be constituted that way, vengeance, retri- bution were no concern of his. When an opponent placed himself in his way, he used only just so much force as was needed to get him out of the road, calmly, without passion, with no desire to hurt. And when the tussle was over and he had overcome his antagonist and taken his measure and mentally registered his make-up and methods, the incident — as far as the personal side of it went — v/as settled and closed. Likewise, toward those whom he had counted as friends, but who had been found wanting in time of stress, when he needed them most, or, at least, cau- 44 THE LAST FIGURE OF AN EPOCH tious and lukewarm in their support, he had no trace of bitterness. He knew thereafter how far he could count on them, and made his plans accordingly — but that was all. No word of complaint or reproach, no resentment, no "rubbing it in" later on when associa- tion with him became again prized and coveted, no "crowing," no "I told you so" when events came his way and his judgment and course of action were vin- dicated. It would require a volume to tell the tale of all the contests in which he was involved, and highly inter- esting and dramatic it would be. The most spectacu- lar episode of this kind in his career was the contest for the control of the Northern Pacific Railroad. It was entered into, not, as has been somewhat widely believed, from ambition, from lust of power or aggran- dizement, but in defence of what he considered vital interests of the property for which he was chiefly re- sponsible and which he held to be gravely menaced by certain acts of other railroad interests. For the re- sulting unfortunate "corner" in the market no blame whatever attaches to him, and more than one of the incidents connected with the entire episode entitle him to high credit, as will become plainly apparent when the true and full story of the case is published, as it will be some day. When the smoke of battle cleared away, the Harri- man side was found to be in possession of a majority of the entire capital stock of the Northern Pacific counting common and preferred together, while their opponents held a majority of the common stock alone, EDWARD HENRY HARRIMAN 45 by a small margin, but not of the entire capital stock. By the provisions of its charter, the company had stipu- lated for the right to pay off its preferred stock at par. Needless to say, so important and essential a clause had not escaped the attention of Mr. Harriman and his associates. It had not only received their most careful attention before they decided to accumulate the preferred stock, but had been submitted by them to five leading lawyers in different parts of the country, who, acting and reporting separately, agreed unani- mously in their answer to the question regarding which they were asked to advise. On the strength of these legal opinions and of other circumstances, Mr. Harri- man was convinced at the time and ever afterward that he held, beyond any question of doubt, the winning hand. Instead of boldly playing it, he contented himself with a drawn battle and with terms of peace, which gave to the other side the appearance of victory. Thereby hangs a tale, exceedingly eloquent of his wis- dom, foresight and self-restraint and of his practice, to which I have alluded before, of never using any greater force than was necessary for the substantial accomplishment of his object. VII Mr. Harriman, as is well known, left an exceedingly large fortune, yet the wealth which he amassed was but a small fraction of the wealth which his construc- tive genius created. There was at one time a group 46 THE LAST FIGURE OF AN EPOCH of railroad men, of unsavory memory, who made their money out of wrecking and pulling down. Their antithesis was Edward H. Harriman. The vast bulk of his fortune he made by backing the country, in gen- eral, and the enterprises to which he mainly devoted his genius, in particular. Any other man, who had the same faith in Mr. Harriman's constructive ability, judgment and far- sightedness which he had himself, and the courage to back that faith as Mr. Harriman did many a time by every dollar he owned, would have come measurably near to reaping the same financial rewards that Mr. Harriman did, though, of course, he would also have had to have Mr. Harriman's wisdom and self-control in choosing the time when to be bold and when cau- tious, when to venture far out with every bit of can- vas spread and when to keep close to shore. But money-making was merely incidental with Mr. Harriman and not an aim in itself. It attracted him, to begin with, as a sporting proposition to catch up with men who had an enormous start over him, and as every sporting proposition attracted him, the greater the odds against him, the better. (I have known him, on a dare, a year or so before his death, to put on boxing gloves and venture on a friendly bout with an ex- pugilist — with rather painful results, it is true, to him- self.) In the next place, he realized, of course, that money is one of the instruments of power, one of the standards — though, fortunately, by no means the only one — by which success is measured, and he required money, much money, to carry out his plans with as EDWARD HENRY HARRIMAN 47 little dependence on others as possible, just as a general requires soldiers. He was a man of very simple tastes and few wants, though when he became very rich he lived in the style of a very rich man, spending money freely and largely, but never ostentatiously or waste- fully. It is worth noting that he never had any doubt of the advent of his opportunity, though he had to wait till he was nearly fifty years old before fate remem- bered him, nor of his becoming a very wealthy man, though he was born very poor. In confident anticipa- tion of this consummation, he bought many thousand acres of land near Tuxedo twenty years before he had the means to build a suitable country house. Mrs. Harriman, carrying out her husband's ideas, has most generously presented to the state for a public park 10,000 acres of these lands, together with $1,000,000 in cash. His real purpose to which — as I said before — money-making was merely incidental, was to do big constructive things; his real sport was to pit his strength and brain against those of other men or against difficult tasks; his real reward was the con- sciousness of worthy accomplishment, the sense of mas- tery, the exercise of power. An English admirer re- turning to New York after a trip over the Union Pacific system said to him in offering congratulations on the condition of the property: "The one single piece of actual railroading of which I should think you must be proudest and which must be most gratify- ing to you is the complete success of your wonderful bridge over the Great Salt Lake, for the feasibility and 48 THE LAST FIGURE OF AN EPOCH the undertaking of which you took the full responsi- bility in the face of many fruitless attempts in former years, and in the face of almost universal disbelief in its practicability as a durable thing." Mr. Harriman replied : "No, the best single thing we did and which gave me most satisfaction was this: The Colorado River was overflowing, threatening thousands of irrigated acres in the Imperial Valley, which would have meant destruction to the lands and ruin to many settlers. The situation became more and more serious, the Gov- ernment's efforts to control the river proved unavail- ing, and finally President Roosevelt telegraphed me to ask whether the forces of men and engineers we had could and would undertake the work of saving the situation. "I wired our representative and asked him how long it would take to dam the flood and change the course of the river and what the expense of the undertaking would be. He reported that it would take such and such a time, that it would be a race between us and the flood, with our having a margin for safety pro- vided he took every man within reach from all other jobs and put him on this one, and provided he was al- lowed to proceed regardless of cost. He estimated the total expense at a somewhat startling figure, and added that most of it would be lost if we did not finish in time. "I gave direction to suspend all other work, and to give this job the right of way over everything else, re- gardless of disturbance of traffic or of expense, and I EDWARD HENRY HARRIMAN 49 telegraphed President Roosevelt that we could and would undertake the task of saving the Imperial Val- ley. And then we started on the race with the ele- ments, and I used every ounce of driving power I pos- sessed to hustle the job as I have never hustled any job before. We beat the flood and averted untold loss and suffering. That was the best single bit of work done on my authority and responsibility. And" — he added — "here you have a case with a vengeance, of virtue being its own reward, because Congress has never yet paid us back our outlay, though the President sent it a message asking that we be reimbursed." An incident similarly worth recording as character- istic of the man was his action at the time of the San Francisco earthquake and conflagration. When the news of that catastrophe reached New York he not only wired directions, without a moment's loss of time, to set all other traffic and work on the Union and Southern Pacific lines aside, and to concentrate all the energy and facilities of these organizations upon the task of rushing relief and affording assistance to the stricken city, irrespective of cost to the railroads, but he hurried, himself, to San Francisco, the very next morning, without giving thought to personal risk and discomfort and his presence, counsel and co-operation were of no little advantage to that community in its magnificent struggle to recover from destruction and chaos. That Mr. Harriman was a man of vast ambition, ever restlessly striving forward and onward, reaching one goal only to set out immediately for another, goes 52 Question: We hear or read from time to time about the public being fleeced. There is a good deal of smoke. Isn't there some fire? Answer: If people do get "fleeced," the fault lies mainly with outside promoters or unscrupulous financiers, over whom the Stock Exchange has no effective control. Some people imagine themselves "fleeced," when the real trouble was their own "get-rich-quick" greed in buying highly speculative or unsound securities, or having gone into the market beyond their depth, or when they have exercised poor judgment as to the time of buying and selling. Against these causes I know of no effective remedy, just as there is no way to prevent a man from overeating or eating what is bad for him. In saying this, I do not mean to imply that stock- 152 BUSINESS AND ECONOMICS brokers have not a duty in the premises. On the con- trary, they have a very distinct and comprehensive duty toward their clients, especially those less familiar with stock market and financial affairs, and toward the pub- lic at large. And they have furthermore the duty to abstain from tempting or unduly encouraging people to speculate on margin, especially people of limited means, and from accepting or continuing accounts which are not amply protected by margin. In respect of the latter requirement, the Stock Ex- change rightly increased the stringency of its rules some years ago, and it cannot too sternly set its face against an infringement of those rules or too vigilantly guard against their evasion. Against unscrupulous promotion and financiering a remedy might be found in a law which should forbid any public dealing in any industrial security (for rail- road and public service securities the existing commis- sions afford ample protection to the public) unless its introduction is accompanied by a prospectus setting forth every material detail about the company con- cerned and the security offered, such prospectus to be signed by persons who are to be held responsible at law for any willful omission or misstatement therein. Such a law would be analogous in its purpose and function to the Pure Food Law. If it went beyond that purpose and function it would be apt to overshoot the mark. The Pure Food Law does not pretend to prescribe how much a man should eat, when he should eat or what is good or bad for him to eat, but it does prescribe that the ingredients of what is sold to him as NEW YORK STOCK EXCHANGE 153 food must be honestly and publicly stated. The same principle should prevail in the matter of the offering and sale of securities. If a drug contains water, the quantity or proportion must be shown on the label, so that a man cannot sell you a bottle filled with water when you think you are buying a tonic. In the same way the proportion of water in a stock issue should be plainly and publicly shown. The purchaser should not be permitted to be under the impression that he is buying a share in tangible as- sets when, as a matter of fact, he is buying expecta- tions, earning capacity or goodwill. These may be, and often are, very valuable elements, but the pur- chaser ought to be enabled to judge as to that with the facts plainly and clearly before him. The main evil of watered stock lies not in the pres- ence of water, but in the concealment or coloring of that liquid. Notwithstanding the unenviable reputa- tion which the popular view attaches to watered stock, there are distinctly two sides to that question, always provided that the strictest and fullest publicity is given to all pertinent facts concerning the creation and na- ture of the stock. do "big men" put the market up or down? Question: Is it not a fact that some of the "big men" get to- gether from time to time and determine to put the mar- ket up or down so as to catch profits going and coming? 154 business and economics Answer: As to "big men" meeting to determine the course of the stock market, that is one of those legends and super- stitions hard to kill, inherited from olden days many years ago when conditions were totally different from what they are now, and when the scale of things and morals, too, was different. The fluctuations of the stock market represent the views, the judgment and the conditions of many thou- sands of people all over the country, and indeed, in normal times, all over the world. The current which sends market prices up or down is far stronger than any man or combination of men. It would sweep any man or men aside like driftwood if they stood in its way or attempted to deflect it. True, men sometimes discern the approach of that current from afar off and back their judgment singly, or a few of them together, as to its time and effect. They may hasten a little the advent of that current, they may a little intensify its effect, but they have not the power to either unloosen' it or stop it. If by the term "big men" you mean bankers, let me add that a genuine banker has very little time and, generally speaking, equally little inclination to spec- ulate, and that his very training and occupation unfit him to be a successful speculator. The banker's training is to judge intrinsic values, his outlook must be broad and comprehensive, his plans must take account of the longer future. The specu- lator's business is to discern and take advantage of immediate situations, his outlook is for tomorrow, or NEW YORK STOCK EXCHANGE 155 anyhow for the early future; he must indeed be able at times to disregard intrinsic values. The temperamental and mental qualifications of the banker and the speculator are fundamentally conflict- ing and it hardly ever happens that these qualifications are successfully combined in one and the same person. The banker as a stock market factor is vastly and strangely overestimated, even by the Stock Exchange, fraternity itself. May I add that a sharp line of demarcation exists between the speculator and the gambler 4 ? The former has a useful and probably a necessary function, the latter is a parasite and a nuisance. He is only toler- ated because no means have been found thus far to abolish him without at the same time doing damage to elements the preservation of which is of greater im- portance than the obliteration of the gambler. By this time the Committee would surely feel that it had had a surfeit of my wisdom, as I am sure you must feel, but if you will be indulgent a very little while longer, I should like to say a few words more to you whose guest I have the honor to be this evening. My recent observation of and contact with Congress- men and others in Washington have once more forti- fied my belief that the men, by and large, whom the country sends to Washington to represent it, desire and are endeavoring, honestly and painstakingly, to do their duty according to their light and conscience, and that, making reasonable allowance for the element of party I56 BUSINESS AND ECONOMICS considerations, they represent very fairly the views and sentiments of the average American. Most of them are men in moderate circumstances. Very few of them have had occasion to familiarize themselves with the laws, the history and the functionings of finance and trade, to come into relation with the big business affairs of the country, or to compare views with its active business men. It may be assumed that, very naturally, not a few of them have failed to come to a full recognition of the facts that the mighty pioneer period of America's industrial development came definitely to an end a dozen years ago; that with it came to an end practices and methods and ethical conceptions which in the midst of the towering achievements of that turbulent period of over-intensive, over-rapid development were, if not permitted, yet to an extent silently tolerated, and that business has willingly fallen into line and kept in line with the reforms which were called for in busi- ness as in other walks of our national life. The opinions of the world, and particularly of the political world, travel along well worn roads. Men are reluctant to go to the effort of reconsidering view- points and conclusions which, by tradition or mental habit, have become fixed. Many in and out of Congress are still under the con- trolling impress of the stormy years when certain de- plorable occurrences affecting corporations and busi- ness men were brought to light; when it was demon- strated that certain abuses which had accumulated dur- ing well nigh two generations needed to be done away NEW YORK STOCK EXCHANGE \$"] with for good and all, and when the people went through the ancient edifice of business with the vacuum cleaner of reform and regulation, using it very thor- oughly — perhaps, in spots, a little too thoroughly. Not a few politicians are still sounding the old battle cry, although the battle of the people for the regula- tion and supervision of corporations was fought to a finish years ago and was won by the people, and al- though the people themselves of late, On the few occa- sions when a direct proposition has been put up to them, such as recently in Missouri, have indicated that they consider the punitive and probationary period at an end and want business to have a fair chance and a square deal. When the right of suffrage was thrown open to the masses of the people in England, a great Englishman said: "Now we must educate our masters." In this country it is not so much a question of educating our masters, the people and the people's representatives (who, moreover, would resent and refuse to tolerate for a moment any such patronizing assumption), as of getting them to know us and getting ourselves to know them. All parties concerned will benefit from coming into closer contact with one another and becoming ac- quainted with one another's viewpoints. Can we honestly say that we are doing our full share to bring about such contact and to get ourselves and what we believe in, properly understood; believe in, not only because it happens to be our job in life and our self-interest, but because in the general scheme of I58 BUSINESS AND ECONOMICS things it serves a legitimate and useful and necessary function for our country 1 ? How many of us have taken the trouble to seek the personal acquaintance of the Congressmen or Assem- blymen or State Senators representing our respective districts'? How many of us make an effort to come into personal relationship with people, both here and in the West and South, outside our accustomed circles? Yet an ounce of personal relationship and personal talk is worth many pounds of speech making and publicity propaganda. When you look a man in the face and talk to him and question him and realize in the end that he is sin- cere in his viewpoint, whether you share it or not, and that he is made of the same human stuff as you, much animosity, many preconceived notions are apt to van- ish, and you are not so cocksure any longer that the other fellow is a destructive devil of radicalism or a bloated devil of capitalism, as the case may be. Every one of us, in a greater or lesser degree, every one in some degree has the power of co-operating in the vastly important task of personal propaganda for a better understanding, a more nearly just appreciation of each other, between East and West and North and South, between what is termed Wall Street and the men who make our laws, between business and the people. This is the age of publicity, whether we like it or not. Democracy is inquisitive and won't take things for granted. It will not be satisfied with dignified si- lence, still less with resentful silence. Business and business men must come out of their NEW YORK STOCK EXCHANGE 1 59 old time seclusion, they must vindicate their useful- ness, they must prove their title, they must claim and defend their rights and stand up for their convictions. Nor will business or the dignity of business men be harmed in the process. No healthy organism is hurt by exposure to the open air. Democracy wants "to be shown." It is no longer sufficient for the successful man to claim that he has won his place by hard work, energy, foresight and integrity. Democracy insists rightly that a part of every man's ability belongs to the community. Democracy watches more and more carefully from year to year what use is being made of the rewards which are be- stowed upon material success, and particularly whether the power which goes with success is used wisely and well, with due sense of responsibility and self-restraint, with due regard for the interests of the community. And if the consensus of enlightened public opinion should come to conclude that on the whole it is not so used, the people will find means to limit those rewards and to curtail that power. And what is true of the public attitude toward individuals holds good equally of its attitude toward organizations such as the Stock Exchange. There can be little doubt that a great deal of misr conception prevails as to the methods, spirit and prac- tices of the Stock Exchange, as to its functions, pur- poses and its place in the country's economic structure. It is of great and urgent importance that the Stock l60 BUSINESS AND ECONOMICS Exchange should leave nothing undone to get itself better and more correctly understood. It should not only not avoid the fullest publicity and scrutiny, but it should welcome and seek them. It has nothing to hide and it should be glad to show that it has nothing to hide. It should miss no oppor- tunity to explain patiently and in good temper what it is and stands for, to correct misunderstandings and erroneous conceptions. If it is attacked from any quar- ter deserving of attention, it should go to the trouble of defending itself. If it is made the object of cal- umny, it should contradict and confound the slan- derer. Its members should ever remember that while in theory the Stock Exchange is merely a market for the buying and selling of securities, actually and collec- tively they constitute a national institution of great im- portance and great power for good or ill. They are officers of the court of commerce in the same sense in which lawyers are officers of the court of law. They should not be satisfied with things as they find them. They should not take the way of least re- sistance, but should ever seek to broaden their own outlook and extend the field and scope of the Stock Exchange's activities. One of the reasons for London's financial world po- sition is that its Stock Exchange affords a market for all kinds of securities of all kinds of countries. The English Stockbroker's outlook and general or detailed information range over the entire inhabited globe. It is largely through him that the investing or speculative NEW YORK STOCK EXCHANGE l6l public is kept advised as to opportunities for placing funds in foreign countries. He is an active and valu- able force in gathering and spreading information and in enlisting British capital on its world-wide mission. The viewpoint of the average American investor is as yet rather a narrow one. Investment in foreign countries is not much to his liking. The regions too far removed from Broadway do not greatly appeal to him as fields for financial fructification. Yet, if America is to avail herself fully of the opportunities for her trade which the world offers, she must be pre- pared to open her markets to foreign securities, both bonds and stocks. If America aspires to an economic world position similar to England's, she must have among other things financial (such as, first of all, a discount market) a market for foreign securities. In educating first themselves and then the public to an appreciation of the importance and attractive- ness of such a market, with due regard to safety, and to the prior claim of American enterprise in its own country, the members of the Stock Exchange have an immense field for their imagination, their desire for knowledge and their energy. We all of us must try to adjust our viewpoint to the situation which the war has created for America, and to the consequences which will spring from that situation after the war shall have ceased. As Mr. Vanderlip so well said in a recent speech: "Never did a nation have flung at it so many gifts of opportunity, such inspiration for achievement. We are like the heir of an enormously wealthy father. l62 BUSINESS AND ECONOMICS None too well trained, none too experienced, with the pleasure-loving qualities of youth, we have suddenly, by a world tragedy, been made heir to the greatest es- tate of opportunity that imagination ever pictured." America is in a period which for good or ill is a turning point in her history. To perform with credit and honor, with benefit to itself and to the world the part which the favor of Providence has allotted to this country, is a weighty and solemn task. Our duty and responsibility are as great as our opportunity. Shall we rise to its full potentiality, both in a material and in a moral sense"? The words of an English poet come to my mind : "We've sailed wherever ships can sail, We've founded many a mighty state, God grant our greatness may not stale Through craven fear of being great." It is not "craven fear" that will prevent us from attaining the summit of the greatness which it is open to America to reach, for fear has never kept back Americans — any more than Englishmen — and never will. Indifference, slackness and sloth, lack of breadth and depth in thought and planning; the softening of our fibre through easy prosperity and luxury; unwise and hampering laws, inadequacy of vision and of purpose- ful, determined effort, individual and national — those are some of the things that we have to guard against. God grant America may not fail to grasp and hold that greatness which lies at her hand ! I TWO YEARS OF FAULTY TAXA- TION, AND THE RESULTS N criticizing the faults and pointing out the harm- ful effects of our existing system of taxation, I am con- scious of a rather ungrateful task. The "kicker" is rarely a sympathetic or welcome figure. His voice is all the more apt to jar upon the pub- lic ear when the burden of his song is a plaintive melody on the theme of taxation, and his habitation is east of the Alleghanies and more particularly south of Ful- ton Street, Borough of Manhattan. I can only declare that I do not mean to advocate a plan of taxation which shall spare wealth. To do so, would be both wrong and fatuous. What I am advocating is a policy and methods which, while taking sincere and sympathetic account of equity and social justice, shall not have resemblance to the spirit and temper of the plausible stump speaker, but shall be based upon recognition of the teachings of history and economics and practical experience, and bear the imprint of reasonableness and dispassionate thinking, free from either favoritism or animosity. Whatever may be said by theorists or — on paper — proved, it is demonstrated by the actualities that every January, 1920. I63 164 BUSINESS AND ECONOMICS one of the taxes now in usage affects all the people in its consequences, direct or indirect, however hidden or remote may be the casual connection. Taxation, while necessarily involving political and social considerations, is essentially a problem in na- tional economics. It is primarily a question of public advantage wisely, truly and broadly conceived. Its effects are subtle, profound and manifold and, unless carefully studied and measured in advance, apt to crop up in unexpected ways and places. The very extreme of the burden laid upon business and incomes by the method of taxation adopted by Congress in 1917 and since continued, has partially defeated the purposes which the framers of that legislation had in view, and at the same time has given rise to certain unforeseen and troublous developments — as invariably happens in the case of extreme measures, especially where econom- ics are involved. No quarrel can be found with the purpose of Con- gress to draw preponderantly upon the well-to-do in placing the weight of direct taxation incident to and resulting from the war. It is right to seek to adjust that burden as near as may be according to capacity to bear it. But even in doing things from entirely praiseworthy motives, it is well to remember the old French say- ing, that "virtue has been known, at times, to be more dangerous than vice, because it does not feel itself sub- ject to tempering restraints." Moreover, our tax legislation, apart from being shot through with the customary and expected elements of FAULTY TAXATION 165 politics, bears unmistakable evidence of class and sec- tional bias. And such bias, whether it be for or against capital, invariably produces untoward results. Joined to un- scientific theory, crude economic conceptions, inapt method, lack of moderation, and failure to gauge con- sequences, it has resulted in a revenue measure which very naturally became a strongly contributing factor in throwing our economic equilibrium out of gear and in producing a harmful and troublesome strain. I hope I may be credited with the intention and pur- pose of speaking to the best of my conscience and judg- ment from the point of view of the welfare of the en- tire country and not of the welfare merely of the well- to-do. But, in any event, the question is not what are the motives from which my arguments and conclusions spring, but whether those arguments are sound and those conclusions justified. What I propose to say will not strike a popular note. That is additional reason why it should be said. Those who differ from me are free to express their opinions and controvert mine. It is through the meet- ing of conflicting views in the forum of public opinion that truth is sought and ascertained in a democracy. To those who take the view that criticism of our ex- isting surtax schedule is necessarily the "squeal" of a rich man, or affected by the bias of greed, I would point out that the rich man has little to "squeal" about on the score of the income tax, provided he will join the ranks of the idle rich. All he has to do, if his con- l66 BUSINESS AND ECONOMICS science and disposition permit it, is to turn his back on work, risk, and constructive effort, and place as much of his capital as is, or can be made liquid, into tax- exempt securities, — and to the extent that he does so, all direct taxation ceases to trouble him. Granting that existing tax-exempt Bonds (Le., Bonds of States Municipalities, etc.) cannot constitutionally be made taxable, it is nevertheless characteristic of the unwis- dom and inaptitude of our revenue measures that Con- gress has done nothing to frame the scheme of taxa- tion in such wise as to meet the resulting situation as far as practicable. * * * The four factors which, more than any others, have brought about in this country the present era of eco- nomic disturbance and high prices are, in my judg- ment: 1 . The urgency of the world's demand for our raw materials and manufactured articles during and since the war. 2. Inflation of credit and currency. 3. Governmental and private extravagance. 4. Faulty taxation. All other contributory factors are either of lesser effect than is frequently attributed to them, or spring more or less directly from the causes above mentioned. The world's demand for our materials and services is bound to slacken in due course. The cure for in- flation is a slow and difficult process. The epidemic of extravagance has gained such headway that it can- not be arrested rapidly (though it could, I think, and FAULTY TAXATION 1 67 should be attacked more effectually than is being done). But the remedy for faulty taxation, and the resulting relief to the people, can be secured at once whenever it pleases Congress and the Administration to seek that remedy and to apply it. The fact — it is a fact — that the tax burden on those of small and moderate means is lighter in this country than it is anywhere else, is altogether to our credit. But that rightful and desirable policy has been ren- dered largely abortive by the faults of omission and commission in the designing of our tax structure. The system and method of taxation inaugurated in 1917 and continued since have played a very consid- erable part in boosting prices far beyond the inevitable and natural effect of circumstances inherent in the sit- uation. In saying this I am not giving expression to an opinion based upon general observation, but to what I have actually ascertained by taking pains to fol- low in concrete instances, from producer to retailer, the process of the cumulative effect exercised on prices by our existing taxation. Increased cost of manufacture and distribution nat- urally means increased cost to the farmer, increased cost of the necessities of life, increased wages, in short, increased cost of living all around. The fact that in other countries less heavily taxed than ours, prices have increased as much as here, or even more, has no bearing upon this statement, inasmuch as, in the case of those countries, the course of prices is affected by elements which do not come into action here or only to a minor extent. l68 BUSINESS AND ECONOMICS Our three principal direct taxes are: 1. The Excess Profit Tax. 2. The Income Tax. 3. The Inheritance Tax. THE EXCESS PROFIT TAX The social and moral arguments for an unsparing war profits tax are to my mind unanswerable. To permit individuals and corporations to enrich them- selves out of the dreadful calamity of war is repugnant to one's sense of right and justice and gravely detri- mental to the war morale of the people. Moreover, the effect of the war profits tax in making for higher prices is considerably mitigated through circumstances and agencies which are operative when a country is at war. Quite different in spirit and effect is the Excess Profit Tax, misleadingly so called, which Congress has deemed well to impose and to continue after the war had come to an end. That measure establishes as "nor- mal earnings" an arbitrary and, in the case of many industrial activities, inadequate percentage of return on invested capital, and by a complex, confusing and generally ill-devised system, taxes at a high rate all earnings above that percentage. It lays a heavy and clumsy hand on successful busi- ness activity. It is grossly inequitable in its effects, and, to a large extent, the greater or lesser degree of its burdensomeness is determined by purely fortuitous cir- FAULTY TAXATION 169 cumstances. It puts a fine on energy, enterprise and efficiency. It leaves untouched the man of wealth who neither works nor takes the risks and responsibilities of business, but merely collects his coupons. It is bound to operate unfairly, freakishly, and unevenly, and greatly enhance the cost of things. There can be no question that, owing to the increased cost of living or the decreased purchasing power of the dollar, the farmer, the wage worker, the man and woman living on salaries, are entitled to a proportionate increase in income. But the enhanced cost of living and the diminished purchasing power of the dollar affect the owner of industrially invested capital no less than they do other callings. Moreover, in addition to these factors, he is subject to a heavy excess profits tax and, if his income is large, to an income tax of unparalleled severity. However, we may leave out of account, for the pur- pose of my argument the relatively small number of those in possession of large incomes. When I speak of the owners of industrially invested capital, I mean primarily the storekeeper, the average merchant, and the millions of men and women who derive all or part of their income from investment in securities of corpora- tions. By the same token as the farmer, the wage worker, and the salaried man, they feel the need of a larger return than formerly. But there they run up, first of all, against the excess profit tax in respect of their own business or the corpo- ration in which they have invested. 170 BUSINESS AND ECONOMICS Let me point out, incidentally, that the spectacular earnings of certain corporations and individuals afford no just criterion of the earnings of business on the whole. As against a number of concerns and individuals who have made exceedingly great profits during and since the war, there are numerous others whose earn- ings have shrunk, and in some cases very greatly shrunk, during and since the war. It may be interesting to quote in this connection the results of an investigation made recently in Eng- land (where conditions appear to be very similar to those prevailing here) as to how the increased cost of certain articles in the past two years compared with the two years preceding the war, had been divided. The investigator found, taking such increase as 100 per cent., that Labor received 57 per cent, thereof, the State through taxation 40 per cent, and Capital 3 per cent. This is not the place to argue the question whether in the pre-war era, industrially invested capital received too large a part of the national income. In some re- spects I believe it did. But since 1914 the wages of labor have been vastly increased. The farmer also rightly receives a much greater return than formerly, and it must be remem- bered that the farmer is relatively little burdened by direct taxation, and the wage-worker still less. On the other hand, the return on capital invested in industrial enterprises, stocks and bonds, after making allowance for taxation, has been diminished, on the FAULTY TAXATION I7I whole. If, in addition, it is considered that the pur- chasing power of the dollar has been reduced by nearly one-half, it will be seen that the actual yield of indus- trially invested capital is much less than it was prior to the war and that there has taken place in fact a considerable readjustment in the distribution of the national income. The excess profit tax, until the present year, ranged from 30 per cent, to 65 per cent, (under certain circum- stances even 80 per cent.) over and above an arbitrarily fixed, and everything considered, low return on money actually invested in business.* In addition to that every corporation had to pay an income tax of 12 per cent, on its total profits. Let us assume the case of an incorporated business for which the excess profit tax amounted to say, 40 per cent. That means that it was impossible for such a busi- ness to make one dollar profit over and above the mod- erate percentage fixed by statute without charging some- thing over two dollars to the purchaser. The Govern- ment takes the difference. In addition to that, the Government, of course, takes the individual income tax. And it must be remembered that most articles before reaching the ultimate consumer pass through four or five different handlings. * For the present year, the excess profit tax, while reduced, is still very severe, ranging from 20% to 40%, in addition to a corporate income tax of 10% and individual income taxes up to 73% (to which must be added in many states, including New York, a state income tax). 172 BUSINESS AND ECONOMICS The activities of the producer of the raw material, the manufacturer, the jobber, and the retailer — all are more or less subject to this same condition. Each expects to be able to earn a somewhat larger profit to take care of the increased cost of present day living, whether it be for himself as in the case of the individual merchant or for the holders of the securities which he represents, as in the case of the corporate man- ager — and each must take into account the operation of the excess profit tax, not to mention the income tax. And that necessarily spells increased cost to the public. I have said "must take into account" because what the excess profit tax, as well as the income tax, absorbs, is that essential necessity for the conduct of a business, cash. You cannot pay your taxes by turning over book assets, or bills receivable or materials or inventories, you must pay them in cash. But while the outgo in taxes payable to the Government is all cash, the in- come of most businesses is cash only to a limited extent. Consequently the average business man must seek to increase his margin of profit in order to increase his margin of available cash. One of the most un- settling consequences of our tax system is the cash drain which it creates, away from its normal channels into the coffers of the Government. The excess profit tax has tended furthermore to in- crease actual cost of production, inasmuch as costs nat- urally are deducted before taxable profits are arrived at, and, therefore, under the operation of the excess FAULTY TAXATION I73 profit tax, there is not the same inducement as under normal circumstances to keep cost down as much as possible, but in fact rather the reverse. It is a fact well known to those familiar with business practices that there has been gross wastefulness in certain lines of expenditure, such, for instance, as advertising, since the excess profit tax went into effect and as a direct consequence of it. Nor is there any longer any inducement to employ accumulated profits in the business without capitalizing them — a practice largely employed heretofore in con- servatively managed businesses and naturally tending to lower cost of production. On the contrary, there is every inducement to capi- talize every justifiable item — and this makes for higher cost. In introducing in Parliament recently the British Government's budget which included provision for a 50 per cent, reduction of the British War Profits Tax, the Chancellor of the Exchequer said that experience had shown that the existing high rate "encouraged wasteful expenditure" and acted "as a great deterrent to enterprise, industry and development." The objection to a very heavy excess profit tax in peace time rests not so much on equitable grounds as on the ground that on the one hand it does not, and cannot, accomplish the social purpose aimed at, and on the other hand it tends to hurt trade, discourage enter- prise, and burden the public. Our excess profit tax cer- tainly has not stopped, but rather has intensified what is commonly termed "profiteering." 174 BUSINESS AND ECONOMICS The faultiness, the complexity of the technical pro- visions of that tax, and its baneful effects in various di- rections have become so widely recognized that we may, I hope, look forward with reasonable assurance to its repeal or thorough modification in the not very dis- tant future. But to remove the excess profit tax on corporations without at the same time greatly reducing surtaxes on individuals would manifestly be a discrimination against private business in favor of corporate business, inasmuch as it would greatly impair the capability of private firms to compete with corporations. Moreover, the repeal or modification of the excess profit tax will not and cannot effect the relief which the situation calls for, unless accompanied by a well- judged revision of the existing scale of taxation of in- dividual incomes, as I shall endeavor to show on the following pages. II THE INCOME TAX l. Comparing our income taxation with that of England, we find that in that country taxation starts with incomes (for married men) of $725, here with incomes of $2,000. The English tax on the smaller incomes, say, up to $5,000, is, on the average, about six times as heavy as ours. On the other hand, our tax in its upper scale is far heavier than that of England. The English maximum taxation is 52^/2%, ours is 73%, without including State income taxes. That is by far FAULTY TAXATION 175 the highest scale of income taxation existing anywhere in the civilized world. The English normal tax, i. e., the tax applicable to the lowest incomes, is 30 %. Our normal tax is 4% on the first $4,000 of taxable income, and 8% on in- comes above that amount. On the other hand, the high- est rate of English surtax is 22^%; our highest rate of surtax is 65%. That is to say, in England the high- est income taxpayer is taxed at a rate less than twice that applicable to the lowest taxpayer {though it must be borne in mind that certain deductions are allowed on small incomes). With us {deductions being likewise allowed on small incomes) the highest income taxpayer is taxed at a rate seventeen times as heavy as that ap- plicable to the lowest taxpayer. Our scale of income gradation in respect of small incomes is juster and wiser than the English scale and greatly preferable to it. But our moderation in respect to taxing small incomes makes all the more conspicuous the unnecessary and harmful extreme to which we go at the other end of the scale. 2. While we thus take away up to three-quarters of his income (and even more if we include other taxes) from the capitalist engaged in business or in- vesting his money in supplying funds to our indus- tries, access is wide open for other forms of capital to the safe and tempting refuge offered by tax-exempt securities. All Municipal Bonds, State Bonds, Farm Loan Bonds and — unless specifically otherwise pro- vided — Federal Bonds, are free from all taxation, ex- cept inheritance taxation. There are about fourteen I76 BUSINESS AND ECONOMICS billion dollars of such tax-free bonds outstanding (apart from partially exempt Liberty Bonds), and more are being created all the time. Under the existing schedule of income taxation, the inducement to buy tax-exempt bonds is so great, and the consequent demand for them so strong, that a ready and eager market at a comparatively low rate of interest (from 4^2% to 5%) is offered to pretty nearly every township and county, thus greatly facili- tating wasteful spending by municipal and other local governments. Capital invested in such bonds not only has been and is free from taxation, but owing to the effect of the income tax in stimulating the demand for tax-free bonds, such capital has remained unimpaired while cap- ital invested in taxable bonds has undergone a very heavy shrinkage. I am advised that it is not feasible under the con- stitutional limitations of our governmental system, nor would it be fair, to remove the tax exemption from such bonds of the tax-free class as are now outstand- ing. Nor, as I am informed, would it be possible, accord- ing to the predominant opinion of legal authorities, for Congress to subject even future issues of State, Municipal and County Bonds to taxation, unless a constitutional amendment be adopted to that effect. Personally, I do not favor the institution of tax- exempt securities, because I believe it economically un- sound and socially objectionable — but we are con- fronted with a condition, not a theory. FAULTY TAXATION 177 The discrimination which permits the owner of liquid capital to escape all direct taxation by the simple process of buying Municipal or other tax-exempt bonds, becomes naturally all the more effective and accen- tuated as the income surtax rate increases. The existence of that mass of non-taxable securities is therefore an additional consideration among those which should have bid our legislators pause before rais- ing the scale of direct taxation to unexampled heights ; it is an unchallengeable argument against the fair- ness, appropriateness and productiveness of enormous supertaxes. 3. I doubt whether it is fully realized by many people how immense is the advantage which is enjoyed by capital invested in tax-exempt securities as com- pared to capital invested in business or in corporate securities or earned in salaries.* The following table may therefore be of some in- terest. It shows what percentage of returns would have to be obtained from such sources in order to equal the return from a ^]/ 2 % tax-exempt bond purchased at par. * The Secretary of the Treasury in his last report to Congress proposes an indirect method for curtailing somewhat the advan- tage accruing from the ownership of tax-exempt securities. He recommends that, for the purpose of determining the rate of super- tax applicable to a person's income, the income from tax-exempt securities be included in the calculation, and that the rate of super- tax thus ascertained be considered as the rate applicable to the actually taxable portion of his income. Leaving aside the question of the legality and propriety of that method, it manifestly would not accomplish that which ought to be accomplished. There is only one way to reduce the advantage of tax-exempt securities, and that is, in addition to adjusting our supertaxes to reasonable proportions, to devise methods and ways of taxation (such as the expenditures tax or the sales tax referred to in the latter part of this discussion) which cannot be evaded by the ownership of non-taxable securities. I78 BUSINESS AND ECONOMICS It shows, to take an extreme instance, that in the case of a person in the highest taxable class, he would have to make nearly 17% upon a corporate security or in his business in order to get the same return which he receives by investing in a tax-free 4^ % bond. And it should be remembered that in making up these figures no account is taken of the excess profit tax, which still further increases the yield from tax-free securities as compared to the yield from capital invested in busi- ness. Nor is account taken of State income taxes or local taxation. Here is the table : A taxable security or a business would have to yield the following percentages of return in order to bring the same net income as a 4^% tax-free bond (with- out calculating excess profits, State and local taxes) : In the case of incomes exceeding $20,000 — 5.35% In the case of incomes exceeding 30,000— 5.70% In the case of incomes exceeding 40,000 — 6.08% In the case of incomes exceeding 50,000 — 6.52% In the case of incomes exceeding 60,000 — 7.03% In the case of incomes exceeding 70,000 — 7.62% In the case of incomes exceeding 80,000 — 8.33% In the case of incomes exceeding 90,000 — 9.18% In the case of incomes exceeding 100,000 — 10.23% In the case of incomes exceeding 200,000 — 12.50% In the case of incomes exceeding 300,000 — 14.06% In the case of incomes exceeding 500,000 — 15.51% In the case of incomes exceeding 1,000,000 — 16.67% In the face of these comparisons, what inducement is there for a man to take upon himself the risk and drudgery, the worries and cares of active business, in the expectation of reasonable profits'? What incentive is left to him for normally remunerated effort and en- terprise under a dispensation which permits him to re- tain but an inconsiderable fraction of the fruits of his work, while the Government takes the lion's share up FAULTY TAXATION 1 79 to three-quarters and more, in direct taxes'? Does it not follow that there will ensue either a slackening in business effort or a tendency to exact unduly and un- desirably large profits so as to offset the burden of taxes *? 4. It is manifest from the figures I have quoted that no bond — foreign or domestic — can compete in interest yield with the attractiveness of tax-exempt bonds to those in possession of surplus incomes of any considerable size. And it is just these persons who form the clientele that in the past has been the mainstay of our invest- ment market, for the masses of the American people have not heretofore been in the habit of putting their savings into corporate bonds. Prior to the war there were less than 400,000 indi- vidual owners of bonds in the United States. I have no reliable figures which would enable me to judge to what extent the number of small bond investors has increased within the past few years (apart from inves- tors in Liberty Bonds). It doubtless has increased, but the aggregate buying power, or rather, buying inclina- tion of the small investor, has by no means made up, and is not at all likely to make up, for the defection of the larger investor. The fact that approximately twenty million people bought Liberty Bonds during the war is no criterion. Their motive was not investment but patriotism. Moreover, the experience which they have had in seeing a heavy and continuing decline in the price of those classes of Liberty Bonds which are only partially l80 BUSINESS AND ECONOMICS tax-exempt, is hardly calculated to encourage them to make investments in bonds. 5. Some of the results of exorbitant and unparal- leled direct taxation on the one hand and the existence of a huge volume of tax-free securities on the other, have been these : (A ) The possessors of incomes of larger size, gen- erally speaking, have gone on strike as far as investing in taxable securities is concerned, thus greatly dimin- ishing the quantity of funds available for private en- terprise. To the extent that they still buy such secur- ities, they demand far higher interest rates than for- merly, in order to recoup a portion, at least, of the impairment of their income. That enhances the cost of capital and makes for higher prices of all articles. (B) In consequence largely of this attitude of self- defense on the part of private capital, the American investment market, to a great extent, has ceased to function for the time being. Unparalleled stagnation has characterized it for many months. The shrinkage in the value of existing corporate bonds, which, though in part due to causes of a general character, is to the largest extent attributable to the income tax, amounts to billions of dollars. There are a number of good railroad bonds which sell on a basis to yield from 7^2% to 8^2% annually. There are foreign Government bonds of unquestionable soundness which sell on a basis to yield 10%. A really successful investment issue of larger size, even at what formerly would have been considered ex- traordinarily attractive rates of interest, has not been known for a long time. (The fact that the recent issue of a foreign loan FAULTY TAXATION l8l here was successful does not modify this statement, inasmuch as it was an offering not of bonds but of short maturity notes, and there was attached to it a speculative attraction in the shape of an exchange privilege holding out the possibility of a profit of as much as fifty per cent.) The seriousness of the situation of our investment market, and its grave portent, have not received as yet the attention which they deserve, especially, too, in view of the financial requirements of the railroads, which can be met only through the investment market. The free flow of capital, the normal working of that market are absolutely basic elements for every kind of trade and industry. The effects of their dis- turbance to any serious degree for any length of time are all-pervading. We cannot have a return to normal conditions of trade, prices, etc., until our investment market will have come within measurable distance, at least, of normal conditions. And that is impossible as long as our present income tax remains in force, even if the other elements which have operated to bring about the present abnormal situation were removed. (C) Our new-born aspiration to be the great finan- cial mart of the world has been strangled in its cradle because a broad, active and receptive investment mar- ket is an indispensable prerequisite for the establish- ment of a potent financial centre.* * It is true, England also has a heavy income tax, though much less heavy than ours in its higher scales; but such tax-exempt bonds as exist in England are free from the NORMAL income tax only and not from supertaxes, and there are sundry other reasons why the effect of the British Income Tax is not the same as it is with us from the point of view of international finance and trade. Furthermore, the British Income Tax is not as all-embracing in its scope as ours. For instance, profits made by a person otherwise than in his regular trade are not subject to the income tax at all, in England. l82 BUSINESS AND ECONOMICS It is wholly futile, under our present income tax, to expect private capital to invest to any adequate degree in issues here of foreign securities, and thus to aid in relieving, to an extent at least, the unpre- cedentedly abnormal state of the exchange rates, which if left to itself is bound, sooner or later, to prove a formidable obstacle to our export trade and otherwise to have a seriously detrimental reaction upon our own affairs. (I do not fail to recognize that to a large extent the remedy against the depreciation of their exchanges must come by action of the European nations them- selves.) If we wish the world to continue to buy from us on a large scale, if we wish to do what duty and self- interest demand in aiding Europe to normalize and stabilize itself, and unless we are prepared to forego those opportunities of lasting value to the country, which the present situation offers, we must be willing to advance considerable funds to our foreign customers, as England, France and Germany have always done to theirs in pre-war times, and as, indeed, England is doing now to the extent of her ability. The banks and exporters cannot possibly carry the whole load of financing such advances. We may not look to the Government to intervene. Private invest- ment capital cannot be induced to come forth ade- quately under the circumstances above explained. The deadlock is bound to persist until our policy and methods of taxation will have been revised and modi- fied. A very regrettable impression is created abroad by the fact that at a time when we alone are capable of supplying the nations with urgently needed funds, the American public fails to respond adequately, and when our market does accord loans to foreign coun- FAULTY TAXATION 183 tries, very onerous conditions are exacted. The fault is unjustly attributed to an ungenerous desire to take greedy advantage of Europe's necessities, when, as a matter of fact, the cause — apart from the natural re- sults of prevailing conditions — is primarily to be found in the circumstances above mentioned. There is widespread expectation that when and if the Peace Treaty is ratified by the United States, the effect of that act will go a long way to cure the existing state of the international exchanges by setting in motion a free flow of American credits to European nations. Those who hold that view are, I venture to think, harboring a delusion. While the eventuality referred to would very likely be reflected to a certain degree and for a certain time in a movement of the exchanges toward a less abnormal level, yet the influences behind such a movement would, I think, be largely sentimental and therefore only temporary in their effect. The credits which, apart from advances by our Gov- ernment, we have already extended to Europe amount to a much larger aggregate than is generally supposed. Our banks and other financial institutions and export- ing houses cannot safely go much further. Our credit structure is greatly strained as it is. The only large reservoir which can still be tapped, is the mass of private investment capital, and the way to that reservoir is barred by the faults of the income tax. (D) Apart from the scale of taxation, there are various provisions in our income tax law which handi- cap the American business man as against his Euro- pean competitor. A common characteristic of these provisions is that while nationally harmful in their effect, they are little productive of revenue. 184 BUSINESS AND ECONOMICS Thus, for instance: A free inflow and outflow of foreign funds is essential to the functioning of a finan- cial and commercial world centre. In recognition of this fact, England not only does not tax bank deposits belonging to aliens, but on the contrary, offers special inducements to attract such deposits. But Congress has subjected such bank deposits here (as also foreign holdings of American commercial paper) to the Amer- ican income tax and thereby naturally deterred them from coming here. Or, another instance: The prac- tice in England is that foreign holders of British secur- ities are taxed only at the rate of her normal income tax. No filing of schedules or other formalities are exacted from them, and they are not taxed at all on profits realized from buying and selling bonds or stocks in the English market. Likewise in the case of divi- dends on stocks, if the corporation itself pays the normal tax in respect of such dividends — which is the rule rather than the exception — foreign holders are sub- jected to no tax at all. Our Congress, on the other hand, subjects foreign holders of American investments to the full weight and complexity and obnoxious formalities of the American Income Tax. (E) Seeking because of the income tax and the high cost of things a correspondingly higher return on their capital, not a few of those who heretofore were in the habit of placing their funds in safe invest- ment securities have been tempted and induced to turn to speculation. The promoter of "get-rich-quick" schemes has been reaping a harvest. The housing famine and the resulting hardships and high rentals are due in considerable part to the fact that capital has to a great extent withdrawn from the field of real estate mort- gages because they do not yield sufficiently attractive returns after taking into account the income tax. (F) Excessive direct taxation prevents that meas- FAULTY TAXATION 185 ure of accumulation of surplus, which is needed for the normal expansion of the country's business. It does this all the more effectively, as business men of necessity have only a limited amount of their capital in the form of liquid or quickly-realizable assets, and it is just these assets which are absorbed by taxation because taxes must be paid in cash. If business men cannot accumulate adequate working capital, the result will be either reaction in trade and restriction in production, or demands for credit in such volume as to bring about a dangerous and harmful strain. Increased production is one of the crying needs of the hour. But increased production necessarily means the use of increased capital. It means that the business man must have an adequate surplus at the end of the year in order to perfect his plant, to enlarge his opera- tions, etc. Where is he to find that surplus if taxes are so heavy that but little is left to him after meeting his own and his family's expenses'? How is he to obtain that capital unless by the dangerous expedient of con- stant and heavy borrowing, which, moreover, he will not always find possible 4 ? These same considerations, though naturally some- what modified in their application, hold good in the case of corporations. And the present attitude of in- vestors has had the result that large corporations which ordinarily would meet their financial requirements by having recourse to the investment market, are com- pelled in many cases to resort to the banks for loans and credits, thus competing for such accommodation with the smaller merchant and intensifying the jam and congestion of the credit situation. In connection with this matter of the need of work- ing capital for industry, it should be borne in mind l86 BUSINESS AND ECONOMICS that owing to the rise in prices and wages it takes a great deal more capital to do the same volume of business than it did prior to the war. In considerable part, the existing stringency and strain in the credit and money market is due to the fact that liquid surplus capital heretofore available for busi- ness and investments is now appropriated to a pre- ponderant extent by the Government in taxes. The plausible conception that money gathered and spent by the Government is or can be equally effective in promot- ing progress and prosperity as money employed in the normal course of trade and business, is and has been unmistakably proved wholly fallacious. (G) Enterprise is hampered by the taxation now in force and thereby production retarded. An apparent contradiction to this statement may be seen in the great industrial activity which prevails now and has pre- vailed for some time. But the contradiction is merely an apparent one. Our present prosperity is due to abnormal causes. It is not normal in its concomitants, nor is it at all uniform or even in its workings. New enterprise is largely confined to those activities in which, owing to prevailing conditions, wholly ab- normal profits are possible, profits so great that they can stand exorbitant taxation. Such activity as is based upon what were formerly considered ordinary profits is greatly restricted, neces- sarily so because normal business cannot make an ade- quate living or offer commensurate inducements under existing conditions of taxation. And steady, reasonably compensated activity and enterprise are, after all, the really desirable kind, from the social and economic point of view, rather than a state of hectic rush, based upon a transitory demand which does not count the cost. FAULTY TAXATION 187 I know of my own knowledge numerous instances within the past two years when useful and desirable transactions which ordinarily would have been under- taken were turned down on the ground that after de- ducting the share which the Government would take in taxes, there was so little left as compensation for the effort and risk involved, that there was no longer any inducement reasonably sufficient to justify that effort and risk. (H) One of the most valuable by-products of wise taxation is the promotion of thrift. There never was a time when thrift was more urgently essential than it is now. The vast possibilities of saving do not rest with the relatively small number of wealthy people, espe- cially now when their spending power has been greatly decreased through taxation, but with those elements among the masses of the people whose spending power has been very largely increased within the past five years. Our legislators have completely failed to use the instrument of taxation to promote economy in ex- penditures among those elements. And in the case of the well-to-do, the very hugeness of the taxes im- posed actually discourages saving, or makes it impos- sible. The excess profit tax and, by reason of the kind and manner of its gradation, the income tax, instead of promoting restraint in expenditures, are rather breeders of extravagance. Our taxation impairs, far beyond need or reason, the incentive to effort and saving and, at the same time, makes all too smooth and easy the path of wasteful governmental spending. An evil — more serious than is generally appreciated and again an element making for high prices — is the huge and cumbersome machinery incident to the deter- l88 BUSINESS AND ECONOMICS mination and collection of certain of our taxes, notably the excess profit and income taxes. Stamp taxes practically collect themselves. The col- lection of the income and excess profit taxes, on the other hand, is an enormously costly thing. To begin with, there are the number and expense of additional employees of the Treasury; and this num- ber and expense, according to what information I have been able to obtain, are so amazingly large that, in the absence of official confirmation I hesitate to men- tion the figure. Then there is the time and cost of the reports which have to be filed by the individuals, firms and corpora- tions, reports so detailed, intricate and manifold that they call throughout the nation for the services of many thousands of clerks, accountants and lawyers and for many hours of the time and thought of busi- ness men. A gentleman at the head of a fair-sized business in- formed me recently that in connection with our State and Federal tax measures, and at the call of the be- wildering variety of commissions created in recent years, he is required to furnish in the course of one year, apart from incidental reports due to the workmen's compensation and similar acts, not less than eighty-six different reports (about to be increased by twenty-three in consequence of recent legislation). He calculates the actual cost to which he is being put in connection with the preparation of these reports and the require- ments incident thereto at the sum of $14,000 per an- num, aside from the value of his own time. Now, all these things spell increased prices to the community in two ways. First : the actual cost of clerk hire, accountants' and lawyers' fees, etc., is added to FAULTY TAXATION 189 the cost of the product. Secondly: national produc- tivity is diminished — (a) By the time and effort devoted to cumbrous and complex formalities; (b) By the withdrawal from creative activities, mental or physical, of the army of men who are em- ployed by the Government and by individuals, firms and corporations in connection with the determination and collection of taxes and kindred functions, and who, however industrious they may be, add nothing to the total of the nation's assets, but on the contrary, are maintained at the expense of the nation. The actual cost, direct and indirect, to the Govern- ment of the collection of the income and excess profit taxes has never been stated, as far as I am aware. I believe if it were precisely ascertained and announced, the figures would present an astounding total. And if there were added to them the incidental ex- pense to individuals, firms and corporations, the aggre- gate would be nothing less than staggering in its mag- nitude. These and other baneful effects directly traceable to short-sightedly excessive and clumsy taxation of capi- tal, merely go to confirm old and tested truths well known to every student of taxation. Thus, for in- stance : An excessive tax destroys its own productivity. The great nations of Europe have been and are under an infinitely greater financial strain than our country was or is. The Cabinets in these countries have under- gone many changes in the last five years. They have included Socialists and Representatives of Labor. In the determination of their taxation program they have 190 BUSINESS AND ECONOMICS had the assistance .of the best economic brains of Europe. England, France and Italy are probably no less democratic in their economic policies and purposes than we are. Yet, no European Government has deemed it wise and advantageous to the state to impose rates of income taxation as high as the upper grades of ours. If all European nations except Bolshevist Russia have stopped at certain limits of income tax- ation, much below ours, the reason is not that they are animated by any greater tenderness for rich men than we are, but that they have recognized the un- wisdom and economic ill-effect of going beyond these limits. Extreme rates of taxation do not and cannot fully reach those whom they are intended to reach, but they do inevitably reach, in one way or another, in their ultimate consequences, the masses of the people. He who would lead the people to believe that they can be benefited — or, indeed, that they are other than greatly harmed — by oppressive taxation of capital, fools himself, or attempts to fool others. Such taxation is bound, in the end, to lead to stag- nation and retrogression. The prosperity of a com- munity is a matter of manifold and subtle interrela- tions. In the long run labor cannot be abundantly employed and well paid nor can the farmer and the small trader be prosperous unless business at large is enabled to grow and prosper. Faulty taxation affects the masses of the people un- avoidably and harmfully, even though it be in no way- laid upon them in the shape of direct or indirect gov- ernmental imposts.* In fact, it is likely to affect them * I had occasion recently to read an article published in the London Magazine about a century and a half ago, to be exact, in the year FAULTY TAXATION I9I more adversely and acutely than even taxation which, to a moderate and carefully measured extent, is laid upon them, provided that such taxation is wise and scientific. Extravagance, log-rolling, the unwise and inefficient expenditure of money by governmental bodies count among the acknowledged foibles of Democracy. The structure of our income tax schedule encourages these foibles, in that it creates the belief that the great bulk of government expenditures is provided out of the pockets of the well-to-do without materially burdening the rest of the community. The formula of a very small normal tax and enor- mous surtaxes acts as a strong stimulant to wasteful- ness on the part of executives, heads of departments and legislators, in that it tends to lessen their salutary qualms on the score of being held to account by the people for the resulting tax burdens. It is all too in- vitingly easy to meet rising expenditures by giving the surtax screw another twist of a few per cent., or to maintain an exorbitant level of expenditures in nor- mal times by leaving the surtaxes at rates which were meant to cover the needs of an extraordinary emer- gency. By the opiate of such taxation which apparently touches them but very little or not at all, the masses 1767. It deals with and analyzes the causes of a then existing situa- tion, strikingly similar to that which prevails with us at present. The following extracts from that article may appropriately be quoted : "Every new tax does not only affect the price of the commodity on which it is laid, but that of all others, whether taxed or not and with which at first sight it seems to have no manner of connection. . . . "Taxes, like the various streams which form a general inundation, by whatever channels they separately find admission, unite at last and overwhelm the whole. . . . "The increase of taxes must increase the price of everything, whether taxed or not, and this is one principal cause of the present extraordinary advance of provisions and all the necessaries of life." 192 BUSINESS AND ECONOMICS of the people are apt to be lulled into a sense of rela- tive indifference to governmental wastefulness; but the facts remain awake and inexorably at work, and their working means and has always meant that gov- ernmental extravagance is visited not upon one class, but upon all the people. Wrong economics, however well intentioned, have been more fruitful of harm to the people than almost any other single act of government. A tax which is regarded and accepted as reasonable, is likely to bring at least as high a yield as a tax which those upon whom it falls feel justified in regarding as grossly and needlessly excessive. An income tax in- creased, of course, over the rates prevailing before the war, yet keeping within the bounds of moderation, would produce probably little less revenue than the existing tax — and with far less economic disturbance and hindrance to the country. Governmental greed, just like private greed, is apt to overreach itself. Many transactions on which those concerned would willingly pay a moderate tax, are now simply being laid aside and not effected at all because of the intolerable taxation to which they would be subjected. Others are being concluded in an artificial, round-about unsatisfactory way so as to avoid the full burden of the tax. The result in either case is a loss of revenue to the Government and an impediment to business. While business and accumulated capital are natural- ly the principal single sources of revenue, there is a point beyond which these sources cannot be used wise- ly, safely or effectively. To supplement them, nu- merous other means of providing revenue are available. The framers of our tax legislation have resorted to them only unwillingly and inadequately, although they are being greatly and successfully used in all other FAULTY TAXATION 193 countries. Taxes of that nature, while largely pro- ductive in the aggregate, are so trifling in their units as to be barely perceptible in effect, and they have the great advantage of collecting themselves almost automatically, whereas the expense, labor and com- plexities both to the Government and the tax payer, which the collection of the income and excess profit taxes involve under the provisions of the existing law, are of staggering magnitude. I am aware that the contention has been put for- ward as an argument for the existing scale of taxation of incomes and profits that it is a desirable thing in itself to place limitations upon a person's income. But if that principle were once to be admitted, where would its application stop? Where would the permissible limit of earnings be fixed and how long would it stay there? The whole theory of such a contention is in- compatible with our traditions and with the spirit and essence of our institutions. And I feel certain that the vast majority of the American people are not pre- pared to permit a temporary emergency to uproot the basic conceptions of our economic and social system and to put in their place the doctrines and methods of Socialism or some kindred outlandish creed. No doubt the prevailing apportionment of monetary reward is not free from defects (though less so in this country than anywhere else), but there has been a steady and pronounced tendency and movement, espe- cially within this generation, toward mending such de- fects and remodelling inequitable conditions. Evolu- tion and the irresistible powers which make for progress, 194 BUSINESS AND ECONOMICS enlightenment and justice may be depended upon to continue and advance that process. There can be no turning back. But improvident measures of economic violence will not hasten that process; on the contrary, they will impede it. Thus far, no civilized nation has ventured upon the step of placing a limit on what a man may earn. The consequences and repercussions of such an act would be almost incalculable, and they would, I am sure, prove sinister and destructive. At any rate, if we ever want to make so fundamental an alteration in our eco- nomic order, the proposition needs first to be exhaus- tively discussed before the people in all its bearings, so that its inevitable consequences may be clearly understood; and the people must then have the op- portunity to pronounce themselves upon the subject definitely and unmistakably. Certainly, the purpose must not be sought to be accomplished without a posi- tive mandate, by indirection, in the guise of a revenue measure. Ill THE INHERITANCE TAX The general tenor of the arguments contained in the foregoing chapter applies, though in a lesser degree, to inheritance taxation, the maximum of which under the existing law is 40%. And again, there are to be added to Federal taxation the rates of legacy and inheritance taxation in the several states. I am convinced that a progressive inheritance tax ought to and will continue as a permanent feature of FAULTY TAXATION 195 our fiscal policy. The arguments for it from the social point of view are unanswerable and compelling, even though in the strictly economic aspect of its workings it is open to certain objections unless kept within somewhat circumscribed limits. It would exceed the bounds of this discourse to enter into a complete consideration of the subject of inheritance taxation. While emphasizing my belief in the principle of such taxation as just and called for, I will set forth a few of the arguments — though by no means all — which bear upon the question of measuring the extent to which it may wisely and effectively be imposed. To a certain degree, inheritance taxation, in its very nature, has the economic ill effect of impairing or some- times even destroying that which a lifetime of indi- vidual work and planning has created. Values and assets thus impaired or destroyed must be re-created, else production must fall behind. That means a duplication of work each generation, a waste of national energy and effort, and thus a loss to the community. Moreover, there is inevitably inherent in inheritance taxation that element of social undesirability and of un- fairness that it leaves entirely untouched the wastrel who never laid by a cent in his life, and penalizes him who practiced industry, self-denial and thrift. And it cannot be too often said that the encourage- ment of thrift and enterprise, desirable at all times from the point of view of public welfare, has become of the utmost importance under the circumstances in which the I96 BUSINESS AND ECONOMICS world now finds itself, because it is only by the intensi- fied creation of wealth through savings and production that the world can be re-established on an even keel after the ravages and the waste of the war. The easy assumption in certain quarters that inher- itance taxation on large fortunes ought to be made so heavy as practically to abolish the bequeathing of wealth to descendants and to start everybody in the race of life more or less on the basis of financial equal- ity, overlooks fundamental and unchangeable facts. Just as the purpose of punishment is to deter, so the purpose of reward is to stimulate. The com- munity must stimulate men, and especially men of pro- ductive ability, to work to the full measure of the ca- pacities they possess. That is the practice which men of large affairs follow in the conduct of their business. They are always on the lookout for brains and capacity, and ready to give liberal reward to the possessors of those gifts. They pay the price willingly because they know that there is no better and more remunerative invest- ment than men of uncommon ability and none more greatly in demand or of more limited supply. That observation, amply demonstrated by long ex- perience, holds good equally as applied to the com- munity. The point is emphasized in the following quotation from the very able speech with which some two years ago the Canadian Minister of Finance, Sir Thomas White, introduced in Parliament the income tax meas- FAULTY TAXATION 197 ure then proposed on behalf of the Canadian Govern- ment: "We will need men of enterprise and ability who can bring capital into the country and develop our immense resources, and in reviewing this measure after the war, I think consideration should be given to the question of whether the taxation is so heavy as to operate to prevent men of that type from coming to this country and giving us the benefit of their enter- prise and their capital." * It is hardly open to question that the work of able men engaged in serious and legitimate business, while naturally of financial benefit to themselves, benefits to a much greater extent the country at large. Many examples might be cited in proof of this. * A very interesting and admirably lucid little book entitled "Com- ment £quilibrer le Budget de la France?" has just come into my pos- session. It was published in France in November, 1919, by Custos, this being the pseudonym of Mr. Francois Marsal, who last month entered the French Cabinet as Minister of Finance. I am tempted to quote at length from the observations of that eminent and experi- enced economist and financier, but owing to considerations of space, must confine myself to reproducing merely the following few sen- tences (translated from the French) : "A country's system of taxation is and must be an integral part of the functionings of its whole system of economics. To act in a reverse sense, that is, to set up measures of taxation before estab- lishing an appropriate economic regime, is to risk failure, to corn- promise the development of the country and arrest at their source the initiatives of production . . . "We cannot sufficiently emphasize that isolated and haphazard tax measures involve the risk of spoiling everything. Hesitation, uncer- tainty, and dislocation result, which prevent initiative, arrest construc- tive effort, impede the creation of wealth, and are damaging to the country and liable to bring on intolerable conditions for all the people, and especially for the working population. The general sys- tem of taxation exercises a powerful influence upon the life and economic developments of a country . . . "The creation of capital, the upbuilding of property, and the trans- mission of such property from the father to the children, are corner- stones of society. The acquisition and the transmission of capital are essential conditions of progress inasmuch as they are the de- termining reasons for work and saving." I98 BUSINESS AND ECONOMICS In addition to stimulating them to effort, the com- munity must also make it worth men's while to save and to accumulate. It is a well-known fact that one of the most pow- erful inducements for men to work and save is the thought of those whom they will leave behind, and the desire for the perpetuation of that which they have built up. If that inducement is taken away, or so materially reduced as to be no longer substantial, it is open at least to serious question in what degree saving and thrift will cease and self-indulgence take the place of self-denial, and to what extent men will fail to exert themselves beyond the point at which they are enabled, during their liyes, to satisfy their own and their depen- dents' wants and desires. An immense driving force will have been removed from those elements which make the wheels of the world go round. Material reward, fortunately, is not the only in- centive which causes men to work and strive, but it is a very potent incentive undeniably. It is true, Socialists and other adherents of ultra- advanced doctrines claim that the motive of social duty and service can be substituted effectively in or- dinary workaday life for the motive of self-interest, ambition and family, but such an allegation runs counter to the general characteristics of human nature and is entirely unsupported by experience. In fact, the experiment has been tried numerous times, and has failed invariably and completely. There should not be, and I am convinced there need FAULTY TAXATION I99 not be, unmerited poverty and want in a country as abundantly endowed with natural resources as Amer- ica. But the remedy cannot be found in discouraging, penalizing, or preventing the individual accumulation of capital. I am profoundly convinced that we must leave nothing undone, within the limits of what may sanely and safely be attempted, to equalize opportunity and to strive for the greatest attainable degree of well-being for all. The world must not and will not stand cal- lously by and permit individuals to exercise without restraint such natural advantages as are theirs, and let the strong bear down upon the weak. Every wisely feasible and really helpful plan toward remedying maladjustments in the allocation of the monetary reward of work ought to be warmly encour- aged and welcomed. But the privilege of handing down property by will is an essential part of the price which through many centuries the community has found it well and useful to pay as an incentive to work and saving and self- denial and from other motives of even more fundamen- tal concern. And if the result is tested by the material progress and enhanced productivity of the world and the in- creased well-being of the people, it appears worth the price. At least, no other means has as yet been invented and stood the test of practical working which will pro- duce the same result. Moreover, if all the money left to the inheritors of wealth were to be divided among the entire popula- 200 BUSINESS AND ECONOMICS tion, the amount coming to each one would be in- finitesimal. And if, instead, the Government took it all, or most of it, what reason is there to think that it would be used as well and effectively as in private hands ? There is an astonishing lot of hazy thinking on the subject of the uses of capital in the hands of its owners. The rich man can only spend a relatively small sum of money unproductively or selfishly. The money that it is in his power to actually waste is exceedingly limited. The bulk of what he has must be spent and used for productive purposes, just as, presumptively, would be the case if it were spent by the Government — with this difference, however, that, generally speaking, the individual is more painstaking and discriminating in the use of his funds and at the same time bolder, more imaginative, enterprising and constructive than the Government, with its necessarily bureaucratic and routine regime, possibly could be. Money in the hands of the individual is continually and feverishly on the search for opportunities, i.e., for creative and productive use. In the hands of the Gov- ernment it is apt to lose a good deal of its fructifying energy and ceaseless striving and to sink instead into placid and somnolent repose. It may be appropriate to mention in this connec- tion that the frequently heard assertion that the great bulk of the wealth of the nation goes into the coffers of a small number of rich men, is wholly false. FAULTY TAXATION 201 The fact is, on the contrary, that about seven-eighths of our national income goes to those with incomes of $5,000 or less, and only about one-eighth to those hav- ing incomes above $5,000. A carefully compiled state- ment issued by the Bankers Trust Company of New York some eighteen months ago estimates the total individual incomes of the nation for the fiscal year end- ing July 30, 1919, at $53,000,000,000, and finds that families with incomes of $5,000 or less receive $46,- 000,000,000 of that total. It is not true that under our economic and social system "the rich are getting richer and the poor poorer." On the contrary, the diffusion of wealth has been going on apace; the trend of things within the past twenty years has been greatly toward diminishing the differ- ence in the standard and general way of living between the various categories of our population. And our wealthiest men are not those who inherited their pos- sessions, but those who started at the bottom of the lad- der. In taking leave of this subject which, to be dealt with adequately, would require, as I have said before, far more exhaustive treatment than I can give it in these pages, I should like only to add this : The eternal law of compensation works in mysterious ways. It is unquestionably a fact that it is not the children of the rich to whom life yields the greatest measure of joy and satisfaction and reward. 202 BUSINESS AND ECONOMICS IV For a country as immensely rich and intrinsically as little burdened, relatively, as ours, it is really not a problem of great difficulty to raise, by taxation, the sum which the needs of the occasion require. We have raised in taxes about one-third of our total governmental expenditures in the two war years (excluding loans to allied nations). Indeed, if we deduct from "current" expenditures the amount spent for investments of permanent value, such as ships, shipyards, stocks of the War Finance Cor- poration, etc. — as any business man would in making up his balance sheets — we find that we have raised by taxation more than 40% of the Government's total ex- penditures during the war. That is a stupendous achievement, which no other nation has come near paralleling. I am convinced that during the war it was wise and advantageous to resort to taxation to the extent we did, but I think that the necessity, and with it the advisability of imposing taxes of extreme magnitude has gone by with the passing of the war, and that the disproportionate burdening of the present generation to enable unduly rapid extinction of our war debt, would be both an injustice and a mis- take. Certainly our taxation of business and capital ought not to be any heavier than that of our chief competi- tor, Great Britain, in any part of its scale (our income tax is now considerably heavier in its upper scale and 50% heavier in its maximum scale, and our excess FAULTY TAXATION 20,3 profit tax is considerably more burdensome than the analogous tax in England). Rather, our taxes on business and capital ought to be less heavy than these taxes are in England, because that would aid us in holding our own in the competition for world trade ; and it should be easily feasible to make them so, for our population is twice as numerous and our wealth much more than twice as great as that of Great Britain, and the financial war-burden which we have to take care of is much less than that of Great Britain. It should be easily feasible without in any way im- pairing the fortunate and desirable position that in our country those of small or moderate means are taxed far less, both in direct and indirect taxation, than they are in any other of the leading countries. The alternative is not to burden unduly either business or the people. The idea is not of relieving the former at the expense of the latter. The end which should and can be at- tained by proceeding wisely, is to benefit both business and the people. Now that the emergency of the war is over, I be- lieve that this subject in its entirety should be sub- jected to unprejudiced and competent critical review. Good intentions are not a sufficient qualification for the task of devising a plan and methods of taxation to bal- ance our vast expenditures. Exact thinking is required, technical capacity, adequate knowledge and the courage not to shrink from unpalatable conclusions. Economics are stubborn things and will not permit themselves to 204 BUSINESS AND ECONOMICS be either disregarded or overridden or dealt with emo- tionally. In England a non-political committee was appointed recently by the Government to study the effects of the various kinds of taxes which have been in force during the past five years, and to make recommendations to Parliament based upon such study. It seems to me that similar action by Congress or the President would be wise and timely. A small committee of well-informed men of different callings, approaching their task free from political, social and sectional bias, would not find it a formidable undertaking to evolve a measure which, while fully re- sponsive to the dictates of equity and social justice, would produce no less revenue than the taxation now in force, and yet would be far less burdensome upon the country, less hampering to enterprise, and less pro- ductive of economic disturbance and dislocation. Such a committee would not be unmindful of the manifest propriety of grading the burden of taxation as much as practicable according to capacity to bear it. But neither would it be unmindful of ways of easily collectible, easily borne taxation, which we have failed, thus far, to utilize. Nor would it look upon material success as something akin to guilt and therefore to be visited with punitive treatment. It might recommend a radical revision of income taxation on the theory that the emphasis of taxation be laid rather on expenditures than on incomes and that a sharply marked distinction be made between such portion of a person's income as is used construe- FAULTY TAXATION 2(3$ tively in savings, investments, or enterprise and such portion as is spent on his scale of living. A tax based on that theory would be calculated and paid at the end of a twelve months' period, just as the income tax. It would, no doubt, exempt expenditures of a certain minimum sum per annum, say, $2,500 for single and $4,000 for married persons, would be applied mod- erately to moderate expenditures, and would be se- verely progressive on large expenditures. Much can be said for such a tax from both the eco- nomic and moral points of view. Among other desir- able effects, it would reach those who, by holding tax- exempt securities, now escape the burden of income taxation, and it would thus go a long way to eliminate the undue advantage now attaching to tax-exempt se- curities and to correct the resulting evils which I have pointed out before in discussing that phase of our tax problem. While a tax of this nature involves certain com- plexities in its details and working, they would by no means be insuperable; in fact, they would, I think, be less formidable than those of the present income tax. The Committee might also, I should think, reach the conclusion, quite irrespective of the theory suggested in the foregoing paragraphs, to recommend the imposition of a small percentage tax, say 1 %, on all sales of com- modities and products and presumably of real estate. Such a measure would be productive of an immense amount of revenue and would not be harmful to any one. A similar tax was imposed in the course of our 206 BUSINESS AND ECONOMICS Civil War and appears to have functioned so well and to have met with such ready acceptance that it was not repealed until several years after the close of that war. The exact form which such a tax should take is debatable. It might be imposed on the seller accord- ing to the aggregate sales effected, the tax to be com- puted quarterly, semi-annually or annually. Or, it might, on every transaction, be paid by the purchaser, in which case it should not be included in the selling price, but specifically added to it as a separate item, probably best in the shape of stamps. Or, it might be made applicable to retail sales only. In the latter case, it might be found well to exempt from the tax single purchases below $2. Also in that case, i.e., in dealing with the ulitmate purchaser, it might possibly be deemed appropriate to make the tax varying in its scale, say from l % to 10%, or even 20%, progressing according to the value of the article pur- chased, so that, for instance, a person making a $5 purchase would pay l % tax, i.e., five cents, while a person making a $5,000 purchase would pay 10%, i. e., $500, and so on. While the progressive scale suggested would be at' tractive from the point of view of equity, I realize, of course, the practical objections to which it is open and the difficulty of its operation. Indeed, it may be found upon due investigation that the complications involved would be such as to be decisive against the adoption of that suggestion. The simplest and most remunerative way, naturally, FAULTY TAXATION 20~J would be to impose a very small tax on the turnover, computed quarterly or semi-annually, of sales of com- modities and products all along the line, from first to last. At any rate, whatever may be the differences of opin- ion as to the various ways of applying a sales tax, I feel confident that as far as the principle of such a tax is concerned, a great majority of the men engaged in business large or small would welcome it. If the Ways and Means Committee of Congress were to consult on the subject with duly qualified rep- resentatives of business associations and agricultural and other organizations, no great difficulty should be found to devise the best, most productive and least troublesome way and method by which a tax of that general nature should be made operative. It may be objected that such a tax is finally passed on to the consumer. No doubt it is. So is the bulk of the excess profit tax. So, in the end, is practically every business tax and, to a great extent, even individual taxes. And the burden on the consumer is always cumula- tive, inasmuch as almost every article before it comes to him passes through several different handlings in the process of being converted from the raw material to the finished article on sale, and each one of those concerned in that process seeks to add to the price a proportionate percentage to cover his taxes, at least in part. Nor is he justly subject to reproach for doing so, in most cases. He is simply acting from necessity, be- 2o8 BUSINESS AND ECONOMICS cause, as I have indicated before, what the existing profit tax, as well as the income surtax absorbs, "is that essential necessity for the conduct of business — cash." * The sales tax would aggregate a far smaller burden by the time it reaches the consumer than our prevailing array of taxes. It would weigh far more lightly on the rank and file than do the results of our existing taxa- tion. At present, apart from various minor taxes, corpo- rate business pays 10% income tax and, in addition, excess profit taxes up to 40%. Individuals pay up to 73% in Federal income taxes alone. A trifling sales tax on the huge volume of commod- ities changing hands annually would yield so vast a revenue that it would enable the excess profit tax and practically all other abnormal business taxes (except perhaps the corporate income tax) to be eliminated, surtaxes on individual incomes to be greatly reduced, and Federal taxation of incomes up to, say, $4,000 to be abolished altogether. The result would be a great reduction in the cumula- tive percentages with which prices are now "loaded" to meet taxation, that is to say, there would be bound to ensue a lowering of prices all round. Competition would see to that. If, contrary to all expectation and precedent, it should not do so, other agencies will. Another advantage of the sales tax is the great sim- plicity of its working and the definiteness of its appli- cation, especially as compared to the vexatious, un- even and unfair working of the excess profit tax. * See page 172, line 17 and on. FAULTY TAXATION 209 Furthermore, to collect such a tax requires little ex- pense, no complicated bookkeeping, no intricate sched- ules, no lawyers' and accountants' services, and no army of Government employees. It can be increased or de- creased in short order and without any resulting eco- nomic disturbance, according to the financial needs of the Government. If a l % tax produces too much, it is a very simple process to decrease it by an appropriate percentage. If it produces too little, a small additional percentage will yield the sum needed. We have had a two-years' test now of a scheme for raising revenue, which is unscientific, inconsistent and ill-designed and has as its principal characteristic the taxation of business and constructively employed cap- ital on a scale without a parallel anywhere. The result is writ large in the high cost of living, industrial and economic dislocation and social discontent — for all of which our taxation policy is a strongly contributory, though, of course, not the sole, cause. In common with all right-thinking men, I desire very earnestly and sincerely to see the burdens of the poor and those of moderate means lightened to the utmost extent possible. I realize but too well that the load weighing upon those whose income has not kept pace with the in- creased cost of things has become almost intolerable. I welcome every means compatible with sober reason and the test of experience and with national welfare, to remedy that situation, or at least to mitigate it to the limit of our ability. 210 BUSINESS AND ECONOMICS But I am entirely convinced that crushing and bun- gling taxation of capital and industry is not the way to accomplish that result. I am convinced, on the con- trary, that such taxation is bound to redound to the detriment of all the people. If our extreme surtaxes on incomes, and our excess profit tax had the effect of breaking the vicious circle of price-boosting and wage-boosting, if these taxes had power to eliminate or curb "profiteering," much might be forgiven them. But experience has proved that not only have they no such effect and no such power, but indeed they have tended to greatly intensify those evils. To deal with these noxious things, measures of quite a different na- ture are required. I know the political mind shies from laying hands on the presumably popular structure of huge super- taxes on incomes and profits. But I venture to think that the political mind is once more acting ac- cording to its inveterate habit of underestimating both the integrity and the intelligence of the people. Twenty odd years ago Mr. Bryan, acting, I am cer- tain, from true conviction and in absolute good faith, offered to the people a scheme which they were led to believe would practically cut their debts in half, en- hance greatly the price of farm products, then at low ebb, increase wages largely, and bring about other re- sults strongly appealing to selfish interest. No more tempting lure was ever held out to the popular vote. FAULTY TAXATION 211 It took the Republican party managers a long while before they mustered courage to meet the issue squarely and to come out flatfootedly. However, they did final- ly and Mr. Bryan's challenge was met by a most in- tensive campaign of education and information. In- tricate questions of economics and currency were dis- cussed and debated up and down the land. The result was that a great majority of the people recognized the faultiness of Mr. Bryan's program and rejected it. When the pros and cons of a proposition, of what- ever nature, have been set fully and plainly before them the great majority of the American people can be trusted to form right and just conclusions, and to re- ject fallacies, however appealing, plausible and tempt- ing. The facts as to the harm and futility of our existing revenue measures are indisputable and easily explained and demonstrated. It is for us business men to bestir ourselves and see that these facts are brought to the at- tention of the people duly and effectively. The average man and woman are amply capable of grasping them, and they will be found entirely ready to see stark unfairness remedied and damaging errors corrected. The legitimate rights of property, subject of course to the reasonable and proper exercise of the superior rights of the community, are among those elements the sum total of which makes up liberty in its true mean- ing. It is not a "standpatter's" phrase, but a sober fact 212 BUSINESS AND ECONOMICS that liberty and ordered progress presuppose respect and protection for the property rights of the individual, within those bounds, naturally, which are inherent in wise and enlightened regard for the public welfare. The principle of the rights of private property is one of the pillars of the structure of liberty, as liberty was always understood in America, and, I am sure, is still understood by the overwhelming majority of Amer- icans. You cannot seriously weaken one pillar of that structure without weakening the whole. Economics, the laws of finance, the functions of cap- ital, the problems of trade, etc., are complex and dif- ficult subjects. They lend themselves all too easily to plausible fallacies and to demagogic misinformation. The rank and file cannot be expected to have ac- quainted themselves with the lessons of either history or textbooks on these subjects, or to know the teachings of practical experience concerning them. They should not be expected unaided to "dope out" these complex things for themselves to their correct and tested solu- tion. They should not be expected to discover entirely out of their own brains arguments to offset the cleverly and persistently presented half-truths or untruths of the demagogue or the Socialist or other varieties of the Utopian or extremist fraternity. Nor can nor should they be expected to accept exist- ing practices or the mere affirmations of business men, as conclusive upon their own mental processes. It is one of the proper and indeed necessary functions of organization of business men to spread information on such matters among the people, to give facts and FAULTY TAXATION 213 figures and reasons, to defend, justify and explain, and to meet pernicious agitators on their own ground of propaganda. It is a function which is far too little exercised as yet and the necessity for which is becoming steadily more apparent and more urgent. The enemies of the existing social, economic and governmental order are at work incessantly, under skil- ful and none too scrupulous leadership, with great in- genuity and cunning to instill into the minds of the people the poison of class animosity, by misrepresenting facts and conditions and promising the unattainable. We must not put our heads into the sand in the face of these machinations, nor must we be in fear of them, or permit ourselves to be unduly wrought up. We can- not meet them by blunt denials or by calling hard names, or by harsh actions, or even by appeal to the flag and the Constitution. Indeed, we must be particu- larly careful not to create the impression that patriotism is used pharisaically as a cloak for smug self-interest and the protection of privilege. The way to meet wrongful agitation is first by sin- cere and persistent efforts to eliminate causes for just discontent, and secondly by an organized and unre- mitting campaign of education and information con- ducted in the spirit of sympathy, patience, under- standing and of respect for differing viewpoints. We must seek to bring truth and enlightenment into the ring against falsehood and error, and then let them have it out in the presence of the American people. I have no fear of the result. THE NEED FOR NATIONAL EFFICIENCY w E are at war with a people which through years of preparation has not only developed the most formidable military machine ever created, but which is held together by close national cohesion and main- tained, as yet unbroken, by nationally organized ef- ficiency. The courage, valor and fighting capacity of the gal- lant youth of our land will meet, and meet triumphant- ly, the grim test before them, as American daring and determination have met many a test before. We, to whom it is not given to face our country's foe, arms in hand, have a threefold task to fulfil, less glorious but hardly less important. That task is to serve, to spend ourselves without stint, to bear sacrifices without limit; it is to strive with our utmost power for national ef- ficiency and it is to fight with stern determination all influences which would undermine the national will and weaken national unity. There is one searching question, which each one of us must ask himself daily, and that is : "Am I doing enough*?" — not "Am I doing as much or more, rela- An address at Chicago, January 12, 1918. 214 NEED FOR NATIONAL EFFICIENCY 215 tively, than the next man or the next class of men, the farmer, the laborer or whatever other class?" not "Is the next man or class of men doing all he or they ought to do?" but "Am I individually doing everything, literally everything, in my power to serve and to aid, not merely by giving, but also by thinking and working?" We who are not privileged to bear arms for our country — the men too old to fight, the boys too young to fight, the women and girls not called upon to fight, — we must have one watchword, one resolve beyond all others till our boys return in victory, and that is sac- rifice and service. Let that be the controlling impulse of our actions and thoughts, so that our sons and brothers may not lack for anything which it is in our power to give or procure, so that our country may not fail in anything within the utmost limits of our means, to insure and hasten victory. But, just as bravery alone will not win battles, so the most willing and universal patriotic devotion is merely a part of what is required to lead our cause to victory. This war is, to a very large extent, a test of organizing ability and industrial power. On that field of battle, the experience and training of business men entitle their voices to be heard. They must not be raised, of course, in carping or partisan criticism. But we may fulfil a useful function by seeking to ascertain facts, to point out errors and shortcomings, to sug- gest remedies, to offer constructive advice. Many things have been done exceedingly well since our country entered the war, some others badly. There is no reason, given the intelligence and adaptability of 2l6 BUSINESS AND ECONOMICS our people, why at least as high an average of ef- ficiency in every domain of war effort and manage- ment should not be reached and maintained by America as by any other belligerent nation. It must be recognized, and generous allowance must be made for the fact, that the task thrust upon those who are handling the multifarious affairs of the nation at this juncture is one of immense complexity, difficulty and vastness. They cannot listen to all of us individ- ually, but they could and doubtless would willingly give ear and due weight to the reasoned and matured views of the business community expressed through a representative National War Committee, organized to aid in promoting efficiency. Equal in importance to industrial effort is economic power and endurance. There, again, is a great task calling for business to make its thoughts articulate and effective through an organized agency. Wherever and whenever a great upheaval takes place in the world it brings to the surface economic error, social fallacies, quack remedies and nostrums, the true character and effect of which often are not recognized till they have brought suffering and privations upon the people and the old lessons have been learned again in the school of bitter experience. It is too much to hope that in the formidable crisis through which the nations are passing and the effect of which will be felt for many years to come, we shall escape the militant manifestation of such tendencies and the onslaught of their exponents. In the face of them we should maintain and assert business-like so- NEED FOR NATIONAL EFFICIENCY 217 briety of judgment, should refuse to be stampeded and should meet with reasoned and resolute opposition the counsels and proposals of the scheming demagogue or well-meaning utopianist, presented and urged as they probably will be under the guise of war or reconstruc- tion necessities. Individually, each one of us must work and think doubly hard, consider ourselves and our business pri- marily as parts of the great national war machinery, and do our utmost to eliminate lost motion and waste. Then, we must be of steady nerve, not lose heart when things don't go right and the outlook seems confused or gloomy, but grit our teeth and plod on, and, above all, never lose faith in our country and its people. The man, for instance, who without actual and im- perative cause, throws his holdings of stocks or bonds on an adverse, highly sensitive and disturbed market (such as was the market for securities recently), hurts himself and hurts his country. He helps to break down values, he aids in causing disturbance in financial affairs, which tends to react on business in general, and he diminishes the capacity of the community to respond to the Government's call for funds. If every one took counsel from his fears — as too many appear to have done in recent months — and rushed in selfish and panicky haste to "stand from un- der," we should soon be at the end of our rope. In war time the man who is a coward in the face of the enemy is shot. Moral courage at home is just as neces- sary for winning the war as physical courage at the front. The financial coward, the calamity-howler, 2l8 BUSINESS AND ECONOMICS should be awakened to a sense of shame and guilt by the stern voice of public opinion. The wastage of war is enormous, but most of the money the Government spends is used at home, and the temporary burden can be borne without causing too great a strain provided we all bend our backs to it and the load is not too unwisely adjusted by our legis- lators. In many ways we are establishing national assets of the greatest value. We are creating for ourselves world-aspects and a world-position such as we never had before. We have become a creditor nation. We are scrapping and overhauling and inventing. And the nation is learning the lesson of co-operation, and the no less valuable and needed lesson of economizing. Unless we make grave mistakes of omission or com- mission, we have a right (after the temporary disturb- ance probably incidental to readjustment from a war to a peace basis) to look for a period of great prosperity and auspicious achievement after the war; I believe we shall all be surprised to see with what ease the nation will be able to carry the burdens which we shall have inherited from our war expenditures — always provided that our house is o r dered with reasonable wisdom by those in authority. No doubt, serious and complex problems must be solved, both while the nation is at war and in the period of reconstruction and readjustment which will set in with the coming of peace. No doubt, these problems will test our wisdom and foresight. But I am entirely convinced of our ability to meet the situation success- NEED FOR NATIONAL EFFICIENCY 219 fully if we mobilize the brain power of the nation, and if due weight is accorded to the experience and matured judgment of the spokesmen of business, and if, while recognizing and respecting the demands of progress and social justice, we do not venture too far into un- charted waters. II It seems to me that it would serve a useful purpose if out of the various executive commissions now deal- ing with economic affairs, or as a separate body suitably co-ordinating with them, the President or the Secre- tary of the Treasury were to see fit to appoint a Board of Economic and Financial Strategy — just as the Army and Navy have boards of experts to elaborate and deal with strategic problems. It would be the function of such a Board to study carefully the exigencies both of our immediate situation and of the conditions likely to confront us after the war. It would correlate activities now more or less scattered, and might, if so desired, act as a bureau to furnish to Congress centralized and systematized in- formation on economic subjects. It would prepare a comprehensive plan for the mar- shalling and intensive utilization of our potential and actual resources, both during war times and afterward. It would scan the trade and commerce of the world, and might usefully place itself into communication with the various Reconstruction Committees and kin- dred bodies in the allied countries. At present I know of no one governmentally ap- 220 BUSINESS AND ECONOMICS pointed body here charged specifically with the task of studying and advising on industrial and economic post- bellum problems. England, France, Germany and Italy have such bodies at work. There is every expec- tation that we shall emerge from the war in a position of commanding economic potency and prestige. But in order to retain that position and fully to utilize it for our country's welfare, we must be ready to act along well-planned lines and with suitable instruments at our hands. It is none too soon to prepare. Among the immediate and important functions which such a body could perform, at once, would be, for in- stance, to give direction to the necessary general cam- paign of saving (apart from the specific task of arousing the nation to invest in Thrift Certificates). We must all save, rich and poor. But thrift con- sists not merely, or even mainly, in putting one's sav- ings into the Savings Bank or War Savings Certificates or other sound investments. Indeed, the investing of savings is really only the utilization of the product of thrift; it is not in itself what can properly be termed "thrift." The essential thing in thrift is the continuous practice of sane econ- omy, of avoiding useless or wasteful expenditures, of careful housekeeping by individual family and busi- ness in every-day life. That is not as simple and easy as it may seem. It requires teaching and guidance. A general exhortation to be thrifty is not enough. Some qualified agency ought to exist, not only to conduct a persistent propa- NEED FOR NATIONAL EFFICIENCY 22 1 ganda to encourage saving, but to indicate how, where and in what way to save. If necessary, the most es- sential of such indications might even receive the force of law for the duration of the war. Some savings are more needed, and more effective than others. Some are wiser and more desirable than others. Numerous savings are practicable which really involve no depriva- tion at all. Thrift, as particularly the example of France has demonstrated, is a national asset of the greatest value. It is astounding how great is the effect of a multiplicity of savings, and conversely of a multiplicity of extrava- gance. The effect is cumulative one way or the other. In addition to the general desirability and national utility of thrift, there is one particular aspect which further emphasizes the duty and national advantage of saving while the nation is at war. If the individual abstains from unnecessary purchases, he contributes to that extent to set labor free from private purposes to war purposes. How to direct and utilize the labor thus set free by private thrift, is the task — and a highly important task — of the Government. As the lessons of economy are more fully learned or enforced and practiced, the ag- gregate of labor released by that process will amount to a very large total. I do not know that any one govern- mental agency is now charged with the handling of this weighty matter and effectively organized and equipped to do so, though I believe a measure having this end in view has been introduced in Congress. 222 BUSINESS AND ECONOMICS III We are fighting the most perfectly organized ma- chine the world has ever seen. Democracy has a not undeserved reputation for blundering and for scatter- ing or misdirecting its energies. To meet successfully the marvelously organized power of German autocracy, we may well take a leaf out of its book. One of the main reasons for Germany's remarkable development in the thirty or forty years period preced- ing the war, is the way she has dealt with the complex and difficult problems of economic, commercial and fis- cal policy. She recognized, long since, that such prob- lems cannot be successfully handled haphazardly or in town-meeting fashion, or emotionally; still less can they be made the football of politics. The German way has been to turn such matters over for study and report to those best qualified by experience and training, and thus having obtained expert advice, to respect it and in its large outlines to follow it. Upon the basis of the views of these experts, in com- bination with their own studies, the responsible officers of the Government prepare a thoroughly matured and comprehensive plan. The representatives of the people criticize, modify, add here, take off there, but nearly always they preserve the broad outlines which the con- sensus of expert opinion has indicated as appropriate and advantageous. Similarly, Great Britain, for many years, by the appointment of "Royal Commissions," so-called, has NEED FOR NATIONAL EFFICIENCY 223 employed with success a method of obtaining "light without heat" in respect of problems as to which the Government and the people desired disinterested and competent information and suggestions. Such Commis- sions are composed usually of a certain proportion of legislators to whom are added a greater or lesser number of persons particularly qualified to advise on the sub- ject under review. The bodies thus constituted inves- tigate, hold hearings, ascertain facts, collate views and submit their findings and, if desired, their recommen- dations in public reports. In the great majority of cases, such Commissions, though composed of very di- versified elements, have arrived at a consensus of opin- ion in the main. It would seem that it would serve the public to ad- vantage if a similar method of procedure were to be made customary in this country. I have in mind not only the many immediate questions of a non-military character which are incident to the war, but still more the many grave and novel problems of an economic, social and financial character which will confront us with the advent of peace. The President, the heads of the Executive Depart- ments, and Congress are vastly overworked. It is sim- ply inconceivable that these instrumentalities of ad- ministration and legislation can give the necessary time and thoroughness of study to the variety of complex questions which call and will increasingly call for consideration and action. The burden which both the Senate and the House place upon their members in the investigating and gathering of facts and the hearing of 224 BUSINESS AND ECONOMICS witnesses, is exceedingly heavy. A very large portion of the time and energies of our legislators are absorbed in these functions. Much relief and good results could be obtained by placing part of that burden upon the shoulders of others. The best ability and ripest experi- ence of the country could be called upon and would surely be found ready to serve. The decision and re- sponsibility as to legislation would, of course, rest no less than now with the Congress and the President. It is of the essence of my suggestion that such Com- missions should be appointed and selected not by the Executive but by Congress acting through the Presi- dent of the Senate and the Speaker of the House. Experience has shown that the findings of outside Com- missions appointed by the Executive, whether Federal or State, have rarely been of great influence with the legislatures. I should be hopeful that Commissions designated and directed by Congress and containing a proportion of Senators and Congressmen, would prove more effective. IV It is an interesting and significant fact that in Great Britain, apart from those conducting the military and naval operations, fully 75% -of the men at the head of the various departments which together constitute that country's huge war machine, are business men. They are clothed with ample executive authority in their re- spective functions. A large proportion of the mem- bers of the British Cabinet are men of affairs; so are NEED FOR NATIONAL EFFICIENCY 225 a very considerable proportion of the members of Par- liament. Our Cabinet contains one business man ; very few of them can be found among the men composing our vari- ous governmental Boards and Commissions of a per- manent character, such as the Federal Trade Commis- sion, the Interstate Commerce Commission, etc. (ex- cepting the Federal Reserve Board) ; the proportion of business men in Congress is quite small. At present, it is true, in the face of a compelling emergency the Administration has called a number of business men into the service of the Government. But has it gone far enough and have sufficient scope and power been given to such men? Have they been set sufficiently to the task of organizing and executing in- stead of merely advising and recommending? In the huge business undertaking of a nation at war have we sufficiently aimed to follow, as far as may be, the tried and tested system of our best business organizations? And, with all due respect for the representatives of the people, and giving them full credit for hard work and patriotic effort and individual ability, can it truth- fully be said that the Congress has adjusted itself to the unique demands of the time? It has made no change whatever in its inherited methods, system and procedure. It appears strangely prejudiced against expert opinion and is apt to deal in rough and ready fashion with delicate and difficult problems such as those of economics, profoundly affecting as they do the nation's well-being. A striking instance of this tendency is presented in 226 BUSINESS AND ECONOMICS the proceedings the outcome of which was the tax bill adopted in October, 1917. First, the House Committee in charge, after some four weeks' study and discussion, draws up a bill and reports it to the House. The House promptly proceeds to tear it to pieces. Amendment after amendment is offered and accepted on the floor. The measure, in its nature intricate, with one part depending on the other, is revamped in a running debate and thus, knocked out of shape, is adopted. Then the Senate Committee takes hold giving nearly three months to the study and preparation of the meas- ure, hearing experts, saturating itself with the subject and evolving a bill which, if not wholly free from ob- jection, is carefully drawn and well-balanced. Re- ported to the Senate, it is altered upon the motion of any member who can get a sufficient following to en- graft his notions upon the measure, is fundamentally and radically modified and thrown out of gear, and thus adopted. Both houses of Congress have rejected the pains- taking work of their own Committees whose special function it is to frame financial measures, and who had given weeks and months to the study of the prob- lems involved. The two bills thus evolved largely, so to speak, on the spur of the moment, are taken into conference. The weary and discouraged members of the Conference Committee confer. There is need for hurry because Congress is clamoring to get through and adjourn. In a short time, after debate carried on behind closed NEED FOR NATIONAL EFFICIENCY 227 doors, another bill emerges, different in many respects from any that has gone before, bearing evidence of in- sufficient thought, of makeshift compromises and, in certain respects, of prejudice and pectional prefer- ences. With very little discussion and practically no effec- tive scrutiny a hurried Congress adopts that bill. Many of its details are so intricate, many of its definitions so obscure, many of its provisions so unworkable, that to this day they have not been fully unravelled. It bris- tles with inconsistencies. It embodies no recognizable theory of taxation. The business community had kept its calm and cour- age in the face of war. It would have confronted with- out more than a passing tremor the huge taxation which it was called upon to bear. But seeing itself faced not only with huge but with ill-contrived, oppressive, and invidious taxation, seeing the obscurities and complexi- ties of the law and the bungling, prejudiced, and un- scientific handling of a matter of signal moment to the country's well-being, seeing the spirit behind the bill and visualizing its potentialities, business is seized with alarm. The disturbance spreads, confidence is shaken, the investor throws his securities overboard, corporations and individual business men suddenly are halted in their plans. Acute depression has set in. The loss in quoted security values alone amounts to billions of dollars. Yet, all this could so easily have been avoided. It was not really a problem of much difficulty to devise a 228 BUSINESS AND ECONOMICS bill which would have raised equally as much revenue, would have been no less in accord with the dictates of social justice, and yet would weigh far more lightly on the country. I do not mean before this non-partisan assembly to criticize individual Congressmen or Senators. I do criticize the system which has not been brought up to date and which is no longer adequate to the needs of the day. Thus, for instance, the Chairmen of Committees hold their offices by seniority instead of being selected for fitness. There is no authoritative Steering Committee to determine the priority of legislative measures. There are no effective rules to control the flood of private members bills. There is no bill-drafting bureau at- tached to our national legislature, such as exists in every other advanced country and in many of our states. Ours is the only great country in which no budget sys- tem prevails. Income and outgo are handled by I don't know how many separate and unrelated committees. By cumbersome statutes and minute and inelastic rules and regulations Congress has spun a web of red tape around administrative and executive procedure, and has turned a deaf ear to the call for the modernization of Government business methods. There is no reason why with wise and sure guidance in economic affairs, the inevitable effect of war on business should lead to the semi-panicky condition NEED FOR NATIONAL EFFICIENCY 229 which prevailed in our financial markets last Novem- ber and December. After three and a half years of war, the Berlin market is steady and there is actually a fair investment demand. Trade in England, on the whole, is prosperous. In France, at this moment, pri- vate investors — not the State — are finding money for new iron and steel works and shipbuilding plants. Our foundations are stronger than those of any other country, but it remains no less necessary that the right plans, methods and means be used in rearing the superstructure. Natural wealth, advantageous loca- tion and favorable opportunities are not sufficient to raise a country to eminence and its people to well- being. China, for instance, has intrinsic resources second to few other countries in the world. It is incomparably better endowed by nature than the poor, unfertile islands of Japan. Yet China, with her immense nat- ural wealth, is weak and poor because individual enter- prise and the impulse of governmental efficiency are lacking. But Japan, by wise governmental planning, by encouraging individual effort and fostering the ac- tivities of business, has grown rich and powerful, and in conjunction with China, is offering a field to capital and to men of enterprise the potentialities of which we shall do well not to underestimate. This question of governmental efficiency and wisdom in the realm of economics is fundamental. It ramifies through every phase of the country's life. More espe- cially in war time is it essential that the nation proceed along the lines of wise and consistent and purposeful 230 BUSINESS AND ECONOMICS planning, and that business feel reasonably assured on that score. For, it is vital during war as well as during the reconstruction period to follow that production be in- tensified to the utmost, and this cannot be done unless the spirit of enterprise, individual activity and buoyant faith in the future be maintained in the face of diffi- culties and trials, and notwithstanding heavy and un- usual financial burdens. We do not complain at any burden within our capacity to bear, which the necessities of the country require us to assume, or which real public opinion, as distinguished from the noisy advocates of extremism, desires to impose upon us. But, of course, there is a point beyond which the laying on of burdens cannot go without killing enterprise and gravely upsetting busi- ness, with consequences seriously detrimental to the commonwealth and withering in their effect upon the capacity of capital to provide funds for the conduct of the war. What we business men protest against is ignorance, shallow thought or doctrinairism assuming the place belonging to expert opinion and tested practical ability. We protest against demagogism, envy and prejudice, camouflaging under the flag of war necessity and social justice in order to wage a campaign through inflam- matory appeal, misstatement and specious reasoning to punish success, despoil capital and harass business. We impugn the presumption that men who, mostly from small beginnings, have fought their way to the NEED FOR NATIONAL EFFICIENCY 23 1 top after having passed through the hard and searching test and discipline of business, are to be ignored or dis- trusted in the shaping of the industrial and economic policies of the country, because of alleged incapacity or unwillingness to take a broad, enlightened and pa- triotic view of national questions directly or indirectly affecting their own interests. We deny the suggestion that patriotism, virtue, and knowledge reside primarily with those who have been unsuccessful, those who have no practical experience of business, or, be it said with all respect, with those who are politicians or office holders. I believe it cannot be gainsaid that there is no great country where the capacities of representatives of busi- ness are so little availed of in governmental and politi- cal affairs, their views so little heeded and so frequently rebuffed, where legislation affecting economic, indus- trial and financial matters is framed, and the resulting laws administered with so little regard for the counsel and expert knowledge of business men as in the United States. A number of instances could be cited of law- making where, if the advice of such men had been taken, the aims sought to be accomplished could have been attained with equal or greater sureness of effect and without undesirable incidental results such as were not intended by the legislators, though clearly foreseen by the trained experience of business men. Undue subserviency to the despoilers and defamers of capital and business is no less wrong than undue consideration for capital and business. A democracy which discriminates against a class or a section is just 232 BUSINESS AND ECONOMICS as guilty as an autocracy which discriminates in favor of a ruling caste. Self-government presupposes self- restraint. We business men are made of no different stuff from other Americans. We are no class apart from the rest of the community. We are eager to have, and we mean to deserve, the good-will and respect of our fellow- citizens. Of the great democracy of business, we are the con- stituents. We are its component parts, its army, its defenders. If we understand aright our mission and our functions, we have no interest different from the interests of the country at large. We cannot prosper unless the country prospers, we suffer when the country suffers. The time when, in the general rush and turmoil of a period of tremendous and headlong development, big business was to some extent a law unto itself, is over, never to return. We must accept and we should welcome reasonable supervision and regulation. We must obey in good faith and in a loyal spirit of good citizenship the de- crees of matured public opinion. We must in all aspects deal fairly with the public. We must give to labor, willingly and freely, what properly belongs to labor. We must give to Csesar what is Caesar's. We must and we should cheerfully recognize the democratic spirit and tendencies of the day. We must cordially co-operate toward all rational measures cal- culated to augment the opportunities, the happiness, contentment and well-being of the people. We must NEED FOR NATIONAL EFFICIENCY 233 help to correct such shortcomings of the present social order as justly call for reform. We should be the first to discountenance "profiteer- ing" in war times (indeed, we should discountenance the exacting of extortionate profits from the public at any time), as well as unfair treatment of employees and other objectionable practices, and to denounce those in- dulging in them as enemies of business, as they are enemies to that national good feeling and that fair and reasonable adjustment of social relationship which must be striven for, sincerely and persistently, if class misunderstandings, class animosities and the resulting evil consequences are to be avoided. But we are not called upon and we are not willing to resign our functions. We will not tamely submit to professional agitators and trouble makers, nor will we acknowledge the superior wisdom in practical affairs of theorists and doctrinaires. We will defend our just rights against either paternalism or extremism. We shall have to meet, after the return of peace, both in our own country and abroad, the onset of the business men of Europe, spurred on by dire necessity to put forth their utmost efforts, trained to discipline, co-operation and inventiveness in the cruel school of years of desperate war upon their own soil or at their very door, backed by the full power of their respective governments and the laws of their countries. I have no fear but that American business men will hold their own in that fierce competition; provided — not that they be given the thorough and active govern- mental backing which other nations extend to their 234 BUSINESS AND ECONOMICS merchants, manufacturers and bankers (we do not ask for that and we believe we do not require it) — but provided that they be not hampered and harassed by the Government; provided that ignorance, prejudice, ill-will and suspicion be not permitted to place fetters upon them. Business asks a fair field and no favor. It must expect no more. If it makes it plain to public opinion that it seeks no more and that it is conscious of its duties and obligations as well as of its opportunities, it will — I am confident — receive no less at the hands of the people. THE MENACE OF PATERNALISM N, I O apology is needed, I believe, if, in this meet- ing of business men, I begin my remarks with a trib- ute to the American Army. I hope I am not usually given to "tall talk," but I admit that since I came back from Europe two months ago, I have been boast- ful, vociferously and unblushingly boastful, about our boys "over there" and their leaders. It was my privilege to see a good deal of the Amer- ican soldiers within the last six months. I saw them, in their cramped and crowded quarters, on the boats which carried them across the submarine-infested ocean, many of them away from home for the first time in their lives. I saw them in Paris unconcernedly playing ball in the streets while bombs from long-range guns were exploding in the immediate neighborhood. I saw them at French ports, and at villages throughout the fair land of France, cheerily taking things as they came, the rough with the smooth — and there was a good deal more rough than smooth. I met them as foresters in the extreme south of France, near the Spanish frontier. I met them as en- gineers and in numberless other capacities and, finally, An address before the Convention of The American Bankers Asso- ciation, Chicago, September 27, 1918. 235 236 BUSINESS AND ECONOMICS I saw them as fighting men at the front. I met many of their leaders, from their great chief, General Persh- ing, down. I saw the marvelous work at the French ports, in our huge camps and bases, and along our lines of com- munication, which these men had accomplished and were accomplishing with a bigness of vision, a boldness of planning, a directness of attack, a perfection of exe- cution and a courageous assumption of responsibility, that would have done credit to renowned captains of industry. Everywhere I found, among officers as well as among men, the same simple and unostentatious, yet steel- clad determination to do and dare and, if so fated, to die, for the honor and protection of America. Every- where the same eager and tireless exertion and keen, quick-witted adaptability. Everywhere the same mod- est and soldierly bearing, the same uncomplaining en- durance under hardships and discomforts, the same contempt for danger. Everywhere the same note of splendid courage, moral and physical, of willing dis- cipline and service, of buoyant good nature and humor, of clean and kindly thought and feeling. That young army of ours has now been tested in many a battle, and wherever it has fought, it has proved itself imbued with the spirit of heroic valor, a worthy custodian of American honor, a zealous artisan of American glory. When victory and peace will have come to our cause, those competent and qualified to do so will tell the full story of the American Forces in France. It MENACE OF PATERNALISM 237 will be a story big with pride and inspiration to every American. II Now, gentlemen, what is the underlying cause for the phenomenon that our boys, taken from the most diversified walks of life, brought up in surroundings and in a spirit which are the very negation of martial disposition, became in an incredibly short space of time soldiers of first rate efficiency; that our business men, farmers, mechanics, college boys are making competent, indeed, in many cases, excellent officers ; that among our West Pointers, taken from small army posts or office positions in Washington, were discovered men fitted, when the emergency arose, to plan and execute the busi- ness undertakings of war on a stupendous scale with a high degree of organizing and administrative ability (even though these men would be the last to dispute that a considerable share of the credit for the results accomplished is due to those who, at the very start of the war, eagerly volunteered from civil life) *? Why did our commanding officers, our engineers and others at various French ports, at our army bases, along our great line of supplies, in a strange country, under con- ditions entirely new to them, demonstrate the capacity of rapidly sizing up situations, of boldly meeting and overcoming difficulties, of vigorously cutting the red tape of generations, of accomplishing things which bureaucratic routine of ever so many years had failed or found itself impotent to deal with'? I have heard these questions asked and debated many 238 BUSINESS AND ECONOMICS times in England and France, and the consensus of replies was this: "You in America have always been a nation of private enterprise and individual initiative. "Your incentive has never been to get a govern- mental title or a bureaucratic position. Your incen- tive was zest and scope for doing things, the joy of creative effort, the urge of a certain crude, rough-hewn, unsystematic, but effective practical idealism or ideal- ized realism, whichever you want to call it, and also, of course, the large material rewards of successful achievement. You have had no caste, or fixed class, either aristocratic or bureaucratic. You have given almost unlimited, perhaps too unlimited scope to am- bition, ability, force, imagination, hard work. "Your employee of today was and is the employer of tomorrow. "The State, far from enjoying the halo descended from kingly times of something resembling omnip- otence and omniscience, and being all-pervasive in its functions, was largely limited in its activities, and you had a healthy skepticism of governmental capacity to do things well. "Under the stimulus of these conditions you have produced a race — daring, keen, quick-witted, adaptable, self-reliant. "The American of today, as we see him in the of- ficers and men of your forces, and in the business men we have met, is the product of sturdy individualism." And then the Englishman would be apt to explain that the rank and file of Britishers are also in their heart of hearts individualists and normally opposed to the undue multiplication of governmental functions. MENACE OF PATERNALISM 239 He would not dispute that the war was bound to bring about great social and economic changes together with a tendency toward far-going radicalism and toward a general leveling, but would maintain that the ambi- tious programs and sweeping pronouncements of those, largely writers, economists and theorists who ran the political end, and only the political end, of the British labor party did not represent the level-headed majority of the rank and file, and were apparently taken more seriously abroad than at home. The Frenchman, being like most of his countrymen, something of a practical philosopher and an admirable talker, would be apt to go rather further afield. He would point out that France has had experience of bureaucracy, governmental centralization and pater- nalism for several generations. The nation had tested that system under an autocratic regime, under a liberal monarchy, under a bourgeois republic and under a rad- ical, and at times semi-socialist, republic. And the conclusion was now widespread among Frenchmen that it was not what it was "cracked up" to be, except under a great organizing and vitalizing genius like the first Napoleon and that they did not like that system. It had lamed enterprise, atrophied commercial daring, retarded the development of the country, and driven a large portion of the national wealth into more or less hazardous undertakings abroad, lacking constructive opportunity for it at home. It was largely responsible for the fact that France, naturally the richest and most abundantly endowed country of Europe, had permitted itself to be out- 24O BUSINESS AND ECONOMICS distanced economically and industrially by other coun- tries less favorably situated as far as natural resources were concerned, notably Germany. It had allowed a state of affairs to develop where but for the magnificent manifestation of the superb innate qualities of the French race, which no governmental system could per- manently vitiate, Germany might have come measur- ably near succeeding in its infernal plan to cripple France lastingly. In Russia, bureaucracy and paternalism, plus weak, corrupt and inefficient autocracy, had led to revolution, chaos and anarchy. In Germany, bureaucracy and paternalism plus mili- tarism and junkerism, had resulted in bringing untold misery upon the world at large and inevitable disaster in the end to the German people. And that notwith- standing the fact that not only was the German system of bureaucracy and paternalism the most efficient the world had ever seen, but that with deep and insidious cunning it camouflaged its true meaning and purpose in that it made an alliance with big business by which, in return for being left alone and, if need be, sup- ported in its political dominion and in its particular in- terests, it maintained a reciprocal attitude toward the great combinations in finance and industry. It fur- thered enterprise and gave liberal scope and rich re- ward to achievement. Its method of dealing with la- bor was in part to coerce it and deprive it, by direct or indirect means, of adequate voting and political power and in part to cajole and conciliate it by apparently pro- gressive and fair-seeming social welfare legislation. In MENACE OF PATERNALISM 24I other words it aimed at making contented and pros- perous chainbearers out of the German people, and at the same time — and alas ! all too successfully — at sub- stituting for their old conceptions and ideals a religion of greed, covetousness, power-worship and materialism, the deity of which was the State as represented by its ruling caste. In short, my French interlocutors would agree that whenever, wherever and however the system of govern- mental omnipotence had been tried, it had failed in a greater or lesser degree; that France had given it a sufficiently long test to be weary of it, and that after the war the tendency of the French people would be rather to turn toward individual effort and to stimu- late personal initiative — fully conscious at the same time that no social order or system was thinkable after the war which did not take complete account, sincerely and wholeheartedly, of the aspirations and just de- mands of the rank and file. I should add, in order to give an entirely truthful picture, that the Englishmen whom I heard discuss this subject, were mainly business men and others whose views may have been somewhat colored because their surroundings and interests would naturally tend to make them averse to a radical change in the existing order of things. But the French feeling as I have tried to set it forth, I heard expressed by all kinds and conditions of men — from workingmen and small trades-people to finan- ciers, military officers and statesmen. And it should be borne in mind that the French are endowed with 242 BUSINESS AND ECONOMICS the faculty of a proverbially clear recognition of the realities of things and more than once in history have been the pathfinders for the social and intellectual movements of the world. On the other hand, it cannot be gainsaid that there are a good many persons in France, as in Great Britain and America, who firmly believe that the era of indi- vidualism, or as they prefer to call it, capitalism, has come to an end, and that an entirely new kind of social structure will be reared after the war. Ill They are very active, zealous and eager, these mili- tant preachers of a new day. They possess the fervor of the prophet allied often to the plausibility and cun- ning of the demagogue. They have the enviable and persuasive cocksureness which goes with lack of re- sponsibility and of practical experience. They pour the vials of scorn and contempt upon those benighted ones who still tie their boat to the old moorings of the teachings of history and of common sense appraisal of human nature. And being vociferous and plausible they are unquestionably making converts. They are offering the vista of a catching program to the popularity-seeking politician. They are per- turbing the minds of many who honestly seek — as every right minded man should — to bring about a better and more justly ordained world. They have not been without producing a certain effect even in high places. Nothing is easier to start, nothing moves faster when MENACE OF PATERNALISM 243 once started, than economic fallacies, especially when to their natural speed is added the impulse of a glitter- ing and facile idealism which holds out to the world surcease from many of those troubles with which man- kind has grappled since its progenitors left the Garden of Eden. Nothing is harder than for sober unvarnished truth, loaded down with the weight of the realities of exist- ence, to catch up with those fallacies. It invariably does in the end, but meanwhile the fallacies on their long start and rapid flight may have wrought vast harm, as we see exemplified in Russia. We hear a good deal nowadays of "the war after the war" — meaning thereby the expected economic dis- cord and strife in the markets of the world between Germany and her vassals on the one hand and the Powers now arrayed against them on the other. That discussion, to an extent, it seems to me, is premature. Germany and those who aided and abetted her, must and will be defeated, decisively and completely de- feated. The handwriting on the wall which pro- claims the doom and destruction of Prussianism stands out more fatefully and legibly every day. But the treatment to be accorded to Germany in the future will depend in part, at least, as President Wilson has indi- cated, upon the answer to the questions whether she will sincerely and unmistakably purge herself of the accursed spirit which has made her name a by-word and a hissing among decent nations, what attitude and action she will take toward those loaded down with the execration of the world who primarily personify 244 BUSINESS AND ECONOMICS that spirit, and whether, contrite, chastened and freed from the hideous rule of a barbarous military caste, she will atone, as far as it is in the power of her people, for the unspeakable crime of the war unchained by her and the atrocious brutality of its conduct. And a like test applies to those nations who made themselves shar- ers of her guilt. Let us see how that test is met before we envisage an economic "war after the war." But there is one "war after the war" for which the lines are now being drawn, and which indeed the at- tacking party has already started, although it was the country's general understanding that until the war against our external enemy was won, internal conflicts would be postponed. The opposing forces are, on the one side, the motley army ranging from the American variety of destructive Bolsheviks in various gradations to self-seeking dema- gogues, well-meaning utopianists, iconoclast theorists, intolerant and impetuous young writers strong in the assured consciousness of their mental and moral su- periority, and, alas! none too rarely, college profes- sors and other teachers generally underpaid, frequently overworked, some rather disgruntled and acidified, oth- ers carried away by untempered idealism and inclined to take the world as a theoretical proposition rather than a stubborn fact. Confronting that army, on the other side, stand those who believe that the accumu- lated wisdom of centuries of human experience is wis- dom still, and who see in individualism, ordered, en- lightened, progressive, sympathetic and adjusted to the changing needs and social conceptions of the age, the MENACE OF PATERNALISM 245 soundest and most effective instrument for the ad- vancement and the happiness of humanity. When I speak of individualism, I do not mean the harsh doctrine of the so-called Manchester school of the Nineteenth Century which, with a somewhat naive faith in the automatic and beneficent self-regulation of human forces, bade the individual to exploit his op- portunities to the unrestrained limit of his strength, and "the devil take the hindmost." Nor do I mean the picturesque, semi-romantic but socially intolerable individualism which in the pioneer period of our country's development brought forth a body of men whose daring, vision, creative energy and striving for wealth and power, strangely mixed at times with an element of idealism and emotionalism, did much to produce the tremendous epic of America's un- rivalled development, but who after all were more or less industrial despots and as such — even though benev- olent despots, which many of them were — rightly ob- noxious to a free people. The individualism to which I adhere, spells neither reaction nor greed, selfishness, class feeling nor callous- ness. No less than those who carry their hearts, vis- ibly aching for the people and aflame against their oppressors, into magazine articles, political assemblies and upon lecture platforms; no less than those who in the fervor of their world-improving pursuit discover cure-alls for the ills of humanity which they fondly believe new and unfailing remedies but which, as a matter of fact, this old globe of ours at one time or another in one of its parts or another, has seen tried 246 BUSINESS AND ECONOMICS and discarded, after sad disillusionment — no less than they are we desirous for the well-being and content- ment of the masses of the people and sympathetic toward and responsive to their aspirations. In common with all right-minded and fair-thinking men, be they employers or employees, we are ready and glad to join in every sincere effort, consistent with sane recognition of the realities of things, to make life more worth living to the rank and file of humankind. So far from obstructing, we will zealously and ear- nestly co-operate toward all rational measures, cal- culated to augment the opportunities and happiness of the mass of the people, to enhance their share of ease and comfort and of the rewards and joys of life, and to correct such shortcomings of the present social order as justly call for reform. But we will resolutely oppose those who in their im- patient grasping for unattainable perfection would make of liberty a raging and destructive torrent instead of a majestic and fertilizing stream; who out of the in- gredients of sentimental and emotional fallacies mixed with the deleterious substances of envy and demagogy, would concoct a fantastic political and social system; who ignorantly and arrogantly scorn the beneficent work and the wise teachings of the great architects of ordered freedom. IV The individualism we believe in gives incentive to every man to put forth his best effort, while at the same time it recognizes fully the right and the duty of the MENACE OF PATERNALISM 247 State to impose upon business reasonable supervision, restraints, and regulations, to take measures destined to raise the general level of popular well-being, to protect particularly those least able to protect them- selves, to prevent exploitation and oppression of the weak by the strong and to debar privilege and unfair or socially harmful practices. And we further believe that in addition to, and over and above the limitations imposed by the State there are restraints which a man's conscience should impose upon his actions in affairs. Just as we heed the "still small voice" of conscience in our personal conduct, so must we harken to it and be controlled by it in our relations to Society and to the State. It is not enough to be "law-honest" or "money-honest," and the obliga- tion to make his actions square with the dictates of his "social conscience" increases in force and extent in proportion as a man's success and opportunities in- crease. I believe I am not asserting an unjustified claim when I say that the recognition of the place due to the "social conscience" is getting to be more and more developed in the business community. Few things have brought more harm upon the world than attempts, well meant or otherwise, to force man- kind into ways of thought and action to which the na- ture of the average man or woman does not respond. I am far from under-valuing the compelling impulse of the call of duty, the joy of service, the selfless zeal on the high occasions of life, but what we are ordi- narily dealing with are men's normal attitude, motives and reactions in the affairs of the workaday world. 248 BUSINESS AND ECONOMICS Experience has shown and common sense observa- tion confirms that, excepting such callings as men take up because of an "inner urge," from a natural bent or altruistic motives, or because they desire primarily po- sition, public office, or political power, the vast major- ity of people require, in order to put forth the maxi- mum of effort and of venturing, an incentive largely, though not solely, of a tangible kind. In an emergency, of course, at the call of the coun- try, every right-thinking man will not only forget all thought of reward, but will be ready for every sacri- fice. He will work and strive far harder than he would for his personal advantage and spend himself without limit, from motives of patriotism or public spirit. But under normal conditions other incentives are needed. And it must not be forgotten that legitimate individ- ual achievement, however gainful to the person con- cerned, means in the last analysis the creation of assets, tangible or otherwise, the resultants from which in va- rious ways redound to much the greater extent to the benefit and advantage of the community as a whole. Just as punishment is meant as a deterrent and a cor- rective, so individual reward is primarily intended as a stimulant and for social utility. It is bestowed not from tender solicitude for the recipient, but because of the recognition that the exercise of his faculties is of advantage to the community. The result aimed at and effectively achieved is to stimulate the energies re- quired for the world's work and progress and to en- hance the scope of activity of those who are endowed above the average with the capacities for creating or MENACE OF PATERNALISM 249 directing and to make that scope as near as may be proportionate to those capacities. The opposite way, that is the communistic method, has been tried over and over again, in various forms, and has failed invariably. I am far from saying that material reward is the only incentive to business effort. The prospect of and the ambition for attaining reputation, standing, influ- ence, the desire to be of usefulness and service, the zest of work and strife, the joy of creative effort, the fas- cination of matching one's qualities of mind and char- acter against those of others, count for much, but among the conglomerate of impulses which make men dare and plan and work to their utmost capacity, the hope of attaining material success is still one of the most effective. Nor is this wholly, or even mainly, a materialistic impulse. Individualism frankly denies that the world can be run on a theory which presupposes the existence of men- tal, moral and physical equality between men. Equal- ity before the law, equality of political rights — yes, equality of opportunity, as far as humanly possible — yes. But, an inscrutable Providence has bestowed upon His creatures, animate as well as inanimate, inequality of natural endowment, and from that springs and must necessarily spring inequality of results. ' Abstract justice is not in the eternal scheme of things. Why do some trees grow straight and mag- nificent, and others wither or are stunted? Why are some persons born with vigorous constitutions or with conspicuous talents and others not? Why is Caruso 2^0 BUSINESS AND ECONOMICS gifted with a voice which enables him to make as much money in one evening as the average artist gets for a year's work? Why do people willingly pay $10,000 or more to have a portrait painted by Sargent, when Tom Smith would gladly accept $100 for making their picture'? Why are some endowed with the privilege of understanding and appreciating art and deriving a wealth of joy, recreation and inspiration from it — a privilege which I personally would not exchange for any amount of money — and many others not? A lady said to me the other day: "It makes me angry that Mr. X should live in that splendid house, while I have only a simple flat. Such inequalities ought not to be allowed. It is not fair that he should be thus favored." I answered: "Is it fair that you happen to be good to look upon and bright and attrac- tive to talk to (all of which she was), while some oth- ers of your sex, pardon the ungallant observation, are plain or dull? Because of this gross inequality, gall- ing as it must be to some of those less favored, do you think there should be a law providing that all women must go veiled and have other appropriate restraints put upon the power of their attractiveness? Do you realize that if all incomes above $100,000 were con- fiscated, as has been urged by some, and which in your present frame of mind you would presumably favor, the resulting sum would barely cover our war expendi- tures for one month? Do you know that if all in- comes above even $10,000 were taken and distributed among those earning less than $10,000, the result, as far as I can figure out, would be that the aggregate in- MENACE OF PATERNALISM 25 1 come of those receiving that distribution would be in- creased barely ten per cent.*?" I used various other ar- guments and examples, not without interruption and rejoinder on her part. I do not flatter myself that I succeeded in converting her, but I believe when we parted she was a little less sure than before that Mr. X ought to be turned out of his fine house forthwith. The sound common sense of the plain people, health- ily skeptical of the fancies and theories of "advanced thinkers" or the catch-phrases of agitators, may be trusted, fortunately, to look through the folly of at- tempting to force into a mold of equality that which nature has not created equal. Watch a gang of laborers at work and see with what lack of ceremony the foreman deals with the subject of abstract "equality." Even Lenine, that sinister arch-apostle of enforced equality geared to the standard of the lowest level of class selfishness, made the following admission in an official pronouncement to his followers, in April last, embodying one of the lessons which he learned in the sixth month of his disastrous and blood-stained rule: "We must purchase the services of a thousand first class scientists, specialists and managers, and even though we pay each of these capitalist stars 25,000, 50,000 or even 100,000 rubles a year, they will be cheap at that price." How much in dollars and cents, not to mention in comfort, enjoyment and contentment, is it worth, for instance, to the people that Mr. Ford's genius in or- ganizing and manufacturing has brought the automo- 252 BUSINESS AND ECONOMICS bile within reach of those with modest incomes? I have complete confidence in the sober common sense of the American people. I believe that when they have been placed in possession of adequate in- formation, when the pros and cons of a proposition have been fully discussed before them and by them, they can always be relied upon to reach sound conclu- sions. I am convinced that, while earnestly and de- terminedly contending for social justice and progress and the greatest attainable diffusion of well-being, con- tentment and opportunity, they are not prepared to abandon the principles and underlying features of a governmental and social system which has created out of the heterogeneous elements of our population a strong and great, self-reliant and enterprising race and procured for the people prosperity and other advan- tages superior on the whole to those possessed by any other nation. They will not, I feel assured, permit Americanism to be adulterated by a spirit or by methods having kin- ship to either world-destructive Prussianism or self- destructive Russianism. They will not, I am certain, cast aside knowingly the theories and principles of in- stitutions which we inherited from the wisest and most enlightened body of men that ever met in deliberative assembly and which are the envy and admiration of the world, in exchange for a regime of bureaucracy, paternalism, socialism or bolshevism. And these institutions, the most perfect embodiment ever conceived of a true and workable democracy, are based upon the great principle of individualism be- MENACE OF PATERNALISM 253 cause the illustrious men who framed our fundamental instrument of government were led by a deep insight into and a wonderfully sagacious recognition of the trend of human affairs and the springs of human ac- tions. They indeed made America "safe for democracy." Let us beware lest in aiming "to make the world safe for democracy" we permit the safety of democracy in our own land to be jeopardized by having the founda- tions tampered with, on which it has rested for a cen- tury and a half. By all means, let us be open to new ideas, let us go forward and strive to realize what for- merly were considered unattainable ideals, but in boldly venturing forth upon uncharted waters do not let us throw overboard the compass of immutable prin- ciples. V The menace which I see is not in the deliberate will of the people, but in the fact that under the emotional stress of war, under the patriotic impulse of the time, under the actual or fancied necessity of the war situa- tion, tendencies are tolerated and modes of thought and action permitted to gain a footing unopposed, which are apt to create very serious problems upon the return of normal conditions. The menace is aggravated by the fact that from a thoroughly laudable and patriotic desire to sustain the Nation's spokesman and chosen leader in the formi- dable difficulty and responsibility of his task of con- ducting the war, we are all reluctant to raise controver- 254 BUSINESS AND ECONOMICS sies, and most of us would rather swallow our convic- tions in silence, at whatever discomfort to our mental digestive apparatus, than place ourselves in a position where our patriotism may be doubted or our motives suspected to be those of a selfish concern for our indi- vidual or class interests, in a time when selfishness is almost treasonable. In what I am going to say I wish very distinctly and earnestly to disclaim any intention of criticising our present Government. It would be most unbecom- ing and improper to do so before this non-partisan gath- ering in which politics can have no place. What I mean to bring out is not any sins of omis- sion or commission of the present Administration, but unavoidable frailties and shortcomings which are in- herent in the very essence of all government and which emphasize the need, particularly in a democracy, of confining the business functions of government to ac- tivities which private enterprise cannot undertake equally as well as or better than the State, or which, in the interest of the maintenance of free institutions, private enterprise ought not to be permitted to under- take. Liberty necessarily limits governmental efficiency. That is part of the price which we pay for freedom. We do not begrudge the price. We are prepared to pay any price for the supreme blessing of being free men — if necessary, even the price of our lives, as many of those did who procured for us the great legacy of lib- erty. But why unnecessarily bid up the price against ourselves by extending the scope of governmental ac- MENACE OF PATERNALISM 255 tivities beyond the field which naturally belongs to them ? Government, in its very essence, is the negation of competition. It is, by the very fact of its being, what- ever its name or kind, the monopoly of ?nonopolies. It cannot but be affected with those shortcomings which spring from the absence of competition and the exercise of monopoly. Why, then, should a people which rightly discountenances monopoly and rightly believes in the principles of competition, enlarge the operations of governmental agencies further than is required for the recognized purposes* 1 which a free government is meant to serve? I do not fail to recognize that certainly during the period of reconstruction, and probably more or less permanently, both here and in Europe, the scope of State activities is bound to increase and that govern- ment must concern itself with, and intercede in, mat- ters which heretofore were left entirely to private en- terprise. But this concern and intercession should be such as not to eliminate, or lame, private enterprise, but to make it more effective. In this respect we might learn from the enemy through a careful study of the methods followed in Germany before the war, some of which are worthy of adaptation while others must be rejected as being in contrast with our conception of right and morality. Nor do I fail to recognize, but, on the contrary, I welcome unreservedly the prospect that in the times which will follow the profound upheaval of the war, the standard by which men will be judged and re- 256 BUSINESS AND ECONOMICS warded will be, more strictly, exactingly and far- reachingly than heretofore, that of work done, duty performed, service rendered. The world will have no place for idlers and social slackers. Rank will reside not in birth or wealth — neither, I trust, will it reside in an office holding caste — but in useful achievement. The tremendous event of the war will not leave the world as it found it. It will never be quite the same again. To the extent that social and economic insti- tutions, however deep and ancient their roots, may be found to stand in the way of the highest achievable level of social justice and the widest attainable exten- sion of opportunity, welfare and contentment, they will have to submit to change. And the less obstructive and stubborn, the more broadminded, co-operative and dis- interested those who pre-eminently prospered under the old conditions will prove themselves in meeting the spirit of the new day and the reforms which it may justly call for, the better it will be both for them and for the community at large. VI All extremes meet, as the French saying is. From governmental paternalism to socialism is not a very long step. To enter into a discussion of the fallacies of socialism or of its limited form, known as state so- cialism, would take far more time than even your kindly indulgence would grant me. Suffice it to say that the discoverer of the socialistic creed was a Ger- man and that it bears all the earmarks of the German MENACE OF PATERNALISM 257 passion for cataloguing and scheduling and ordering men and things in a rigid and cast-iron way. The socialistic conception is characteristic of the Ger- man trait of looking upon human beings mainly as state material, of failing to appreciate and respect the pas- sion for freedom among men and nations, and of the German's fundamental lack of enlightened insight into the currents of human nature — especially non-German human nature — which national defects are among the principal actuating causes that led Germany to look upon this war as a winning venture instead of recog- nizing it as the colossal crime which it is and the equally colossal folly which it was bound to be for Germany in its ultimate consequences even if it ended in victory instead of, as it will, in defeat. It would be futile to deny that some of the credit for the advance which has been made in the last half century, through legislation or otherwise, toward social justice and toward the amelioration of conditions which the conscience of the world ought never to have toler- ated, belongs to socialist suggestion and agitation. To the extent that aims and measures advocated by So- cialism may still be found to make for the promotion of public welfare as distinguished from selfish and nar- row and ill-conceived class interest, they will not fail to achieve recognition. It would be equally futile to shut our eyes to the fact that not a few of the danger- ous and insidious fallacies of Socialism have taken root among individuals and sections of the American peo- ple, that are far from subscribing to its program as a whole. 258 BUSINESS AND ECONOMICS These fallacies present an issue which will have to be squarely met and I believe can be successfully met, as the fallacy of "free silver" was squarely and suc- cessfully met some twenty years ago. But I see all the less reason for testing your pa- tience with a general discussion of Socialism, as I am convinced that we are not now confronted with the serious possibility of the approval by the American people of the tenets and the program of regular So- cialism, as expounded by its recognized leaders whom the test of war has exposed as utterly un-American, to say the least. It is true that a goodly number — indeed too many — of the fraternity of "intellectuals" for a variety of reasons, some deserving of respect and some less so, are flirting with or have succumbed to Socialism, and that too many of our youth in institutions of learning have surrendered to its seductive appearance, but the bulk of our people recoil from it and the majority of those composing our labor unions, under the leadership of Mr. Gompers, appear to have recognized it for the out- landish thing it is and have thus far rejected its blan- dishments. As Mr. Gompers finely said in one of Lis speeches a number of years ago : "I want to tell you Socialists that I have studied your philosophy; read your works upon economics, and not the meanest of them ; studied your standard works both in English and German — have not only read, but studied them. I have heard your orators and watched the work of your movement the world over. I have kept close watch upon your doctrines for thirty years; MENACE OF PATERNALISM 259 have been closely associated with many of you, and know how you think and what you propose. I know, too, what you have up your sleeve. And I want to say that I am entirely at variance with your philosophy. I declare it to you, I am not only at variance with your doctrines but with your philosophy. "Economically, you are unsound; socially, you are wrong; industrially, you are an impossibility. . . ." No lightning will come, I believe, out of the thun- der-cloud of real Socialism, for the present. VII The menace, however, of bureaucratism and semi- socialistic paternalism with their insidious effect upon the very fibre and marrow of the race, confronts us now, and it is none too early, even in the midst of the all-absorbing drama of war, for business men to take a stand against their perpetuation in times of peace. Our British business comrades have pointed the way. Let me quote the following passages from a public pronouncement recently issued in London : "The sure and certain result of the present policy, if persisted in, will be neither more nor less than the utter ruin of the established business of a very consid- erable section of the community, a section noted for its energy and enterprise, and the jeopardizing of our whole foreign commerce by the deliberate scrapping of the organizations of proved efficiency and adaptability through which it has hitherto been conducted, and the substitution for these of an immense bureaucratic or- 26(3 BUSINESS AND ECONOMICS ganization, which will certainly kill all individual in- itiative and enterprise. . . . "The Iron, Steel, Tinplate, and Metal Merchants of this country, recognizing the serious state into which the nation's trade is surely drifting, have formed them- selves into a Federation. . . . They invite the other classes of the merchant trading community to form similar federations with the same objects. . . . "They consider that these Government departments, which were set up for war conditions only (and which would not otherwise have been tolerated for a week), desire, if possible, to perpetuate their existence, and if they are allowed to have their way now they will wreck the whole system upon which our world-wide trade has been built up and established." It may be stated as an axiom that while bureaucracy and efficiency may go together under an autocratic regime, it is impossible in the very nature of things for bureaucracy to go together with efficiency in a democ- racy. Nor, indeed, can paternalism and liberty exist side by side. "But how do you reconcile," I may be asked, "this statement with what you said a little while ago about the efficiency of our democratic army'?" My answer is that the efficiency of our Expedition- ary Force (I spoke of our army in Europe, not of the Bureaus at home, with the workings of which I have had little occasion to familiarize myself) is not a con- tradiction of, but a confirmation of my thesis. Indi- vidual responsibility, rapidity of decision, obedience, discipline, esprit de corps, unquestioning submission to established authority, complete merging of self in the MENACE OF PATERNALISM 26 1 task on hand are the very essence of military service in war time. The rule, and, generally speaking, the practice is promotion according to merit, selection ac- cording to qualifications. Political pull and interfer- ence have been notably absent since our army took the field. Were these things not so, the army could achieve little, whatever the bravery of all ranks. Will any one say that this is a picture of the habitual frame of mind and disposition of our civilian popula- tion or of the practices of our Government, Demo- cratic or Republican, in ordinary times'? We all know it is not, and it never will be, a life- like picture of us in our normal state. "Never" is a big word, but if the experience of many centuries may be taken as a guide, it may safely be applied to cer- tain essential qualities of human nature, excepting tem- porary conditions when, under the impulse of a great emergency, the floodgates of what is highest and no- blest in man are opened and the mighty current carries us along to regions not ordinarily within our power to attain. What are the elements which compose our govern- mental agencies — executive, legislative and adminis- trative — including those instruments of government which of late years have become more and more nu- merous and important, i.e., commissions and boards'? Far be it from me to wish to reflect upon the ability, the character and the motives of our public servants in general. Indeed it is my conviction that, generally speaking, their standard of capacity, industry, devo- tion to duty and conscientious effort to seek the right 262 BUSINESS AND ECONOMICS and to promote the people's welfare is deserving of a good deal more recognition than is usually accorded to it. But, surely, no candid estimate would claim that acquaintance with, and experience in, handling large business affairs — let alone international business affairs — are prevalent in normal times among those in executive, legislative and administrative offices in our country. Now, you and I, who are trained in business, have all we can do to conduct our respective concerns and personal affairs with a fair measure of success. On what ground, then, can it be assumed that by becom- ing endowed with the dignity of a governmental ap- pointment, men of average or even much more than average ability will develop the capacity to run suc- cessfully the huge and complex business undertakings which the devotees of paternalism would place in their charge? I know, of course, the arguments of the preachers and prophets of governmental assumption of divers functions heretofore belonging to private en- terprise. I know their denunciation of what they con- sider the selfishness, the greed, the oppression, the eco- nomic waste and social injustice of the established or- der of business, and the sweeping conclusions they draw from the scandals or abuses which, from time to time, in sporadic cases, have unfortunately demeaned the conduct of such business. But granting some, granting, for argument's sake, many or even all of their allegations, would a regime of paternalism and bureaucracy afford the remedy? Do they find support in history, ancient and modern, MENACE OF PATERNALISM 263 for their plea? Have our city administrations (and to run a city is essentially little different from running a business organization) been such as to show superi- ority over, or equality with, private enterprise? Has the management of our postal department, which is purely a business proposition and an easy one at that? Is it conceivable that an army of Government clerks such as a bureaucracy would have to create, with its deadening routine and its absence of incentive, could come anywhere near equalling in efficiency and initia- tive the private employees stimulated by the inevitable and never-ceasing search and demand for capable men, which is bound to bring the ablest to the top in private business and to reward them with position and com- pensation? Has our civil service brought men to cabinet or other leading positions as the great majority of our leading men in business have risen from the ranks? Has the State anywhere or at any time produced re- sults comparable with the best of those produced by private effort, taking into account both efficiency and economy? Have its officials shown themselves amen- able to new ideas? Have they encouraged or even recognized new inventions? Have they fostered initia- tive? I do not wish to weary you with a string of sim- ilar questions which could be prolonged to almost in- finite length, and the answer to all of which is em- phatically "No." Bureaucracy is either wasteful, stagnant and ineffi- cient or, when it is efficient, as in Germany, ruthless in 264 BUSINESS AND ECONOMICS its methods, obnoxious in its spirit, and morally poison- ous in its effect. Bureaucracy resents progress, vision and innovation because these are disturbing and an- tagonistic to the very essence of its being — routine. An English writer has pointed out as a characteris- tic fact that Columbus was disbelieved, turned down and sneered at by all the bureaucracy of his day and country, and that it was two private patrons who en- abled him to realize his vision. Bureaucracy has hardly changed since then in its essentials. In our own case the soil for the growth of the nox- ious weeds which spring from the seed of bureaucracy is particularly fertile, for a variety of reasons. One of them consists in the fact that our capital city is not, as are the other principal capitals of the world, a great commercial city, but is located, figuratively speaking, on a back-water, away from the great and fast flowing currents of commerce and industry and their attend- ant activities, and out of contact with the doers of things. The result is that Washington is heavy with the at- mosphere of politics and pervaded, as no other capital I know, with the spirit and the very odor of things governmental. We are all more or less creatures of our surroundings, and instances will occur to most of you of the changes which the atmosphere of Wash- ington has wrought upon men whose mental processes and tendencies of thought and action we thought we knew thoroughly well and whom we believed proof against such influences. Another thing, more or less peculiar to our political MENACE OF PATERNALISM 265 ways and fatal to the attainment of governmental ef- ficiency of a high order, is the custom of changing officials with a change of administration. Of course, a great many Government employees are protected in their tenure by civil service rules, but a considerable number — and those the most important ones — are not. Moreover, because of the lack of scope for their am- bitions, the insufficiency of material incentive, the vexa- tions of red tape and for sundry other reasons, it is a well-known fact that, generally speaking, many of the best men do not remain in the Government's service for any great length of time, while the less competent, and particularly the least competent ones, hang on forever, snugly fixed in governmental berths. This is precisely the reverse of the ways of private business, these ways being continuity of direction and policy, incentive and reward and permanency of ten- ure for the man of ability, and weeding out of the in- competent ones. A characteristic instance of the protean changeable- ness of governmental bodies is afforded by the Federal Trade Commission. This institution, which was cre- ated but four years ago, is charged with functions for the effective fulfilment of which stability of personnel and consistency of policy and program are absolutely essential. Yet, not a single one of the original ap- pointees remains today on the Commission. Its policy, methods and conceptions have been utterly and rad- ically reversed in the space of a few years. An American bureaucracy, if paternalism were to be permitted to strike root in our country, having the cen- 266 BUSINESS AND ECONOMICS ter of its being in Washington, would be apt, there- fore, to become a most characteristic sample of the foibles, defects and drawbacks which the bureaucratic species is heir to. Even under existing conditions, with the quickening effect of war upon administrative activity, the time and effort spent by business men in traveling to what for the present has become the center of all dispensa- tions — Washington, — in hanging around departmental bureaus, seeking the man or the committee authorized to make decisions, trying to get attention and action, and so forth, amounts to an appalling total of lost energy. A recently published report by one of the Senate committees contains the following passage, de- scriptive of the workings of bureaucracy : ". . . . functions, ill-defined, conflicted with or overlapped each other. Contractors, inventors, ma- terial men, every one having business, . . . directed from one official to the other, could not well transact their business and secure results with directness and efficiency. While this condition seems to be inseparable from official business routine in Washington, etc. . . ." As bearing upon the question of transferring busi- ness functions from private control to Government con- trol, I need hardly enter into the subject of the vastly increased cost which such a transfer would involve, because governmental extravagance and costliness of method have become proverbial. It was Senator Aid- rich — a man in the habit of weighing his words — who said, on the strength of many years' experience with, and observations of, public affairs, that if our govern- MENACE OF PATERNALISM 267 mental expenditures could be administered on the prin- ciples and methods prevailing in private business, the cost to the people could be reduced by three hundred million dollars a year. Bear in mind that this was said at a time when our expenditures were normal, and then apply it to expenditures immensely enlarged. VIII To win the war and to deal with the problems in- cident to, and resulting from it, bravery and patriotic devotion alone are not sufficient. Reason must check emotion, reflection must curb impulse. Sober and ear- nest thought is called for and the moral courage to speak one's convictions, with the sole limitation that they must be the convictions of a loyal American and not such as are calculated when uttered to give aid and comfort to the enemy or such as tend to weaken the nation's war effort and determination to achieve com- plete victory. It is easy to float with the prevailing surface cur- rents of the day, and tempting to attune one's utter- ances to sentiments which are sure to meet with popu- lar applause. But the value of an exchange of views lies in the difference of views honestly held and pre- sented. It is through free discussion, through the meeting of conflicting opinions in the public forum, that the truth is sought and ascertained in a democracy. Truth is a stubborn and exacting thing. She will respond neither to the stormy wooing of the visionary nor to the more subdued call of selfishness. We busi- 268 BUSINESS AND ECONOMICS ness men shall not be accused of following visionary aims. Nor, on the other hand, are we any more selfish than is inherent in the imperfections of average hu- man nature. But what the time imperatively calls for is that we rise above our normal selves, that to the best of our conscience and ability we cast aside self- interest and class interest and that we merge ourselves in the great and high task to which the nation has set its hand. It is with a full appreciation of this obligation rest- ing upon every one of us — and especially those of us who for the moment are permitted to speak publicly to and for business men — and with an earnest desire to meet this obligation to the best of my conscience and judgment that I have reached the views and con- clusions which I have ventured to express before this influential body. The other day, I heard a distinguished labor leader make a statement which, as far as I have retained it in my memory, runs as follows : "I have always done, and shall always do my ut- most to bring about the maximum of democracy, of social justice, and of opportunity for all and to estab- lish the very best possible conditions for the masses of our people, to the extent that these things do and can conform to the practically attainable at the time with- out doing more harm than good. To the extent that they are not so attainable, I am willing to discard them or defer them to a more propitious time." I wholly subscribe to this promise and I do not see how any genuine adherent of democracy and MENACE OF PATERNALISM 269 well-wisher of humankind can fail to subscribe to it. A few days later I came across an article by that gifted and clear-thinking statesman, Senator William E. Borah, in which, referring to tendencies which would make of the United States "a Republic in form but a bureaucracy in fact," he uses the following language : "It may be possible to devise some system of govern- ment more deadening to individual initiative, more destructive to human progress, more burdensome to the people than a bureaucracy, but so far God, in His infinite mercy, has not permitted it to curse the human family. Up to date, the worst of all forms of govern- ment is a bureaucracy." And to that also I subscribe. The picture of bureaucratic paternalism fastening its shackles upon a nation, which went to war to preserve liberty, is not a fanciful one. Through the accident of war, paternalism at present rules supreme. That is inevitable in war time. The one and supreme task before the nation is to win the war. No personal or business consideration must be permitted to stand in the way of the necessi- ties of that task, and no one must for one moment hesi- tate to submit to them. We are not criticizing or complaining of the present facts, we are thinking of the future. Officialdom is in possession. It is entrenched in power beyond what it dared to hope for in its fondest dreams. And power is sweet. Officialdom and those who feed at its table will not easily give it up. It is but human nature that they should come really to believe and endeavor to induce 270 BUSINESS AND ECONOMICS the people to believe that it is for the best to leave in the Government's charge permanently much of that which has been confided to it in the stress of the emergency of war. Bureaucracy has, and will have, an array of plausi- ble arguments to support its plea. I heard a Govern- ment official claim dramatically in the course of a speech before a great meeting: "If such and such a measure is good enough for us to adopt in war times, when our sons and brothers are offering their lives abroad, why is it not good enough for us to continue to have in peace time, when our sons and brothers will again be leading their lives in our midst?" The answer is, of course, that war is, fortunately, an utterly abnormal condition and that much of what is appropriate and needful in war times is inapplicable, harmful and even pernicious in peace times. But the answer was not given, and the orator's question was greeted with approving applause. Paternalism, under a variety of names and disguises, will have the support of the vast army of those who live or hope to live on its huge patronage. It will have the support of the popularity-seeker, the opportunist and the demagogue ; of many who are rightly desirous to further social justice, but do not go to the effort of painstakingly studying and critically examining in the light of reason and experience, the ways and means which are available to that end without doing more harm than good, and of some who are moved by envy MENACE OF PATERNALISM 27 1 (consciously or, more often, unconsciously) toward those who have been materially successful. It will have the support of numerous dwellers in air castles who want to see the world regulated and or- dered after the pattern of their dreams, and of the so- cialist who sees in the assumption by the Government of various functions heretofore left to private enter- prise, and of various regulating activities heretofore left to the free play of economic forces, the first step toward the adoption and realization of his full pro- gram. The movement will be countenanced by many who do not sufficiently appreciate, in the face of the lessons of all history, ancient and modern, that the only free government which ever has lasted, or ever can last, was and is a government which gives the broadest scope to the individual, limited only by equally broad but wisely conceived regard for the general welfare. Liberty means neither uniformity nor the rule of mediocrity. Liberty is strong enough and conscious enough of its strength not to fear but to foster individ- ual capacity. If political liberty is not the sum of in- dividual liberties, fairly ordered and reasonably re- strained, it is not liberty at all. It would be a tragedy, if it were to be permitted that while our boys are fighting for liberty, the great and splendid structure of ordered and enlightened freedom and covenanted individual rights, which was handed down to all Americans, should be invaded by that most insidious foe of liberty, paternalism, with its allies and close relatives, bureaucracy and socialism. 272 BUSINESS AND ECONOMICS It would be a grievous affliction if under the emo- tional stress and turmoil produced by war, our people were to tolerate doctrines to take a footing on our soil which their sober wisdom heretofore has scornfully re- jected as will-o'-the-wisps and as un-American. It would be bitter irony of fate if, while democracy triumphed on the bloody fields of war over that arch representative of the paternalistic system and spirit, Germany, our own governmental and social concep- tions and practices were to be infected with the Prus- sian poison of paternalism and bureaucracy. The illustrious men who founded the United States of America gave us the wisest instrument of govern- ment which the wit of man has ever devised. Glad- stone called it "the most wonderful work ever struck off at a given time by the brain and purpose of man." A great British jurist referred to it as "the bulwark of American individualism." Faith in individual effort, and the aim to give it incentive and protection are of its very warp and woof. Under that instrument this Republic, through test and trial and storm, has lived for near a century and a half — a space of time far longer than any other gen- uine republic has ever endured. While prospering ma- terially beyond all parallel, it has maintained high and noble ideals. While devoted to the arts of peace, it has preserved its sturdy virility and, whenever called upon, has splendidly demonstrated its undiminished martial prowess. It has been the land of opportunity,, beckoning to and drawing hither men and women from all countries of the world. MENACE OF PATERNALISM 273 We do not pretend that it has achieved perfection in its social conditions, we earnestly desire ever further progress toward that end, but we do claim that it has offered and offers to the masses of its people a fairer and larger field and more of reward and of well-being than exists anywhere else. It is the task and the duty of all men and women having a stake, material or spiritual, in the present and future of the nation, to resist those who would remove or loosen the cornerstone on which our institutions rest — individual effort. And among those who are called to that task and that duty, the business men of America have a leading place. We yield to none, either in the intensity of our pa- triotism or in the earnestness of our desire to bring about the greatest attainable well-being for all the people. We look ahead, after victory and peace shall have been achieved, to a forward movement, to an ever more widely diffused prosperity, to opportunities and achievements in the field of the material as well as of the ideal, such as has rarely fallen to the lot of any peo- ple, provided always that our country remains stead- fast to its tried and tested principles and time-honored traditions, wisely and fairly and progressively adjust- ing their application to the needs of the day. To that end, we must stand together, counsel with each other and work together. We must give voice to our convictions. We must become a militant phalanx in the cause of that which we profoundly believe to be right and wise and just and making for the greatness of America and the happiness and welfare of her peo- ple. 274 BUSINESS AND ECONOMICS We are living in a portentous time, big with the des- tiny of the world, for good or ill, for generations to come. The problems of the immediate future loom large before us. That nation which will best know how to combine the dictates of social justice with incen- tive and protection to individual effort will secure the prize of world leadership no less than of opportunity, well-being and contentment for the masses of its own people. Some fifty years ago, President Lincoln addressed these words to Congress : "You cannot, if you would, be blind to the signs of the times. I beg of you a calm and enlarged considera- tion of them, ranging, if it may be, far above personal and partisan politics. ... So much good has not been done, by one effort, in all past time, as in the Prov- idence of God it is now your high privilege to do. Ma3' the vast future not have to lament that you have neg- lected it." Our collective responsibility as well as the individ- ual responsibility of every patriotic and thoughtful American is heavy indeed in the face of the times and the signs of the times. Well may we pray that the spirit of that noble invocation and the tolerance and moderation, the deep human understanding and wise, dispassionate vision of the immortal American who ut- tered it, may lead and inspire the American people and those constituted by them in authority, in the trials of the present and the perplexities of the future. Well may we pray that we be vouchsafed the guid- MENACE OF PATERNALISM 275 ance of that spirit both in the solemn days of sacrifice and consecration through which we are passing, and in the high task of making fruitful, for the good of our own country and of all the world, the victory and the triumph which will crown our righteous cause. A: THE TASK AHEAD .BOUT eight months ago, I came back from a stay in England and France. It so happened that I re- turned on a transport, being convoyed only a short distance out, and it so happened that it was the month in which the German submarines were making the ocean voyage particularly unpleasant, because they were sup- posed to be roving right across the Atlantic from the European to the American shore. We had various reminders during the journey as to the disagreeable sea habits of the Hun. There were several alarms, and, al- together, it was not exactly a pleasure trip. However, we got home safely, and as we were being pushed into our dock at New York and I was standing around on the deck, waiting, a begrimed stoker stuck his head out of one of the gangways and began talking to me. With the unceremonious directness of the seafaring man, he started in : "Say, I hear you are one of them rich Wall Street fellows." I admitted that I had been reasonably successful and acknowledged that I was a Banker. "Well," he inquired, "would you have as much as a million dollars?" Thinking of the income tax and having in mind the disguises of Sherlock Holmes, I gave a carefully guarded reply. However, he took it for an affirmation and continued: "If I had a million An address delivered at the Twenty-third Celebration of Founder's Day at the Carnegie Institute, Pittsburgh, Pa., April 24, 1919. 276 THE TASK AHEAD 277 dollars I would not be seen on this ocean nowadays, where you might be blowed up any minute." "Well," I said, "I had some duties to attend to on the other side, and I had to go." He replied imperturbably : "If I had a million dollars, I would hire some one to attend to my duties for me." "Hold on, my friend," I said, "let's argue this a minute. I had a cabin amidships on the upper deck, with plenty of life-belts around me, right opposite one of the life-boats. If anything hap- pened, the chances were at least two to one that I would come off all right. You are down in the stoke- hole. If the Huns get the ship the chances are against you. You are quite liable to be hit or drowned. Now, from your appearance it is evident that you are beyond the draft age. You could get a good and safe job on land in a munition factory or somewhere else, paying you at least as much as you get now, probably more. Why do you stay on this ship 1 ? Why don't you quit such dangerous business*?" He looked straight at me and drew himself up and said, "Well, who would run the damned ships if we all felt that way*? I ain't no white-livered skunk. I have a duty to the country." And then we shook hands. THE KEY-NOTE Now, ladies and gentlemen, "Duty to the country" — that is the key-note. It was that sentiment gather- ing compelling strength and taking precedence over every other consideration with every true American, whatever his station in life, — it was that which gave us victory, which gave us, together with our heroic 278 BUSINESS AND ECONOMICS Allies, the triumph as the result of which autocracy lies shattered and whining at the feet of the free nations of the world. It was that sentiment of duty to the coun- try, which steeled our men when, in March, 1918, dur- ing the gloomy and trying days of the British retreat in Flanders, 600 American Engineers, who were not meant to be fighters, threw down their tools and took up rifles and, together with their British comrades, held a vital portion of the lines for six long and bloody days, un- aided by either artillery or machine guns ! It was that same sentiment which fired our troops when in the first important action by Americans in the war they took Cantigny and held it against fierce assaults over and over repeated, by German shock troops, particularly se- lected to give a lesson to those green, presumptuous Americans! It was that same sentiment which ani- mated our marines and other soldiers in the immortal fighting at Chateau-Thierry and Belleau Wood in the first week of last June. I was in France at the time, and I know that it is no vain boast when I say that that action, and the eloquent demonstration it afforded of American fighting qualities, marked the turning of the tide and set victory on its way. It was that same compelling sense of "duty to the country" which nerved our boys, many of them green recruits, with their Australian comrades, to break what was perhaps the most formidable part of the Hinden- burg Line, and which carried them through the terrible fastnesses of the Argonne Forest. And it was that sen- timent and that spirit which inspired everybody at the front as well as at home to patriotic devotion and will- THE TASK AHEAD 279 ing sacrifice — everybody except an insignificant few who were not spiritually Americans and therefore not actually Americans, whatever the place of their birth. Now, the Morning After has come ! It brings us a test of the staying power of our patriotism. The fire and the enthusiasm born of war are no longer with us. We no longer walk along the heights of the inspiration born of great and stirring events. We have returned into the valleys of every-day workaday life. Grave and immediate problems confront us. I do not say this in gloom. On the contrary, I never looked forward with greater assurance to prosperity and progress and enhanced well-being for all. The croaking of the pessimist, the noise and turmoil and the threats of the agitator do not frighten me in the least. But these problems do challenge our wisdom, our self-restraint and our capacity for purposeful, united action. One hundred and fifty years ago, America showed to the world the way to government of covenanted and orderly freedom. When this republic was founded, it was the only republic in the world that deserved the name. Its system of government, bestowed upon the country by the wisest and most enlightened men that ever framed an instrument of government, has been shown in the course of a century and a half to be more effective in making for the welfare and happiness of the people than any other. By adhering steadfastly, yet in a spirit of progress, to the doctrines and principles on which our institutions rest, we shall demonstrate once more the blessings and the benefits to all of or- 280 BUSINESS AND ECONOMICS dered liberty as bequeathed to us by the framers of the Constitution. But we must not rely too much upon what was done for us one hundred and fifty years ago. Nor must we place our dependence upon the boundless natural re- sources of the country. We must do some hard think- ing, and after we have done that we must have the courage to say what we think, whether it is popular or not. In the face of the impatient clamors of ultra- radical, impetuous world-improvers we must dare main- tain that many of the things that are, are right, being given that this is not Utopia, but a world of very definite limitations not of our making or choosing. The fact that the tremendous event of the war will not leave the world as it found it, does not mean that the world has been following the wrong track for a thousand years and that, to some of us, all of a sudden, has been vouchsafed the omniscience and the vision to make it over from the ground up. It is just because we are about to enter a period of searching and testing for the right, a period during which the glittering and plausible new will impetuously clamor for the place of the well-worn old, a period big with portents for the world's weal or woe — that it behooves us all to think and speak sanely and soberly and not yield to the temp- tation of floating with surface currents or to attune our utterances to shallow smatterings which give all too facile access to the reputation of being forward-looking, enlightened and warm hearted. But we must also realize that some of the things that are, are no longer fitted for the present day and THE TASK AHEAD 28 1 must be changed. We must carefully think what ought to be preserved, what ought to be changed, and how. Heretofore in this country, our path was a relatively easy one to travel. Since the Civil War we have not had any really difficult problem to tackle. All we had to do was to attend, with due diligence, energy and enterprise, to our own affairs, each one of us, and na- ture, our Constitution, the inherited things which were ours, did the rest. Now, we have got to give some seri- ous thought to matters of general import. The war has brought us face to face with new situations and new problems. We must not put our heads in the sand, we must not shirk them, neither must we be afraid of them. And I think the most urgent, the most important and indeed the most profitable business which we can do at this juncture, is to help bring about the right solution of those problems which are pressing for solu- tion, because on the right solution of them the welfare of every one of us, high or low, depends. The American people, the vast majority of them, want what is right and fair and just. We must sit down together and find out what is right and fair and just and making for the welfare of all of us. If we do that, we will not fail. The number of those who de- liberately want to do a wrongful thing is very small indeed. The number of those who deliberately say and feel: "Evil, be thou my God," is almost negligible. The vast majority not only want to do what is right, but are amply able to judge what is right, to judge wisely and sanely and justly, provided the pros and cons of a proposition are fully put before them. Now, 282 BUSINESS AND ECONOMICS that, I think, is the thing that we must all do, each within his circle and within the widest possible circles that he can reach, — reason together, try to find out what is wrong, try to find out how it can be righted, in good nature, in good feeling, with as much intelligence, breadth of vision, sympathetic understanding and dis- interestedness as we can command. Coming from general considerations to concrete ques- tions, time does not permit me to do more than men- tion and to discuss cursorily a few of them. Let me take a moment to warn you that I am not an orator — I am a business man ; but I do believe that we business men have a duty to come out once in a while and stand up in the public forum and say what we have to say, whether it be well or badly expressed, so long as we say it sincerely. The people will not ask from us great speeches — they are getting less and less interested in, or impressed by, oratorical display — but they will ask from us the truth, as we see it, the reasons we have for our beliefs, and the experience we can contribute to the problems of the day. Now, to come to the discussion of some of our prob- lems. GOVERNMENTAL ADMINISTRATION It is a pity that the Government did not see its way, during the war, to appoint a commission to deal with the various questions that necessarily would come be- fore us with the return of peace. Every one of us who was not qualified to be among the fighting forces was willing and anxious to serve in any capacity for which THE TASK AHEAD 283 the Government wanted us. If called upon, we would gladly have given our best thought and best strength in the effort to help to study, work out and prepare things, so that by the time peace came around a great body of preparatory work would have been done and a detailed and definite plan of action ready. And the inspiration of the war would have served to make these conclusions free from the promptings of self-in- terest or class advantage. However, it was not done, and we have got to take the situation as we find it. But the fact that it was not done indicates one of our prob- lems. In what I am going to say I am not referring to our present Government (it would be eminently improper if I injected any political note in this meeting), I am referring to all governments in free countries. The problem which I would indicate is that all such govern- ments — as, indeed, the people also — have the tendency to overestimate the virtues and effects of legislation and greatly to underestimate what I believe to be well- nigh the most important thing in government, namely, administration. We have an enormous estate to ad- minister, and while wise legislation is of course essen- tial, equally essential is it to administer that estate with a degree of care, economy, forethought and effectiveness measurably approaching at least that with which a man would administer his private estate. The fact of the importance of administration as com- pared to other functions of government was brought home to me forcibly — to quote only one instance — dur- ing my recent stay in England. There they appointed 284 BUSINESS AND ECONOMICS a Committee of Salvage. Salvage means taking things which were heretofore largely thrown into the scrap- heap and using them, remaking them, and creating values out of things which heretofore were considered more or less valueless. Mr. Andrew Weir (now Lord Inverforth), the Director General of Supplies, a most able man, who was in charge of that particular depart- ment, was good enough to show me through his offices and give me an idea of his system of operation. He told me that in a little over two years of his adminis- tration of this department of salvage, it had saved to the nation well-nigh $500,000,000. Instead of "saved" it would be more correct to use the word "created," for it was wealth which, in the main, simply would not have existed without the work of that committee. Five hundred million dollars in two years! Of course, that was in war, but to a considerable extent the same meth- ods can be applied in peace. Now, if you will bear in mind that we are a people twice as numerous and more than twice as extravagant as the people of Great Britain, you can imagine what could be done in this one field by wise and able administration, in the way of creating new wealth and making good the ravages of war. If we had a Federal Bureau of Salvage ap- plying systematically and thoroughly to Government expenditures and activities the lessons learned during the war in respect of the possibilities of "salvage" and acting in an informatory and advisory way to indus- tries and individuals (as the Department of Agricul- ture does in its field) I believe that the results would be of great magnitude. THE TASK AHEAD 285 Ours is not only an immense estate, but the most bountifully endowed, probably, of any estate in the world. Most of it must be developed and can only be developed to best advantage by private enterprise. Some of it must be developed, can only be developed by the Government. There is a vast field here for ad- ministration and for results which would be of the utmost value to the people, and that field should re- ceive far greater and far more thorough care and atten- tion by those charged with the responsibility for gov- ernment than it has received in the past. But quite apart from these potential developments, efficiency and economy in the administration of the every-day affairs of the Government are of a good deal more direct effect upon the well-being of the people than the great majority of legislative enactments. And especially in view of the ever-increasing sphere of gov- ernmental activity, it has become a question of genuine and immediate concern that an adequate standard and up-to-day methods of administration and governmental housekeeping shall be insisted on and secured. Administration, of course, includes appointments, i. e., the instruments of administration. I am not suf- ficient of an idealist to believe that it is possible in the future to make appointments irrespective of party con- siderations and to select the best man obtainable for every position, regardless of whether he is a Democrat or a Republican, or even a Non-Partisan Leaguer, or whatever it may be. That would be an idle dream. You must make allowance for human nature, and con- cede that a considerable number of appointments under 286 BUSINESS AND ECONOMICS our system of government will go to the workers of the party in power and to their friends. But, surely, appointments of essential importance, especially where those appointments touch the very delicate and complex machinery of business, should be primarily influenced by the question: "Is the man selected the most com- petent man available for the task — at least the most competent man available within the party 1 ?" I think the public should insist more than heretofore that that function of administration which consists in selecting men for these difficult, weighty and big tasks, the tasks, for instance, which are entrusted to the various com- missions that have more and more come to be a feature of our governmental methods, must be exercised with greater regard for the qualifications which these posi- tions require. I think public opinion should be stimu- lated to a realizing sense of the fact that to appoint men to exercise important functions for which they are not qualified, is a serious dereliction of duty and a wrong against the people. Let me emphasize that I am not now referring to any particular appointments, but simply speaking in a general way and pointing out a general weakness of our governmental administration as it has existed in this country for many years. It is little short of a fraud upon the public to appoint to a position of influence and potency and to pay out of the people's money, a man who is not of proven competence and fitness for dealing with the functions which are entrusted to him. The recognition of this fact, and the insistence upon a proper standard of at least the more important ap- THE TASK AHEAD 287 pointments are going to be more and more needed as the functions of the government bring it more and more in touch with the business affairs of the nation and with problems of international importance. It was in view of these considerations that the fram- ers of our Constitution, both Federal and State, wisely provided that appointments must be ratified by the Senate, and it is greatly to be hoped that these bodies in the States and the Nation will more and more come to exercise scrupulous care in investigating and passing upon the qualifications of men appointed to important offices. TRADE Another problem is that of trade, which of course embraces a great many things. The principal legisla- tive enactments which pertain to our trade were, gen- erally speaking, devised a number of years ago, or at least the principles which underlie those laws are those of a number of years ago. Since then the world has changed and we have grown enormously. We have outgrown many of the things with which the laws clothed us years ago. When we stretch ourselves we almost burst our jackets. We must be given new clothes, better fitting our present stature. During the war, the Government, recognizing that business was so hampered by restraining laws that it could not move freely, in practice set aside these laws to a large extent, because it realized, and realized wisely, that in that emergency business simply had to move freely, and that maximum production and the most efficient pro- 288 BUSINESS AND ECONOMICS duction could not be obtained under the operation of some of these laws. And such production was abso- lutely needed under the pressure of war. But it is likewise necessary in peace. It is only production, maximum production, efficiency in produc- tion, and production on an economical basis, which will enable us to make good the ravages of war, to go ahead with full speed, to compete in the markets of the world, to pay high wages, and to meet the problem of the high cost of living. The object of most of the laws to which I refer is entirely right. The object of the Sherman Law is entirely right. But they must be modernized, they must be brought into conformity with the needs and the developments of the day. They were made, many of them, to meet conditions which no longer exist in this country and which I don't believe will exist again. Some of them were enacted in anger, some are punitive in character, some were passed for political effect more or less. A general revision is needed of the policies and methods of our legislation appertaining to busi- ness. We business men realize that the path must lead onward and upward. We have more and more come to recognize within the past dozen years that some practices formerly sanctioned by long usage are no longer in accord with the conceptions of the times, socially, economically and ethically. More and more we have tried, steadily and progressively, to translate this recognition into action. We willingly concede rea- sonable, fair and constructive governmental supervi- THE TASK AHEAD 289 sion. We do not want governmental coddling. We ask no favors from the Government. But neither do we want nor need to be kept in leading strings or to have a policeman at our elbow. In conjunction with our general trade let me touch upon the very important problem of export trade. If we are to keep active the vastly increased capacity for production which we have created, we must have an outlet for our surplus products, for that part of our products which can not be absorbed at home. That is needed at least as much for the benefit of our farmers and workingmen as for the benefit of business. Ex- port trade is usually a difficult branch of trade, and it is going to be doubly difficult now because the European nations very naturally will strain every nerve to gain export trade themselves, and because while Europe will need some of our goods more urgently than ever before, Europe has got nothing to pay us with and will not have anything to pay with for a long time to come except goods of its own and loans, and such investment opportunities as it can offer to American capital. It is absolutely necessary that we find means to enable Europe to trade with us. That is not only necessary from the utilitarian point of view, but it is our plain duty, from the humane point of view, to lend Europe a hand, and it is manifestly called for from the point of view of aiding to establish order, restore normal processes of activity and avoid dangerous stress, strain and turmoil throughout the world. We have got to give these peoples the means to buy from us. That means that we have got to establish a credit machinery, 2QO BUSINESS AND ECONOMICS that we have got to find ways to extend credit facilities to Europe, vastly beyond the scope now provided for. That also holds good, though to a lesser degree, in re- spect of a number of the nations in South and Cen- tral America, and elsewhere. The merchants of all these nations are used to deal- ing on a credit basis, and long credits at that. Ger- many used to give credits of almost unlimited duration, and if we want to have our share of trade in the mar- kets of the world, as we must, we have got to see to it that adequate loans or credits are afforded our foreign customers without throwing the burden and the risk entirely upon the individual business man or the indi- vidual bank, at least during the transition period from a war to a peace basis. It is a very urgent problem, and while its solution is mainly "up to" private initiative and enterprise, it does call for Government co-operation to the extent, at least, of moral administrative support and appropriate legislation. It ought to have been prepared for during the war. It must now be tackled without delay, or great harm is apt to ensue. The fall in the rates of for- eign exchanges is ominous. Export trade once lost is exceedingly difficult to recover. Another question which enters largely into our ex- port trade is our shipping policy. It is a vital thing that a far larger portion of our trade than heretofore be carried in our own bottoms, that we establish ship- ping lines, that we do not depend upon the good-will and the consideration and convenience of other nations. The Chairman of the Shipping Board, Mr. Hurley, the THE TASK AHEAD 20)1 other day put forward an important and interesting program for dealing with that question. I am frank to say that I have not sufficiently digested it — -it is a large and far-reaching plan — to express an opinion about it, except to say that in at least one main feature it fol- lows lines of which the business community will cor- dially approve. I refer to the return of shipping to private operation and the withdrawal of Government from that field of commerce. THE RAILROADS And that brings me to the matter of the nation's policy and laws in respect of the railroads, which in- cludes the question of government ownership and opera- tion of the railroads. Somehow or other, there seems to be a special Providence which watches over this country. It lets it make mistakes, because mistakes reasonable in quantity and quality are salutary for a country as they are for an individual, but keeps it from making vital, fundamental mistakes. One of the evi- dences of that Providential favor I see in the fact that we have had a taste of government operation of rail- roads before having so deeply and definitely committed ourselves to it as to make it very difficult to retrace our steps. Three years ago, I believe, the majority opinion among railroad men was an almost fatalistic belief that government operation of railroads was bound to come, because the people, taking at their face value the promises and prophecies of those who advo- cated it, would insist on having it. It might be delayed but it could not be prevented. 292 BUSINESS AND ECONOMICS Well, the people have seen the thing in operation; I don't think they want it any more. I believe they have recognized that when the Government undertakes business, the result usually is that it does indeed be- come an "undertaker." The American people have the capacity of learning with extraordinary quickness, and when they see a thing concretely before them, they know what is what. You can not fool them by a name, except when and as long as they don't quite realize what that name means. But when they have seen before their eyes the thing which that name signifies and have had experience of its working, it does not take them very long to determine whether they want to keep it or discard it, however potent the spell of the name used to be, looked at from a distance. Now, I am quite certain that the majority of the people have realized from what they have seen in the past eighteen months that government operation of railroads can not give them the facilities, the eagerness of service, the cheap rates and the progress which private initiative and enterprise and competition have heretofore given them and stand ready to give again. We have observed the same thing very conspicuously in the assumption by the Government of the operation of telephones which was admittedly conducted admir- ably under private management. The Government has retained the same managers as formerly, the same heads of departments, the same bright and eager telephone girls. Pretty much the same individuals are at work now as formerly. It must be admitted, in fairness, that the exigencies of the war have affected, to a certain THE TASK AHEAD 293 extent, the personnel and the plant, but apart from that, nothing has changed except that the blight of government control has fallen upon the service — and that has meant increase in cost and, as we all know- to our exasperation, very distinct deterioration in ser- vice. There you have the fact as against the theory. The business functions of government should be con- fined, in a free country, to doing those things which private enterprise either can not do equally well, or which, for reasons of public policy, private enterprise ought not to be allowed to do. It is not compatible with the spirit of our system and methods of govern- ment that the Government should run the railroads. It is not in the interest of the country that it should do so. It is unable to do so anywhere near as efficiently and economically as private enterprise. And — I say it without meaning to throw blame upon any one, and not for the purpose of criticizing — it is not compatible with our system of government, indeed it is not com- patible with liberty, that any one man, however wise and however right-thinking, or any executive depart- ment, should have the power to say to three million of workmen, "I will increase your wages $800,000,000 a year, or $400,000,000, or $200,000,000, or not at all." That is a power which no one individual or depart- ment ought to be permitted to exercise or can safely exercise in a republic where every man's vote is assumed to be free and uninfluenced. Fortunately, all indications seem to show that the solution of the railroad problem is going to be ap- proached with calmness and good feeling and in the 294 BUSINESS AND ECONOMICS light of the lessons which the country has learned during the period of government operation. We do want to have the railroads run for the benefit of all the people, and not for the benefit either of Wall Street or of any favored concern, or even of the Railroad Administration or any other governmental department. We do want laws which will enable the Government to exercise supervision and regulation, strong and comprehensive, but fair and constructive, not punitive or strangling. We do want those features of operation which, under government operation, have proved advantageous and convenient to the public, to be preserved, at the same time that those features of legislation and administration which experience has shown to be unduly and unwisely hampering, are abolished. And after such legislation shall have been devised and passed as will carefully and effectively safeguard the public interest and be fair and reasonable all round, the great majority of us, I am convinced, want the railroads turned back to private operation and set free as a field for private initiative and enter- prise, and, above all, as a field for men of ability, force and vision. TAXATION Another important question, far-reaching in its ef- fects, is that of taxation. There, again, we must not act in deference to a theoretical conception which, when translated into fact, becomes harmful to all. Of course, we all agree that taxation must be so laid that those who benefit most and can best afford it, must THE TASK AHEAD 295 pay the most; and those who can less afford it, must pay less; and those who can not pay at all, must be exempt at least from direct imposts. But we must not "kill the goose that lays the golden eggs," and, after all, it is business largely that produces those eggs. We must not so dump the load upon the back of busi- ness that it will tend to cripple incentive, effort, enter- prise, commercial and financial venturing, and to pre- vent accumulation necessary for the upkeep and expan- sion of our commercial activities. After but one and one-half years of war, we have burdened business with a load such as it has to bear in no other country after more than four years of war. It stands to reason that business can not pay both the highest taxes existing anywhere and the highest wages existing anywhere, and then expect to hold its own in the markets of the world. It was right and wise for the Government to insist that as large a part as possible of our war expenditures must be provided by taxation, and I am sure the coun- try will be better for it that so large a part of the cost of the war has been raised by taxation. No right-thinking man will advocate a plan of taxa- tion that will spare wealth. But he will advocate a system and methods which, by taking account of tested and immutable principles that can not be disregarded with impunity, will preserve the economics of the coun- try on an even keel ; a system and methods which, with- out tenderness for, yet without animus against, those who have been materially successful, will adjust the financial burden of government fairly and wisely, with 296 BUSINESS AND ECONOMICS full regard to national welfare and the dictates of social justice, free from fear or favor. I believe it is not too much to say that our existing taxation measures in various important respects fly in the face of economic science, of common sense and of equity. They are cumbersome, vexatious and almost incredibly complex. They bear the imprint of class and sectional discrimination. They penalize thrift and industry, and leave the wastrel and shirker untouched. They discourage, disturb and impede business and place the American business man at a disadvantage as against his European competitor. At a time when America is aiming to become a world centre, they deter foreign capital from coming here. They tend to curtail pro- duction. They are a strong contributing factor in bringing about the prevailing high level of prices — a grave and serious evil which can and must be miti- gated, a grievous burden particularly upon those men and women who live on moderate salaries and who are all the more entitled to sympathy and redress as they have borne their troubles with great patience, and a noteworthy absence of importunate agitation. ART Then there is the problem — at least, I consider it a problem — of what we can do in this country to make Art more of a factor in the lives of the masses of the people. Now, I am not a "high-brow" (though I ad- mit I used to be one), but in New York and else- where I have sought and found opportunity to talk with many men and women in all walks of life on this THE TASK AHEAD 297 subject of art and have become thoroughly convinced how great and beneficent an influence art can, and should, be made in the lives of the people. It is a sig- nificant thing that the labor unions of New York have inaugurated a movement for the creation of a People's Theatre. Great portions of our population are hungry for art; they are eager for outlets for their emotion; they are groping for something which shall respond to their spiritual aspirations, something quite beyond material satisfaction. Generally speaking, we have not yet realized ade- quately how serious and important a cultural element art is in the life of a community, how weighty its pur- pose, how great its mission. It is one of the most potent factors for good, one of the strongest agencies among those having power to form and guide the thoughts and sentiments of the people. It is educational, it is •timulating, it is nourishing, it is healing. I wish our men of wealth, whose generosity in the support of educational, scientific and religious institu- tions has become proverbial, would turn the stream of their benefactions into the channels of art more abun- dantly than has been their wont hitherto. I wish we would create a Federal Department of Fine Arts, such as exists in many European countries, and place at its head a man of understanding, vision, enthusiasm, sym- pathy and outstanding capacity. I am convinced that if we go about it with a degree of seriousness, energy and intensity merely even ap- proaching that which we bring to bear upon our indus- trial pursuits, it is open to America to accomplish great 298 BUSINESS AND ECONOMICS things in art; no less great than what the genius of our people has achieved in other fields. CAPITAL AND LABOR I have reserved to the last a discussion of that one of our problems which is, probably, the most impor- tant and immediately pressing — namely, the problem of the relations between Capital and Labor. The principle on which all concerned should deal with the labor question appears to me plain. It is the principle of the Golden Rule. I think the formula should be that, first, labor is entitled to a living wage; after that, capital is entitled to a living wage; what is left over belongs to both capital and labor, in such pro- portion as fairness and equity and reason shall deter- mine in all cases.* The application of that formula is, of course, com- plex and difficult, because there are so many different kinds of labor, there are so many different kinds of capital. Not infrequently the laborer and capitalist overlap and merge into one. You have skilled labor and unskilled labor and casual labor, you have the small employer, the large individual employer, the corporate employer, the farmer, the inventor, the pros- pector, etc. And then, circumstances and conditions vary greatly, of course, in different parts of the country and in different industries. It is impossible to measure by the same yard-stick everywhere, but the principle of fairness can be stated, * That does not necessarily mean "profit sharing" as the term i9 generally understood. THE TASK AHEAD 299 the desire can be stated to do everything possible to bring about good feeling and good understanding be- tween labor and capital, and willingly and freely to co-operate so that labor shall receive its fair share in the fruits of industry, not only by way of a wage re- turn, but of an adequate return also in those less tan- gible things which make for contentment and happi- ness. It seems to me that, in the main, right-thinking men of capital and labor would concur in the following points : l. The workman is neither a machine nor a com- modity. He is a collaborator with capital. (I do not use the word "partner," because partnership implies sharing in the risks and losses of the business, which risks and losses labor does not and can not be expected to share, except to a limited extent and indirectly). He must be given an effective voice in determining jointly with the employer the conditions under which he works, either through committees in each factory or other unit, or through labor unions, or through both. Individual capacity, industry and ambition must re- ceive encouragement and recognition. The employer's attitude should not be one of patronizing or grudging concession, but frank and willing recognition of the dig- nity of the status of the worker and of the considera- tion due to him in his feelings and viewpoints. Nor must the employer look for "gratitude" and be disap- pointed, discouraged, or resentful if he does not find it. No man is entitled to ask gratitude for doing that which is right. The just and enlightened employer may ex- 300 BUSINESS AND ECONOMICS pect good will, esteem, and a fair day's hard work for a fair wage, but the relation between employer and employee is false and untenable if it is sought on the part of the employer to base it on the conception of himself in the role of the generous dispenser and the workman in the role of the duly obliged recipient. Everything practicable must be done to infuse in- terest and conscious purpose into the work of the em- ployee and to diminish the sense of drudgery and monotony of his daily task. The closest possible con- tact must be maintained between employer and em- ployee. Arrangements for the adjustment of griev- ances must be provided which will work smoothly and instantaneously. Every feasible opportunity must be given to the workman to be informed as to the business of which he forms a part. He must not be deprived of his employment without valid cause. For his own satisfaction and the good of the country, every induce- ment and facility should be extended to him to become the owner of property. Responsibility has nearly always a sobering and usually a broadening effect. I believe it to be in the interest of labor and capital and the public at large that workmen should participate in industrial respon- sibilities to the greatest extent compatible with the maintenance of needful order and system and the in- dispensable unity of management. Therefore, wher- ever it is practicable and really desired by the em- ployees themselves to have representation on the Board of Directors, I think that should be conceded. It would give them a better notion of the problems, complexities THETASKAHEAD 301 and cares which the employer has to face. It would tend to allay the suspicions and to remove the miscon- ceptions which so frequently are the primary cause of trouble. The workman would come to realize the problems, cares and worries of the employer and the strain, the vicissitudes and risks which the management of business involves. He would find himself face to face with the workings of practical economics and would discover them to be very different from the theories which agitators have dinned into his ears. He would come to see that capitalists are not, perhaps, al- ways quite as astute and deep as they are given credit for, but, on the other hand, a good deal less grasping and selfish than they are frequently believed to be, a good deal more decent and well meaning, and made of the same human stuff as the worker, without the addi- tion of either horns or claws or hoofs. 2. The worker's living conditions must be made dignified and attractive to himself and his family. Nothing is of greater importance. To provide proper homes for the workers is one of the most urgent and elementary duties of the large employer. To the ex- tent that the employer is unable to provide such homes — and, of course, the smaller employer has not the means to do so — it becomes the duty of the State or the community. 3. The worker must be relieved of the dread of sick- ness, unemployment and old age. It is utterly inad- missible that because industry slackens, or illness or old age befalls a worker, he and his family should there- fore be condemned to suffering or to the dread of 302 BUSINESS AND ECONOMICS suffering. The community must find ways and means of seeing to it, by public works or otherwise, that any man fit and honestly desirous to do an honest day's work shall have an opportunity to earn a living. Those unable to work must be honorably protected. The only ones on which a civilized community has the right to turn its back are those unwilling to work. Some of you may regard certain of the foregoing suggestions as closely approaching Socialism. I be- lieve, on the contrary, that measures of the kind and spirit I advocate, so far from being in accord with the real Socialist creed and aim, would be in the nature of effective antidotes against Socialism and kindred plausible fallacies. 4. The worker must receive a wage which not only permits him to keep body and soul together, but to take proper care of his wife and children, to have for him- self and them a share of the comforts, interests and recreations of life, to lay something by, and to be encouraged in the practice and obtain the rewards of thrift. 5. Labor, on the other hand, must realize that high wages can only be maintained if high production is maintained. The restriction of production is a sinister and harmful fallacy, most of all in its effect on labor. Even the official organ of the Bolshevist Regime in Russia announced recently that "increased production is not only the imperative duty but the imperative in- terest of the proletariat." The primary cause of poverty is under-production. Furthermore, lessened production naturally makes for THE TASK AHEAD 303 high costs. High wages accompanied by proportion- ately high cost of the essentials of living don't do the worker any good. And they do the rest of the com- munity a great deal of harm. The welfare of the so- called middle classes, i. e., the men and women living on moderate incomes, the small shopkeeper, the average professional man, the farmer, etc., is just as important to the community as the welfare of the wage-earner. If through undue exactions, through unfair use of his power, through inadequate output, the workman brings about a condition in which the pressure of high prices becomes intolerable to the middle classes, he will create a class animosity against himself which is bound to be of infinite harm to his legitimate aspirations. Pre- cisely the same, of course, holds true of capital. The advent of the machine period in industry some- what over a century ago brought about a fundamental and violent dislocation of the relationship which had grown up through hundreds of years between employer and employee. The result has been a grave and long- continued maladjustment. In consequence of it, for a long period in the past, it must be admitted labor did not secure a square deal, and society failed to do any- thing like its full duty by labor. But, more and more of recent years, the conscience and thought of the world have awakened to a recognition of the rights of the working people. Much has been done of late to remedy that maladjustment, the origin of which dates back to the beginning of the nineteenth century. The process of rectification has not yet been completed, but it is going on apace. Meanwhile, laboring men should take 304 BUSINESS AND ECONOMICS heed that, in their rightful resentment against former practices of exploitation and in their determination to obtain the redress of just grievances, they do not per- mit themselves to be misled by plausible fallacies or self-seeking agitators. They must not give credence, for instance, to the absurd preachment that practically all wealth, other than that produced by the farmer, is the product of the exertions of the workingman. There are, of course, a number of other factors that enter into the creation of wealth. Thus, for instance, the "directive faculty," the quality of leadership in thought and action, is not only one absolutely needful in all organized undertakings, great or small, but it becomes increasingly rare and, consequently, increas- ingly more valuable as the object to which it addresses itself increases in size, complexity and difficulty. Pro- duction depends not only upon willing hands, but equally, if not more so, upon creative brains, capable direction, venturing capital. Let us take as an example the case of Mr. Henry Ford. Through the organizing genius and enterprise of this absolutely self-made man (not by monopoly, but in keen competition), the automobile, instead of being a luxury of the few, has been brought within the reach of those of modest means. The cost of the product has been vastly cheapened. The margin of profit on each automobile sold has been greatly diminished. Wages have been very largely in- creased, the living conditions of employees greatly improved. Work has been found for a great many more men than were employed before. THE TASK AHEAD 305 In other words, every single human factor concerned in either production or consumption has been advan- taged. New wealth has been created at the expense of no one. It can not be said that it was created by the workingman, except in the physical sense. It was not created by either monopoly or privilege. It was created mainly out of Mr. Ford's brain and at his risk. By far the largest percentage of this new wealth goes to pay the wages of workingmen and other ex- penses of the business, but out of what is left, Mr. Ford's share is, by common report, in excess of $1,000,- 000 a year. Did Mr. Ford earn $1,000,000 in one year"? If not, how much did he earn? By what scale would you measure the proportion due to him of the new wealth created mainly by his faculties'? If he had not been allowed to earn the large sums which he did earn, how and where could he have found the means to enlarge and improve his factory, so as to make possible an enterprise which immensely cheapened the product to the consumer and largely increased the wages to the workingman and the oppor- tunity for employment 1 ? Is there any instance where communistic or even merely co-operative undertakings have produced similar results? Is there any instance where governmental management has produced similar results'? Or, to take another instance : The State of Florida existed long before Mr. Henry M. Flagler came upon the scene, but its opportunities were permitted by its people and government to lie largely dormant until 306 business and economics Mr. Flagler risked his fortune and employed the power of his creative genius to realize the visions which he conceived as to the possibilities of that beautiful and richly endowed portion of our national domain. The new wealth, growth and opportunities which were created by Mr. Flagler's daring and far-flung enter- prise, undertaken and carried out by him almost single- handed in the face of scoffing and discouragement and vast difficulties, are almost incalculable. A portion of that new wealth — a considerable portion regarded by itself, but utterly insignificant as compared to the total enrichment of individuals as well as of communities, the State, and the nation — went to Mr. Flagler. Did he earn that reward? Can it be denied that his direc- tive faculty and pioneering genius were a splendid investment to the people of Florida and of the nation, at the compensation he received? It would be easy to multiply similar instances tes- tifying to the vast additions made to the assets of the community by the genius, daring and efforts of men endowed with the gifts of industrial captaincy. In a recently published, very able pamphlet entitled "Industrial Salvation," Miss Christabel Pankhurst, the well-known English leader in the cause of woman suffrage, says: "Certain Socialists, who ought to know better, have falsely taught that the poverty or semi-poverty of the many is due to the luxurious living of the prosperous sections of the community. This is not the truth, and if through all the years of Socialist preachings the result of each year's industrial effort had been divided THE TASK AHEAD 307 equally among the members of the community, there would have been no appreciable increase of prosperity for any, and there would have been one dead level of poverty for all." The way to progress is not to pull everybody down to a common level of mediocrity, but to stimulate indi- vidual effort, and strive to raise the general level of well-being and opportunity. It is not material success which should be abolished; it is poverty and justified discontent which should be abolished. We can not abolish poverty by division, but only by multiplication. It is not by the spoliation of some, but by creating larger assets and broader opportunity for all, that na- tional well-being can and must be enhanced. I wonder how many people realize that, if all in- comes above $10,000 were taken and distributed among those earning less than $10,000, the result, as near as it is possible to figure out, would be that the income of those receiving that distribution would be increased barely ten per cent. And the result of any such division would be an immense loss in national productivity by turning a powerful and fructifying stream into a mass of rivu- lets, many of which would simply lose themselves in the sand. I wonder how many people know that the frequent and loud assertion that the great bulk of the wealth of the nation is held by a small number of rich men, is wholly false; and that the fact is, on the contrary, that 308 business and economics seven-eighths of our national income goes to those with incomes of $5,000 or less, and but one-eighth to those with incomes above $5,000. Moreover, those in receipt of incomes of $5,000 or less, pay little or no income tax, while those having large incomes are subjected to very heavily progressive income taxes. As bearing upon the mischievous allegation so fre- quently and recklessly made by inciters to class hatred, that capital appropriates to itself the lion's share of the value of the workers' product, certain figures recently quoted in the New York Tribune are interesting : A recent compilation concerning some sixty of the best industrial companies in Germany, over a period of ten years, ending April 1, 1918, showed that out of each $1,000 earned, $767 went to labor, $117 to meet taxes, and $116 to pay dividends to investors. If the entire amount thus paid out in dividends on capital had been turned over to the workmen instead, i. e., if the compensation to capital had been entirely eliminated, the result would have been that the aver- age rate of wages would have been increased by less than three cents per hour, which would have amounted to a wage increase of about $65 per year for each person employed. I have not the data available for a similar analysis of the ratio of distribution of the fruits of industry between capital and labor in America, but from such cursory investigation as I have made, I am satisfied that the resulting picture here would not be very dif- ferent from that which the investigation in Europe has disclosed. THE TASK AHEAD 309 Nor would the result of so-called "socialization of industry" prove anything but a snare and a delusion to the workingmen, in other respects. To all theoretical arguments in that line, Russia of today affords the best answer. It was Lenine himself who after but six months of experience in the actual running of things instead of theorizing on things, insisted that full pro- duction be enforced and strict discipline maintained; and he advocated that piece work and the Taylor sys- tem of efficiency be introduced, and that the workers be paijd according to the output of each individual. Indeed, a few months ago the world-improvers of the Bolshevist Regime found themselves compelled to re- sort to the antiquated capitalistic device of locking out recalcitrant workmen in certain nationalized factories, and kept up that measure until hunger drove the work- men to accept the conditions laid down by their "ex- ploiters," the State. We have often heard it said recently — it has become rather the fashion to say it — that the rulership of the world henceforth will belong to labor. I yield to no one in my respect and sympathy for labor, or in my cordial and sincere support of its just claims. The structure of our institutions can not stand unless the masses of workmen, farmers, indeed all large strata of society, feel that under and by these institutions they are given a square deal within the limits, not of Utopia, but of what is sane, right and practicable. But the rulership of the world will and ought to belong to no one class. It will and ought to belong neither to labor nor to capital nor to any other class. 3lO BUSINESS AND ECONOMICS It will, of right and in fact, belong to those of all classes who acquire title to it by talent, hard work, self-discipline, character and service. He is no genuine friend or sound counselor of the people nor a true patriot who recklessly, calculatingly or ignorantly raises or encourages expectations which can not or which ought not to be fulfilled. We must deal with all these things with common sense, mutual trust, with respect for all, and with the aim of guiding our conduct by the standard of liberty, justice and human sympathy. But we must rightly understand liberty. We must resolutely oppose those who, in their impatient grasping for unattainable per- fection, would make of liberty a raging and destructive torrent instead of a majestic and fertilizing stream. Liberty is not fool-proof. For its beneficent work- ing it demands self-restraint, a sane and clear recog- nition of the reality of things, of the practical and attainable, and a realization of the fact that there are laws of nature and of economics which are immutable and beyond our power to change. Nothing in history is more pathetic than the record of the instances when one or the other of the peoples of the world rejoicingly followed a new lead which it was promised and fondly believed would bring it to freedom and plenty and happiness, and then suddenly found itself, instead, on the old and only too well- trodden lane which goes through suffering and turmoil to disillusionment and reaction. I suppose most of us when we were twenty knew of a short cut to the millennium and were impatient, re- THE TASK AHEAD 31 1 sentful and rather contemptuous of those whose fos- silized prejudices or selfishness, as we regarded them, prevented that short-cut from becoming the highroad of humanity. Now that we are older, though we know that our eyes will not behold the millennium, we should still like the nearest possible approach to it, but we have learned that no short-cut leads there and that anybody who claims to have found one is either an imposter or self-deceived. Among those wandering sign-posts to Utopia we find and recognize certain recurrent types: There are those who in the fervor of their world- improving mission discover and proclaim certain cure- alls for the ills of humanity, which they fondly and honestly believe to be new and unfailing remedies, but which, as a matter of fact, are hoary with age, having been tried on this old globe of ours at one time or another, in one of its parts or another, long ago — tried and found wanting and discarded after sad dis- illusionment. There are the spokesmen of sophomorism rampant, strutting about in the cloak of superior knowledge, mis- chievously and noisily, to the disturbance of quiet and orderly mental processes and sane progress. There are the sentimental, unseasoned, intolerant and cocksure "advanced thinkers" claiming leave to set the world by the ears, and with their strident and ceaseless voices to drown the views of those who are too busy doing to indulge in much talking. There are the self-seeking demagogues and various 312 BUSINESS AND ECONOMICS related types, and finally there are the preachers and devotees of liberty run amuck, who in fanatical obses- sion would place a visionary and narrow class interest and a sloppy internationalism above patriotism, and with whom class hatred and envy have become a ruling passion. They are perniciously, ceaselessly and vocif- erously active, though constituting but a small minor- ity of the people, and though every election and other test has proved, fortunately, that they are not repre- sentative of labor, either organized or unorganized. AMERICA Among these agitators and disturbers who dare clam- orously to assail the majestic and beneficent structure of American traditions, doctrines and institutions there are some, far too many, indeed — I say it with deep regret, being myself of foreign birth — who are of for- eign parentage or descent. With many hundreds of thousands they or their parents came to our free shores from lands of oppression and persecution. The great republic generously gave them asylum and opened wide to them the portals of her freedom and her opportuni- ties. The great bulk of these newcomers have become loyal and enthusiastic Americans. Most of them have proved themselves useful and valuable elements in our many- rooted population. Some of them have accomplished eminent achievements in science, industry and the arts. Certain of the qualities and talents which they con- tribute to the common stock are of great worth and promise. THE TASK AHEAD 313 When the great test of the war came, the over- whelming majority of them rang wholly and finely true. The casualty lists are eloquent testimony to the patriotic devotion of "the children of the crucible," doubly eloquent because many of them fought against their own kith and kin. But some there are who have been blinded by the glare of liberty as a man is blinded who, after long confinement in darkness, comes suddenly into the strong sunlight. Blinded, they dare to aspire to force their guidance upon Americans who for generations have walked in the light of liberty. They have become drunk with the strong wine of freedom, these men who until they landed on America's coasts had tasted little but the bitter water of tyranny. Drunk, they presume to impose their reeling gait upon Americans to whom freedom has been a pure and re- freshing fountain for a century and a half. Brooding in the gloom of age-long oppression, they have evolved a fantastic and distorted image of free government. In fatuous effrontery they seek to graft the growth of their stunted vision upon the splendid and ancient tree of American institutions. Admitted in generous trust to the hospitality of America, they grossly violate not only the dictates of common gratitude, but of those elementary rules of respect and consideration which immemorial custom imposes upon the newcomer or guest. They seek, in- deed, to uproot the foundations of the very house which gave them shelter. We will not have it so, we who are Americans by 314 BUSINESS AND ECONOMICS birth or by adoption. We reject these impudent pre- tensions. By all means, let us move forward and up- ward, let us bring cheer and comfort where there are wretchedness and squalor, beauty where there is ugli- ness, right where there is wrong, freedom where there is oppression. But let us proceed by the chart of rea- son, experience and tested American principles and doc- trines, and let us not entrust our ship to demagogues, visionaries or shallow sentimentalists who most assur- edly would steer it on the rocks. When you once leave the level road of Americanism to set foot up the incline of Socialism, it is no longer in your power to determine where you will stop. It is an axiom only too well attested by the experience of the past, that the principal elements of the estab- lished order of civilization (of which the institution of private property is one) are closely interrelated. If you tolerate grave infringement upon any of these elements, all history shows that you will have laid open to assault the foundations of personal liberty, of orderly processes of government, of justice and tolerance, as well as the institution of marriage, the sanctity of the home, and the principles and practices of religion. The strident voices of the fomentors of unrest do not cause me any serious apprehension, but we must not sit silently by, we must not look on inactively. Where there are grievances to redress, where there are wrongs existing, we all must aid in trying to right them to the best of our conscience and ability. But to the false teachings and the various pernicious "isms" with which un-Americans,' fifty per cent. Amei- THE TASK AHEAD 3 X 5 icans or anti-Americans are flooding the country, we must give battle through an organized, persistent, pa- tient, nationwide campaign of education, of informa- tion, of sane and sound doctrine. The masses of the American people want what is right and fair, but they "want to be shown." They will not simply take our word for it that because a thing is so and has always been so, therefore it should remain so. They do not mean to stand still. They want progress. They have no use for the standpatter and reactionary. Even before the war a great stirring and ferment was going on in the land. The people were groping, seeking for a new and better condition of things. The war has intensified that movement. It has torn great fissures in the ancient structure of our civilization. To restore it will require the co-operation of all patriotic men of sane and temperate views, whatever may be their occupation or calling or political affiliations. It can not be restored just as it was before. The building must be rendered more habitable and attrac- tive to those whose claim for adequate house-room can not be left unheeded either justly or safely. Some changes, essential changes, must be made. I have no fear of the outcome and of the readjustment which must come. I have no fear of the forces of freedom unless they be ignored, repressed or falsely or selfishly led. Changes the American people will make as their needs become apparent, improvements they welcome, the greatest attainable well-being for all those under our national roof-tree is their aim. They will strive to 3l6 BUSINESS AND ECONOMICS realize what formerly were considered unattainable ideals. But they will do that in the American way of sane and orderly progress — and in no other. They will not soon forget who failed the Nation in the hour of test and trial. Nor will they be unmindful of the demonstrated fact that the extreme of autocracy in Germany and the extreme of socialism in Russia have led to precisely the same result for the people af- flicted by them — namely, bloodshed, chaos, disaster and disgrace. Whatever betide in European countries, this nation will not be torn from its ancient moorings. Against foes within, no less than against enemies without, the American people will ever know how to preserve and protect the splendid structure of light and order, which is the treasured inheritance of all those who rightfully bear the name Americans, whatever their race and origin. A: ROOSEVELT AND BUSINESS .S a business man it may not be inappropriate that I say a few words concerning the late Colonel Roose- velt's attitude toward business. Contrary to the opinion held at one time by many, he was a true friend to business. He was interested in the furtherance of business as he was interested in the furtherance of every one of the callings which have a legitimate part in the makeup of the nation's activi- ties. He fully realized the importance to national well-being of the growth and prosperity of trade and commerce. He appreciated the place of finance in the scheme of things. He had due regard for the tested lessons of sound economics. He was no trained business man, but his unfailing intuition of what was right and sane and timely re- vealed to him the need and the advantage as well as the proper limits of reform in respect of business prac- tices and conceptions which had grown up, naturally and almost necessarily, during the surging period of immense material development that set in with the close of the Civil War. He saw that business had grown to exercise excessive and, in certain aspects, almost un- controlled power, and he knew that such power, when- ever, wherever, and by whomsoever exercised, breeds abuses and is a menace to the State and in the unavoid- October, 191 9. 317 3l8 BUSINESS AND ECONOMICS ably resulting ultimate consequences, a grave danger to the class that wields it. He determined to challenge that power, to impose reasonable restraints and regulations upon it. He was convinced that if it were left to run its course un- checked, the inevitable result, in due course of time, would be a violent reaction against it, big with the potentialities of great harm to the legitimate interests of business as well as to the people at large and to American institutions. He framed his program without heat or animosity, with that sure adaptation of the means to the end, with that practical common sense and that avoidance of theories and extremes, which al- ways characterized his mental processes and his actions in office. It took courage at that time to challenge seriously the power of business, and to summon it to surrender certain prerogatives which it had gradually acquired and which it had come to regard as naturally and justly due to it. It had never been thus seriously and definitely challenged before. What afterward became a pastime that any one could indulge in with impunity and with supposed political advantage, what afterward became "business baiting" and harassing bureaucratic over-regulation, was an act of bold and hazardous resolution at the time and under the circumstances when Roosevelt undertook it. He encouraged the co-operation of leading business men in framing and carrying out the measures which he believed to be called for and which he was convinced would prove ultimately for the best interest of business ROOSEVELT AND BUSINESS 319 itself. They refused. They believed themselves strong enough to defeat his purposes. They tried to dissuade him, failing in which they set out to antagonize and thwart him. They did not succeed, but the conse- quence of their attitude was that a bitter conflict was created between Colonel Roosevelt and representatives of business, and that as a result he felt himself called upon to have recourse to vigorous and incisive appeals to public opinion, appeals which, at times in the heat of battle, went somewhat beyond the mark, as I think he would have been the first to acknowledge later on. Yet while the irritation and the heat, stress, and strain of the fight colored his utterances and on a few occasions affected his actions in individual cases, he never permitted himself, in the legislative measures which he advocated and promoted, to go beyond the bounds of moderation and the limits of reasonable cor- rection. The laws for which he stood during his Presi- dential terms appear conservative compared to some of those enacted in subsequent years. In the midst of hard blows given and taken, he retained his unfailing sense of what was sane, balanced, fair, practicable, called for. Vindictiveness did not enter into his pro- gram. Each one of the measures for which he became spon- sor in the great reform movement that he inaugurated has stood the test of time. None of them has harmed or impeded legitimate business, however big in scope. And just as he had the courage to tackle "big busi- ness" in the hey-day of its power and to devise and enforce wise and just restraints and remedies, so he 320 BUSINESS AND ECONOMICS would have had the courage to tackle and bring under restraint any other element or combination which came to exercise a degree of power incompatible with the welfare and disturbing to the due balance of the com- munity at large, and which tended to become a law unto itself. It was my great honor and privilege to be consulted by Colonel Roosevelt from time to time, in the course of the past few years, as to the economic and business problems of the day. I know, therefore, how his mind worked and his purposes shaped themselves in respect of these problems. And I know that if he had been called again to the leadership of the nation, as he un- doubtedly would have been but for the national calam- ity of his untimely death, he would have wrought a structure of laws and administration in which hamper- ing paternalism, visionary theories, class-serving ten- dencies and outlandish fallacies would have had no place; in which all constructive forces would have had free scope, and short shrift would have been given to the evil disposed, high or low ; and in which the clash- ing interests, distracting agitations and confusing aims and claims that are now harassing the country would have found themselves under the dominance of a strong peace of even-handed and enlightened justice and un- diluted Americanism. I have prepared this statement at the suggestion of the Roosevelt Memorial Association. I am profoundly convinced that no section of the community has greater cause to aid in seeking to perpetuate the Roosevelt spirit in the affairs and the guidance of the nation than the business men of America. PART THREE: CONCERNING WAR AND FOREIGN RELATIONS FRANCE RANCE, glorious among the nations, and best beloved ! Immeasurable is the debt which the world owes to France. Her name stands foremost in the world's golden book of deeds nobly done for liberty and hu- manity, of lives nobly lived, of deaths nobly died. From the time of the Crusaders to this day her chil- dren have ever been ready to go forth and die for an ideal. Beneath their smiling blague, beneath their light-hearted etourderie, there always lay the deep and serious, ardent and lofty qualities of an illustrious race ; there always lay their great spirit, lightly slumbering at times, but ever ready to leap forth, undimmed and undiminished, in answer to a great call. No pages more splendid are contained in the book of history than those which tell of the heroism, the dignity, the calm and determination of the men — aye, and of the women — of France, in doing, daring and suffering throughout this appalling war so wantonly forced upon her. The men of other nations, too, have fought with superb bravery. Countless almost are the heroes of the past thirty months. They all tendered unhesitatingly the supreme gift that man can give. Yet if it be per- missible in due reverence to appraise the value of that An article contributed to the volume "For France," January, 1917. 323 324 WAR AND FOREIGN RELATIONS sacrifice, it may, I think, be said that the men of France gave most, because, in the sense of a generalization, I believe it to be true that to none others is life quite as sweet and precious as to the children of France, "le doux pays de France." The men of France do indeed love life, but they love France more, her soil, her soul and all that she symbolizes. To her, they belong with every fibre of their being. She is to them not merely the present, but the past and the future ; wife, mother and child. And so they went forth, in defense of their sacred soil and their ideals of humanity and liberty, and per- formed prodigies of valor and shed, alas ! rivers of French blood, not driven by iron discipline, not stimu- lated by lust for conquest or zest for combat, not even spurred on by hatred; but soberly, solemnly, sternly, steeled to supreme resolution and resigned to die that France might live in safety and glory. God grant that an end may swiftly come to this appalling trial and that what those heroes have fought and suffered and died for, may soon be attained. And when we, who have spent some of our happiest days in France, who have known her gay and care- free and full of the joie de vivre set foot upon her soil once more, let us remember that it has become sacred soil. Let us enter her portals in a mood and spirit attuned to her grandeur and her sorrow. Let us meet her with overflowing sympathy, with deep reverence, with zealous service. Let us be bent on giving, not on receiving. We owe her a debt beyond all reckoning. Let us be eager for the privilege of repaying what little FRANCE 325 fraction it may be in our power to repay by helping to care for her needs and her needy, by assisting her in the staggering task of reconstruction, by aiding to bind up the hurts — deep, alas! and many — which she has suf- fered in the service of humanity. WHEN THE TIDE TURNED T WHY THE TIDE WAS FATED TO TURN HESE are soul-stirring days. To live through them is a glory and a solemn joy. The words of the poet resound in our hearts: "God's in His heaven, all's well with the world." Events have shaped themselves in accordance with the eternal law. Once again the fundamental lesson of all history is borne in upon the world, — that evil, though it may seem to triumph for a while, carries within it the seed of its own dissolution. Once again it is revealed to us that the God-inspired soul of man is unconquerable, and that the power, however formi- dable, which challenges it is doomed to go down in defeat. A righteous cause will not only stand unshaken through trials and discomfiture, but it will draw strength from the very set-backs which it may suffer. A wrongful cause can only stand as long as it is buoyed up by success. The German people were sustained by a sheer ob- session, akin to the old-time belief in the potent spell An address at the United War Work Campaign Meeting, Boston Athletic Association, November 11, 1918 (Armistice Day). 326 WHEN THE TIDE TURNED 327 of "the black arts" that their military masters were invulnerable and invincible, that by some power — good or evil, they did not care which — they had been made so, and that the world was bound to fall before them. The nation was immensely strong only as long as that obsession remained unshaken. With its destruction by a series of defeats which were incapable of being ex- plained as "strategic retreats," their morale crumbled and finally collapsed, because it was not sustained, as that of the Allies was sustained in the darkest days of the war, by the faith that they were fighting for all that men hold most sacred. To those who were acquainted with German men- tality and psychology, it had been manifest all along that when the end foreordained did come, it would come with catastrophic suddenness. II WHERE THE TIDE TURNED It is the general impression that the tide of victory set in with Marshal Foch's splendid movement against the German flank on July 18th. That movement, it is true, started the irresistible sweep of the wave which was destined to engulf and destroy the hideous power of Prussianism. But the tide which gathered and drove forward the waters out of which that wave arose, had turned before. It turned with and through the su- preme valor of our Marines and other American troops 328 WAR AND FOREIGN RELATIONS in the first battle at Chateau-Thierry and at Belleau Wood, in the first week of June. The American force engaged was small, measured by the standard of numbers to which we have become accustomed in this war, but the story of their fighting will remain immortal and in its psychological and strategic consequences the action will take rank, I believe, among the decisive battles of the war. I am not speaking from hearsay. I was in France during the week preceding that battle, the most anxious and gloomy period, probably, of the entire war. What I am about to relate is based either on authoritative information gathered on the spot, or on my own observations. In telling it, nothing is farther from my thoughts than to wish to take away one tittle from the immortal glory which belongs to the Allied armies, nor from the undying gratitude which we owe to the nations who for four heart-breaking years, with superb heroism, fought the battle of civilization — our battle from the very beginning, no less than theirs — and bore untold sacrifices with never faltering spirit. Ill JUST BEFORE THE TIDE TURNED On the 27 th of May, 1918, the Germans broke through the French position at the Chemin des Dames, a position which had been considered by the Allies as almost impregnable. They overthrew the French as they had overthrown the British two months earlier. WHEN THE TIDE TURNED 329 Day by day they came nearer to Paris, until only thirty- nine miles separated them from their goal. A few days more at the same rate of advance, and Paris was within range of the German guns of terrific destructive power. Paris, the nerve centre of the French railroad system and the seat of many French war industries, not only, but the very heart of France, far more to the French people in its meaning and traditions than merely the capital of the country; Paris in imminent danger of ruthless bombardment like Rheims, in possible danger even of conquest by the brutal invader, drunk with lust and with victory! As one Frenchman expressed it to me : "We felt in our faces the very breath of the approaching beast." And while the Hunnish hordes came nearer and nearer, and the very roar of the battle could be dimly and ominously heard from time to time in Paris, there were air raids over the city practically every night, and the shells from the long-range monster guns installed some sixty or seventy miles distant, fell on its houses, places and streets almost every day. They were not afraid, these superb men and women of France. They do not know the meaning of fear in defense of their beloved soil and their sacred ideals. There was no outward manifestation even of excite- ment or apprehension. Calmly and resolutely they faced what destiny might bring. But there was deep gloom in their hearts and dire forebodings. They had fought and dared and suffered and sacri- ficed for well nigh four years. They had buried a mil- 330 WAR AND FOREIGN RELATIONS lion of their sons, brothers and fathers. They were bleeding from a million wounds and more. "We will fight on," they said, "to our last drop of blood, but alas ! our physical strength is ebbing. The enemy is more numerous by far than we. When can we look for aid? The British have just suffered grave defeat. The Italians have their own soil to defend after the disaster of last autumn. Our troops are in retreat. The Americans are not ready and they are untried as yet in the fierce ordeal of modern warfare. The Germans know well that in three months or six months the Amer- icans will be ready and strong in numbers. That is why they are throwing every ounce of their formidable power against us now. The Hun is at the gate now. Immeasurable consequences are at stake now. It is a question of days, not of weeks or months. Where can we look for aid now?" And out of their nooks and corners and hiding places crawled forth the slimy brood of the Bolshevik-Social- ists, of the Boloists, Caillouxists and pacifists, and they hissed into the ears of the people, "Make peace! Vic- tory has become impossible. Why go on shedding rivers of blood uselessly*? The Germans will give you an honorable, even a generous peace. Save Paris! Make peace !" The holy wrath of France crushed those serpents whenever their heads became visible. Clemenceau, the embodiment of the dauntless spirit of France, stood forth the very soul of patriotic ardor and indomitable courage. But the serpents were there, crawling hidden in the grass, ever hissing, "Make peace!" WHEN THE TIDE TURNED 33 1 And then, suddenly out of the gloom flashed the lightning of a new sword, sharp and mighty, a sword which never had been drawn except for freedom, a sword which never had known defeat — the sword of America ! IV THE TURNING OF THE TIDE A division of Marines and other American troops were rushed to the front as a desperate measure to try and stop a gap where flesh and blood, even when animated by French heroism, seemed incapable of fur- ther resistance. They came in trucks, in cattle cars, by any conceivable kind of conveyance, crowded together like sardines. They had had little food, and less sleep, for days. When they arrived, the situation had become such that the French command advised, indeed ordered, them to retire. But they and their brave General would not hear of it. They detrained almost upon the field of battle and rushed forward, with little care for orthodox battle order, without awaiting the arrival of their artillery, which had been unable to keep up with their rapid passage to that front. Onward they swept; right through the midst of a retreating French division, yelling like wild Indians, ardent, young, irresistible in their fury of battle. Some of the Frenchmen called out a well-meant warning: "Don't go in this direction. There are the boches with machine guns." They shouted back: "That's where we want to go. That's where we have come three thou- 332 WAR AND FOREIGN RELATIONS sand miles to go." And they stormed ahead, with rifle and bayonet, against massed machine guns. Arrived at the designated spot, they stood and faced the foe. Ahead of them, some 200 yards distant, was a rise in the ground: Beyond it were the Ger- mans, in vast numbers. Our men set the sights of their rifles at 200 yards. They had little artillery and few machine guns. But they had their American spirit and they knew how to shoot. They looked at the rising ground in front of them, gritted their teeth and said : "No Hun shall pass that line." And no Hun did pass that line. And, after a while, they threw themselves upon the victory-flushed enemy to whom this unconventional kind of fierce onset came as a complete and discon- certing surprise. They fought like demons, with ut- terly reckless bravery. They paid the price, alas! in staggering losses, but for what they paid they took compensation in overfull measure. They formed of themselves a spearhead at the point nearest Paris, against which the enemy's onslaught shattered itself and broke. They stopped the Hun, they beat him back, they broke the spell of his advance. They started victory on its march. A new and unspent and mighty force had come into the fray. And the Germans knew it to their cost and the French knew it to their relief and joy. Side by side now the Americans and the French stood, and on that part of the front the Germans never advanced another inch from that day. They held for awhile, and then set in the beginning of the great defeat. WHEN THE TIDE TURNED 333 I was in Paris when the news of the American achievement reached the population. They knew full well what it meant. The danger was still present, but the crisis was over. The Boche could not break through. He could and would be stopped and ultimately thrown back, out of France, out of Belgium, across the Rhine and beyond ! The aid for which the sorely beset people of France had been praying had arrived. The Americans had come, young, strong, daring, eager to fight, capable of standing up against and stopping and beating back German shock troops specially selected and trained, and spurred on by the belief in their own irresistibility and the exhaustion of their opponents. The full wave of the hideous instruments of warfare which the devilish ingenuity of the Germans had invented, liquid fire, monstrous shells, various kinds of gases including the horrible mustard gas, had struck the Americans square- ly and fully, and they had stood and fought on and won. The French, so calm in their trials, so restrained in their own victories, gave full vent to their joy and enthusiasm at the splendid fighting and success of the Americans. The talk of them was everywhere in Paris. Hundreds of thousands of American soldiers already in France, thousands coming upon every steamer, millions more to come if needed — and they had shown the great stuff they were made of! All gloom vanished over- night. The full magnificence of the French fighting morale shone out again — both behind the lines and at the front. "lis ne passeront pas!" "On les aura!" 334 W AR AND FOREIGN RELATIONS And the Bolshevik-Socialists, Boloists, weak-kneed pacifists, and that whole noisome tribe slunk back into their holes and corners and hiding places, and never emerged again. And, as the people of Paris and the poilus at the front correctly interpreted the meaning of that battle in those early days of June, so did the supreme military genius of Marshal Foch interpret it. He knew what the new great fighting force could do which had come under his orders, and he knew what he meant to do and could do with it. It is an eloquent fact that when six weeks later he struck his great master stroke which was to lead ulti- mately to the utter defeat and collapse of the enemy, American troops formed the larger portion of an at- tacking force which, being thrown against a particu- larly vital position, was meant to deal and did deal the most staggering blow to the enemy; and other American troops were allotted the place which from the paramount responsibility attaching to it, may be termed the place of honor, in the center of the line, in immediate defense of the approaches to Paris. They made good there — officers and men alike. They made good everywhere, from Cantigny to Sedan. They made good on land, on the seas and in the air; worthy comrades of the war-seasoned heroes of France and Great Britain, worthy defenders of American honor, eager artisans of American glory. When, for the first time the American army went into action as a separate unit under the direct command of its great chief, Gen- eral Pershing, Marshal Foch allotted them ten days WHEN THE TIDE TURNED 335 for the accomplishment of the task set for them, i. e., the ejection of the German army from the strongly for- tified St. Mihiel salient, which the enemy had held for four years. They did it in thirty hours, and made a complete and perfect job of it. I have had the privilege of seeing these splendid boys of ours, in all situations and circumstances, from their camps in America to the front in France — the boys and their equally splendid leaders. The inspira- tion of what I have thus seen will stay with me to my last day. I confess I find it hard to speak of them without a catch in my throat and moisture in my eyes. I see them before me now in the fair land of France — brave, strong, ardent; keen and quick-witted; kindly and clean and modest and wholly free from boasting; good- humored and good-natured; willingly submissive to unaccustomed discipline; uncomplainingly enduring all manner of hardships and discomforts ; utterly contemp- tuous of danger, daring to a fault, holding life cheap for the honor and glory of America. What true Amer- ican can think of them or picture them without hav- ing his heart overflow with grateful and affectionate pride? As I observed our Army "over there," I felt that in them, in the mass of them, representing as they do all sections and callings of America, there had re- turned the ancient spirit of knighthood. I measure my words. I am not exaggerating. If I had to find one single word with which to characterize our boys, I should select the adjective "knightly." 33^ WAR AND FOREIGN RELATIONS A French officer who commanded a body of French troops, fighting fiercely and almost hopelessly in Bel- leau Wood near Chateau-Thierry (since then officially designated by the French Government as the Wood of the Marine Brigade), told me that when they had ar- rived almost at the point of total exhaustion, suddenly the Americans appeared rushing to the rescue. One of the American officers hurried up to him, saluted and said in execrably pronounced French just six words: "Vous — fatigues, vous — partir, notre job." "You — tired, you — get away, our job." And right nobly did they do their job. Need I ask whether we shall do ours*? V THE TIDE OF OUR GRATITUDE The job now before us is to raise the needed funds to enable the organizations included in the United War Work Campaign to do theirs. No one who has not had occasion to see our Army over there, can fully realize how much of comfort, of cheer and of home feeling these organizations are bringing to our boys. For these boys with all their knightly virtues are very human. They are healthy young animals with strong appetites for food and for recreation. And they have an intense longing for home. The feeling of the long distance separating them from home is the one hardest for them to get accus- tomed and resigned to. The organizations of the WHEN THE TIDE TURNED 337 United War Work, with the vast ramifications of their beneficent activities in all places where our Army is fighting, training, constructing or resting are giving to the boys something akin to a home, something which brings the sweet and eagerly welcomed touch of Amer- ican surroundings and atmosphere into the strange and unaccustomed world in which they are moving for the time being. One must not think of those who are representing these organizations in their contact with the Army, as bespectacled anaemic beings. They are, on the contrary, red-blooded men and women, with warm hearts and sympathetic understanding. The services and benefits of the great organizations they represent are open to any and every man wearing the United States uniform, irrespective of race or religion or antecedents. No questions are asked, and every one is made cordially welcome by the men and women who with devoted zeal, tirelessly, courageously and self-sacrificingly, often within reach of shot and shell, tend to the wants of our boys. The spirit in which they administer their task is large and broad and of wide human sympathy and tolerance, as I can testify from personal observation. They realize fully that they are not dealing with saints or aspirants to sainthood, but with average youth and with soldiering youth at that. And they know what youth — clean, vigorous, normal American youth wants and appreciates in the way of material and spiritual things. They know the temptations besetting youth, but they also know that the normal American boy 338 WAR AND FOREIGN RELATIONS would far rather have clean enjoyment than tainted pleasures. They are offering to all soldiers comfort, cheer, diversion, instruction, in short, the opportunity to gratify every legitimate aspiration, and if the records show that our Army is the healthiest and cleanest that ever stood in the field, a large part of the credit for this enviable result belongs to the organizations included in the United War Work Campaign. The extent of their work with its resultant inesti- mable benefit to our boys, is limited only by the greater or lesser liberality with which the country will respond to their appeal for funds — and, surely, no liberality can be too great toward those who fought without- counting the cost in life and limb for our honor, glory and safety. And if, thank God, the fighting and maim- ing and killing have now come to an end, let us give in double measure as a peace-offering, as a thanksgiving, as a tribute to the memory of those who laid down their lives for America and for humanity. Heaven forbid that we should permit an impres- sion to go out to our soldiers that we took good care of them as long as we needed them to stand between us and the enemy, but that when the danger to us is past, we fail them. The debt of gratitude which we owe to them cannot be measured or discharged in money, but we can at least prove to them, as far as we can express it by giving, that we love them with proud and tender affection and that their well-being is a first charge upon our means. WHEN THE TIDE TURNED 339 America has broken many a record since we en- tered the war. There is one record yet to be broken before our boys come home. That is the record of the outpouring of a nation's gratitude to its defenders. VI THE TIDE OF PEACE For some time past we have heard approaching in the skies, the beating of the wings of the Angel of Peace. Now he has descended upon our poor, bleeding, war- torn earth. He holds in his hands the great gifts of Freedom and Victory. We greet him with boundless gratitude and with reverent joy. The hideous idol of Prussian militarism lies shattered at the feet of the free nations, its arch-priest dethroned and disgraced, cast out by his own distracted people and branded with the curse of the entire world. To this blessed and glorious result, we may justly claim that America has contributed no mean part. We thank God for the day when, spurning the lure of ease and plenty and boundless prosperity, we chose for our own that road to the heights which leads through sacri- fice and suffering and brought our mighty and unspent power to the rescue of the hard pressed champions of humanity. We then sought no advantage for ourselves and we seek none now. We have proved that America is not the "land of the almighty dollar," as too many be- lieved and as especially our enemies fatuously believed to their undoing, but a land of high idealism, ardently 34-0 WAR AND FOREIGN RELATIONS zealous to do and dare and spend itself in a righteous cause. We look back over these past fateful nineteen months and we examine our hearts and thoughts and deeds and we believe we may say justly and without self-complacency that the men and women of America have not been found unworthy under the great test to which they were put. Old and young, rich and poor, East and West, North and South — all but an insig- nificant few who are not spiritually Americans — have risen to the inspiration of our high cause and have joined in patriotic devotion and willing sacrifice. A new and exalted spirit pervades the land. We have made a new pact of unity. We have come to understand and appreciate each other better. We re- spect each other more. We are justly proud of the qualities which all Americans have proved themselves to possess in common. We draw strengthened faith and heightened inspira- tion from the glorious vindication of the irresistible potency of the American spirit which has made its own, transfused and merged into a homogeneous people, thinking and feeling alike in national essentials the men and women of many races who make up America. We are now walking along the heights of great achievements and lofty aspirations. Let us shun the descent into the valleys we have left behind. Let us trust and strive that some at least of the things we have gained spiritually, may never leave us. America comes out of the war with her economic and moral potency and prestige vastly enhanced, with her WHEN THE TIDE TURNED 34I outlook broadened, her field of activity expanded, her enterprise quickened, her imagination stirred, her every faculty stimulated. The vista which opens before us of America's future is one of dazzling greatness, spiritually and materially. The realization of that vision cannot fail us if we but meet our problems in a spirit of true Americanism, of moderation and self-restraint and of justice and good will to all, rejecting alike privilege and demagogy, ban- ishing all class rule, be it of capital or of labor. In that spirit let us grasp each other by the hand and thus resolved and united against enemies without or foes within, let us march on toward the high destiny that Providence has allotted to the country which in grateful pride and deep affection we call our own. I GREAT BRITAIN T is one of the characteristic qualities of the people of Great Britain not to blow their own horn. Indeed, they not only studiously avoid anything in the nature of self-advertising, but they have an inveterate reti- cence and reserve, frequently mistaken for haughty self-complacency, in speaking of their own achieve- ments. They are given to understating their case. They are prone to grumble rather than pat themselves on the back. They have a distinct aversion to the lime- light. It is partly due to these national traits that the mag- nificent war effort of Great Britain and the incalcu- lable value of its results to the Allied cause have not perhaps received here and elsewhere all the recognition and admiration to which they are entitled. It is also due in part to a persistent, subtle and very adroitly conducted propaganda on the part of Germany and of those who are either still pro-German — strange as it may seem that there still be such in the face of the hide- ous crimes, unatoned for and unrepented, of Germany — or who, if not pro-German, are more anti-English than anti-German, or at least as much anti-English as anti-German. That propaganda has been, from the beginning of August, 1918: Preface to "The Common Cause," issued by the Library of War Literature. 342 GREAT BRITAIN 343 the war, and is now at work to belittle the British war effort and war achievement; to sow in the Allied coun- tries — particularly America and France — the seeds of suspicion and dissension in respect of England; to try and cause, even within the British Empire itself, ill- feeling and division by circulating, the insidious false- hood that the people of England have sacrificed, fought and suffered less, relatively, than those of Scotland and Wales and the colonies and dominions. No one can read the facts and statistics given in the booklet, just issued, by the Library of War Literature (bare and sober and unadorned but overwhelmingly eloquent), without being completely cured of any lin- gering doubt he may have entertained as to the stu- pendous magnitude and the vital effectiveness of the effort and the sacrifices of England and the rest of the British Empire. No one can see the war activities of Great Britain, the spirit and attitude of her men and women, the life and aspect of her cities and countryside under war con- ditions — as I have had occasion to observe them dur- ing a recent visit to Europe — without being most pro- foundly impressed with the immensity and supreme value of Great Britain's contribution to the common cause, with the loftiness of her people's spirit, the vast- ness of the sacrifices, simply, bravely and uncomplain- ingly borne, the grim and solemn determination to "carry on" at whatever further cost till the sacred end is achieved. No one, not blinded by violent prejudice, can review the facts without realizing the absolutely vital part 344 W AR AND FOREIGN RELATIONS which Great Britain has played and is playing in the winning of the war. She spent herself without stint from the very be- ginning. She proved her mettle from the very mo- ment when, rejecting Germany's base and clumsy at- tempt to bargain for British honor and to gain Great Britain's neutrality, her navy took a stranglehold upon the enemy, and her army, with lightning swiftness, rushed to the aid of the hard pressed French. It was an army small then in numbers, but magnificent in spirit and fighting capacity. Incessantly fighting against overwhelming odds, it helped greatly to make possible the miracle of the first Battle of the Marne. And a little later on, the appallingly reduced rem- nants of that glorious army, together with such small reinforcements from England as were then available, set themselves, a thin line of heroes, against the onrush of the Germans at Ypres, and in a series of fierce bat- tles, no less miraculous in their outcome and no less determining in their consequences than the Battle of the Marne, defeated the efforts of the enemy numer- ically much superior and far better armed, to reach the Channel ports. Through the darkest hours the indomitable spirit and dauntless courage of Great Britain never faltered. At every front throughout the world, upon the seven seas, and at the "home front," the great qualities of the race stood forth in great deeds and achievements. She ac- complished veritable marvels of organization, rising with splendid resourcefulness to the call of every emer- gency, from the early stages of improvising means to GREAT BRITAIN 345 match the tremendous war equipment of the enemy, ac- cumulated in many years of sinister preparation, to this day when, in the midst of all her other efforts, bur- dens and occupations, she managed to provide at the cost of serious privation to herself, much the larger part of the ships and of the protection for transporting our army to France. Great Britain has supremely met a supreme test. With all the sublime heroism of France, with all the splendid valor of Belgium, Italy, Servia — what would have befallen the cause of right and humanity if Great Britain had failed it? Thank God, that cause is safe. Absolute and com- plete victory has now, happily, become assured beyond doubt. To gather and make permanent the fruits of that victory for the welfare of the world, nothing is more essential than for Great Britain and America to stand together, in cordial sympathy, unshakable trust and full understanding. They stand together now, comrades in arms. The stress of a common danger, the defense of common ideals has brought them together. It is an event filled with happy augury for both nations and, indeed, for all nations that love peace and liberty and justice. May it come to pass, that the seed sown in the storm of war shall bring forth a tree of unity and concord between the English and American peoples, which shall grow and stand deep-rooted for all time ! AN OPEN LETTER "No; 'tis slander!" — Shakespeare: Cymbeline. HE recent outgiving of a newspaper correspond- ent upon his return from Europe is infinitely regret- table. It would be so even if it correctly represented the situation. But it does not. It does contain cer- tain facts. These facts are not new to fairly well- informed people, nor is their publication capable of doing any particular harm, however questionable it may be in taste. The objectionable and pernicious part of the statement is not in its recital of facts, but in the setting forth of the correspondent's own deductions and in his reproduction of mischievous gossip. My justification for taking part in the public dis- cussion aroused by the statement rests on the circum- stance that I was in Europe during a considerable part of the period to which the correspondent refers, and that I had occasion to see leading members of the Brit- ish and French Cabinets, our own foremost representa- tives, from General Pershing down, and editors of sev- eral of the most influential organs of public opinion in England and France. From the facts as I had opportunity to ascertain them and not from hearsay, I know that the attitude December, 1918. 346 AN OPEN LETTER 347 of the governing circles in these countries was and is one of the utmost good-will and the most generous recognition toward America, and of the sincerest seek- ing for lasting and cordial friendship. I know of my own knowledge that, more than once, requests from the representatives of America were complied with, al- though such requests did not accord with the views of the British and French authorities and at times were far from easy to meet — and they were complied with solely from a warm-hearted desire to accede to anything within the limits of the practicable that America might ask. I have never seen or heard of any more touching and unanimous manifestation on the part of the peo- ple of one nation toward those of another nation than the solicitous eagerness on the part of everybody, high or low, in England and France, to make our boys wel- come and to minister to their well-being and comfort. And the universal praise and admiration bestowed on our soldiers for their appearance, conduct and valor were in striking contrast to the reticence of the English and French in speaking of the sacrifices they had brought and were bringing, the privations they had en- dured and were enduring, and the superb heroism of their own defenders. If anything can be more regrettable than the cor- respondent's remarks concerning England and France, and the alleged frame of mind of their Governments and people concerning America, it is what he says about Italy. 34^ WAR AND FOREIGN RELATIONS What it meant to the Allied cause to have Italy on its side can best be appreciated if we picture to our- selves what would have been the situation if Italy had sided with the Central Powers, or even if she had merely been benevolently neutral toward those powers. The assured neutrality of Italy in the beginning of the war was of the utmost value to the Allies in that it enabled France to denude its southern frontier of troops and throw its entire available man-power against the German invader. And the entrance of Italy into the war on the side of the Allies was one of the vital elements of ultimate victory. Italy might have stood aside from the great con- flict, and, without firing a shot, by bargaining and maneuvering could have managed to obtain, in the way of territorial satisfaction, much the greater part of what she could hope for as the result of a victori- ous war. She rejected that inglorious role. Overrul- ing a hesitant Ministry, her people aflame with a fine passion for freedom and right, chose the road of dar- ing and of sacrifice. They chose to throw Italy's sword into the scale on the side of the cause of jus- tice and humanity. They did so not when the star of the Allies was in the ascendant, but, on the contrary, when it was darkened by heavy and menacing clouds. The armies of Russia had just suffered disastrous de- feat, and if it had not been for Italy's coming into the war just at that juncture, a large part of the forces of the Central Powers would have been released, to be AN OPEN LETTER 349 thrown upon the Western front against the British and French lines. Insufficiently equipped and provided, Italy fought valorously against the most formidable difficulties and a foe immensely favored by natural positions, while her people suffered untold hardships through lack of fuel and food. After the disaster of Caporetto, due to causes for which but partial responsibility attaches to her, she accomplished the astounding feat of stopping the invader at the very floodtide of his onset. Far from giving way to depression and discouragement in the face of gravest danger, she steeled herself to redoubled effort. With stout-hearted determination, she held on to her precarious position at the Piave; she beat off the renewed attack of the numerically superior Austrian army last summer, and finally defeated it utterly, de- stroying the military power of Austria and forcing that Empire to beg for peace and to relinquish armed re- sistance a week before Germany laid down her arms. Though hard pressed herself, she sent a contingent of her soldiers to fight at the French front during the critical period of last spring and summer, and the rec- ord of that contingent is one of admirable bravery. Italy has indeed merited the gratitude, respect, and good-will of the Allied nations and America, and the fullest consideration for her national sentiments and aspirations. In view of what the Italian people has done, dared, and suffered for our common cause, it is more than deplorable that any American in a responsi- ble position should make himself the medium for pub- 350 WAR AND FOREIGN RELATIONS lishing insults against that great nation, such as are contained in the statement under discussion. And, without the slightest wish to revive old con- troversies, may I add this: For three terrible years the Allied nations fought and bled and suffered before America came to realize that their fight was our fight and that our place was by their side. During those years we drew enormous wealth from their resources, depleted in the struggle for a sacred cause. Some memories, none too pleasant to recall, attach to certain pronouncements from the highest American quarter and to certain aspects of our official attitude in that fateful period. We entered the war very, very late, almost too late. Since entering it, America has conducted herself in a manner, at home and in the field, which measures up to the full greatness of her traditions, which gives us just cause for pride and which has gained for us a posi- tion of high honor, prestige and potency among the nations of the world. But does it not behoove us, and especially those of us whose words find their way into print, to look back from time to time to those thir- ty-two long months which preceded the sixth of April, 1917, and should not that retrospect cause us to put a due measure of restraint upon our judgments, claims and utterances? A GOLDEN BOOK OF SOLDIERS' LETTERS T A HE book of American glory contains no nobler pages than those which record the superb heroism of our fighting men in the war now so happily concluded, and the passion of patriotic devotion which everywhere exalted the men and women of many races who make up America. We have seen humanity at its highest and greatest. We may not indulge the hope that we shall be able permanently to maintain ourselves at the level of thought, feeling and action to which we were lifted by the force of a lofty inspiration. But we do earnestly hope, and surely we shall not fail to strive, that some, at least, of the things the Nation has gained spiritually will remain as enduring attainments. And we trust we shall find, many of us, as these solemn years recede, that in our individual souls we have stored up assets which will remain permanent possessions. I have had occasion to read numerous letters writ- ten by officers and men of our Army from their canton- ments here and abroad, from the steamers which car- ried them to Europe, from hospitals and from the firing lines. These letters bear the stamp and impress of a Remarks at the Annual Dinner of the Rutgers Alumni Associa- tion, New York, January 17, 1919. 351 352 WAR AND FOREIGN RELATIONS great time. They are touched with a great spirit. Some of them in their sentiment, their views, and their expressions are of exalted and touching beauty. The boys who wrote them were on their way to look Death in the face or had just come from encountering him without flinching. They saw things differently from what they had ever seen them before or will ever see them again. All the pettinesses, the make-believes, the conventionalities of existence, had fallen away. They recognized true meanings, true values and true proportions. Things were revealed to them. They struck depths, they found words, they rose to heights which were not accessible to them before, and probably will not be accessible to them again. These letters are not only in the true sense of the term human documents, of the rarest value, but ema- nating as they do from writers of the widest diversity of birth, upbringing, occupation and race, they are a supreme demonstration of the workings of the crucible which is America, and of the irresistibly compelling power of its appeal and spirit, upon those who are brought within its orbit. They are proof conclusive of the theory of America ; they are both assurance and ad- monition for the future. They are spontaneous and moving manifestations of the noble qualities latent in American youth — unknown too often, stifled, or denied expression in the ordinary routine of life, but leaping forth eagerly in response to a great call. They ought to be made known and ac- cessible as widely as possible in a form which shall make them permanent national possessions, so that soldiers' letters 353 their spirit may speak forever to the American people. I should like, therefore, to throw out the suggestion whether a scheme roughly on the following lines might not be found practicable : A National Committee to be constituted, composed of a small number of distinguished and eminently qualified men. This Committee would invite those who have received soldiers' letters which they believe to be noteworthy in the sense I have tried to indicate, to send such letters or copies of them to sub-committees desig- nated for each State. A selection would then be made, of say five hundred letters, and these would be published in a volume, the proceeds from the sale of which, would go to some suit- able purpose commemorative of the war. (Or, instead of one national committee, it might be found appropri- ate to have the Governor of each State appoint a com- mittee and have each State publish a volume of letters from its sons.) Such a volume — a "golden book" in truth — would be a fitting memorial for our noble dead, and an in- spiration and a solemn admonition for those now living and for generations who will come after them. AMERICA AND THE LEAGUE OF NATIONS A LETTER New York November 29, 1919 The information which has come to you as to my views and attitude concerning the League of Nations Covenant is quite correct. I am, of course, cordially in favor of any wise and fitting pact to preserve the peace of the world. I am in favor of America taking her full share in the bur- den of that responsibility which rightfully goes with power. I am in favor of dealing with those nations by whose side we fought in the war, not merely according to the measure of our duty, but according to the measure of our good-will and of our grateful appreciation of their heroism and their sacrifices in the struggle to save the world from Prussianism. I am in favor of the proposed defense treaty with our sister-republic and ancient ally, France (excepting the provision which makes its duration subject to the judgment of the League of Nations). I am in favor of the most cordial understanding and A letter to Senator Miles Poindexter, Washington. 354 AMERICA AND LEAGUE OF NATIONS 355 co-operation with Great Britain. Indeed, I believe that no other single element is so vital to the peace, safety and freedom of the world as close, harmonious and mutually trustful relationship between America and that great democratic Empire. I am in favor of doing everything incumbent upon us to make secure and to perpetuate that which we and the Allied nations fought for. But I am strongly opposed to the League of Nations Covenant as originally submitted to the Senate. In- deed, I disbelieve in the whole conception on which it rests. I have but scant faith in the practical useful- ness and potency of what a French writer has termed "a chimerical edifice conceived in disdain of history and reality and human nature." America loves peace. The ideal of a union to bring about the reign of righteousness among the nations, appeals strongly to popular sentiment. The American people were and are more than willing to take their part in achieving that high task. When the Covenant was first presented to the people here and before its obligations, commitments and effect were fully under- stood by them, there was a decided and very natural popular current in favor of its prompt ratification. Those Senators, Republicans and Democrats, who, like you, stood out at that time against the current and took upon themselves the ungrateful and wearing task of pitting sober truth against glittering rhetoric and sentimental impulse, of analyzing, explaining and ex- horting, have rendered a patriotic service, the value 356 WAR AND FOREIGN RELATIONS and meaning of which will, I am convinced, be recog- nized and appreciated more and more as time goes by. So far from playing politics, they staked their po- litical future upon their convictions. Treat pressure and powerful influence were brought to bear upon them to cause them to modify their attitude. They were exposed to vituperation, misinterpretation of their mo- tives, and to the taunt of Pro-Germanism. As against the potent instrumentalities available to the other side in order to reach and form public opinion, and against amply sustained propaganda, they found themselves without organized support. But they stood their ground; and now a majority of their colleagues, and also, I feel sure, of the people, have come to insist with them upon an "irreducible minimum" of reservations before the Peace Treaty is ratified by this country. America, in the late war, fought for peace, honor, safety, liberty and right. Nothing that we fought for makes it incumbent upon us to entangle ourselves in the age-long racial squabbles and intrigues of Europe and Asia, or to become the guardians and guarantors of an arbitrarily and arti- ficially remodeled world, put together in disregard, more or less, of the evolution of centuries and of the proven qualities and characteristics of races, according to the perceptions, predilections and compromises of a few men assembled in secret conclave, far removed from the informing and vitalizing currents of public opin- ion and not, perhaps, quite sufficiently removed always AMERICA AND LEAGUE OF NATIONS 357 from considerations of domestic-political expediency.* Nothing that we fought for makes it incumbent upon us to relinquish our fundamental national policies and traditions, and to transform the American eagle into an international nondescript. We helped mightily to win the war. Alone among the victors, we have asked for none of the spoils (though, it seems to me, at least we might well and justly have claimed a share in the distribution of those islands in the Pacific formerly owned by Germany, which are of strategic importance to America). We are not called upon to set America's signature to an in- strument that would leave us poorer in those intangi- ble national assets which we have jealously guarded heretofore and which we rightly prize. America, the young giant of the free and unconven- tional West, cannot be put into a garment cut accord- ing to the manner and habits of old-time European diplomacy. She is not at her best when sitting around green tables in European chancelleries. She is not fitted by tradition, training, governmental methods, in- terest or inclination to take a continuous and responsi- * A distinguished English Liberal whose name, were I at liberty to disclose it, would carry great weight, has expressed himself as fol- lows in a letter which came to my knowledge recently: "What I want every one over here to bear in mind is that the Peace Treaty asked the United States by a 'coup de main' to reverse the whole policy of its history. . . . "The whole Peace Treaty is based upon false ideas. . . . "If you are to ask the world to guarantee the world's peace it is essential to begin by establishing a foundation on which peace can stand. This Treaty has done the exact opposite. It has established conditions full of menace for the future and it asks the League of Nations to guarantee that they shall continue. It is asking too much." 358 WAR AND FOREIGN RELATIONS ble part in the adjustment of the intricacies of Euro- pean affairs. She will do far more and far better work for the world if she is left free to do it in her own way than if she is confined and constrained by the rigid formulae and meticulous provisions of an instrument such as the one framed at Versailles. We shall be expected by our associates in the League to do things, some of which we know beforehand we shall not be able to do adequately or shall not see our way to do at all unless they are supported by public opinion in this country when the emergency arises. We shall be expected to take or participate in deci- sions and actions which, in many cases, will be likely to find repercussions in our domestic politics with conse- quences easily to be foreseen. Whether our represen- tatives on the Council of the League would always be selected according to fitness and experience, or whether at times their qualifications would be mainly that of being "deserving" partymen, is at least open to ques- tion. I fear that our participation in the League as now constituted, with its inelasticity and cumbersome ma- chinery, its infinite complexity and all-embracing scope, instead of promoting harmony and good-will, would be apt rather to breed misunderstandings, irritation and ill-feeling between European nations and ourselves. Already, in our recent excursion into the field of European politics, we have managed in one short year to convert friendship and trust toward us into estrange- ment, disappointment and acrimony, in the case of too AMERICA AND LEAGUE OF NATIONS 359 many of those nations with whom we were associated in the war. I have been at pains to read through the Peace Treaty, including the Covenant, from beginning to end. I laid it away sore at heart and sickened. The Treaty falls grievously, most grievously short of realizing the high hopes of the world for a peace worthy of the spirit and aspirations which animated the Allies and America during the war and at the con- clusion of the armistice. It falls short, in spirit and in letter, of realizing declarations solemnly made and even of abiding by pledges formally given. We are told by its defenders that the Covenant is admittedly far from perfect and that the Treaty of Peace itself is faulty and open to serious objection in certain respects, but that these shortcomings can and will be corrected and improved when the League comes into operation. What reason is there to put faith in that promise — being given the fact that no important change can be made without the unanimous consent of the Council of the League*? In what instance in the record of European diplomacy was there ever unanim- ity when selfish interests were at stake, except una- nimity purchased by equally selfish compromises and bargainings'? Does the present state of Europe under the dispensation, for the past twelve months, of the Supreme Council composed of the leading nations, in- cluding America, encourage faith in the effective and beneficent workings of international unanimity*? I had hoped (and some of those more competent than I in international affairs shared that hope) that in 360 WAR AND FOREIGN RELATIONS place of creating a wholly novel and untried machinery of vast complexity, the United States, England, France and Italy would make a short, simple, solemn declara- tion to the world to the effect that the high and benefi- cent things we fought for, we mean to preserve and protect and that any one who assails them will find these great European powers and America again ar- rayed for the defense of liberty, peace and right. Such a declaration would have meant neither an alli- ance with or against anybody, nor a threat toward any other nation. Such a declaration, together with the utilization, strengthening and development of the ex- isting machinery of The Hague Conferences and Tri- bunal, would, I believe, accomplish all that we are called upon to do in this respect, and accomplish it more effectively than an iron-clad document. America wants peace, not only actually but also for- mally, with her late enemies. We should — and but for the League Covenant complication would — have had it long ago. If, contrary to expectation, develop- ments were to make it necessary for America to act alone and upon her own initiative, she could have peace for the asking and without jeopardizing any advan- tage that may accrue to us under the Versailles Treaty, because the Central Powers need peace far more ur- gently than we do. There would be no "hat in hand" business about it on our part, as some would have us believe, nor would such a step involve a modification of the peace conditions as fixed between the Allied Powers and Germany. Nor would it mean a forsaking by us of the Allied nations, especially if accompanied AMERICA AND LEAGUE OF NATIONS 361 by the ratification of the defense treaty with France, which, I hope and believe, will be ratified (with the modification aforementioned) as soon as the President elects to submit it to the Senate. However, it is to be hoped and expected that the ne- cessity for our concluding a separate peace with Ger- many will not be permitted to arise. Unless prevented by unyielding obstinacy and pride of opinion in high places, it may be presumed that the Versailles Peace Treaty, including the Covenant, will be ratified in the course of the next session of Congress, subject to the ir- reducible minimum of reservations. Being given the sinister circumstances and the world situation, which, unfortunately, and unnecessarily, have been created through the course of action of the Peace Conference, I am forced to recognize, however reluctantly and with- out modifying the views above expressed, that ratifica- tion, subject, of course, to such reservations, would ap- pear the course that is called for and that should be adopted. Whether or not that course be approved by the nec- essary two-thirds majority of the Senate, I am quite certain that the Senate's attitude in respect of the League of Nations Covenant does not signify any lack of good-will or appreciation toward the Allied nations, or a callous disregard of our duty toward a world in sore distress. And the very first thing we ought to do as an ex- pression of our true sentiment and in fulfilment of that duty, and out of due regard for our moral standing in the world, is to make available, in a suitable way and 362 WAR AND FOREIGN RELATIONS to a duly measured extent, to the Allied nations and, next to them, to the people of the Central Powers and the newly created nations, those credits which are re- quired to enable them to obtain urgently, indeed vi- tally, needed foodstuffs and raw materials and to start resuming normal economic life. The often heard con- tention that we cannot act adequately until the Treaty is ratified by the Senate, is by no means conclusive. Indeed, it has but little validity. We can and should act now. In advocating the inclusion of our late enemies among those to whom we should extend that succor which we alone among the nations are able to give, I am aware that I may be exposing myself to the taunt of Pro-Germanism. I am no more afraid now of the epithet "Pro-German" than I was afraid of the epithet "Renegade" formerly, because of the stand I took against the dreadful wrong of Prussianized Germany from the day the first gun was fired in the summer of 1914. I do not seek the nod of approbation of those who try to make up and seek forgetfulness for their attitude before, and in some cases even after America entered the war, by loud professions of unrelenting hos- tility and ostentatious hatred toward the beaten foe. Germany is crushed. Her spirit is broken. Stu- pendous as was her pride, has been her fall. Many of her people are in dire distress. A peace of stern and sweeping punishment, with an as yet indeterminate sen- tence of reparation, has been imposed on her. Cur- tailed in land, population and the means of sustenance AMERICA AND LEAGUE OF NATIONS 363 and trade, impoverished, faced with staggering bur- dens, she stands in utter gloom and dismay. More and more the recognition of the monstrous crime to which, under thrice accursed leadership, her people lent themselves, is being borne in upon them, even though I fear that some time must still elapse be- fore a full consciousness of their guilt and a genuine mood of atonement will supplant the state of dazed be- wilderment and bitterness of spirit, in which Germany's utter defeat and the unsparing penalties assessed against her have left the nation. The unspeakable outrage which the German rulers and people have committed upon the world will stand forever among the most horrible national malefactions of history. It can never be condoned nor forgotten. But neither should mercy and humanity be forgotten. Nor should this be forgotten : Here is a people, still sixty millions strong, springing from one of the great racial stocks of the earth, intelli- gent and efficient, naturally given to good order and to hard work, having in past times contributed much to the common assets, spiritual and material, of the world. To the east of them the red flood of Bolshevism is threatening to engulf the nations. Whether those sixty millions shall be made useful in re-equipping and normalizing a world sadly out of gear and sorely beset by insufficient production and in- sufficient means of distribution; whether they shall be given scope and inducement for work and rehabilita- tion and the preservation of the existing order of civi- 364 WAR AND FOREIGN RELATIONS lization and government; or whether, bereft of hope, listening to the councils of despair, they shall surren- der to those who promise them salvation through world chaos, depends primarily upon the actions and the at- titude toward Germany, of America and her Allies in the late war. There is no time to be lost. The people of Germany are looking to the coming winter with dismal forebod- ings. It may be decisive for good or ill. Twelve months after the end of the war, a very large portion of Europe is still in the throes of utter confusion, drifting in helpless and aimless turmoil. The responsibility for this deplorable situation rests in no way with the American Senate. It lies primarily at the door of those accountable for the faultiness of the Peace Treaty, and particularly for not having foreseen, or at least not having devised measures to meet the economic and financial developments which were bound, inevitably, to arise in the first stage of the post- bellum period during the carrying out of the terms of the Treaty. Such measures, if planned and carried out at the proper time, would have presented no formi- dable difficulty and would have spared the world much tribulation, distress and peril. It has now been demonstrated unmistakably and quite irrespective of the Treaty situation that private enterprise in America cannot by itself accomplish the task of providing the means for Europe's immediate necessities, or, at any rate, that it cannot accomplish that task as quickly as needed — for various reasons, among the principal ones of which is the fact that crude AMERICA AND LEAGUE OF NATIONS 365 and shortsighted taxation has crippled the American investment market for the time being and largely barred access to the great reservoir of private capital. In view of this circumstance it has become the function of our Government to take the lead and to act promptly and effectively, not, be it understood, in the way of direct loans to foreign Governments or of relieving banks, exporters, etc., of their due share of exertion and bur- den, but in the way of facilitating, supporting and sup- plementing such efforts by appropriate means and agen- cies. If we do not provide these credits and provide them promptly, we shall in the end lose far more through the impairment of trade and trade opportunities than if the larger portion of those credits were to prove a loss (which will by no means be the case). In addi- tion, we shall lose international good-will, which is a business asset not to be underestimated. The total sum required to meet the need of the whole of Europe now and for the next twelve months is no more than our expenditures would have been for thirty days if the war had lasted but one month longer. But the call for action on our part goes far beyond the mere advantage of sustaining or fostering Amer- ican export trade. Unless we come to the rescue and do it quickly, we are facing the prospect of cruel suf- fering among many of the nations of Europe during the coming winter, with the possibility, by no means remote, of revolutionary uprisings born of hunger and hopelessness. How far and how deep such uprisings would go 366 WAR AND FOREIGN RELATIONS when once started on their course, and how and where their effects would make themselves felt, no one can foretell. The sure and simple preventive is to enable the European nations to put their people to work and to nourish them. No one but America is in a posi- tion to accomplish this. By wise co-operation between the Government and private capital, we can do it with ease and without imposing upon ourselves any real sac- rifice. If we fail to do it we shall not only fail in what seems to me our manifest duty from the ethical point of view, but also in prudence and foresight con- cerning our own affairs. Europe needs America's financial aid at this juncture a good deal more than it needs America's participation in the League of Nations. The allegation put forward by those who advocated hasty and unconditional ratification of the Covenant that American private capital, spontaneously and by itself, would have taken care of the financial require- ments of Europe if the Peace Treaty had been ratified and that all this time it has stood ready and is now standing ready to come forward to the needed extent, awaiting only ratification, is not in accord with the facts. The ratification or non-ratification of the Treaty by the Senate has very little bearing upon the attitude of private and corporate capital toward Euro- pean loans and credits. For all purposes of international trade and credit, Europe is set up now pretty much as it will be under the provisions of the Peace Treaty. The principal Peace Treaty having been ratified by three of the great AMERICA AND LEAGUE OF NATIONS 367 Allied Governments, is in effect actually, for all com- mercial purposes, and will be in effect formally if and when Germany affixes her signature to the supplemen- tary Protocol recently presented to her. As a matter of fact, contrary to vociferous allega- tions, it does not appear that the actions of the Amer- ican Senate have thus far caused any delay in the carry- ing out of the Peace Treaty. The date set by the Allies for the Treaty to go into effect formally is December 1, 1919. If the Senate had ratified the instrument, it would not have gone into effect any earlier. That date is not yet upon us, and at the present writing it seems very unlikely that it can be adhered to because of the unwillingness of Germany to agree to the supplemen- tary Protocol — an unwillingness due, demonstrably, not to the action of the Senate, though that happens to coincide in time and may afford an additional pre- text, but to the contents of the Protocol and to domestic considerations. What is needed and has been needed all along, ir- respective of the Peace Treaty, to start the processes of normalizing and stabilizing economic conditions in Europe, with the resulting relief to the world and bene- fit to our own institutions, is a definite and purposeful lead to that effect on the part of the Administration and appropriate legislation by Congress. Private cap- ital will not fail to do its share to the full extent of its capacity. A LETTER TO AN ENGLISHMAN G OD'S Providence has brought America and Great Britain together after a century and a half of aloof- ness. Few events so fraught with promise of good for the world have occurred in history. It would be a tragedy if, through any act of omission or commission, the attainment of the full possibilities of that new grouping were to be jeopardized, or, worse still, the two nations were to drift apart again. America and England are in the same boat at last, as they should and might have been long ago. Those of us who understand and have affection for England — not quite easy to understand, not taking much pains about making herself understood, little given to en- couraging affection, and rather diffident and reluctant to accept it except from her own kith and kin — rejoice exceedingly in this prospect of a journey of Great Britain and America in close propinquity, bound for the same goal. All America, with insignificant excep- tions, is in that boat. Not a few, it must be admitted, have entered it with hesitation, some even under pro- test — but being in it, every one is pulling his oar. Whether and for how long the common journey is to be continued, after the immediate object of the present October, 191 7. 368 LETTER TO AN ENGLISHMAN 369 excursion, the destruction of Prussianism, shall have been reached, is largely, very largely, "up to" England, for reasons inherent in the psychology of the situation. I do hope that she will make use of the opportunity af- forded by this first voyage together, to get herself really known by her fellow-voyager, that she will take with a good grace certain differences of viewpoint, traditions and conduct, and above all, that she will realize that her companion is a "composite" being, a child of the crucible, as Roosevelt called him. If she means to get along with him, she will have to take him just as he is, including those elements in his make-up which are for- eign to her (doubly foreign in one speaking her own language) and which ordinarily she would be inclined to regard with wondering wariness. That fellow-voyager is a self-reliant, sturdy young chap. He is not without the failings of youth, but he also has its fine qualities and generous impulses. His heart and brain are in the right spot. Underneath a certain unsophisticated propensity for indulging in "tall talk" he is at bottom truly modest. Underneath an outer skin of matter-of-factness, he is a good deal of an idealist. He is open-minded, quickwitted, kindly, frank, direct, unceremonious. He is eager to make friends and expects to find a reciprocal disposi- tion in those he meets. These all are national traits and do not appertain merely to the American of Anglo-Saxon stock. Con- trary to a somewhat widespread impression, the Amer- ican melting pot has produced a race, the overwhelming majority of which, in essentials, feel and act much 370 WAR AND FOREIGN RELATIONS alike. Unless that fact is recognized and acted upon by England, Anglo-American relations cannot assume last- ingly that character of genuine good-will and harmo- nious co-operation which is so greatly to be desired. A limited friendship is a contradiction in terms. A friend- ship between nations which fails to include a very large percentage of the populations concerned does not "stand four-square to all the winds that blow." It is apt, indeed, to lead to a relationship which is perhaps less to be desired than a frankly conceded absence of friendship. And there is the rub. Writing to one as well posted on American affairs as you are, I need not go into a dissertation or analysis of the more or less gentle sport of "twisting the lion's tail," a sport, the devotees of which are by no means confined to Americans of non-Anglo-Saxon extraction. It is one of the accepted conventions of that sport that those indulging in it must keep well within certain lines or they will be promptly and energetically stopped by the bystanders; indeed, the overwhelming majority of those addicted to it would quickly stop it of their own accord if they felt that their actions might really bring about a quarrel between the Lion and the Eagle. I am reminded of a boy of my acquaintance in the days of my youth, who, reprimanded for having been uncivil to another boy, exclaimed with unfeigned conviction: "Why, I don't have to be polite to him. He's a cousin of mine. Cousins don't fight." Neither need I endeavor to enlighten you concerning the feeling and attitude of Americans of Irish descent, 1 LETTER TO AN ENGLISHMAN 37 1 because that problem is fully understood in England, and particularly by you. What I mean to emphasize is that there are in the United States more than twelve millions of men, women and children of German birth or descent. They have been heretofore an excellent element in our citi- zenry and are a deservedly influential factor in the ag- gregation of races which is America. One of those of German descent is Charles M. Schwab, the famous ironmaster, whose services to the Allied cause need no emphasizing. Another is Gen- eral Kuhn, the head of our General Staff. A third is Congressman Julius Kahn, born in Germany of Ger- man parents, who successfully led the fight in Congress for conscription to raise our armies for the war, and who, in various other ways, has thrown his great in- fluence, as ranking Republican member on the Military Committee of the House of Representatives, on the side of all measures making for the promptest possible exercise of the full powers of the United States in the conduct of the war. Two others are Bernard Baruch and Julius Rosenwald, who are counted among the most efficient, valuable and zealous members of that important body, the Advisory Council of National De- fense. The list could be prolonged to great length. Colonel Roosevelt has stated publicly that the Volun- teer Division which he had arranged to take to France if the President had given permission, contained a great many Americans of German descent and that he had designated a number of them for officers' com- missions. 37 2 WAR AND FOREIGN RELATIONS Numerous German- Americans (to use, for the sake of brevity, an ugly term) knowing and correctly gaug- ing the abhorrent spirit and intolerable aims of Prus- sianism were and acted from the very beginning, in 1914, wholeheartedly in favor of the Allies, though most of these adherents of the Allied cause refrained from open demonstration because they felt they were not entirely welcome or entirely trusted in the Allied camp, and their self-respect and fear of having their motives misinterpreted forbade them to give voice pub- licly to their true feelings. Others, again, who had been hesitant or even pro-German in their sympathies in the early stages of the war, gradually, as the hideousness of the spirit and doctrines of Junkerdom revealed itself in revolting deeds, began to realize that the cause of the Allies was that of right and humanity, and adjusted their attitude to that recognition. A considerable number, especially of the Jewish faith whose apparent pro-Germanism had merely been anti- Czarism as they were unable to believe in or adhere to a cause of the success of which the old Russian regime was to be one of the principal beneficiaries, became con- verts to the Allied cause, coincident with the Russian revolution, and demonstrated the genuineness of their new allegiance, even before America entered the war, by energetically using their influence in Russia against all thought of a separate peace. And, with the entrance of America into the war, the mass of German-Americans, even though with heavy hearts and, some of them, still unconvinced, fell into line — with the exception of an extreme fringe confined, LETTER TO AN ENGLISHMAN 373 in the main, to certain sections of the country and cer- tain strata of the people, and augmented by what may be termed the professional spokesmen of Pro-German- ism. (Let it be said in this connection that German-Amer- icans, whether gentile or Jew, must not be confounded with Russian Jews naturalized or temporarily resident in America. Many of these, too, have proved them- selves desirable and useful elements in our many- rooted population, but a certain proportion, the products of centuries of oppression and persecution and misery, ignorant of liberty and unacquainted with its use, have permitted themselves to be made the vic- tims and deluded followers of Utopian or corrupt ex- tremists, too often of their own faith and race.) Englishmen, the bearers and embodiment of the traditions of a thousand years, have their national roots deep down in an age-long past. Therefore, they find it difficult to understand that men of foreign birth or even merely of foreign parentage, can so divest them- selves of their inherited national promptings as to be- come wholeheartedly and unreservedly American and to act as such under whatever test. Judging others by themselves, they are apt to entertain and to show a certain skepticism, if not incredulous aversion, toward the pro-Ally declarations or even acts of Americans of German origin. Now, in contradistinction to the average Englishman, it is given to the men of many other races to be able in a relatively short space of time to merge themselves 374 W AR AND FOREIGN RELATIONS wholly and unqualified and genuinely in the mass of the people of a country to which they have transplanted themselves. This is perhaps particularly so in the case of the German (you will recall Bismarck's complaint on that score) and the Jew. Their innate national feeling is not and cannot be anything like as strong and deep-rooted as the Englishman's. The Germans, however, have felt nationally some fifty years only. Before that they were Bavarians, Saxons, Hessians, Prussians, etc., with widely divergent interests and traditions, with a pronounced dislike of the South Ger- man toward the North German and at times engaged in fighting one another. As for the Jews, for nearly two thousand years they were not permitted, in most countries, to consider themselves part and parcel of the nation in the midst of which they had their abode, and the privilege to do so and to strike root has only been conferred upon them in the relatively recent past. The burden of my argument is that genuine harmony of Anglo-American relationship cannot be secured if a large and influential section of the American people are to be kept apart. I am convinced that no recruit, whatever his race or origin, who in good faith wishes to join the ranks of those believing in and desirous of furthering that aim, ought to be turned aside, dis- criminated against, or looked at askance. The burden of proof ought not to be on him. His professions ought to be taken at their face value, unless there is specific rea- son to the contrary. Whatever the attitude and feeling of a cruelly and unspeakably outraged world toward LETTER TO AN ENGLISHMAN 375 Germany and Germans, now and hereafter, Americans ought to and have the right to demand that they be looked upon and treated as Americans without regard to their pedigree — at the risk even of that label being abused in some few cases. Though of German descent, I hold no brief for German-Americans. To the extent that they deserve that hyphenated appellation, they are utterly repellent to me; I detest and resent their attitude and point of view, and I have the honor of their particular hostility. My plea is solely that everything be done to accom- plish and that nothing be done to endanger the full realization of that which the well-wishers of both na- tions have so long vainly desired — complete under- standing and cordial permanent co-operation between Great Britain and America. PART FOUR: CONCERNING ART SOME OBSERVATIONS ON ART IN AMERICA T HE cause of Art is making steady and gratifying headway in this country, more especially the cause of Musical Art. Ours is, I believe, a distinctly musical people even though America has not been notably cre- ative as yet in music. Fondness for music is genuine, interest widespread, and musical talent abounds. True, we have not thus far, in our public at large, the same degree of scholarly knowledge and widespread musical culture that is found in Germany, but the standard is being set higher and serious understanding is being advanced all the time. Music seems to be the art to which the soul of the American people responds most readily. It has often struck me how extraordinarily keen and sensitive is the American ear for music. That, I sup- pose, results from climatic and related conditions. Cli- mate, soil, extrinsic circumstances of various kinds, far more than the inherent traits of the original stock make the race. Anthropologists have demonstrated that America does produce a distinct race of its own, and that nature here, with astonishing rapidity, changes the European type externally and internally. The climate October, 1913. 379 380 CONCERNING ART of America, or whatever powerful instrument of nature it be, apparently exerts some manner of refining in- fluence physically and upon the senses in more direc- tions than one. That does not mean that the children of immigrants are necessarily a better type than the parents; in fact, in some respects it is a pity that cer- tain of the qualities and traditions of the imported stock do not seem to adhere to the children or to continue un- der the conditions of life in America; what I mean is, that usually they are a more sensitive, more fastidious type. In at least one field of musical art, the standard of New York is more exacting than that prevailing abroad. No public, to my knowledge, is so discriminating and educated in its judgment about operatic singing as the audiences at our Metropolitan Opera House. Their col- lective judgment is almost unerring in its accuracy. For more than a generation this city has heard the very best of operatic artists. It is a characteristic of the American public that they are eager to learn, quick to grasp, sure to retain, very insistent on having the best ; and once they have got it and formed their taste by it they do not fail to discover and discountenance any deviation from that standard. When once they have learned to know the genuine article, you can no longer palm off counterfeit or inferior goods upon them under an enticing label. Foreign artists who Have come to our shores — at times with erroneous preconceptions — have become OBSERVATIONS ON ART IN AMERICA 38 1 well aware of this. They have learned that in this country may be found exacting and accurate judgment together with keen and generous appreciation. Time was when America was looked upon as the happy hunt- ing ground for charlatanism in art and for the ex- ploitation of reputations worn threadbare. That time has long since passed. Artistic success in America has now come to be considered everywhere as difficult to achieve and highly to be valued. The tendencies, aims and conditions of life of mod- ern times have not been favorable to creative art throughout the world, though this has affected musical art and particularly operatic art less than others. In its present form, anyhow, music is the youngest of the arts and therefore the least exhausted, so to speak. And music will, I imagine, for a certain period become the leader in art, in the sense in which painting was the leader during the Renaissance. It is the most eloquent of the arts, the most individual, the most deeply mov- ing. Operatic art makes its appeal to the eye, the ear, the brain, the heart simultaneously, and our people at large seem to be more responsive to it than to any other art manifestation. I do not mean to overestimate the place of opera in musical art. It is not the highest form of musical expression. Orchestral music, and still more chamber music, hold superior rank. But opera does seem to be the most satisfying food for the art-hungry souls of a great many people and to be particularly 382 CONCERNING ART adapted to this time and to the temperament of this nation. All human development has occurred by stages. The first effort, of course, has ever been to secure safety of living. Then come the economic and the wider na- tional efforts, whose victories result in the creation of well-being, power and wealth, national and individual, and following them comes the pursuit of art and cul- ture. There always has been with the advent of this period in a nation's development, a more or less inarticulate, undefined and partly unconscious longing of a great portion of the people for something which shall re- spond to their spiritual aspirations, something quite be- yond material satisfaction. That longing emanating from the nation's soul, expressed and felt in many dif- ferent ways, is — if I observe aright — getting to be ever stronger and more clearly discernible in the United States. Much, I believe, may be hoped from it, for the call of a people does not remain unanswered. I have travelled pretty well throughout the country and met men and women from everywhere. The peo- ple of all sections are keenly eager for nourishment of mind and soul. But the opportunities offered to them to meet these spiritual desires are as yet far from ade- quate. This being the case, faute de mieux, they take what they can find, and not all of it is worthy. Some of the substitutes, indeed, are distinctly deleterious. The hankering after sensations, for instance, so noticeable in this country, and the vogue of certain OBSERVATIONS ON ART IN AMERICA 383 trashy or vulgarizing entertainments, are, I am inclined to surmise, largely manifestations of this desire gone wrong in its groping for satisfaction. To a certain extent at least, some of the ominous tendencies and turbulent movements of the day, may, I believe, be traced to the same cause. Our people have frequently demonstrated the fac- ulty and willingness to recognize, whenever it exists, genuine merit in the artistic offerings placed before them. They are open-minded, always on the alert for improvement, and possess the great advantage of hav- ing no ingrained artistic prejudices or superannuated traditions to overcome. Show them the better thing, and they will recognize it readily and will rise to it with real appreciation. I know of no case where any- thing really meritorious has been offered to our public, of late years, which they did not recognize as such and welcome. If, on the one hand, the nation's taste in art matters has not yet had sufficient time and op- portunity and leadership to be trained so as to make its negative judgment steadily reliable — that is, if it does not repudiate scornfully the bad and meretricious, and if, indeed, sometimes it mistakes that for the good — it is still true that I have never known it to err upon the other side : Our people do not see the genuine and think it paste, nor do they ever fail to rise to lofty appeal. They have a rarely failing instinct for what is really worth while. I have known them to make the judicious grieve by mistaking sentimentalism for feeling, ranting for pas- 384 CONCERNING ART sion, exaggeration for truth, coarse jokes for wit, tawdry tinsel for beauty. But while many things which seemed to me little better than rubbish have suc- ceeded I have never known the truly good to fail. For instance, at the Opera, "Pelleas and Melisande," cer- tainly a deeply serious work and not containing the ingredients of popular appeal, secured instant recogni- tion in this country. It doubtless was "above the heads" of a good many of the audience, yet they ap- preciated intuitively that here was something deep and noble and beautiful, and they felt its spell. The sim- ple charm and the poetry of Humperdinck's "Haensel and Gretel" and "Koenigskinder" have met nowhere with a more sincere and cordial response than on the part of our audiences. And on the dramatic stage, as an illustration, take "Everyman," serious and solemn and unadorned — and an immense success in New York. I could multiply instances to justify my faith that the public here in- variably respond when the true appeal is made to them. I wish, though, we would do a little more, indeed much more, to encourage and support the best in art, and to give incentive and opportunity to American artists. I wish and hope particularly that our men of wealth will come to heed the call of art as they heed so willingly and generously the calls of educational, scientific and charitable institutions. The number of millionaires in America has increased so rapidly during the past twenty years that there does not adhere to them any longer what art collectors call OBSERVATIONS ON ART IN AMERICA 385 "scarcity value." Time was when the mere possession of wealth gave a man a position of leadership, or, at least, eminence in the community. That has become less and less so in this country. Indeed, I should say that it is now less true of conditions in America than in Europe. Contrary to traditional opinion, I believe that money altogether counts for rather more in the way of conferring power and distinction in Europe than here. Europeans are in the habit of looking upon Americans as a people of stark materialism. In that view they fail to appreciate the fact that what, gen- erally speaking, impels our people to restless striving, is not, in the first instance, the spirit of acquisitiveness, but ambition, the will to rise, to "get there," to suc- ceed, to excel, of which, in business, the dollar happens to be the outward token. Nowadays the mere ownership of wealth no longer confers honor. In fact, a good many of our people have gone to the opposite extreme, equally wrong, of condemning and looking askance and railing at men merely because they have wealth. At any rate, the rich man who aspires to honor and influence is rightly chal- lenged to prove his title to them apart from his wealth. If he has aspirations beyond mere monetary success he must gain his spurs in service to the community. For reasons which need not be discussed here, it is difficult for him to enter politics and to put his abilities and experience in the service of his country in that field of activity. He can and does take part in all sorts of philanthropic, charitable, and communal work, and he does so with a greater generosity in the expenditure of 386 CONCERNING ART his money and effort than is the case in any other coun- try — and, incidentally speaking, he does it in nearly all cases purely from a sense of duty and public spirit, because he does not receive in this country any of the outward honors and rewards which are freely bestowed in European countries in recognition of similar work. But the great and vastly promising field of art still awaits the adequate attention of men of wealth. Of course, money cannot create art, but if rightly used it can be its helpmate and it should be. Let any one who does not appreciate the influence of the stage on the people, their hunger for its offerings, and the importance to them and to the community of whether such offerings are of the worthy or degrading variety, read what Miss Jane Addams has to say on this subject in her admirable book, "The Spirit of Youth in the City Streets." Unfortunately, among the people who could help most materially in the direction which I have indicated there are still relatively few who look upon art as the strong educational, social and moral factor which it is, who take it as seriously as it deserves to be taken as a potent agency in forming and guiding the thoughts and sentiments and conduct of the people, and a great boon to vast numbers in making their lives fuller, happier and more beautiful. As against many hundreds who will freely give of their time, effort, and substance for charitable, edu- cational, and other altruistic purposes, there is barely one who is sufficiently impressed with the dignity and far-reaching influence of art to do the same for its OBSERVATIONS ON ART IN AMERICA 387 cause. Some of the spirit which in former times in England ranked actors with vagabonds, and the stage accordingly, still survives. The theatre, both the operatic and the dramatic branch, is still considered by many of our successful men as merely a diversion — not a thing of sufficient import and dignity to be con- sidered worthy of the active interest of serious men. In fact, by some it seems to be regarded as almost infra dig. for a reputable business man to devote part of his spare time and energy to active occupation with operatic and dramatic affairs as he would with hospital work or communal effort. Even his motives in doing so are liable to be misjudged. In this huge country of ours, we need not one, but a dozen theatres of the type of the Comedie Franchise, a dozen opera houses, permanent orchestras, etc., that shall know no consideration except to serve and stead- fastly to adhere to the highest standard of artistic en- deavor. We need institutions to train and guide aright the amazing quantity of all kinds of artistic talent which is latent among the people of our country, and so much of which, alas ! goes to waste for lack of oppor- tunity, inspiration and guidance. In referring to the need for theatres of the type of the Comedie Francaise, I do not mean to reflect unfairly upon the managers of our theatres in gen- eral, nor would the work I have in mind interfere with that done by them, just as the existence of the Comedie Franchise does not interfere with the many self-supporting theatres in France. But in order to 388 CONCERNING ART develop and cultivate the public taste so that it may come to banish what is tawdry and sham and vulgar, certain pioneer work has got to be done, certain stand- ards of comparison must be set and maintained. It cannot be expected of the theatrical manager who has his own and his family's living to make and future to secure, and to take constantly the risks of an at best uncertain business, that he will work altruisti- cally in what is, after all, his means of livelihood. It would not be fair to ask of him that for the sake of an ideal he should disregard his monetary interest, though — to their honor be it said — more than one of them at times has deliberately and willingly made financial sacrifices in the cause of art and from altruis- tic motives, and their public spirit is rarely appealed to in vain. America is full of talent of all kinds. It really looks as if all you have to do is to ask with sufficient in- sistence for its manifestation in some particular direc- tion, and you will get it. The demand creates the sup- ply. To quote an example: Up to say some twenty years ago we depended almost entirely upon European operatic artists, and, especially, upon European repu- tations. But as the love of opera and the interest in it became more widely diffused among the people, de- mand arose for American singers, and when the de- mand came, they came — and with a rush, at that, amazing in quantity and quality. Since that time we have produced at least as many women opera singers of excellence as any of the European nations. The OBSERVATIONS ON ART IN AMERICA 389 Opera Houses of Europe are full of American women artists in leading positions. In the production of male singers we have been much less conspicuous, possibly because the tendency of our boys' upbringing is rather toward sterner or more matter-of-fact things. Take another instance of demand creating supply in a matter of art: Until about twenty years ago we were content with "brownstone houses" in the city, ugly of design and built in monotonous rows, destruc- tive of beauty and individuality. Many people doubt- less realized the unsightliness of that style and manner of architecture, but we did not rebel against it for a long time. When at last we did, we found men on hand who, having learned their lessons, mainly at the Ecole des Beaux Arts in Paris, and having learned them well, were fully qualified and able to guide the movement aright and to translate it into execution. The result has been astonishing. In an amazingly short time what a transformation has taken place in our residential districts. Our private houses of more recent construction are certainly equal, and often su- perior, in comfort, arrangement and taste to the aver- age of the same class in Europe. Many, indeed most, of our public and semi-public buildings erected within the last decennium, instead of being eyesores, as were so many of those erected in former years, have become ornaments to the city. Our architects, as a whole, ad- mittedly rank at least equal now with those of any other country. The manner in which these architects were ready at 390 CONCERNING ART once to meet the difficult and novel problem of "sky- scrapers," and the bold, original and altogether admir- able way in which they have solved it, is another case in point. Our painters, too, have made great strides of recent years. The average level of excellence attained by them, again, is generally acknowledged to be equal to that of any country except France, not to mention the American Sargent, who, as a portrait painter, is held to be without a peer among living artists. What is true of our painters, holds good also of our sculptors. It is sufficient to mention the names of St. Gaudens and McMonnies. And it should be remarked that our painters and sculptors have accomplished their achievements notwithstanding the fact that they have received and are receiving far less encouragement and support and opportunity in their home country than foreign artists receive in theirs. The regrettable cir- cumstance that to this day we have no suitable build- ing for art expositions in New York, is characteristic and eloquent. Altogether, I believe, we have here all the elements which make for genuine and great art development. We are on the ascending line, and I think it will re- quire only some favoring impulses to bring this ten- dency to full fruition. Any system of education would be lopsided which did not include the cultivation of the capacity to feel and appreciate what is beautiful in art and nature, thought and deed. We should strive to develop and OBSERVATIONS ON ART IN AMERICA 39I cultivate every one of the capacities with which the individual is endowed. There are few things more conducive to discontent and self- torment than the pos- session of qualities which are ignored, repressed or denied expression. In a country still young, confronted by such vast material opportunities and demands as ours, the ten- dency up to a comparatively recent period, has natur- ally been rather to overemphasize the development of those qualities which make for material achievement, and to look upon qualities of less substantial texture and effect as somewhat in the nature of useless bal- last in the race for success, if not as positively harmful. But, there can be no doubt that a significant and grati- fying tendency has set in toward an enhanced apprecia- tion of things not material or utilitarian. I am tempted to think that the underlying reason for this tendency is analogous to the one which, it seems to me, has produced a corresponding, but oppo- site, drift in Europe of recent years. There, with the heavy burden of taxation, with far less natural re- sources of soil, with an overcrowded population, the material problems have become so paramount as to make their solution the most vital and pressing task before the nations. Business, in its widest sense, the national and individual struggle for commercial ad- vancement, have come to occupy a vastly more im- portant and absorbing place in the life and the mind of the people on the European continent, than was the case a generation ago. 392 CONCERNING ART To round out these cursory remarks, I should have to go on and speak of the achievements and promise of our actors, playwrights, novelists, poets and of those in the minor arts — most of them, be it remembered, the same as our painters, sculptors and musicians, handicapped more or less by lack of that competent, systematic, comprehensive and easily accessible train- ing and guidance in their early years (and, later on, frequently by lack of that recognition, opportunity, understanding and encouragement) which are offered in most European countries. But this article has al- ready been extended, I fear, beyond the space assigned to me. Let me merely add this in closing: If, as I trust and believe will come to pass, we will give to art that full scope and place and honor to which it is entitled, if we make it widely and easily accessi- ble to the people, if we afford serious encouragement, fostering attention and adequate opportunity to gen- uine aspirations and talent, and due reward to genuine merit, we shall, I am convinced, astonish the world and ourselves by the greatness and intensity of the manifestation of the American spirit in art. AN EXPERIMENT IN POPULAR PRICED OPERA w, HILE it has been found necessary, under the wholly exceptional circumstances now prevailing, to relinquish for the time being the venture of popular priced opera undertaken by the Century Opera Com- pany, yet the experiment has been of value and war- rants the belief that there is a distinct place for such an organization and that, under normal conditions, it can be made self-sustaining. The Century Opera had hard luck in that, so soon after it had come into existence, it struck conditions resulting from the European war, which subjected the affairs of the stage to an almost unprecedented strain. It had not yet become firmly grounded and hardy enough to stand up against the storm of adversity which swept over the field of operatic activities during the past season. Its older sisters, the Chicago Opera Company and the Boston Opera Company, did not venture to open their doors; most of the opera houses in Europe are either closed or, where open, are en- abled to operate only by paying purely nominal sal- aries to their artists. The board of the Century Opera Company, although April, 1915. 393 394 CONCERNING ART fully alive to the risk of venturing on a season under the prevailing adverse conditions, particularly while maintaining ante-bellum salaries, nevertheless went ahead, mainly out of consideration for the artists and other employes under engagement, and although the season had to be brought to a close prematurely, yet the company has been able to give sixteen weeks' em- ployment to those whom it had engaged. The scale of prices ranged from $2 to 25 cents. The cheaper seats, from $1 to 25 cents, were sold out for the great majority of all performances. The mat- inees, in which the highest priced seats were $1, nearly always were played to capacity houses. In fact, the matinees, at reduced prices, brought a higher aver- age monetary yield than the performances at full prices. The demand for the $2 seats, although generally not unsatisfactory, was relatively rather limited. It would seem that many of the people who can afford to pay $2 for a seat at an operatic performance want as an equivalent the brilliancy and stars of the Metro- politan Opera. During the last season, from September 15 to No- vember 20, the average paid attendance per week, notwithstanding the unpropitious times, was 14,400 persons, which, I am told, is a greater number than at- tended any other New York theatre in the same period. The thought on which the Century organization was started was mainly of the many thousands of people who love operatic art or who would love it if POPULAR-PRICED OPERA 395 they had the chance to get to know it, but whose means do not permit them to pay the relatively high prices which the costly standard at the Metropolitan Opera House imposes, of necessity, on that institu- tion. We wanted to afford to such people an oppor- tunity, within reach of their means, to give their souls an airing once in a while, just as the various vacation funds help working girls to get to the country in the summer time. We hoped to take a step in the direction of pro- viding a place for popular musical enjoyment differing from the Bowery variety, but there was no question of trying to impose "uplifting," or "educational" in- fluences upon a reluctant, indifferent or scoffing pub- lic. We believed — and the experience of the past two seasons has demonstrated our belief to be well founded — that there were a great many persons who would eagerly welcome the opportunity to hear the master- pieces of operatic art, at prices within their reach, and who would derive from it satisfaction, joy and in- spiration. And we felt that opera — or, indeed, any form of art — should not be regarded and treated as a luxury. Our thought was also of the many talented young artists, who, owing to the extremely restricted number of operatic organizations in the United States, have far too little opportunity to make their careers in their own country. We hoped that if the Century Opera proved a success, similar organizations might be created in other large cities. It is a regrettable fact that under the circumstances 39^ CONCERNING ART as they now are, the majority of young American oper- atic artists are almost compelled, after their years of study are completed, to go to Europe in order to seek an engagement at one of the many smaller opera houses there, so as to get actual stage experience and a repertoire. From a variety of causes, they have but little chance to acquire these essentials in their own country. We have only two permanent Grand Opera companies, and these are under the necessity of giving seven or eight performances each week and to produce a different opera each evening of the week, which makes it a practical impossibility for the con- ductors and stage directors to find the time for train- ing and rehearsing beginners. Moreover, our Metro- politan Grand Opera audiences demand finished art- ists. It is a great pity that we have no permanent opera companies as yet in cities throughout the coun- try to which our many talented young artists could go in the beginning of their careers to acquire the nec- essary experience, routine, and repertoire. If we had a number of such companies in different cities with a keen and healthy rivalry between them, I am confident that they could easily find a plentiful supply of excellent artistic material and the result for American musical art and artists, as well as for the communal life and interest of the respective cities and states, would be of very great value. The composition and attitude of the audiences at the Century have a real significance. They were in the main composed, as far as we could judge, of POPULAR-PRICED OPERA 397 American born. Those of Italian or other foreign origin who form so large an element of the Metro- politan Opera public were notably absent. Many of the patrons of the Century had never been to the opera before. It was to them a new world. They were enthusiastic, serious, sincere, intent on learn- ing. They stayed invariably from the first to the last note. The galleries and dress circle would, I think, almost have mobbed any one who disturbed them by at- tempting to leave before the fall of the curtain, as is, unfortunately, done so frequently and inconsiderately at the Metropolitan. It is interesting to ncte, as in- dicating the different composition of the respective audiences, that the attendance in the cheaper seats at the Metropolitan was in no way diminished, as compared to previous seasons, during the months when the Metropolitan and the Century played at the same time. Generally speaking, we found that the Century audiences, though very largely recruited from dif- ferent strata than the Metropolitan Opera audiences, have the same tastes. The operas that are favorites in one place are equally the most popular in the other. As for novelties, the public at large do not seem par- ticularly eager to hear them — qua novelties — either at the Century or at the Metropolitan, whether they be by American or foreign composers. They want to be reasonably sure when they go to the opera that they will get their money's worth, and they would rather meet old and well-tested friends than spend an 398 CONCERNING ART operatic evening with new and possibly undesirable acquaintances. However, we had planned, if the or- ganization established itself permanently, to produce several operas by American composers each season. The opera and the theatre operate on different con- cepts. A play (aside from the few very great ones) that is ten years old, creaks when you put it on the boards again and bid it move. The work of the play- wright, owing to a variety of causes, has come more and more to be of a largely ephemeral character. It must be in tune with the nerves, the feelings, tastes, conceptions and sympathies of its own day. Not so with operas. Provided they have genuine musical merit, their effects are largely, though of course not entirely, independent of the changing generations. If we leave aside the interests and effect of novelty, we can get pretty much the same enjoyment out of Gluck's "Orfeo" and Weber's "Euryanthe" to-day as they conveyed when the composers wrote them, one about a century and a half ago, and the other nearly a century ago, not to mention the fifty-year-old operas of Wagner and Verdi, or several of the works of those of lesser stature, such as Donizetti and Rossini, or the gay tunes of Offenbach and Sullivan. The great majority of the Century performances in the first year, and all the performances in the sec- ond year were sung in English. I dare say, that ob- servation and experience during those two seasons left those of divergent views on the subject of opera with translated texts, pretty much where they stood before. POPULAR-PRICED OPERA 399 It goes without saying that every American music lover must be cordially sympathetic toward opera by American composers, i. e. t music originally set to Eng- lish words. We should leave nothing undone to pro- vide opportunity for, and give encouragement to the American composer. But one may be fully in accord with these sentiments, as I certainly am, and yet not be an advocate of the banishment of opera in foreign languages from our operatic stage. Every opera loses, and is bound to lose, in the pro- cess of even the best translation. The accent, the rhythm, the syllables, the sound of the vowels, to which the music was originally fitted, are bound to suffer modifications, more or less, even at the hands of the most conscientious and skillful translator. How would you preserve in translation, to quote but one instance, the effect of "Speeres Spitze" in "Goetter- daemmerung," with the fierce and sharp accentuation which the music gives to the sound and meaning of "Spitze"? Under our present system, we have the best singers throughout the world to choose from and, wisely, employ foreign artists by the side of the ever growing contingent of American singers. What is true of translated texts is true also in many cases of "trans- lated voices," except as to the Italian language which is, of course, the most universally and gratefully sing- able, irrespective of the singer's nationality. True, the artists of some races, such as the Poles and many Americans, seem to possess the faculty of adapting themselves to singing in any language; but this is by 400 CONCERNING ART no means the case with French and Italians from which nationalities some of the world's greatest sing- ers are recruited nor with the great majority of Ger- mans and Austrians. No doubt, most foreign artists could and would, if need be, learn to sing in English after a fashion, but most of them would never be able to do their best and produce the same artistic results and effects when singing in English as when singing in their own tongue or in Italian. The argument frequently heard that opera is sung in the vernacular in France, Germany and Italy and, therefore, we here should follow the same practice is fallacious. In those countries they simply cannot af- ford the expense which is necessarily involved in the system prevailing at the Metropolitan and Chicago Operas and at the Opera of Covent Garden in Lon- don, of giving operas in the language in which they were written, as far as possible (sometimes, as in the case of Russian operas, it is not possible and in those cases I think the performance should be in the Eng- lish language). Our system betokens not inferiority, but superiority. The nations of the European con- tinent have made a virtue of necessity. It is only in this country (besides London and, of late, certain cities of South America) that we can afford the cost of the artistic luxury of having operas presented ex- actly as they were composed. To adopt the European system of translated opera at the Metropolitan and Chicago Opera Houses would not be progress but re- trogression. Of course, it is true that that part of our public POPULAR-PRICED OPERA 401 which cannot follow the text sung in a foreign lan- guage — and naturally that is the great majority — loses something of the complete enjoyment of the opera; but even assuming that the text sung in Eng° lish would always be understandable, a somewhat large assumption, I still believe that the inability to follow the words is a lesser loss to the listener than the impairment of the art value and effect of an opera by having the music made to fit a text for which it was not composed. Moreover, the English language, in its very spirit, does not lend itself to the inanities and flowery senti- mentalities of many operatic texts. However, it must be recognized even by those who, like myself, believe in the superiority of operatic per- formances in the original text, that much can be said in favor of translated opera under certain circum- stances and conditions and that there is a distinct place and mission for opera in the vernacular by the side of opera houses which, like the Metropolitan and Chicago Opera Companies, adhere to the policy of polyglot opera. There is, undoubtedly, a popular sentiment for opera in English, and that sentiment is entitled to serious consideration and rests upon a feeling which demands and deserves sympathy and respect. On the whole, the conclusion seems justified that for the purposes of a popular institution, opera in the ver- nacular is better adapted than opera in English. A postal card canvass was made among the patrons of 402 CONCERNING ART the Century Opera, and a decisive majority of those who sent replies favored opera in English. That will doubtless be again the prevailing view and the policy to be adopted if and when the Century Opera scheme is revived. And when, as I hope and believe will be the case in the not too distant future, we shall have permanent opera organizations in cities other than our metropolitan centres, opera in English will be the appropriate and desirable medium, if only be- cause such organizations ought to be training and testing grounds for American artists and neither ought to engage foreign artists nor will be able to afford the expense of doing so. There has been some discussion recently as to whether it is advantageous to have a board of amateur directors in connection with an organization such as the Century Opera Company. My personal view is that in several respects a background of amateurs is desirable and useful to the atmosphere of an artistic venture of this nature. I say advisedly "a back- ground," because that is where the amateur belongs. The foreground must be exclusively for the manager and his profesional staff and the artists. The ama- teur director may, and should, advise and suggest and criticize; he may in a way be the connecting link be- tween the public and the manager, but he must never come between the manager and the artists; or attempt to exercise individual influence in the matter of en- gagements. In short, he must not interfere in the ex- POPULAR-PRICED OPERA 403 ecutive conduct of affairs. Even the Board of Di- rectors collectively must be exceedingly chary of do- ing that. If the manager proves not to be the right man, he should be displaced, but as long as he is in charge he must be left unhampered unless there be really grave cause for intervention by the Board. Any other course spells disorganization, wire-pulling and the destruction of essential discipline. A board of amateurs may lay down the general lines of artistic policy and purpose to be aimed at. It may supply idealism and enthusiasm, (but in doing so, should beware of that too frequent companion thereof, well-meaning ignorance). It should seek to be the impulse toward the attainment of an ever higher artistic standard, never resting content on the laurels of what has been attained, even if the manager and the public are quite satisfied with things as they are. It must uncompromisingly resist the creeping in of commercialism of any kind, holding it disgrace- ful to use money made by an institution dedicated to the promotion of art, for any but an artistic purpose. The raison d'etre of the amateur board member in art is to enable things to be accomplished which are inherently worth while, but which, without its sup- port, would not be commercially possible or might not be striven for. But he must be careful in the selection of the things which he supports. He must be honest with himself in examining the motives why he supports them, and he must not think that his sup- port gives him the right to become a "butting-in" 404 CONCERNING ART nuisance or the dispenser of favors. In short, he must expect no return except the satisfaction of serving and promoting a cause which he believes in. The idea of using the Century Theatre as the home of opera at popular prices had long been in the minds of some of my colleagues on the Board of the Metro- politan Opera and myself. When, with the co-opera- tion and upon the public-spirited initiative of the City Club, we carried this idea into effect, it was not a move of strategy, of defense or defiance — as was and probably still is believed by some uncharitably dis- posed diagnosticians of motives — but solely an at- tempt, influenced by no extraneous considerations, to serve a worthy cause. It was in the spirit of bring- ing the joy and solace derivable from art closer to the masses of the people, nearer to their reach and their means, that we undertook this venture, and in the hope that we might be able to add something of value, however modest, to the civic assets of New York. The fact that, faced with utterly abnormal condi- tions, the Century Opera experiment had to be sus- pended for the time being, gives no ground for dis- couragement. On the contrary, the public interest and patronage with which the performances have met even under these wholly adverse circumstances, fully warrants the conclusion that opera at popular prices answers to a real demand in this city and is welcome by many thousands of our people. I hope and be- POPULAR-PRICED OPERA 405 lieve that, either through the Century Company or some other organization, the venture will be resumed before very long and will develop into a permanent institution. ART AND THE PEOPLE i N giving you greeting and bidding you welcome, may I say that it is a particular gratification to me to see amongst you so many whom I had not known hitherto, or had only known by reputation or by sight. I trust my old friends will not consider this a left-handed compliment. I am happy indeed to see them here. But the opportunity to make new friends, to rub shoulders and exchange thoughts with people outside of one's accustomed circle, is all too rare in this huge, rushing city. It is one of the greatest drawbacks of life in New York, that the people in the various walks of life do not sufficiently come in contact with each other. We New Yorkers do not mix enough. We men and women of different occupations, professions and viewpoints ought to meet far more frequently, we ought to know one another far better, and thus demon- strate to one another that none of us, neither Wall Street men nor Socialists, have claws or hoofs; that we are all made of the same basic stuff, affected by the same joys and sorrows and responsive to much the same appeal. At the Shakespeare Tercentenary Dinner, New York, May 4, 1916. 406 ART AND THE PEOPLE 407 We ought to seek and emphasize, far more than we are doing, that which unites us instead of searching out and accentuating and indeed exaggerating that which separates us. Among the common meeting grounds available, one of the most appropriate is that of art. For art is democracy in its very essence; not the counterfeit which, misunderstanding or misinterpreting the pur- pose and meaning of the democratic conception, seeks or tends to establish a common level of mediocrity and ultimately becomes the negation of liberty, but the true democracy which, guided by the star of the ideal, yet keeping its feet firmly on the earth and wisely conscious of the disparities inherent in human nature, strives to lead us all onward and upward to an ever higher plane. And the people are willing to be so led. Let me say in parenthesis that when I say "the people," I do not use the term with the somewhat patronizing in- flection that is sometimes imparted to it, rather imply- ing that the speaker refers to a thing apart from him- self. I refer to you and to me no less than to the butcher and baker and candlestick maker. It is a constant source of wonderment to me how "the people" are underestimated by most of those who seek their votes or their patronage. Just as the average politician thinks that "the people" want to be coddled and flattered and "soft-soaped," when ex- perience has shown that the royal road to popular success is to show courage and independence and to stand up man-fashion for one's convictions, so the 408 CONCERNING ART average theatrical manager thinks that he must play down to an assumed level of shallowness, when ex- perience has shown that the greatest probability of scoring a hit is in aiming high. I have an abiding faith that the people collectively know a good thing when they see it. It is true that sometimes they make the judicious grieve by taking a pretty poor thing for a good thing, but I have never known them to fail to recognize and appreciate the truly meritorious in art. In fact, I have admiringly wondered more than once at their capacity to enjoy and digest heavy and unusual artistic food, free from the salt or spice of what is ordinarily considered pop- ular appeal. I have never believed in the necessity or advantage of gauging theatrical offerings according to the alleged standards and requirements of the "tired business man," or, for the matter of that, woman (for women are usually just as busy, and just as tired after the day's work as are the men, only as a rule they carry their tiredness off better and make less fuss about it). Silly, inane shows are no antidote to "that tired feel- ing." What both men and women, tired or idle, do want is to be genuinely moved and stirred, either to laughter or to tears, or stimulated to new thought; in short, to be lifted out of the rut and routine of their daily lives and mental atmosphere. The conditions of existence of the great majority of the people are, unfortunately, hard and wearing, but I venture to question whether as yet we use sufR- ART AND THE PEOPLE 409 ciently the spiritual means at hand and well tested in European countries, to make them less so. We are doing as much, probably, for education as any other country, but relatively little for recreation. And recreation of the right kind does have power lit- erally to re-create, to re-create the wasting tissues of our souls, the worn fibres of our brains, to re-create indeed the zest and courage for life. Art has that power beyond all other forms or means of recreation. And the people are ready to welcome art; they are hungry for nourishment for their souls, eager for outlets for their emotions. Observation and experience have thoroughly convinced me how great and beneficent an influence art can, and should, be made in their lives. II Art, and, because of its wide appeal, particularly the art of music and of the stage, is a serious and im- portant cultural element in the life of a community. It has a weighty purpose and a great mission. It is one of the most potent factors for good, one of the three or four strongest agencies which tend to form and guide the thoughts and the sentiments and the conduct of the people. The craving for sensations — so characteristic of our time, and particularly of our country — some of the restlessness, of the turmoil, of the lawlessness, even of the crime of the day, spring in many instances simply from a desire to get away from the unrelieved dullness and drudgery of every-day existence. 4-10 CONCERNINGART It is very far from being generally appreciated as yet, how much can be done by art, and especially by the art of the stage, to give proper satisfaction to this natural and legitimate desire, to lead the strong in- stinct underlying it into fruitful, instead of into harm- ful, or even destructive expression. It is very far from being appreciated as yet by our wealthy men that art can be as educational as universities, that it is, or can be made, a strong element for civic better- ment, that it has power of exhorting and stimulating and revealing, of soothing and healing. European governments and municipalities have long since recognized this aspect of public usefulness and value inherent in art, and have given expression to this recognition by subsidizing theatres and operas and other art institutions. Here, in accordance with the spirit and traditions of the country, this task to the largest extent is left to private initiative, to the gen- erosity and public spirit, or, if you will, the enlight- ened selfishness of those who can afford to give. It is a duty and a privilege and ought to be a pleasure to fulfil it. Those of us who have been favored by fortune, who sit in our offices or well appointed homes more or less satisfied with the general scheme of things and with our place in it, must increasingly do all we can to prove that we are duly conscious of the obligations which a decent recognition of the advantages we enjoy imposes upon us. For educational and scientific purposes a vast deal has been done. The generosity displayed by many ART AND THE PEOPLE 4H of our wealthy men in this respect is the envy and ad- miration of the world. But to the immensely large and immensely important field of art relatively little attention has been given thus far. Yet the oppor- tunity is boundless and the need very great for men who will put some of their wealth, their time and their ability in the service of this cause; who, conscious of the importance and the far-reaching influence of art, will help along in movements having for their purpose the advancement of art and of art standards, and the procuring of more and better opportunities in the field of art, both to the public and to American artists. Maecenases are needed for the dramatic stage, the operatic stage, the concert stage; for conservatories and art academies; for the encouragement and sup- port of American writers, painters, sculptors, deco- rators, etc., in fact, for all those things which in Europe have been done and are being done by princes, governments and communities. Here is a vast opportunity for cultural and helpful work. To strive toward fostering the art life of the country; toward counteracting harsh materialism; to- ward relieving the monotony and strain of the peo- ple's every-day life by helping to awaken in them or to foster the love and the understanding of that which is beautiful and inspiring, and aversion and contempt for that which is vulgar, cheap, and degrading, is a humanitarian effort eminently worth making, and of- fering, moreover, every prospect of not being attempt- ed in vain. 412 CONCERNINGART III We all, rich and poor alike, need to be taken out of the routine and grind of our daily lives once in a while. We all are the better for psychic change from time to time, just as we are the better for physical change of air and surroundings. A sluggish soul needs stimulation just as much as a sluggish liver. We need to exercise the muscles of our soul just as we need to exercise those of our body. To feel, to appreciate, to understand the beauty of nature and of art is one of the greatest gifts that can be given to any one on his way through life. I think a great majority of us find it, with other gifts, in our cradle, but too many of us either do not grasp it, or, as we grow up and face the serious business of life, deliberately throw it overboard, looking upon it as useless, or even harmful ballast in the stern and strenuous struggle for success. This is a pity and a great mistake, even from a utilitarian point of view. Just as the soil of agricultural land requires rotation of crops in order to produce the best results, so does the soil of our inner being require variety of treatment in order to remain vigorous and elastic and fertile and to enable us to produce the best of which we are capable. Wealth is only in part a matter of dollars and cents. The visitor who pays twenty-five cents for a seat at a popular concert, if he brings with him love and enthu- siasm for art, will be far richer that evening than the ART AND THE PEOPLE 413 man or woman from Fifth Avenue if he or she sits yawning in a box at the Metropolitan Opera House. The poor man in a crowded tenement who feels moved and stirred in reading a fine book will be far richer than the man or woman sitting in dullness in a gorgeous li- brary. If he goes to Central Park or Riverside Drive with his eyes and soul open to the beauties of nature, he will be far richer than the man or woman chasing through the glories of Italy or France in a luxurious automobile, the man thinking of the Stock Exchange and the woman of her new dress or next party. I don't mean to imply that love of art is lacking among the well-to-do and is preponderantly confined to those not blessed with worldly goods. Feeling for art has nothing to do with the size of a man's pocket- book. Proportionately speaking, there is probably no very great difference, as to the number of art lovers on Fifth Avenue and on Avenue A. But the inhabi- tants of Fifth Avenue have a far greater and more con- tinuous supply of diversions, artistic and otherwise, than those of Avenue A, and therefore, are naturally not as responsive and susceptible to the simpler appeal, do not bring the same freshness, zeal and enthusiasm to their enjoyments, nor carry away from them the same degree of stimulation and satisfaction. That is one of the penalties of Fifth Avenue and one of the re- wards of Avenue A. IV The late Booker T. Washington used to tell a story of his meeting a colored woman and asking: "Well, 414 CONCERNINGART Miranda, where are you going'?" to which she re- sponded, "I'se goin' nowhere, Mr. Washington, I'se been where I am goin'." This country hasn't "been where it is goin'." A great stirring and moving is going on in the land. The old order changeth, giving place to new. Call it "the new freedom" or "my policies," or what you will, the people at large are astir groping, seeking for a condi- tion of things which shall be better and happier, which shall give them a greater share, not only of the com- forts and material rewards, but of the joys and the recreations, the beauties and the inspirations of life. It is a movement which is full of promise, and a menace only if ignored, repressed, or falsely and self- ishly led. Most of it will find expression in politics, in economic and social legislation; some of it will find expression in art. In this great country, with its vast mixture of races, all thrown into the melting pot of American traditions, climate and surroundings, there is all the raw material of a splendid artistic development. Every kind of tal- ent is latent here. All that is required is opportunity, inspiration, and guidance. And in addition we have here perhaps the best public to appeal to that exists anywhere, a public eager to learn, quick to perceive and to respond, sure to appreciate and retain; fresh, spontaneous, and genuine in its feelings, clean and healthy in its artistic instincts and aspirations, not yet affected by the taint of decadence which has begun to cast its blight upon art in some other countries. In saying this, I do not dispute the charge frequently ART AND THE PEOPLE 415 laid against us that our people lack as yet in discrimina- tion and finesse, and that they are not sufficiently intolerant of the meretricious in art. But these are faults of youth, and moreover essentially negative faults, curable and in process of being cured, while the virtues to which I have referred are positive in charac- ter and cumulative and progressive in effect. Admitting that our people are apt at times to follow false gods, I say, let the right god come along and they will recog- nize him unfailingly and follow him rejoicing. America is much misunderstood and consequently maligned. Its foibles, its imperfections "jump at the eye," to use a graphic French expression. Its really controlling qualities — and they are beautiful and lofty and full of promise — lie deep and are not apparent to the casual beholder. The world likes the short cut of catch phrases, such as "the almighty dollar," and is re- luctant to go to the trouble of reconsidering opinions once formed. America in the past century had the formidable task of conquering a continent, physically and industrially, and it was necessary that the best brains, the intensest energies and activities of its people should devote them- selves to that stern task of material effort, the success of which was naturally measured and expressed largely in terms of dollars and cents. But the day of the industrial pioneer is over (though vast material development, vast indeed beyond all imagination, still lies before us) and with it has gone — if it ever existed — the day of the almighty dollar. The day of the pioneer of culture and idealism has come, 4-l6 CONCERNING ART and the power of the idea is, and has always been, even in America's most materialistic days, far mightier than that of the dollar. After more than a century's stupendous effort and unparalleled — almost too rapid — economic advance, we have reached a stage where we can afford, and ought, to occupy ourselves increasingly with questions affecting the mental, moral, and psychi- cal well-being and progress of the race. A vast army equipped with spiritual weapons, second to those of no other nation, stands ready and impatient to follow those qualified to lead, across the tenaciously held trenches of ugliness, dullness and commercialism, to the heights beyond. America has been rightly called, by a hard-headed European observer, "the land of unlimited possibilities." He referred to the possi- bilities of business, but the same thing holds true of the possibilities of art. More in this country than any- where else, is it possible to walk with one's feet on the earth and one's head in the clouds. In the present juncture of the world's affairs many a great opportunity and a duty commensurately great lie before America. One of the greatest of such opportuni- ties and duties is in the field of art. When this appalling war comes to be ended, the heavy burden of reconstruction will lie upon weary and weakened Europe. Millions of the flower of its youth and manhood will have been killed or maimed. The utmost energies of the men and women of the leading ART AND THE PEOPLE 417 European nations will have to be devoted for years to come to the hard and stern task of material effort. In the stress and strain of the post-bellum period, the high altar on which burns the sacred flame of art, may be left for a time with but few attendants. It is Amer- ica's opportunity, it is America's high privilege and duty to aid in keeping alive that sacred flame. It is her priv- ilege and duty to open wide her portals to art and artists, to become a militant force in the cause and serv- ice of art, to be foremost in helping to create and spread that which beautifies and enriches life, to fight and seek to destroy that which vulgarizes and lowers it. To accomplish this great task there must be leaders — but the test of a leader is that he have followers. Those who conceived and took charge of the execution of the bold and broad plans of the Shakespeare Tercentenary Celebration have met that test. In the face of much discouragement and some scoffing, they went ahead in that simple and enthusiastic faith which has the power to move mountains, and — that is perhaps no less hard — to move New York. They — and I mean especially the women, for it is the women who did much the larg- est and hardest part of the work — have accomplished what has never before been done in this city : they have aroused, mobilized, and organized the community spirit in the cause of art. This Tercentenary Celebration which will culminate in the production of Percy Mackaye's Masque, is not a "high-brow" affair, it is not a benevolent uplift move- ment backed by a few men and women of wealth. It stands upon a broad and deep popular base; it enlists, 4-l8 CONCERNINGART and has significance for all sections and callings of our city. It has the enthusiastic support and active co- operation of two thousand different organizations di- rectly representing 800,000 constituents. It is the most democratic, most comprehensive, and most promising re- sponse that ever has been given in this community to the appeal of art. It demonstrates conclusively the extent and genuineness of the latent interest in, and feeling and desire for art among the people of New York. VI And now that we, or rather the men and women workers of the Shakespeare Celebration Committee — for my own part has been entirely insignificant — have succeeded beyond all anticipations in calling the com- munity spirit into action, let us seek to perpetuate it as a concrete and living force. The main purpose for which I have ventured to ask you all to this dinner- meeting, was to obtain appropriate action to that end. Hoping that you will forgive me a somewhat Tam- manyesque method of procedure for the sake of the good cause, and also for the sake of completing our program for this evening at not too late an hour for your comfort, I have made free to prepare a resolution. In keeping with the spirit and character of this gather- ing, I have asked Mr. James M. Beck, who, apart from being a distinguished writer and orator and a pro- found student of Shakespeare, is a corporation lawyer and a stalwart Republican, to move it, and Mr. Morris ART AND THE PEOPLE 419 Hillquit, a tribune of the people and a leading ex- ponent of Socialistic doctrine, to second it. The reso- lution is as follows: Whereas the attendance at the various Shakespeare performances during the past theatrical season and the widespread interest displayed in the Shakespeare Ter- centenary Celebration have demonstrated that the peo- ple in all walks of life are ready to respond to the ap~ peal of serious art, and Whereas the Shakespeare Tercentenary Celebra* tion Committee has succeeded in enlisting the co-opera- tion of a great many different organizations toward an adequate expression of the community spirit in art, and Whereas it appears desirable to perpetuate and en- large such co-operation and to endeavor to give com- prehensive expression, definite aim, and systematic guidance to what has heretofore been mainly indeter- minate aspiration and sporadic and scattered effort, Be It Resolved That the Mayor 's Honorary Com- mittee and the New York City Shakespeare Tercenten- ary Celebration Committee constitute themselves into a permanent organization, with power to add to their number, in order to serve the cause of art and more par- ticularly that of the stage and of the pageant, and to foster and give expression to the community spirit and to community effort in art. Further Resolved That the Chairman be directed to appoint a committee for the purpose of devising ways and means to carry into effect the sense of this resolution and that such committee report its reconi- 420 CONCERNING ART mendations and conclusions to a joint meeting of the Mayor's Honorary Committee and the Shakespeare Tercentenary Celebration Committee, such meeting to be called by the Chairman at as early a date as practi- cable. UNIVERSITY OF CALIFORNIA LIBRARY, LOS ANGELES us book is due on the last date stamped below. K«url HPR28 19SV OlSCHAiv QL JUL 6 Book Slip- -Series 1280 '7/513 00457 2755 UC SOUTHERN REGIONAL LIBRARY FACILITY AA 001 167117 9