Charles Goldring
PRINCIPLES OF ECONOMICS
M/^
ATLANTA
MACMILLAN &
LONDON
CO., Limited
THE MACMILLAN
CO. OF TORONTO
CANADA,
Ltd.
PRINCIPLES OF ECONOMICS
BY
F.
W. TAUSSIG,
VOLUME
II
By
PRIXTEl) IN
CONTENTS
VOLUME
BOOK V
THE DISTRIBUTION QF WEALTH
II
Demand
Section
1.
What
''
CHAPTER
38
VOL.
II
PAGES
The Conditions of
3-19
of the
as capital disSec. 2. There is no such thmg term "capital," 3 o Sec. 3. The essential problem as capital goods, 6 tinct from cause of interest, nor does its quantity ^lonev is not the interest
is
meant by
distribution.
The meaning
there is a demand for 4. affect'the rate of interest, processes o effectiveness of the time-usmg present means; the the marginal Sec. 5. Is capital productive? 9 production. of of capital determmes the rate effectiveness or productivity appliarises from the more effective
7 - Sec.
Why
How
return.
cations.
Is
Human doses of capital? 14 -Sec. 7. operation of the capitalistic process. successful on this subject, 18. often neglected in reasoning
utility, 11 Analogy to the problems of value and returns from successive a general tendency to duninishing there to
A consumer's surplus
- Sec.
6.
CHAPTER
39
.
Interest, continued. present means needs an mducement, Section 1. Accumulation of Cases disposition to save. 20 Sec 2 The gradations in the Sec. 3. Cases where needs to be sUght, 21 where the inducement that a lowered return will somea return is sought. Possibility More often, lowered return hecfe savings. times induce larger diabee. 4 The conception of marginal savers, 24 saving of supply and demand. Savers
20-33
grams expressing the equilibrium the rate of interest Sec. 5. The steadiness of surnlus 27 Sec. 6. The race between significance, 30 modern times and its
vi
CONTENTS
CHAPTER
.......
40
VOL.
II
PAGES
34-50
Loans for consumption introduce no new principle as to demand, but are much affected by the absence of full competiSec. 2. Public borrowing for wars an importan form of tion, 34 such loans in modern times. Great wars and war borrowing give For the problem of rise to both economic and fiscal problems. Sec. 3. Durable interest, the economic effects are important, 37 consumer's goods, as a fqrm of investment, again introduce no new principle, 40 Sec. 4. No grounds for distinguishing between producer's capital and consumer's capital, so far as interest is concerned. Exchange of present for future the most general statement Sec. 5. The mechanism of banking of the cause of interest, 43 Sec. 6. Variations in and credit makes interest all-pervasive, 44 the rate of interest in different countries and for different investSec. 7. The justification and social significance of ments, 45
interest, 48.
CHAPTER
OVERPRODtrCTION AND OVERINVESTMENT
Section
Sec. 2.
1.
......
41
51-61
The extensibility of wants, 51 is impossible. Overproduction, in the sense of production beyond the stage of profit, is possible if investment proceeds unendingly. The process of advances to laborers and the readjustment of production
possibility of use,
under the supposed conditions. Check to the extreme results, from the cessation of accumulation. The reasoning of Rodbertus criticized, 53 Sec. 3. A real tendency to overproduction, thru overinvestment in the familiar industries, 58 Sec. 4. Industries with large plants, best managed under continuity of operation, are Sec. 5. tempted to overproduction or else to combination, 59
The phenomena
different
of crises
and
CHAPTER
Rent, Agriculture, Land Tenure
Section
1.
.
42
. . . .
.
62-82
Rent does not enter into the price-determining expenses of production. Rent Sec. 2. The existence of is not the specific product of land, 62 rent is dependent upon diminishing returns from land. Advantages
The theory
of surplus
produce or "rent."
Sec.
3.
Qualifications of the
a possible stage of increasing returns; specific plots alone to be considered; proposition refers
principle of diminishing returns:
CONTENTS
to physical quantity of produce, not to value; a given stage of Sec. 4. The stage when the tenagricultural skill assumed, 68
vii
VOL.
II
PAGES
Sec. 5. Are there dency to diminishing returns is sharp, 72 original and indestructible powers of the soil? Predatory cultivaInherent differences tion; intensive and extensive agriculture. Sec. 6. Land tend to be lessened, but do not disappear, 73 tenure. Cultivation by owners, each with moderate holdings, of Sec. 7. Should the community greatest social advantage, 77
itself agricultural
rent? 80.
CHAPTER
Urban Site Rent
Section
1.
43
83-97
rent arises on sites for retail trading, wholesale
How
Sec.
2.
The
principle of
Sec.
its
3.
Site rent
The
is
Sec.
4.
sunk irrevocably in the soil, there is difficulty in separating rent from return on capital. How far ground rent is Sec. 5. How far the activity of identical with economic rent, 91 Sec. 6. real estate dealers and speculators is productive, 94 Urban rent is sometimes deliberately created; is it then economic
capital
When
rent? 95.
REiiT, concluded
.........
44
CHAPTER
.98-112
Section
1.
The
rent of mines,
Sec. 4.
how
influenced
The selling price of a site is a capitalization of its rent, 5. The problem of appropriating rent for the public is presented most sharply by urban sites. The possibility
102
of leases
103 Sec.
Sec.
by
risk,
98
3.
A remining roy-
development of
and
Sec.
6.
The
many
Modes
CHAPTER
Monopoly Gains
Section
1.
45
-
113-121
Absolute monopolies; industrial monopolies. Patents and copyrights as instances of absolute monopolies; the grounds for
them by law, 113 Sec. 2. "Public service" monopolies. Increasing returns and increasing profits, 116 Sec. 3. Combinacreating
tions
power, 118
Sec.
4.
The
capitalization of
problems as to vested
rights, 120.
viii
CONTENTS
CHAPTER
46
....
vol.
ii
PAGES
122-130
Is the distinction
in view of the wide extent of differential gains of a monopoly sort? Grounds for maintaining that all returns from property of any kind Sec. 2. A different conception of "rent" are homogeneous, 122 and "interest," the two being regarded as different ways of stating the same sort of income. "Artificial " and " natural " capital. How Sec. 3. The important measure the amount of capital? 124 iiuestions are on the effectiveness of competition, the existence of a normal rate of interest, the justification of interest, 127.
CHAPTER
Differences of Wages.
Section
1.
47
.
Social Stratification
131-152
Sec.
Irregularity of employ-
ment and
133
on
relative wages.
Expense
of training,
Sec. 3.
Obstacles to free
Sec. 4. Expense of education as Full monopoly rare, 135 Sec. 5. Inequalities of inborn gifts an obstacle to mobility, 136 and social stratification. Uncertainty of our knowledge concerning Sec. 6. Non-competing groups, the influence of inborn gifts, 137 roughly analyzed as five. The broad division between soft-handed
ences.
movement
Sec. 7. Tendency to greater and hard-handed occupations, 141 mobility in modern times. The position of common laborers, 144 Sec. 8. Wliat differences in wages would persist if all choice were Sec. 9. Why the wages of women are low, and wherein free? 148
the labor of
women
is
CHAPTER
Wages and Value
(
48
153-163
"Expenses of production" and "cost of production" again considered. If there were perfect freedom of choice among Sec. 2. There laborers, value would be governed by cost, 153 l)eing non-competing groups, demand (marginal utility) governs
Section
1.
How this principle applies to a grade or group; Sec. 3. Qualifications: earnings marginal indispensability, 155 may be so divergent as to cause seepage from on-^ group into another; the standard of living may affect numbers within a group,
relative wages.
158 Sec. 4. The lines of social stratification are stable; hence changes from the existing adjustments of value are not usually Sec. 5. The theory of international trade affected by them, 159
OfNTENTS
value under U9u-cuuipetbrought int harra.ny with the theary of Analgies between international trade Sec. 6. ing groups, IGl
IX
PAGES
CHAPTER
r.trsiNESS
4#
.
.
Profits
164-179
assumption of risks. The Section 1. Business profits rest on the as Sec. 2. Position of the business man "profits," 164 term income. Irregularity and wide range of this receiver of a residual irregular, it is not due to chance, its relation to prices. Tho
abiUty; that played by 3. The part played by inborn 169 -Sec. 4. The qualities opportunity, environment, training, judgment, courage. Mechanical requisite for success: imagination, Relations of the not so important as might be expected. talent Diversity of qualities among the sucbusiness man to inventors. among busmes.s Sec. 5. A process of natural selection cessful, 170 17::; tells more than in most occupations, capacity
men.
Natural and money-making. Social Sec. 6. Motives of business activity other motives are also at work, 175 ambition the main impulse; plenchanges would occur if business ability were very
Sec. 7.
tiful
What
and capacity
for
CHAPTER
Business Profits, continued Section 1. Analogy between business
50
180-198
profits
and
rent.
A similar
the element of risk vitiates analogy in other occupations. How far exSec. 2. The difference in business abilities analogy, 180 the The conception of the cost of production. in
plains differences
expenses of production, "representative firm" as settling normal is in the of the manifestations of busmess ability Sec. 3. One 183 In the end, an important difselection of good natural resources. and differential business profits, ference between economic rent the return on capital and 4. The connection between
185
Sec.
business profits.
tion
of functions
5.
For considerable
periods,
capital brings in a given enterprise the profits; but not in the long run without probability of larger Sec. 6. For industry as a whole and capital
command
business ability, 189 connection between interest and business as a whole there is a How thev may diverge in the end, 190 See. 7. A view profits distinguishes them sharply from wages, of business profits which
as
a dynamic state, 192 -Sec. 8. Another emphasis on risk, and distinguishes between view whicli lays
arising solelv in
CONTENTS
VOL.
PAGES
the wages of salaried managers and the "profits" of independent business men. The salaried manager often rewarded de facto in
Sec. 9. Legitimate and illegitimate proportion to "profits," 193 business profits. Their restriction within the legitimate limits de-
pends on the removal of monopoly gains and the maintenance of a high plane of competition, 195.
CHAPTER
Great Fortunes
51
199-207
Section 1. The development of large-scale production and the growth of numbers have been the fimdamental causes of the Sec. 2. The scarcity of high busigrowth of great fortunes, 199 ness ability explains great fortunes accumulated out of business Sec. 3. Influences of a different kind are urban site profits, 200
fortunes, 202
Sec. Unearned gains Large earned, 203 Sec. The building of plants and The need of better 205 Sec.
4.
5.
monopoly
gains.
for-
6.
and
CHAPTER
The General Level of Wages
Section
1.
52
208-224
The fundamental question on the general level of Sec. 2. The nowages is raised by the case of hired laborers, 208 tion that lavish expenditure creates demand for labor and makes
wages high.
Consequences of investment as compared with "exSec. 3. The fallacy of "making work." Why hired laborers universally desire that employment should be Sec. 4. The created and dislike labor-saving appliances, 210 theory of the specific product of labor as determining wages, 213 Sec. 5. Wages depend on the discounted marginal product of labor. Explanation of "margin" and of "discount." Advances to laborpenditure," 209
ers,
214
Sec.
6.
Some
qualifications.
(1)
The
current rate of
assumed to be settled by time preference; otherwise there reasoning in a circle. (2) A broad competitive margin is assumed, is otherwise there is no settlement either of interest or of wages, 216 Sec. 7. The mechanism of advances to laborers, the flow of real income into their hands, the reservoir of existing supplies, the reSec. 8. With the increasing placement of what is advanced, 218 complexity of production interest tends to be a larger part, wages
interest
is
Sec 9. The a smaller part, of the total income of society, 221 theory of general wages, tho it seems remote from the problem of questions, 222. real Ufe, is of high importance for the great social
CONTENTS
CHAPTER
PoPtriiATiON
xi
....
53
rates
vol.
PAGES
^,^
225-240
Section
logical science,
death
rate,
The Malthusiaa theory, how far strengthened by bio225 Sec. 2. The maximum birth rate, the minimum the consequent possibilities of multipHcation. In what
sense there
rates of
is
Sec.
in
some coimtries
and death
cause low wages, or vice versa? Interaction of causes. A limitation of numbers not a cause, but a condition, of general prosperity and
w; ges, 236 Sec. 5. The standard of living aflfects wages, not directly, but thru its influence on numbers. Fallacies on this Sec. 6. Mode in which the modern decline in the subject, 237 birth rate has taken place, 239.
hig'i
Population,
co tinned
1.
........
CHAPTER
54
^^^
241-252
Section
Sec.
and
2.
The
tendency to lower birth rates is social amIts connection with private property and individualism. bition. Illustration from native-born and immigrants in the United States, 245 Sec. 3. Is the preventive check being carried too far?
main cause
of the general
CHAPTER
Inequality and its Causes.
55
Inheritance
....
^^
253-277
Section 1. The fact of inequality: distribution has a roughl}' pjTamidal form. Figures indicating the distribution of income for Sec. 2. The distribuPrussia, for Great Britain, for London, 253 tion of property, as indicated by probates in Great Britain, by tax Sec. 3. The distribution of income in the statistics in Prussia, 257
Sec. 4. Is inequaUty becoming greater? 263 United States, 258 Se . 5. The causes of inequaUty: differences in inborn gifts; the maintenance of acquired advantages thru opportunity and above
all
Sec. 6. Inheritance to be justified as nance of capital under a system of private property, 267 Sec. 7. Possible limitations of inheritance, thru taxation and in other ways, 268 Sec. 8. Proposals for the radical restriction of inheritance, 269 Sec. 9. The grounds on which private property rests. The utilitarian reasoning, 273 Sec. 10. The leisure clas-; its economic and moral position, 275.
essential
the
int
References on Book
277-278
xii
CONTENTS
BOOK
VI
PROBLEMS OF LABOR
CHAPTER
Tece
Section
1.
56
.
vol.
.
ii
PAGES
y/^
2S 1-297
i^
book: they involve the weighing of conflicting elements, and are Sec. 2. The wages system affected by social sympathy, 281 necessarily involves restrictions on the individual's freedom, 283
has material drawbacks and spiritual drawbacks, yet Sec. 4. A strike is not a mere brings a net balance of gain, 284 cessation of work, but a fighting move. It is the set-off against the Sec. 5. Should ths right to strike power of discharge, 287
Sec. 3.
It
be restricted? 290
bilities
Sec.
6.
Employee representation:
its possi-
and
its
limitations, 295.
CHAPTER
Labor Unions
Section
1.
. .
57
298-317
Weakness
Sec.
2.
Monopolistic tendencies
permanent impor-
The open
Sec. 3. Closed shop a potent instrument for good, 301 or open shop? A strong prima facie case for the closed shop with the open union, 304 Sec. 4. The danger of a check to progress
among
the less
under the closed shop. Limitation of output; piece work; the standard rate; labor-saving appliances: discipline, 306 Sec. 5. A division between open shop and closed shop not unac-
and
efficiency
ceptable.
Grounds
The
tie-up,
313
Sec.
58
Sec.
7.
6.
The
unionist
ment Ukely
to extend,
315.
CHAPTER
Labor Legislation and Labor Hours
....
318-334
aims to Section 1. Labor standardize conditions of employment. Legislation on the hours of labor for women and children the typica case. Other sorts of restriction. Sec. 2. 'Why Situation in the United States, 318 legislation must supplement and support the laborers' own efforts.
legislation, like labor organization,
CONTENTS
A
great
xiii
VOL.
II
moving
force behind
's
it is
the gro\vth of
altruism, 322
PAOE3
Sec. 3.
Limitation of hou
for
Are there
grounds on principle for confining such legislation to women and children? Constitutional questions in tho United States, 324
Sec. 4.
an eight-hour day deserves support. Introduced suddenly and universally, the eight-hour day would mean a decline in produc and in wages; introduced gradually, and jari
The demand
for
passu with improvements in production, it brings unmixed gain, 326 Sec. 5. Minimum wages introduce no new principle, but
how
CHAPTER
Some Agencies for Industrial Peace
Section
1.
.....
59
335-351
be widely apphed unless it Uncertain connection between pays, by increasing efficiency. Importance of the employer's profits and workmen's efficiency. -Sec. 3. Other methods of linking employee to pensonalitj', 339 Sec. 4. employer: "gainsharing" and "welfare" arrangements, 342 The shding scale applicable where product is homogeneous. Not in harmonj' with the general principle of emploj^er's assumption of industrial risks, yet often helpful toward avoiding friction and dispute, 343 Sec. 5. Arbitration, private and pubhc. Not appUcable where such matters as recognition of the imion or the closed shop are in dispute; but applicable to the questions of wages and the like. Private boards imply trade agreements and organized unions. Public boards are usually boards of conciUation, but none the less helpful, 344 Sec. 6. Compulsory arbitration, carried to its logical outcome, means settlement of all distribution by public authority, and may be the entering wedge to socialism. Possibihty that it will remain indefinitely in a half-way stage and not proceed to this outcome, 348.
2.
Sec.
deferred participation,
CHAPTER
Workmen's Insurance.
Section
1.
Poor Laws
is
Irregularity of earnings
.....
and
its
60
352-371
causes, 352
Sec. 2.
The German
The
employer, are likely to come ultimately out of wages, 353 Sec. 3. Insurance against sickness no less feasible. The Friendly Societies, the German system of compulsory insurance. The possibility of
malingering and the need of supervnsion,
3.57
Sec.
4.
Old-age
XIV
CONTENTS
pensions in European countries and in Australia.
rents to thrift?
Sec. 5.
The pecuniary
difficulties
The
chaotic;
Rapid spread
of
accident.
The
others, 362
itself,
is
Sec.
way
it
of this
Unemployment, tho
tends
correct
a continuing phenomenon.
of insurance.
method
out-of-work benefits.
Relief works, 364
The
Relief
Sec. 7.
may
Poor laws: the conflict between symbe liberal where no danger of deit
needs to be adminis-
CHAPTER
Cooperation
Section
1.
61
372-384
Cooperation attempts to dispense with the business Sec. 2. Cooperation in retail tradman. Its various forms, 372 ing, when done by the well-to-do, of no social significance. When done by workingmen, as in Great Britain, it has larger effects.
Methods
of the
workingmen 's
elsewhere, 373
stores
The movement
Sec.
and causes
3.
of their success.
Credit cooperation in
Germany; its methods and results. Other sorts of societies, and Sec. 4. Cooperation in development in other countries, 378 production would most affect the social structure, but has had the Causes of failure; the rarity of the business least development. qualities and the limitations of workingmen. The future of cooper-
ation, 381.
References on Book VI
.......
BOOK
VII
385
CHAPTER
Railways
Section
1.
62
389^06
Railways an instrument for furthering the geographical division of labor. Corollary from this that they are not Sec. 2. Economic to the public interest imless they pay, 389 Consequent characteristics of railways; first, the great plant. tendency to decreasing cost. Hence also frequent transition from
CONTENTS
financial failure to financial success,
XV
VOL.
II
392
Sec.
PAGES
3.
The element
of
joint cost,
ing
4.
what the
both as to fixed charges and operating expenses. Chargtraffic will bear; classification of freight, 395 Sec.
Justification of charging
what the
traffic
utilization of the railway equipment, 397 quences of joint cost: flexibility of rates, and difficulty of deciding what is a reasonable rate, 399 Sec. 6. Chaotic rates in the United
and concession to favored shippers, partly corrupt, partly the result of competition, 400 Sec. 7. "Rebates" and the grounds for prohibiting them. Rate agreements and pools as aids in preventing discriminations. Inconsistency of our legislation on rebates and rate agreements, 402 Sec. 8. In an industrially solidified and thickly populated country the principle of joint cost becomes less important in determining railway rates monopoly position of railroads more important, 404.
States,
CHAPTER
Railway Problems,
continued
......
63
407-418
Section 1. Effects of railways on distribution. An unearned increment analogous to rising rent of land, 407 Sec. 2. Tendency toward concentration of ownership; how promoted by American methods of corporate organization. Overcapitalization and its consequences, 409 Sec. 3. Stock speculation, stimulated by overcapitalization, has faciHtated acquisition of control by the "great operators," 412 Sec. 4. "Inside management" and its evils, 414 Sec. 5. What benefits have come from private ownership in the United States, and how far railway fortunes have been earned, 415 Sec. 6. Increasing tendency to monopoly, and need of public control over rates, 417.
CHAPTER
Public Ownership and Public Control
Section
1.
64
....
The
419-440
service" industries?
legal con-
is monopoly, 419 Sec. 2. The spur of profit necessary for improvements in the arts; hence a preliminary stage of private ownership is inevitable, 423 Sec. 3. The question of vested rights when public ownership displaces private. "Franchises" should always be for limited terms. Purchase at market value, 425 Sec. 4. Are there criteria marking some industries as suitable for public
management?
The
tests suggested
by Jevons;
distrust of public
xvi
them
CONTENTS
VOL.
officials
II
underlies
all,
427
Sec.
PAGE3
5.
To
secure trustworthy
officials is
management, as regards the employment of labor and the maintenance of progress, 429 Sec. 6. The fundamental requisite in a democracy is a generally high level of character and intelligence. In what way corruption is connected with monopoly industries, 431 Sec. 7. The future of democracy depends on its success in dealing with these industries. Experiments in ownership to be welcomed, especially in municipalities. The prejudices of the business class on this matter, 433 Sec. 8. Public regulation the only alternative to public ownership. The two
difficulties of public
Some
types of regulating boards. The essential object is to limit prices and profits. The elevation of the standards of private manageSec. 9. The Transportation Act of 1920. Provisions ment, 435 on valuation and on rates. A half-way step toward public ownership, which is likely to come in the end, 437.
.......
fact of
CHAPTER
65
441-463
Section 1. Combinations in restraint of trade and the common law rule making them void. Surprising effectiveness of this rule, 441 Sec. 2. Modern forms of combination in the United States:
The
monopoly, not the form of combiSec. 3. The permanency of nation, the important thing, 443 combination as affected (1) by the economies of large-scale managerailway favors, ment; (2) the devices of "unfair" competition
Germany. The
The
is
much as from large-scale competition, 447 large-scale competition persist? The pressure from
islation so
sible
Sec.
Will
constant ac-
cumulation of fresh capital. Potential competition, and the posemergence of far-sighted management tinctured by a sense of Sec. 5. The possible public advanpublic responsibility, 452 tages of combination lie in the mitigation of industrial fluctuations. The supposed ruinous effect of competition to be judged from this
Sec.
6.
on publicity, capitalization, eventually perhaps on profits and prices, 458 Sec. 7. The earmarks of monopoly: size, Sec. 8. Legislation in the profits, discriminating prices, 460 United States. The act of 1890 and its enforcement. The acts of Sec. 9. Economic 1914. The Federal Trade Commission, 461 problems have outrun poHtical capacity for deahng with them, 463.
Socialism
superseded large-scale socialism have Section 1. Proposals for The essence of socialism is economic those for isolated communism. the family pohtical mstitutransformation: changes in reUgion, program. Nor is violen change essenits tions, are not essential to not Land and capital to be in public hands; tial 464 -Sec. 2. The peculiar probin every instance. necessarily public property Wages to be the on^j. form of income^ lem as to agricultural land. state, 467 -Sec 3. Guild Exchange and money in the socialist the problems essenunder large-scale industry, it leaves socialism; principles of dis4. Three conceivable Sec. tially the same, 470 Sec. 5. How far public need, sacrifice, efficiency, 474 tribution:
.
CHAPTER
66
CONTENTS
xvu
464-483
society, is socialistic; how ownership, as adopted in present Sec. 6. Some current and the like are so, 478 labor legislation that the of little weight; for examp e objections to socialism are goods could not be valued organization is impracticable, that huge Would freedom disappear? that capital could not be accumulated.
far
480.
CHAPTER
.
,
.
Socialism, continued
Section
1.
67
.
484-501
The family and the problem of Sec. 2. The Malthusian difficulty a real one, 484 socialism rank and file. The absence of the Vigor and efficiency among the Sec S. of labor, 486 power of discharge. The irksomeness securing it. The love of distinction; and the ways of
population under
distinction. The possible growth of lower aspects in the love of a socialist state. Sec. 4. The selection of leaders 488 altruism Sec. 5. Matedeadened 490 Genius and originality likely to be to be checked. the improvement of capital hkely rial progress thru in proalone now needed; can advance Is a change in distribution one Sec. 6. The problem is essentially
Tho socialism and current and distinction are subject to change. degree force, the difference movements of reform rest on the same ultimate outcome ot 7. Is socialism to be the Sec is vast 493 and materialistic interpretation of history
Human
social evolution?
its
prophecies.
impossibility of
The and The certainty that change will be gradual will finally go, 497. foreseeing how far it
.
the
501-502
xviii
CONTENTS
BOOK
VIII
TAXATION
CHAPTER
Pkinciples Underlying Taxation
Section
1.
68
vol.
PAGES
505-518 l/^
The
common
justice
inextricably connected with the general question of social and the righteousness of inequalities in wealth. "Ability"
Sec. 3.
sacrifice" are inconclusive principles, 507 Should property incomes be taxed at higher rates than those Sec. 4. Can taxes be made higher according to from labor? 512 Sec. 5. Progressive taxathe source or nature of the income? 513
and "equality of
tion of interest
from
capital,
on the principle
516.
CHAPTER
Income and Inheritance Taxes Income taxes present the problem Section 1.
......
69
519-538
"^
of progression
sharply, yet should be considered in connection with other taxes, Income taxes limited as a rule to the well-to-do 519 Sec. 2.
classes.
The exemption
of small
Sec. 3. grounds, partly on administrative expediency, 520 British income tax and the device of stoppage at the source.
social
The The
system not consistent with progression; it has undergone steady Sec. 4. Progressive taxation on the entire modification, 522 Declaration necessary. Conditions for the effective adincome. Income taxes peculiarly adapted for ministration of such a tax. Sec. 5. readjustment from year to year to fit fiscal needs, 527 The income tax question in the United States. The system devel-
6. oped since the Constitutional amendment of 1913, Inheritance taxes are comparatively easy of enforcement and lend themselves easily to progression. The trend toward progression,
529 Sec.
532
Sec.
7.
would check accumulation. If appUed new ways supply of capital must be found, 535.
CHAPTER
Taxes on Land and Buildings
70
539-551
Section 1. Taxes on land {e.g. an urban site) rest definitively on the owner, and operate to lessen economic rent by so much, 539 Sec. 2. Taxes on buildings tend to be shifted to the occupier. Qual-
CONTENTS
and limitations of this proposition, 542 Sec. 3. Effects on real property land and buildings combined, 544 Sec. 4. In the long run, it makes no difference in the incidence of such taxes whether they are first imposed on owner or tenant; but for short periods it does. Similarly, it is in the main of no concern whether the assessment be on rental or on capital value; tho in some respects the two methods bring different results, 546 Sec. 5. Concealed taxation of workingmen thru taxes on their dwellings, 548 Sec. 6. Taxes on real property should be primarily
ifications
xix
of taxes
CPAPTER
Taxes on Commodities
Section
1.
71
552-562
Various ways in which "indirect" taxes are levied on commodities, 552 Sec. 2. In the simplest case, of a competitive commodity produced under constant
commodity
where there
is is
Sec.
Explanation and
monopoly.
on imports present no peculiarities, except as they bring a rival untaxed supply and thus raise the questions concerning protection, 558 Sec. 5. Taxes on commodities are httle noticed by consumers. They are commonly on articles of large consumption, and regressive in their effects. A large and varied list of articles is most easUy reached by customs duties, 559.
562
BOOK V
THE DISTRIBUTION OF WEALTH
CHAPTER
38
The Conditions
What
3
ital,"
is
meant by
2.
distribution.
is
Sec.
capital
goods,
Sec. Why there a demand present means; the effectiveness of the time-using processes of production. capital productive? 9 Sec. How the marginal effectiveness or productivity
interest, 7.
4.
is
Money is
There
The meaning of the term "capno such thing as capital distinct from The essential problem as to interest.
its
5.
effective appHcations.
and
utihty, 11
Sec.
6.
Is
Sec.
7.
Human
direc-
The
human factor
1.
it
The word
commonly attached
to
in-
in
economic writings,
apportionment of the
in
co me of a
community among
several classes
is^"
there are owners of capital and of land; there are persons using
who
all sorts of
from the poorly paid day laborer to the prosperous professional man and salaried manager. A\Tiat share goes to a
person
to
who simply
an individual
labor,
of
whatever sort
these
are
among
A common
division
of the subject
supposed to be governed by
dif-
^ The word obviously is used in quite a different sense when we speak of the "distribution" of commodities thru wholesale and retail dealers until they reach the more common meaning in business parlance. the hands of consumers
4
ferent causes:
[38-5 1
finally, buSi-
The
capitalists
men
profits or earnings of
management.
subject on
We
classification is sat-
new
which we now
Neither
is it
enter.
why one
or an-
first
consideration.
They
full
that
*
We
shall
owner
of capital.
and investment.
It has
with
in-
the series of stages thru which production proceeds and with the
factor of time in the organization of production.
It
has been
modern communities
of capitalists
is
on the reasoning
and interest, and in turn are illustrated and further explained by what follows. First, what do we mean by the "capital" on which interest is obtained? It is best to begin by still using the term in the sense of producers' capital concrete tools made by man and used for the production of consumers' goods. Such are factories, warehouses, raw materials and goods in dealers' hands, railways and steamships, agricultural implements. For the present we shall set aside consumers' wealth, such as dwellings and household furniture. Land and like agents provided by nature without appliwhich follows on the subject
cation of labor
tal.
may
also be excluded
several
See Chapter
5, 4r-6.
38-l]
parts,
what we shall begin with. Some distinctions and some questions of terminology
individual usually
call for
An
thinks
so
much
capital
is
of
his
i^
property
to
an obvious
is
for
the
community
sense,
Stocks, bonds,
are regarded
and by him
securities yield
stock
A bond is a mere Bonds are commonly issued as the result of operations of saving and investingjyliich have to do with the making of capital. But, as in the case of government borrowing for war expenditure, they may be the result of operations which are
ship in a given concrete thing or set of things.
promise to pay.
quite wasteful.
Tho
may
or
may
Consumer's wealth
as part of his capital.
is
not
commonly regarded by an
individual
money on hand
business purposes
such
things he thinks of
as capital.
him no income.
Possibly a dwelling,
be regarded by him as part of his capital; for he might he did not own
it,
re-
flect that, if
rental,
own was
equivalent to
income-yielding property.
but
let to
The term
constantly
used
in
money,
taxes
has
economics
varying
such
as profits,
wages, rent,
associations,
connotations
and
[38- 2
show
in
what way
we mean obviously
in'"
of a business or corporation.
slips
true,
ambiguity
still
in;
may
own
In the following pages and in general thruout this book, the en-
deavor
is
made
to denote
or
capital goods
community.
things;
We shall have in mind real things, not rights to those and we shall have in mind producers' capital goods which make up the apparatus of production. 2. Some writers have distinguished between "capital" and "capital goods." By the latter term they mean the concrete ap-
paratus of production
cussion, the single
just
word "capital"
affixed.
mean
goods in which
It
is
it is
embodied.
and record
In that
An
if
you please
up an
He
it
in terms of
Similarly,
we can
38-3]
If
machinery,
tools,
materials,
sum would
It
give an idea of
how much
by public
leading.
capital the
community
possesses.
would give a
mis-
many ways
way.
Yet
if
we wish
at
all,
machinery,
common
Tho some
spindles
all
and looms
is
the
to.--^
forms
in terms of
is
But
it is
any
The only
is
measuring
3.
it,
Having disposed
essential
questions of terminology,
we
in
may
The
simple terms.
Why
represented,
an-
any
money
engage to return, after a fixed time has elapsed, not only what he
has borrowed but something in addition?
rowed should be returned, seems sufficiently easy of explanation. But why can the lender get the premium also? That premium,
as
is
is
To
ascertain
why
this additional
percentage
is
paid,
The
form
of
8
est,
[38-3
pecuHarly connected
with
money and
Usually this
from the nature and functions of money. notion takes the form of reasoning in a circle. People
arises
is
"worth" so much, meaning that it can be and they argue that the borrower must pay this rate in order to get the money. What more simple? Or they say vaguely, with Shylock, that money "breeds" interest;
lent at
some annual
rate;
which again
reflection
is a statement of the problem, no solution. A little shows that, here as elsewhere, money serves simply as
medium of exchaiige. What the borrower wants is not the money itself, but that command over commodities and services which money gives. He wishes to buy commodities, either for his own immediate use or for use in operations of production and
the
;
is
more
for
paying laborers
whom
he
hires.
And when he
returns the money, plus the premium, he gives back to the lender
command
If
as,
way
as with
medium
of
of exchange.
transac-
tions obviously
diflBculty.
The medium
makes
possible
The
ex-
phenomena
is
not to be found
money, but
which
it
We may brush aside not only the notion that interest arises from the use of money, but that the rate of interest depends on
the quantity of money.
lower interest.
does exist
between the
38-4]
rate of
bank discount and the quantity of money held by banks This bank rate oscillates abo\'e and below what may be called the true rate of interest the re-
be had
in
mind.
4.
an act
of
exchange
is
by which a quantity
turned in the future.
of
money
(or
commodities)
(or
now
in hand,
money
commodities) to be
re-
The
mium
tury,
or interest.
going on year after year, decade after decade, century after cenis
not to be expected.
Two
why
is
the borrower,
whom we may
it
regard 33
pay
this excess;
seller,^
able to secure
In other
by the
These we
The
conditions of
we
are considering
the case
of interest derived
from producers'
capital.
Some
given.
tal
In a previous chapter
were described. It was pointed out that the use of capital means production spread over time. Production with capital has been aptly described, in Bohm-Bawerk's phrase, as indirect or roundabout production. Labor is first applied to making tools, collecting materials, perfecting means of communication; finally,
at the close of preparatory steps which
abundance than
if
be long and arduous, emerges^and emerges .m,much greater labor had been applied directly. The mine,
may
the railway, the steamship, the iron works, the factory, the ware>
2.
10
[38-4
of production.
there
is
class,
separate
The long-maintained
if
application of
is
if there has been saving and accumulation in some form. The persons who do the saving and possess the surplus are commonly, tho not necessarily, a different set from those
been a surplus
possible only
who do
the labor.
They
The
We
an increase
flour mill is
The
great
means modern
former
more
efficient
grist mill of
times.
accomplished.
To
make an
cases
would
On
modern
making
mill
is
much more
its
of preparatory labor.
On
the
to
other hand,
it
usually
continues to play
worn out and discarded. The later labor in the that done by the current workers in the modern flour series seems mill, who turn out their thousands of barrels a day much more effective than that of the old-fashioned miller, because we do not ordinarily think of the preliminary labor embodied in the plant as being engaged in milling. That even so the efficiency
finally
is is
of prices:
flour
than
in
former days.
So
in the railway:
is,
of previous labor
38-5]
11
of the sim-
The
statement is that labor applied in some ways is more productive than labor applied in other ways. Tools and machinery, buildings and materials are themselves made by labor, and represent an internfediate~stage m the application of labor. Capital as such is not an independent factor in production, and there is no separate produHTvene^s^of capital. "\^Tien, in the
strictly accurate
is
spoken
of,
the lan-
elliptic,
and to savadvances to
Some persons have a surplus, and set it aside for investment ^^ey arethe capitalists pure and simple. Still other
laborers.^
persons borrow this surplus (very likely using also available means
of their
tools
and materials, to
carry on
more consumable commodities than have been turned over to the laborers. The laborers as a whole produce more than they receive. Those who borrow and then hire the laborers can afford to pay back more than the}^ have borrowed. This is the process by which
interest
5.
istic
on capital used
it
in production
comes into
existence.
Let
be supposed
ways
of production
materials,
and the
like
now
settled
to
become
familiar to
all.
Let
it
all;
who wish
them
are in unfettered
com-
No
Competition
See Chapter
6, 5.
12
will
l38-5
level.
What
will
All the constituent parts of capital, tho they will yield the
same
same degree the productiveness of labor. Some may be, and almost surely will be, more helpful in production than others. Imagine that a community, once in possession of a stock of tools and appliances, were compelled to part, by successive steps, with
installments of this capital.
Clearly
it
would
first
relinquish those
to be given up,
would relinquish
It
those constituents of
means
put.
of
roundabout production
These means
the
be
which added most to the outbe given up under existing conprobably be, on the one
operations
capital that
would reserve
is,
those
last to
used would
seasonal
seed
and about a year's surplus of food; and, on the other hand, the metallurgical apparatus which yields iron, the prime requisite for almost all tools. These, the most effective forms of capital, have not necessarily been the first historically. The progress of invention may have brought them in at a later date than others of less serviceableness. But given various apand farming
pliances that have
effective
come
to exist side
by
side,
some
will
be more
would
which
least
gain, or
premium, or
interest,
by the
which
results
roundabout or capital-using
effective
capital in
ways more
than the
Since
all
who have
command can
ways, competition will prevent any one set of persons from secur-
38- 5]
Ic-
same proposition
its
depends on
marginal productivity.
may
An
Not
necessarily.
The outcome
is
like that
the principles of value, as to the utility and the price of the several
constituents in the supply of an enjoyable commodity.*
Tho
all all
sell in
utility.
There
ents of capital
tion
from
all
And
it
affects con-
sumer's surplus.
cial
vision of
wants
in
so to wider satisfaction of
There are
utilities in
These surpluses the individual owner cannot keep; the community at large enjoys them in the form of consumer's surplus.^
^
See Chapter
9, especially
3-6.
A contrary
in Jevons, Theory of Political Economy, p. 277. implied in Clark, Distribution of Wealth, Chapter XXI.
14
[38- 6
And
we found
in
measuring the
if
we
en-
What
how
we cannot
possibly gauge.
We
can
and that
its
ing
all
forms of
it
pays
for the
least
advantageous forms.
6,
Some
of the
of our
day
have
view
is
or roundabout
ways
But
There
is
a tendency to
ances
(total
that
Add more
tools
and
appli-
is,
of preparation,
make your
process of production
you
istic
is
will
and
in the
way
it,
becomes
less in
There
due to marshalling
materials
stout rubber band:
The
obstacle
is like
that in pulling a
will
moment, but
development of industry
to a diminishing gain in
The tendency
may
38-6]
15
on
capital;
and
It
it
sinks gradually
of regularity.
way
of interest to the
owner
of capital.
Additional
would
utmost growth
of
accumulation.
increase of
Whereas in a more skeptical view the savings and of capital may cause the point
indefinite
of satiety
to be reached.
Unending increase
in the
means
for applying
preparatory labor
may
mand
determine interest,
it
will
be brought
down
to
nil.
must be confessed
the present book.
to be unsettled.
To
my
applications of capital.
The
increase of tools
by the addition of more tools of the sort already in use, or by the addition of new kinds of tools. Mere duplication of familiar tools would seem to promise little or nothing in the way of greater productiveness. Twice as many saws or
place in two ways:
either
many looms
for
twice as
many
engineer such
each weaver,
a proceed-
mean
by the carpen-
It means an embarrassment of Of the complicated machinery of a great factory this would seem to be true also. To run this machinery, a certain
riches.
staff of operatives is required,
adjusted to
it
by
nice experiment
will
and calculation.
ready on hand.
outfit,
and there
be no
is al-
The
staff
can
utilize
no more than
More
difficult is
way
in
which the
16
[38-
6"
additions to capital
by a quasi-automatic process a
and more powerful.
one larger and better saw; not two locomotives, but one heavier
The mere
Plant
becomes
larger,
up
in
Then
^
seems to
me
doubtful.
The more
"capital-
an increase
in-
Where
it
longed preparation
may
of
there
Nor is The
and
of
and
productiveness of labor.
But
this has
projectors
which
dicted.
is
at the outset
more
an
or less doubtful.
it
How
great such
how
long
will continue,
cannot be pre-
The
possibility of
and
of
an
not a tendency
modern world.
38-6]
17
To put
of present
the roundabout or
itself
capitaHstic process
may
be supposed to adjust
to the supply
means
means may
be supposed to adjust
is
The
first
who maintain
it
mation of capital as
returns as
it is
increases,
The
sec-
ond seems to
me
The
rate
more elaboand complex capital; hence there has been the possibilitj^ of using a larger and larger volume of savings in productive ways.
progress of invention has taken the direction of
of savings, as will
The supply
flexible.
is
highly
It has
taken advantage of
will
investment and
contmue to do
so; it
made
effective use of
many
by the economist, there has been an interit is more nearly true to say that
made
savings than that the great volume of savings has brought about
But the differences in opinion on this point do not affect the that, at any given-periodj the main conclusion stated above
in p^O(hlcti^'encss
from
part df
tlie capital.
So
far as
this proposition
eoneerne
1,
Whether
or no
it
is
believed
seems to be agreed that'the factor which determines the rate of interest on capital used for
it
it is
dependent on demand)
last or
is
the gain in
marginal installment
of capitah
18
7.
is
[3^7
remarked
and
its
productivity.
of the
march
of invention,
improvements
in the arts.
This element
of irregularity
is
human
factor, too
much
of
many
expec-
the
behind
There must be
men
mere enlargement of plant brings increase of return, but the choice of the best ways of making and enlarging it. Now, in the modern organization of industry, the persons who direct the capitalistic processes and those who provide the present means needed for their expansion are not the same. The acting managers are indeed themselves savers and owners of capital; associated with them, yet in the main separate, is the great class of inert savers. The two sets business find between them that intensification of men and investors equipment meets with a profitable response. But the increase in
the guns.
or
output
ent tho
is
Depend-
be on these factors,
it is
proper management.
Hence there arises a question of the division of the gain. The number of first-rate managers, and the smaller the supply of present means, the more likely is it that the savers will get the lion's share, and rates of interest tend to be high; with the opposite results if savers are many and managers scarce. If there
larger the
be a good supply of
fairly capable
few
will
yet will not redound to the advantage either of the savers or the
See Chapter
4, 5 3.
38-7]
19
mass
of business
It is one of the many how interdependent are the several phases of the theory of distribution. What needs to be emphasized at this stage is that the human factor able leadership is indispen-
Nothing
in
economics
is
automatic.
to deal with
human
between
may
be predictable, but
CHAPTER
Interest, continued.
39
Section
Accumulation of present means needs an inducement, 20 Sec. 2. Cases where the inducement Cases where a return is sought. Posneeds to be shght, 21 Sec. 3. sibility that a lowered return will sometimes induce larger savings. More
1.
The
24
Sec.
The conception
5.
of marginal savers,
of
4.
demand.
interest in
Savers' surplus, 27
Sec.
supply and
The
modern times and its significance, 30 between accumulation and improvement, 32.
Sec.
6.
The
race
1.
We
turn
now
and
and demand.
The
rate of interest,
chiefly
by demand.
commodity, is settled at any given period But in the long run the variations in supply
must have their effects also. What is the sons who have a surplus of present means
If
the lenders?
way
irksome, the
supply of present
indefinitely
terest.
means
and
in-
So long as borrowers were willing to pay a premium to return to lenders more than had been supplied by the lenders these latter would accumulate more and more, and their increasing savings, put at the disposal of producers, would allow
greater
laborers.
Assuming the
arts to
remain the same, and no new ways to be found for increasing the
productiveness of labor by more elaborate implements, the stage
The marginal
productivity of
would then be
If,
nil,
and
is
interest
pear.
39-2]
t hat
EQUILIBRIUM OF
21
there be
2.
of present
sarily
depend on a reward
it
in the
is
way
of
means premium or
necesinterest?
This question, be
observed,
maintenance
said,
of
more often
itself
by
some automatic
or intentions of
owners.
any
socialistic taint.^
The
socialists
themsglvev-
^o ofte n
is
modern
society
it
may seem
to
do
placed;
of replacing it
the equipment
is
to be
use
their
surplus possessions
whether^they shall
sumable goods.
]a])()r to be directed to making conFor any given period they may have committed themselves irrevocably to investment, and cannot change the
But
as time passes,
and
enjoy.
They may save and invest, or they may spend and However considerable thelength of time over which the capital of a community, when once constructed, endures in the shape which has been given it, and however slow the process by
*
J.
5, 6.
22
[39- 2
still
true
is
in order to
not universally
the case. There is a considerable volume of saving which would if the amount paid S^take place even if there were no premium back in the future by the borrower were no greater than the amount now supplied by the lender. Nay, a situation is conceivable under which the familiar relation would be reversed; then not the borrower, but the lender, would pay a premium. On the other hand, there are savings which would not take place at all
is
These gradations
One extreme,
so
willing to accept at
less
sum than he
ceivably arise where means were very abundant in the present and where a future with scantier means was expected. Thus a man in his prime, with good earning power but without incomeyielding investments, knowing that old age must come, might set aside a considerable amount from his present income in order to be assured at a later date of an even smaller sum. At forty, S200 might be saved from an ample income with comparative ease; and it is conceivable that it would be saved cheerfully in order
to have, at the age of seventy, the certainty of $150.
Hence,
if
itself,
an exchange of $200 at
later,
forty, for
of the
interest, so to speak.
But
39-2]
23
be set aside, tucked away, and kept until the later date when the
It
may
is
some kind of commodity which does not deteriorate, which can be easily safeguarded, and which maintains its value. If men lived in primitive conditions, and all incomes were received and managed in kind if the actual bread and meat had to be put aside in order a bargain for giving a greater amount to provide for the future
This, of course,
feasible only
there be
amount
in the future
might be consummated.
But money
stable
brings
se-
ordered
money
then money
;
government
in
given
Given
also
value of
hand
is
as good as
money
in the future.
little
Specie or
its equi^^alent in
had at a charge
in-
what they
will contain.
Hence we
It
is
may
The present
command
this
Bohm-Bawerk
futiu-e use.^
may
thus
Great
way
of
premium
or interest.
great
number
of persons
Where
venient depository
rent
'
is
offered,
means
with most perfect facilities for hoarding, a few pay negative interest for a supposedly unquestionjust as a few timorous investors may insist on buy-
ing government beads bearing very low interest, rather than the safest of privately issued securities.
24
is
[39- 3
would be made
any
case.
Not only
life
premiums partake in some degree of this character. Provision for dependents, by annual payments thru the mechanism of insurance, would be made even if these annual payments were not augmented, as in fact they are, by the interest added to them by the insuring companies. How large is the proportion of savings bank and life insurance accumulations made with this sole motive, it is
impossible to measure; but the proportion niust be considerable.
3.
On
is
be
made except
Some
Yet
receipt of in-
terest
of the savings
made
in
modern communities.
its full
is
this stimulus
Much
saving, that
if
ing, again, requires the full current rate for its continuance.
The
(i.e.
between the various degrees of stimulus required between some return and no return at
of interest,
five
the various rates of return) are no less noteworthy than the broad
difference
all.
which
for
two per
cent, or
No
cease to save.
those who have enough and to spare in any case would maintain their accumulations unchecked.
ent means
But many
He
his
"makes money,"
that he puts by something for the future without sensible deprivation of present pleasures.
The aim
is
of such
men
usually
is
to ac-
common
sum
sufficient to
39-3]
25
among
there be
address, to be awarded a knightmodern communities the worship perhaps the most ubiquitous phase of the deep-
accumulation.
No
doubt,
among
the active
men
of affairs other
motives play their part, such as the love of power, the impulse
mere imitation and emulation. Certain it is that money-making is impelled by very complex motives. Among these no specific rate of return on accumulation plays a dominant
for activity,
part.
by some
it.
well-
on
their retirement
from activity or
for
widows and
children.
income of say S5000 a year, a capital sum of $100,000 must be put by if the rate of interest is 5 per cent. But if the rate is 2i per cent, double the sum must be put by in order to bring the
same income.
On
amount accumulated and invested. Such reasoning, however, cannot be pressed far. No doubt there are cases in which a decline in the rate prompts a wish to
return, the greater will be the
But a wish
of
is
very different
it
from a deed.
very
those
diflBcult
men
would be a
Among
who have very large current incomes but still wish to accumulate a capital sum the small number of business men and professional men whose earnings are high it may be true that
a decline in interest will increase rather than lessen savings. But most men who are accumulating with a view to building up a
"
demands
There are constant and pressing moment, innumerable tempting ways of spending
"
26
[39- 3
money
what
is
it is
to induce greater
looked forward
of
$5000 on a
to
and one
likely to say,
two
with
for great
namely,
amounts
more savings and more capital, a decrease less savings and less capital. No one would doubt that if the rate rose to twenty per cent, many sums would be set aside and invested which at a lower rate would be spent for immediate satisfactions. Conversely, if
the rate were to
cent,
fall
spent at once which at a higher rate Between these possible extremes is the current rate of something like four or five per cent; and among the various savings there are some for which that current rate is just enough
are saved.
to induce the sacrifice involved.
of a margin.
There are
also,
it
intra-
and
may
be
there
still
spontaneous but
who need
conceive them
for
cool
whom
just
And
finally
do so
if
In strictness,
more or
39-4]
ers,
EQUILIBRIUM OF
27
induced.
Something he
something more he
not decisive.
Something more,
finally,
he can be induced
The
by
installments.
perhaps no indi(carried on in
of
The outcome
demand
the preceding chapter) and supply (in the present chapter) can
The
several
ITio. 1.
had at various
rates,
some
is
for a
The
case thus
one of
28
[39- 4
The
conditions of
demand
are indicated
by the
line
DD', whose
indicates
the
line
The ascending
line
ORS
must be
This
does not
rise
OB. That
is,
be made, even
tal.
way
Nay,
if
we
so great
among some
by them
its earlier
sum sum
base
if
and
will
begin at 0'.
by the competition
As we reach installments as to which the disposition to save is less and less strong, and more and more must be paid in order to induce accumulation, the line rises. Finally, we reach the marginal saver at B. The price at which he is willing to save
persons.
is
Here equilibrium
taneous savers those who are disposed to save under any cumstances gain something in the nature of a surplus. The
cir-
whom we
amount paid as interest is indicated by the rectangle PP'BO. There is a large amount of savers' surplus or savers' For rent, indicated by the area ORP'P, or possibly O'RP'P.
total
Compare Chapter 13. The sacrifices or disutilities involved measured by the prices calling them out.
*
Those savings which would be made Here, aa in without interest (rainy-day savings) may involve serious sacrifice. Book II, the supply schedule relates to the matter-of-fact question of the price which must be paid in order to call out a given supply.
39-4]
those
29
any
case, the
they receive
what
is
surplus.
How
or, in
great
now
is
this surplus in
is
modern
civilized
communities?
ORP'? In
Figure
ing P'
somewhat
much
price,
saving would be
done
market
is
But
it is
no
that
ORP'
move
nearly parallel
may
Fia. 2.
its
course.
may
and
line
savers' surplus
may
be correspondingly
amount.
And
beyond
P'.
Suppose there
is
a general
30
increase in
[39- 5
demand
nently
indicated
by a
shifting of the
will
rise,
words,
is
BP' capable
must be and even for those which we can answer with some assurance we must rely on general observation rather than on any acciu-ate data.
of these questions our answers
To some
quite uncertain;
it is
much of savers' surplus; but how much, it is impossible to say. One might hazard the guess that the line ORP' has some such
conformation as
part of
its
is
shown
and
PP'
or
coincident with
Thence
it;
it
in the
affect
demand
would check
capital.
many
No
munities.
The demand
use of more and more capital in production has been great, and
The
improvement
the
left.
moved
the line
DD'
(at least
line to
At the same time, the response of the supply of capital has been rapid and sure. Notwithstanding the vast increase in demand, the rate of interest has remained, on the whole, singularly
it
will
continue
rise.
5.
The
^^
"
vyA ^o^
DEMAND AND SUPPLY
Even before that
consider normal.
ra,te
39-5]
EQUILIBRIUM OF
31
tury
est
is
a remarkable phenomenon.
fallen to rates
era, inter-
had
such as
we
In Switzerfallen so far
its decline.
had
per cent.
down
to that figure
minimum
something
of
Sincethen the rate has fluctuated between a something like three per cent and a maximum of
per cent.
like six
In new countries
it
has tended to be
investment
it
which more
will
it
occasions; then
During the
first
three quar-
newer countries,
of a
trifle
it
more.
During the
last
enormous borit
advaiTce.
We
need hardly
trend of
The
demand
for capital
and
been
remarkably even.
From
is
this it is
The
steadiness of the
la democratie
en Suisse,
32
[39- 6
That
supply,
be sure,
is
likely to
by those general
industrial
and
social conditions
The
increase in the
classes,
number
and
and investment to be
greater in
volume and to
The marginal
sup-
ply price
may
Even tho
decades at_a_time
Accumulation proceeds
ceed
ings
fast.
fast,
where a decline in the return must So ingrained is the habit of accumulation among the prosperous classes of modern society, that it seems to proceed irrespective of the rate of interest. Only over considerable periods
and
set in.
and
after a long
its
disenchantment
will
check
unceasing march.
its
How
soon and
how
completely such
would take
and far-reaching
the
that principle
is
more and
inin-
more savings in productive investment, the stage of vanishing terest would be reached, in the absence of improvements and
39-6]
EQUILIBRIUM OF
33
reasoning of the
preceding sections
is
and
haltingly,
and with
offerings of those
who
now enjoy a
savers' surplus.
will
France
is
to grow.
is
In
In so far there
obvious
But
in the
in
find escape
from
its difficulties is
Sav-
num-
like the
United States.
for
mentsjind^ccumLulation.
calling
has been the course of industrial history for the last century and a half. Such, also, is apparently to be its course at least for another generation or two.
1
^
.
(/.
i-U^'
Jr
CHAPTER
40
as interest
is
concerned.
Exchange
statement of the cause of interest, 43 Sec. 5. The mechanism of banking and credit makes interest all-pervasive, 44 Sec. 6. Variations in the rate of interest in different countries and for different investments, 45 Sec. 7. The justification and social significance of interest,
most general
48.
1.
borrow to
mo-
ment, hoping to repay in the future from some extraneous resource. Pawnbrokers' loans are of this sort on a petty scale; the borrowings of nations for the conduct of wars are so on a great scale.
Such loans introduce no new principle concerning the play of demand. There are gradations in the demands of the various borrowers. Some have pressing needs or are much tempted by opportunities for immediate expenditure. Others have needs less pressing or more caution and foresight. If we suppose a fixed
supply of present means, such as the lenders
offer,
and suppose
loans of this kind to be the only ones, the rate of interest, under
effective competition, will settle at the point determined
least eager
among
the spendthrifts
If
it is)
among we suppose this demand for loans to the demand for productive uses,
utility
by marginal
by the
40-l]
35
for
an additional opening
mand
rate of
interest
settled.
The most
often there
that so
no suchthing as unfettered competition, no such .a.4iri'a.lent_or_competitive rate determined at the martjiing_as giiu The ignorance and the necessities of borrowers, their inabijity to pause
phrases
got, frequently
which signify
they commonly do
when used
that the rates which would result from active competition are not
in fact attained.^
The borrowers
are
They
where application
is
made.
So strong
is
the general belief that the resulting bargains bring an undue ad-
Someis set;
is
prescribed, that
is,
maximum
and detailed regulations are made for the keeping of books and accounts and concerning the mode in which the eventual sale of
pledges shall take place.
is,
Allowance, of course,
must be made
rate of
is
But
much more
offset risks,
is
pay
all
expenses, to
and to yield a
and labor; hence the occasion for regulation by public authority. In most semi-civilized communities, the village usurer who
lends at high rates to the improvident or necessitous
^
is
a familiar
said in
Chapter
10, 8,
on
"fair prices."
36
figure.
[40- 1
Hindustan
lives
gin.
season's crops are ready, and at the end of a poor season he must
Not only is he often necessitous; he is At the marriage of a daughter or at a funeral he will squander sums quite out of proportion to his means, and a heedlessness of will borrow on any terms to raise the money
either
borrow or starve.
often improvident.
The
usurer has
him
in his clutches.
So, also,
of the
it
was
is
in the old
days
One
ment
of a semi-public
In
many
parts of
sums
a usurer; that
is,
he
is
removed from
was by church
Jews as money lenders). To receive from the borrower more than had been lent him was thought unrighteous. The explanation of
this attitude, so different
in-
terest as a
matter of course,
the Middle Ages borrowing was chiefly for consumption. the borrower uses loans for his
gain between
equitable.
When
own
him and the lender for interest seems natural and But where he is in need, and uses the loan to satisfy
Moreover, in medieval times competition and mar-
As the division of labor and the use of money became more complex and the instruments of production more mobile, loans for production -became, common; and with this change came a change in men's point of view revidual borrower.
spread, as industry
40-2]
37
garding interest.
canon law, the excuses and explanations for departing from it, the nominal retention of the prohibition with growing practical
relaxation, the final acceptance of interest
on loans as a familiar
the process by new ways and new
all
this illustrates
men
institutions.
2.
One form
of loans for
consumption remains
titative
^;ars.
public
of great
quan-
borrowing for
Where highways
structed from public loans, we have the ordinary phenomena of saving, investing, capital making. But where the sums advanced
investing, but
by investors are used for war expenditures, we have saving and no resulting capital. We have vast waste by con-
so concerned are
essentially
of the
The
Every great struggle has caused hundreds of millions, even thousands of millions, to be borrowed and squandered
enormous.
squandered, that
is,
The
tic.
conditions of
demand
When
a nation's blood
up, the
means
for prosecuting a
price.
Hence prolonged
fighting often
causes a rise in the rate of interest which endures for years, per-
The Napoleonic
affected the current rate of interest thru the first quarter of the
nineteenth century.
the Crimean
and
in
War
of 1854-1855, that of
1859, the
American Civil
War
and Germanj'^
1870-
and Turkey
in 1899.
in 1876-1878, of
Each caused public loans to be contracted at home and abroad, and each had its effect on the investment market in the world at large. The whole series tended to bolster
Boer Republic
38
[40- 2
up the
lic
War
of 1914-1918, loans
dreamed
of before.
mand
In
would not have been made. And not merely the high rate, but Patriotic sentiment caused people to other inducements also. save and to invest in government securities. Such is likely to be
the case most of
that
its all
is
when an
entire nation
is
stirred
existence
all
own
Civil
almost
by high
of the
interest
and by
use.
patriotic feeling
money on which
regu-
War
not
They
they
periods longer or
At the
seat of
Else-
frightful destruction.
their
utmost, and
No new
plant
conis
when needed
If
and what
may
be
is
filled
prolonged
followed
if
by a period
of suffering
and
accompanied, as usually
ceases, the
it is,
by
40-2]
in the
39
munity.
So
far as the
must be made
and eventually (according as the terms of the loan may be) repayment of the principal also. The effects of such transactions on international trade have already been considered. There is here a real drain on the country's resources. The situation is different so far as interest and principal are payable within the country.
Interest charges
loss,
and repay-
^/j^
ments
of principal
no net gain.
But the payment of interest on the debt means simply that taxes are levied and the proceeds paid to the holders of the government securities. One set of persons are called on by the government to make payments to another set. The process may
involve hardship, even injustice.
nantly by
ties of
the poor
paid predomi'
if
for
bacco
and
*^
''^*^
and rich, the result will be an accentuation of inequality. Such was the consequence of the methods of finance and taxation that were common until very modern times. Of late, and markedly during the war of 1914-1918, the outcome has been different. Income taxes and similar levies bearing chiefly on the prosperous classes have been used to meet the debt charges. This
well-to-do
j-^>-^
-^'"^
was strikingly the case in the financial operations of Great Britain and the United States during and after the Great War. So far as the same classes are also holders of the public debt (and they are
the holders of
by
it)
the process
is
in es-
same
the
doubt those among the well-to-do who hold a large proportionate share of the war bonds get a net balance in
sort.
No
high and
of
Those on the other hand whose incomes are who hold comparatively few bonds, pay more in the way income tax than they receive in the way of interest.
of interest.
way
It
must be
said,
40
[40- 3
of the ordinary
all
Almost
Let
it
amount of interest paysame as the amount of income tax payable by him. Then there is no loss to anyone, no gain.^ Yet most taxpayers would probably feel that they were burdened. They would regard the interest receipt as a natural, proper, satisfactory income; the tax payment as unnatural, unwelcome, irritating. And if some taxpayers received less in interest than they paid out in taxes, they would be even more agoutlined in the preceding paragraphs, the
is
grieved; whereas
taxes,
if
correspondingly mollified.
This
state of
mind
is
It is the
and the government's doings, toward property and the income from property.
3. Another form of savings used in investment stands mid-
way between
immediate
for consumption.
use, of
This
is
the most
important type.
The
means
sentially the
same way as
The
sum
sufficient to
reimburse the
owner or landlord for repairs, depreciation, and such charges as insurance and taxes; and he pays him in addition a sum which
constitutes a net income to the landlord
and which
is
the interest
on
*
his investment.
(We
interest
and distributing the a real burden, of which the concrete form is that government officials are engaged in this task when they might be engaged on work of more substantial aerviceableness. Expenses of collection and administration, however, are a, email fraction of the total^Buma involved.
Of
40-3]
41
The
If the
house.
this
same sum, covering the eventual return of his capital (as well as repairs and other current charges), he would get from the tenant or series of tenants precisely what he gave. But this return is spread, by installments, over a long time. We may suppose the house, for example, to last fifty years, being worn out and useless
at the end of that time.
will
The
full
sum
necessar-
and
will
is
some induce-
sum originally invested that is, unless interest is paid. Where a building, or indeed any other concrete form
is
of wealth,
is,
the
and the
rental, over
sum
made up almost
Tho some
forms of durable consumer's wealth, like a few forms of producer's wealth, seem to endure indefinitely, decay
tion eventually set in.
and depreciahow-
In
many
probable that the distant future when the capital sum will finally have to be replaced is forgotten. The landlord in his
ever,
it is
In regions
where population
culation
is
is
fostered
ofi'set
rise in
a phase
the value of
of
is
Turning now from the conditions of supply to those of demand, we find a situation less complex than that as to the demand for
42
[40- 3
producer's capital.
room and the like is House room is constantly compared with other utilities and exhibits the same gradations of demand. The dwelling yields shelter and it may satisfy
It ministers also in
is
The more
Suppose that
and that
all
the
we may reason
amounts which purchasers would pay for sucthem would grow less. Still supposing them to be the only form of investment, we may reason further that the decline in rentals would not cease until investors (those
was
cessive installments of
came
more
carefully,
conclusion.
house room for tenants; or, to speak when the last or marginal investor came to this The case would again be one of the equilibrium of
all illustrate
the principle.
Wear
and
tear,
The
civilized
like
a dwelling
may
way
of
an
interest
payment.
fers still
Consumer's wealth of a durable and transferable kind thus ofanother way of investing present means and of securing
interest return.
is
an
of savings
in-
vestment
to be compared with
4(>-4]
43
them
in
capital.
demand which
is
to
Hbe
No
concerned.
quantitative importance.
Durable forms
an increase
of labor
in population
tions of production,
and in general prosperity. The operaand the possibility of increasing the efficiency
it
by applying
ing of
all.
may
all
be said to
the return to
kinds of capi-
and investment.
4.
We
are
now
tions suggested at
an
earlier stage,
and the
defi-
nition of capital.^
Matters of
definition,
the
first
reflection
on the
Both serve
to provide utilities or
utilities
They
differ_as to the
emerge.
the present;
Consumer's wealth
of its utilities are so
its
But not
all
brought.
existence.
tinue.
It sheds
The Some of
longer
its utilities
it is
more
of
them
in proportion as
The most
results
foreshadowed
in
See Chapter
5, 2.
44
[40- 5
the discussions of a long series of economists, and sharply formulated late in the nineteenth century
brilliant
Austrian
all
for
no
less to
From
this point
is
capital as
much
as the other.
In both cases
true interest arises, due to the fact that the present ordinarily
who have
means at command will not postpone enjoyment of them some inducement in the shape of premium is offered. So
problems of distribution are concerned, consumer's
far as the
may
fetch interest
of
leisure class.
an obvious
advan-
That advan-
it is
way.
The demand
pay
interest
The
more costly tools, the possible limits the increase in output from more laborious preparation these are questions which must be considered with reference
ness of larger plant and
to
all
to
consumer's wealth.
5.
When
cepted fact,
it is
extended to
all
means
it.
are in
He
on
He who
borrows must pay for the veriest fraction advanced to him and
40-6]
for every
45
interaction
advance.
of a highly developed
always keep-
means in connection with those who are the eventual users of capital and the ultimate employers of labor; and interest can be continuously and unfailingly secured on
ing the possessor of present
many
fields of
di-
aware
The
professional
money
of
lender
he commonly thinks
the world as
it
as "earning" interest.
He who
bor-
mand
for
and does not stop to think that his own depresent means in order, say, to buy a machine or a
it is,
is
the
mechanism
and out
is
Much more
who
is
unpractical
familiar with but one small corner of the industrial world, con-
most
superficial
so
little of
hardly
The minimum
rate of interest,
on the best
security, differs
it
little
For generations
in France. in the
was low-
est in
was higher
As a rule, it is higher in new, prosperand rapidly growing countries; lower in old countries that Tiave long been prosperous. The explanation is mainly to be found
ous,
in the varying conditions of
46
[40- 6
like
Eng-
was
steadily great
away
of large
amounts
thru loans for war expenditure, there was almost constant pressure to find advantageous employment.
prosperity only after the close of the Napoleonic wars, and, tho
England.
From both
for use
of
money means
^,
^ *^
^r
in production
^
Germany, whose
industrial advance
^after
lating resources,
and
From
still
all
was
and
profitable.
and whose opportunities for using capital were large Such was the United States thruout the nineCanada, Australia, South Africa, Argentina,
teenth century.
Chili,
and other regions offered advantageous fields for investments from older countries. Not the least striking transfer of accumulations was that from the older part of the United States,
along the North Atlantic coast, to the West and latterly to the
South
of the country.
a steady stream of
provide
itself
ments would be the same in both. But it does not so take place. A loan to a person at home, or for use in an enterprise at home, Something is made more readily than one to a strange country.
extra
must be paid by the borrower who has to deal with a lender side of a political boundary. Even where no political boundary has to be crossed, but only a less familiar region entered, the same sort of inducement must usually be offered; as when an
on the other
4(>-6]
47
Englishman
New
only supply in
new and
it is.
own
The
it
The same
city like
large
Boston and
New York
whose
securities are
sell its
known favorably
(that
is,
bonds
contract
loans)
enterprise,
The
activity of
some
differences
still
persist.
In
ail this
may
be and likely to yield in the end returns larger than in old countries,
an insurance premium
forms of lending.
felt.
But even
if
made
at
rates resulting
possibilities
loans;
Similarly, dwellings
and tenements
let
to the poor
commonly
rate,
payment and the considerable expenses of management and collection. There is an aversion to dealings that involve real or seeming pressure on the necessitous.
Tho "philanthropy
at four per
48
[40- 7
be offered to the
possibly a shade
have
remains true that
and
it still
investments of this kind ordinarily secure a return above the current rate.
in
of the
American
:
return
7.
What
can be
and
"reward
of abstinence."
often
The
clear-headed
among
who
The phrase
The way in which the present means were secured by now possessing them has nothing to do with the question of saving and abstinence. He may have got them by swindling or robbery; or he may have got them by the exercise of productive faculties in ways advantageous to his fellowmen. The
nence."
the person
act of saving from such means, again,
meritorious, as for example
if it is
may
be of a kind deemed
and
It
chil-
dren; or
it
may
money-making.
is
all
The
es-
is
some inducement be
offered.
is
Here
is
outcome
system of
and grows
in
greater complication
and
eflficiency of
40-7]
49
At the outset it arises chiefly in the simple form of loans for consumption. With the development of our modern communities, loans for production have come to play a greater and greater part, until now they are the dominating form. As we survey the
tangled course of economic history,
private accumulation
of capital
it is
impossible to see
how
the
may
be adjudged
On
is
Those
may have
been a
is
sacrifice.
persons
and
for
many
traders,
had any part in accumulation and investment. Tho this situation is somewhat modified in our own day by savings banks, life insurance companies, cooperative societies, and all the multiplied openings for investment by the masses, it remains true that most
saving
tistical
is
rich.
There
is
no
stais
not necessary.
it
plain
of steady con-
already
mem-
of inequality, it-
promotes and
it
maintains inequality.
Not only
are those
who
is
receive
more important,
50
[40- 7
in-
come from existing possessions. The leisure class has emerged as the consequence of interest and tends to perpetuate itself and enlarge itself thru the receipt of interest.
To
is
an inevitable outcome
of private
property.
The whole
taken
We
it
place
otherwise.
The phenomenon
the
observer.
must be accepted
all
and
and
all
raises questions
in
Compare what is said below, in Chapter 55, on Inequality and Its Causes, and Chapters 66 and 67, on Socialism.
1
iv
^^,
impossible.
Overproduction, in the sense of excess beyond the possibility of The extensibility of wants, 51 Sec. 2. Overpro-
beyond the stage of profit, is possible if investment proceeds unendingly. The process of advances to laborers and the readjustment of production under the supposed conditions. Check to the extreme results, from the cessation of accumulation. The reasoning of Rodbertus criticized, 53 Sec. 3. A real tendency to overduction, in the sense of production
Sec.
5.
4.
Sec.
operation,
The
from
phenomena
of crises
in reality different
1.
The
It
present chapter, is
in,
part a digression.
The
of
subject
economic
theory.
is
The
Hence
may mean
accordingh' to be answered
first
Is such a
thing possible?
the extensibility of
The negative answer commonly given by econ omists human wants. It is true that the bare
rests
on
physical
needs of
man
and
shelter are
satisfied
with
comparatively
If,
only more of plain food, simple clothing, dry shelter were added,
there would soon be an excess
But by
52
[41- 1
Refine the food, elaborate and vary the clothes and the house,
and there seems to be no limit to what can be enjoyed. As Adam Smith remarked, "the desire for food is limited in every man by the narrow capacity of the hmnan stomach; but the desire of the conveniences and ornaments of building, dress, equipage, ancT^-^ household furniture seems to have no limit or certain boundary." i Nothing is more extraordinary than the ease with which a man who begins with a small income and modest enjoyments, accommodates himself to larger means,
finds
new openings
for expendi-
own habituation
to grow-
ing comfort
and luxury.
thru
new wants and the discovery of new ways of satisfying them. The great increase of productive power during the last century or two has meant necessarily a diversification of industry and a constant resort to new things or new refinements
the stimulation of
of things familiar.
now everyday comforts; and many which were forts are now deemed necessaries.
It
is
Many
things
are valued, partly or wholly, for the simple reason that they are
evening dress, symbols of supposedly higher social station motor cars and carriages, lavish entertainment, yachts, palaces.
The expenditure
for these is
is,
in the
On the other sense that the satisfaction from them is elusive. hand this very satisfaction, resting on the instincts of emulation and ostentation, is one of the most universal in mankind and has been a powerful stimulant to productive activity. So far as the
problem
of overproduction
is is
concerned,
it
matters
not
how
great or enduring
how
far
propor-
men
are, their
wants
and
intellectual gratification,
I,
Wealth of Nations,
Book
I,
Chapter
11,
p. 165 of
Cannan'a
edition.
41-2]
53
There
they
for variety
is
and amusement, for ostentation and no danger of producing more than they will at
least think
want.
men
least
expand
tropics,
when
lolling in idleness to
work
business man,
when he
them
strives to
which we consider They irritate the modern exploit new territories, because
satisfied.
He
for
wishes to
it,
stir
to
added
effort,
and
is
willing to
pay them
is
may
quite
work and
to pro-
duction"
commonly spoken
of
of.
Trouble
arises,
it is
contended,
b^5oM
at
profit.
The
capitalistic
society,
which finds
itself in difficulties
very achieve-
ments.
ists'
produced than can be disposed of to the capitaladvantage, and loss ensues from the very operations which
is
More
any industry and anj^ one commore bicycles or more silks should be produced than could be sold at a profit. The case, tho
This of course
It
is
is
possible for
will occur.
is
more
produced
can be sold on profitable terms, the production of that thing will be diminished. Sooner or later perhaps after a considerable
interval,
if
OF WEALTH
rise,
[41- 2
and the
is
not
available where
There
no such remedy
it
And
the tendency,
is
not perma-
and periodically in
the' stage of
produc-
of profit.
Modern
True,
in the process of
making, there
is
demand
there
is
profit in
and other things used in making the plant, and producing them, and while the machinery is in
is
demand
and again
profit in
article
clothing, say
it
producing these.
is
finally
put
tion in turn
on the making
The
least,
is
\(\
In
all this
reasoning there
is
things:
human wants remain extensible, is not conceivable. way of putting the problem in its extreme form (and it is in this way that a question of principle is
so long as
Let
it
be supposed, by the
by
leaps
and
What
41-2]
/[J^rety
55
turned
"money"
(to
put
it briefly) is
making It is no longer turned to the things formerly enjoyed by these. those who have become investors. There is a cessation or great slackening of "luxurious expenditure." With this change in
of materials for
demand
unprofitable.
Labor
will
be
The
Saving and
is less
fails of
employment or
way.
employed
in a different
Before long, however, the plant and the machinery must be used;
that
is,
What
sorts of
consumable things
the
be in demand?
Not such
as are adapted to
demands of investors and savers (presumably, the well-to-do). by supposition, no longer buy for enjoyment; at all events they reduce such expenditures to the minimum. The laborers, however, have passed no self-denying ordinance. For commodiThese,
ties
is
an unlimited market.
To
be
must be
of the sort
they
sort,
fancy.
if
But
there
is
no
difficulty in disposing of
goods of this
in a vastly
all
must be
If
enormous saving and appropriately modified production is carried on relentlessly, in the end all the goods for laborers' use will be sold
without
profit, nay, if it
be really
relentless, at a loss.
There
will
be
have
in
mind
^
production
possibility of sale,
profit.
56
[41- 2
The
evidently
investment.
The
is
that
more than has been turned over to them. The supposed increase in savings and the decline in luxurious expenditure would bring it about that greater and If this keeping greater amounts were paid to laborers than before. carried to the limit, the amounts produced up of advances were by the laborers would barely suffice to replace what had been advanced to them. To put it in another way: before the process begins, part of the laborers are engaged in making commodities
laborers are constantly producing
for the capitalists' consumption,
and part
for the
is
consumption
all
of
completed,
the
making goods
for each
Then the
and no return to
reached shows
it is
conceivable,
virtually impossible.
spective of
assumes that saving and investing go on blindly and quite irreany return. Now, as has been pointed out in the pre-
But
it is
tion
if it
The
its
own relief.
As
interest
fell,
would
champagne, and would cause labor to turn A balance would in due time be restored, to making such things. by the making of less goods for laborers' consumption and by the
pictures, automobiles,
all
branches of production.
The
be carried, and the approach to eventual cessation of return, would depend on the effect of increasing capital on the productiveness of
41-2]
57
industry.
some econo-
will
always be
secured,
have
inti-
more
capital
is
not automatic or
..However that
of capital
may
be,
agre ed on
all
seeking employment
will
and a progressive
j^'^'o
tanto
it will
check accu-
its
own remedy.
socialists, tried to
explain crises
by
^^(si
made
crises
by Marx and by
not disposed to
other socialists.
The
well-to-do,
it is
The
laborers,
for spending.
on the other hand, have not the wherewithal Hence productive power tends constantly to outrun
crises.
The answer
is
ment by the
is
well-to-do simply
no
its limit,
must be overproduction in the sense of disappearance of profit or But this limit will never be reached. Long before it is interest. approached, an end will come of the excessive investment; demand will be readjusted, and the various sorts of goods will be turned out
in
mistakes)
be sold at a
profit.
tho
is
it
what
really
And
68
it it
[41- 3
is
To
these
may now
be given.
for short
periods, blindly,
become
ingrained
among
been so perfected
public and
the
like.
is
there
limit.
And
in these
undertakings there
that
is,
can be sold at a
profit.
ing
ever active.
The
return to capital
is
minimum; there
duction."
is
And
uncertainty
stoppage because
hope
it,
and
resumpor
maintain
it,
at a profit.
this
is
The path
danger
in the
it
of escape
from
can be considered
danger
if
obvious.
It
is
by change,
at once
methods of production and in the direction of production. Change in the methods of production is constantly taking place in the established industries. So long as improvements involving more capital (that is, more application of preparatory labor in "roundabout" methods) are made, there is an opening for a return on a larger investment. Change in the direction of production takes place by variety, by finding new things to satisfy newly awakened wants. Ornaments, wall papers, rugs and carpets,
41-4]
59
there
are hosts of
new
It has
Yet he who lot of the mass of mankind. what are the commodities now produced for the masses and compare them with the slender list of things available even for the richest but a century ago, must see how mistaken is the statement. It is more nearly true that the toil of most men
improved one whit the
will observe
has become no
in the
tions.
less.
Certain
it is
of the
this gain
"overproduction," that
without general
loss,
has
There
istic
is
thus a show of reason for the statement that the capitalits bosom the seed of its own The constant pressure of accumulation does threaten profit. But it has also the forces of recuperation
destruction. to annihilate
of
And
is
always the
breakdown occurs,
to be
ceasing accumulation.
4.
Among
individual industries,
some seem
more than
Indus-
that
is,
must
sell
at a loss.
tries of
of demand. Thus there was constant talk, for many, many years, of "overproduction" of our American anthracite coal and of the need of_
reducing the
siipi)ly in
order to avoid
loss.
Xow,
like all
mining,
transportation.
sufficient to
the fuel
is
60
for
is
[41- 5
suffers
The plant for anthracite, which must be adequate in winter, is more than adequate in summer. There is, none the less, a temptation to utilize it continuously, summer and w inter. As with all plant, there is a loss in leaving it idle. Storage on a
demand.
great scale, which would equalize the irregularities of consumption,
is
extremely
difficult.
Hence, we are
told, there
is
recurring over-
among the
Otherwise
followed
irregularity of
It is
by stoppage and depression; the whole round means employment and evil social conditions.
on such grounds as these that combinations have been said It is not imposjjjble that they
but
I suspect
do
so;
the danger
is
may
Business
They
when they
is,
a fat profit.
Overproduction, that
about
sales at
an actual
loss, is
probably
business
community would have us suppose; and when it occurs, it is due to oscillations in demand which would probably affect a combination or trust as much as a body of scattered producers. The advocacy of combination as a means of avoiding overproduction and industrial irregularity is commonly a mere excuse for trying to build up a monopoly which will restrict production, and secure (or
try to secure) regularity at the expense of extra levies on the public.
5.
Some
of the
crises,
and espeit
ascribed to overproduction.
would
seem, more
is
sold at a profit:
^
Compare what
41-5]
61
of the
They
are due to the fact that confidence has been shaken, credit
^^9ckr- They may, indeed, be ascribed in part to some real " overproduction "
beyond any needs whether These things correct themselves in time. The
is
mechanism
of
exchange
set right.
Unfortunately, as
is
we have
reached.
normal adjustment
never
Undue
ajfiberal
activity
is
likely to succeed
But
dency to
overproduction.
They
are
little
demand
and those
possibilities of
who maintain
danger of general
CHAPTER
Section
1.
42
product of land, 62
Sec.
2.
returns
Sec. 3. Quahfications of the principle of diminishing a possible stage of increasing returns specific plots alone to be considered; proposition refers to physical quantity of produce, not to
:
land.
skill
assumed, 68
is
when
sharp, 72
and indestructible powers of the soil? Predatory cultivation; intensive and extensive agriculture. Inherent differM|ces tend to be lessened, but do not disappear, 73 Sec. 6. Land teni^ft Cultivation by owners, each with moderate holdings, of greatest s\ advantage, Should the community appropriate (jPretain for itself 77 Sec. 7.
there original
To understand
Book I, Chapter
13.
Stated in
and marginal vendibility are equal. simpler terms, the cost of the most expensive portion of
cost
when marginal
who produce
more
I,
who sells at
and
labor,
If
the price BP', secures the ordinary gains on capital and the ordi-
whether
his
own
capital
and
capital
which he hires at
interest
and
for wages.
later
withdraw
The producer at A has smaller expenses of production, measured by the distance AA', and it would be perfectly possible for him to continue operations at the price AA'. The producer at 0, who has the greatest advantage of all, could
62
42-l]
63
continue operations
none the
less,
BP' PO the
must be paid in order to make it worth while for the producer at B to keep on, and which must be paid in order to bring about equilibrium. The difference between the larger sum BP' and the smaller sums A A' and SO measures an extra gain for the more advantageous intra-marginal producers.
fortunate persons
is
indicated
who have
with land.
"producer's surplus."
to
another for the loan or lease of any durable thing, such as a tract
Its use
by English-speaking economists
gone on for several generations, and on the whole has served to affix
to the
ducer's surplus"
technical sense.
apt,
It
is
and that the technical meaning of conflicting with everyday usage, and
among those not familiar with the terminology of the writers on economics. But "rent" has the advantage of brevity, and the sanction of long-continued usage by
so of leading to misunderstanding
book
in the techit
Where
there
danger
of misunderstanding,
will
is
used
and not
warning
will
it
price.
more fortunate producers. Price is determined by the cost Rent is not one of thejactors bearing on price, but is the result of price. It is due to the comparatively high~price^ which must be paid to bring out the total supply.
of the marginal increment.
64
It
Is
[42- 1
may seem
some producers.
ducer at the point 0, possessed of a source of enduring advantage does say a fertile or advantageously situated plot of land
some
That other person will be able to pay him for the use an amount measured by SP, or the total rent. Not only will he be able to do so, but he will be compelled to do so by competition. On that land the amount SO suffices to meet all the expenses of production, Including remuneration to labor and adequate return to capital. If the owner offers It for use by tenants, they will bid against each other for the land up to the point where they will retain for themselves the usual return for labor and Therecapital; that is, they will bid a rent up to the amount 8P. after the tenant, having contracted to pay SP as rent, will say that his expenses of production are no less high than those of the marginal producer at B. Tho he pays less out for labor and the
one
else.
of the land
like,
From
and
ducer.
as
much an
expense as wages,
no
less
But
all
payments
by such
They
are the
whom is so fortunate
They equalize the position of different as to own an advantageous For the person who does own such an advanIs
secured equally
payment from another who bids for the privilege of using The typical case of rent, and the one which serves most
to Illustrate the principle,
Is
It.
readily
Suppose
have farms
of different fertility.
application of labor
and
capital yields at
25 bushels of
20 bushels, and at
42-2]
65
The supply
and
is
limited
must be got at
reached.
demand
is
The
price
producer at
i? for
The
receipts from 15
The
ten bushels at
if
And
the owners oi
instead of cultivating
for themselves,
immaterial w^hether
they secure the advantage from the better site in the one form or
the other.
specific
product of land.
of capital,
Simi-
be the product
and wages
to be used with
caution.
The
Labor applied
use of tools) yields more than labor applied in other ways; in this
is
The same
care in the
some land
sense onl}^
in supply
it
yields
is
and
still
would
But
there would
be no
differential return
Rent
1)
"^i
2.
Such
is
many
qualifications.
4.
66
[42- 2
ference in productiveness,
The
illus-
may
will
engage our
JLLthe
if
capital could be
then
The
less
those
good
lands would be
left
untouched, and
all
agricultural produce
is
would
The
good lands, mediocre lands, and poor lands are cultivated side by
side
proves
When additional labor and capital are applied to cultivation, it may be a matter of indifference whether they be applied to poorer
land, or to the better land under poorer conditions.
In the pre-
of labor
it
and
and 15
might
also be
all
made on
is 15.
is
such as to
make
worth
is
that stage in
production where only the normal returns to labor and capital are
secured.
is
The margin
it is
is
said to be extensive,
resorted to;
said to be intensive,
Difference in yield would appear, and therefore a differreturn, even tho all land were originally of the
same
quality.
In
fact,
there
is
42-2]
the
67
natural
of
land.
Some^ land
is.
better than
^^
have precisely the same
effect as differ;^
T5Ifferences in situation
ences in
(first
fertility,
^n
elaborated
all
supposing
all
by the German economist, Thiinen) is got by land to be of the same quality, and to be situated on
which
its
produce
is
brought for
sale.
Imagine concentric
in the
circles to
Evidently the land in the nearer rings has an advantage over that
more distant
rings.
is
price;
and
its
cultivator
The owner
must be an advan-
to situation obviously
is less,
cost of transportation.
The cheapening
of carriage in
modern
This
is
example
meat,
which is_easily:jtransportable.
facilities
grain for
Tho
it
refrigerating ap-
have made
possible to bring
and milk from very distant sources of supply, the nearer lands still have some advantage from the situavegetables,
If
tion.
all
would disappear.
The
railways which
bring the milk to some of the large cities of the United States
adopted at one time the practise of a "postage stamp rate" that is, an even charge on all shipments, distance being disregarded.
So
method, advantages
in situation
and
"away with
As
it
appealed to by the owners of the nearer lands to prevent this practise, it being alleged that it was unreasonable and unjust to
fix
The
Inter-
state
Commerce Commission
rate; tho
68
[42- 3
We
proceed
now
to
some
it
qualifications
and explanations
all.
may
not appear at
There
This
but more.
most
in civilization
suddenly takes under cultivation virgin land, as has been the case
during the last century in~tEe~tJmted States and in other new
countries.
'
In the
first
A second stage is
reached,
when more
only
is
labor,
more elaborate
clearing
how it happens
is
if
this
be the case
all
before the
maximum
productivity
is
resorted to.
The answer
he
will possess
much
the lodestone
men
to the breaking
up
of the
wilderness.
of increasing returns
is
temporary,
many
way
reached
:
that
still
is,
community.
Before
is
years,
the
of the
normal condition.
is
modern communities
There
in general
have to face
difficult conditions.
may
be additional plots
rates,
^ Compare what is said below, Chapter 62. On milk Commerce Commission Reports, Vol. VII, p. 92.
see
Interstate
42-3]
69
of available land,
The openIt
ing
up
of
new
new countries themselves, and has given rise to the knotty problems
already considered,^ about the advantages of the trade between
them.
is
to be
It
means that
Indeed,
less
money
undiminished money
yield.
The
price of
wheat or potatoes
rises
jn accord with the additional expenses neecled Tor producing the last.
Jncrement.
would not
has to face_
who
it js_the
consumer, that
tlie population
Only
is
a consumer of
agricultural produce
The tendency
an obstacle
in
way
it,
of
still
more
in the
way of unlimited
pooh
The
is
no
it
less
produced by him.
is
A
in
sort of
fallacious reasoning
'
See Chapter 37, 4. See Kropotkin, Fields, Factories, and Workshops, pp. 73-87.
is
70
deners
[42- 3
who raise produce for city markets on small plots of land. Consider how much in money value is produced on a tiny piece! Can it be said there is any evidence of diminishing returns or indeed
any
practical limit to
is
Quite
true; there
no
tomaan
may
But he
He
supplies
expensive luxury.
The
produce used by
him and
land.
his
For the community as a whole the tendency to diminishing returns on each several plot of land must be accepted as an
obstacle to the indefinite advance of production
and population,
schemes of
social
and as a
limit
in all
reconstruction.
must be understood with reference to a give stage in the agricultural arts. New and better ways of using the land may Ibe discovered, and may make
Finally, thfijtendency to diminishing returns
possible
an increase
;
of
of labor applied
nay,
may make
more than
in pro-
Thus, during
many
centuries,
of the
less), it
was customary
common use.
The land
any one time was only two thirds of any particular plot after being in use for two years the total; and was idle and recuperating for a third. About the middle of the
eighteenth century root crops, especially clover, were found to
offset in large part
soil
which
results
from
which enabled
all
all
maintain
its
productive power.
After
this
great change,
quoted with approval by so clear-headed a thinker as Bertrand Russell, Proposed Roads to Freedom, pp. 60, 90-92.
42-3]
71
applied to each plot of land than had been applied before; yet was
more elaborate rotation shown the way to still better culture The methods of plowing, of crops, and the use of new fertilizers. draining, the selection of new varieties of plants and animals, have Not least, agricultural machinery and also been greatly advanced Hence the soil, tools have been greatly improved and cheapened. when utilized in the best-known way, has been pushed more and
.
returjtx.
ways
and also that in fact there have been increasing Yet both statements are true. Tho in backward countries, like British India and China, and even in some parts of Europe, the soil still is used in the ways that we regard as primitive
miriishihg retiirns,
returns.
agricultural hundred years ago labor in the United States and in most parts of Europe is applied with much more intelligence and with better effect than five hun-
that prevailed
five
None
Improvements
way
which
it is
not reached.
But
moderate limit
So
far as
sites are
concerned,
matters
some
land.
If,
poorer grades of land (or those deemed poorer in the earlier stages
by some processes of drainage, clearing, and leveling, available only for some soils once disadvantageous, these could be made as fertile as those previously more fertile then rent, so far as due to the superiority of some lands over others,
of the agricultural arts)
;
if
72
[42-4
would disappear, and would emerge only as all land came to be more But if the improvements in agriculture were intensively used.
equally applicable to
all lands, the differences between them Good lands and bad would alike yield more, but would remain. there would still be an extra yield on the good lands; hence, so far as both were cultivated side by side, there would be inequality of
is,
rent.
And
been the
effect of agricultural
improvements.
They do not
oblit-
The
only sort of
improyement
effects is the
cheapening of transpor-
With regard
it
to
of land, there
is
a stage at
which
all of
may be
it is
which
of
capable.
persons.
principle
diminishing
returns
we suppose such an
I,
p.
177.
made to yield more and the ascent would not become quite vertical. But the increase in cost for additional yield is prohibitory. Tho agricultural improvements counteract this tendency, and remove further the stage when the tendency to diminishing returns
shows
itself
effects.
When
has
brought under
made familiar as
as
it
true
much
European
are exaggerated.
methods
is
42-5]
73
Even tho
is
begin to appear
If a
marked
increase of popula-
to be
felt,
the explanation
found
all
in that great
foundly influenced
the
extraordi-
new countries. name the theory of rent is most associated, reinarked that rent "is paid ... for the use of the original and indestructible powers of the soil." But it is urged that the soil
tional sources of supply in
5.
has'iioindestrtictible powers.
""
"if'continually cropped,
it
loses its
powers.
"Worn-out land"
is
a familiar phenomenon.
The
soil
it
by growing plants and whose continued loss means the eventual destruction of fertility. The chief of them is nitrogen. This is restored (tho by uncertain and irregular steps) thru the spontaneous action of nature
if
lie
But it is restored more promptly and effectively by fertilizers and by the rotation of crops, and especially by the root crops. On all these chemical processes the science of modern times has thrown a flood of light, explaining the practises which had been empirically worked out in former times and pointing the way to new and better practises. Certain it is that improvident cultivation wastes the powers of the soil, and that there is need of restoring to it what continuous cropping removes. When new land is first taken in cultivation, the necessity of restoration
It
is
not
felt.
The
is
then large.
and even
when
signs of exhaustion
appear on that
This
tion.
is
predatory
is
new land
is
available.
cultiva-
grown contin-
74
l42-5
uously year after year, the juice being extracted from the cane, and
the stalks and leaves burned as
fuel.
is
fertilizing,
and
not even those elements which are contained in the stalks and leaves
But after a series of years even the richshow a declining yield. Then, however, the planter turns to fresh plots, and the same process begins over again. It will continue until no more fresh land is available; for predatory cultiyatioii^^o long as the land holds out, is the most profitable.
are restored to the land.
est sugar land begins to
first
fertile
The
demand
little
manuring or
Where the
Yet
no
in
soil is
and often with burning of the straw. rich in humus, such use of it can be maintained years and sometimes for an even longer period.
of
it,
The land
or cultivate
In the United
The
pioneer
sells his
worn-out land
need of
reality
much worn
out,
but simply
in
careful husbandry
not yet
in
to a
is
neer himself
moves
up
virgin
soil,
and
it
Predatory cultivation
is
Extensive cultiya-
means that labor and capital are spread comparatively thin. The yield per acre is commonly small. Thus the average yield of wheat per acre in the United States is between 12 and 15 JiU^ls. In England, the average is 25 bushels and more. But the yield per unit of labor and capital is smaller in England; for much more labor is applied to each acre. A farm of one hundred and sixty
42-5]
75
North Central
is tilled
states
say
staff of
is tilled
by the owner and his family, farm of the same size in Great
by the
capitalist
farm laborers.
Extensive cultivation, however,
cultivation.
is
Labor and
capital
may be
yet
nevertheless
may
lasting perhaps
by more
It
stage
for ten or
is
usually succeeded
of the
careful,
but
still
Most
Valley
is
now
may be
expected that, as
and more
difficult,
More
elaborate
more continuous use of each tract, deeper plowing, more frequent harrowing, systematic drainage, more abundant and more carefully selected fertilizers, will be used, as they now are in the advanced countries of Europe. This change is due to the tendency to diminishing returns, and is a sign that the conditions of pressure on the land have been reached. High farming is essential
to maintain the productivity of the land
if
from
it;
but
it
some
difficulty,
begin-
ning to be approached.
is
its
degree on what
and greater Those lands which were originally best have been denuded somewhat of their natural stores. Those which were originally less good have been brought nearer
for production
an agent
depends
it.
,
man
the average
by continued
careful cultivation.
All
have been
the
with roads.
The
differences
and
a tendency
same
state.
76
l42-5
cease to be of importance.
lows.
It
is
might be inferred that inherent differences in land But the conclusion by no means folall
true that
for
man's action
the maintenance
but
all
does not
respond to man's action with the same ease or to the same degree. Land with a deep layer of humus contains very rich stores of latent
plant food, not easily transferred to the plant, yet capable of being
utilized
almost indefinitely
if
in what proportions it contains The physical constitution of land has an important influence on its possibilities sand, clay, humus Tho a sandy waste or barren hillside may be brought for tillage.
it
cannot be
brought to that state or maintained there with as little labor as land having better natural endowment. New England can never be made
as fertile as Illinois
and Kentucky.
is
Climate, again
smishine,
The newly opened land in the Canadian North-"^ example, of which so much has been said in recent years,
for a long
years to give profitable opportunities for pioneer cultivaafter perhaps a generation, the inevitable stage
is
tion.
But when,
of restorative cultivation
less
reached,
be found
is
than
Land that
frost
bound thru the larger part of the year is not a flexible instrument and will not readily respond to more intensive cultivation. In the those stretches in Nesemi-arid regions of the Western states braska, Kansas, Texas, which lie intermediate between the wellwatered Mississippi Valley and the arid plains of Wyoming, Coloit is said that "dry farming," in the way rado, and New Mexico plowing, careful harrowing and rolling, specially selected of deeper
remove climatic obstacles long thought insuperable. Whether or no these expectations are fulfilled, it is certain that more labor will need to be applied in those regions than in the Mississippi Valley, where nature provides ample moisture.
seeds, will
Tho
on
all
it is
true that
is
difficulty in deter-
42-6]
77
and indeman's
affected
by
its
"original
how much by
action.
question
Economic rent is extremely difficult to mark off. Beyond it is present on some sites: thus on bottom lands in our
valleys,
Western
of
humus
is
extraordinarily deep,
or none of
it
We may be certain
on the Highlands of Scotland. But on any particular plot which has been long under cultivation it is almost impossible to say how
much
labor
is
aided
by inherent
properties.
precisely the
same as
for
if
nature had
made
the
land
good.
Subsoil
draining,
example,
Illinois,
and other
states
in, it is
as
if
nature, not
man,
of admitting moisture
and
in
of dis-
as on the
So
it is
when
Bedford Level
England,
boundary between
Once these
improvements are made, the return on the land depends on the principles of rent rather than on those of interest. It depends once
for all
of the land as
it
improvement. 1
6.
The
leasing of land
of
"rent"
in the usual
What
in the
may
way
of interest,
But commonly the actual payment contains something of economic Tenancy raises some inde.
pendent questions.
^
is
Compare what
said
bdow, Chapter
43, 4.
78
l42- 6
of the land;
what he can
In
is
barest form, where the landlord does nothing, and the land
let to
simply
tillage
V
but in demoralized
^
f
tenantry.
The
situation
is
is
improvements made by them and not exhausted on the expiration of the lease. Even under this arrangement the landlord must
for
have a care
for the
way in which
the
soil is
used,
improvements.
stipulations,
hamper
effect,
The
a person of
is
leases a considerable
tract of land
and
prepared to cultivate
systematically for an
husbandry
is
good.
The
manent improvements and is thus an investor in the land. The actual payment made to the landlord represents economic rent only in part. Traditions of friendliness and fair-minded dealing between the two have made this arrangement a workable one; and
indeed the agricultural arts in England have reached a high degree
of
In Scotland long
leases,
sometimes
for
perhaps the
most
None the less, the most effective use of the land is likely to be made by the owner. Such at all events is the case where land is readily transferable, and so can be bid for and secured by those who know how best to make use of it. This facility is lacking in
many European
countries, especially
moreover, the obstacles which the state of the law presents are
Vfrry
>"
42-6]
increased
79
which often attaches to large landed estates and makes the owners reluctant to sell. In the
United States none of these obstacles
exist.
is tilled
by the owners.
Farms
sons
tion of
hand to another, according by different pera condition which promotes the most productive utilizathe soil. In the North Central states, the great agricultheir
tural region of the country, about sixty per cent of the farms are
tilled
by
owners.
Since
century there has been some increase of tenancy in this region, and
in the
North
generally.
But the
increase
is
largely
due to the
efforts of
owners
commands a high
required to
buy
it
outright.
The same
is
is
true of
many
parts of
Germany, and
especially Southern
notably
Europe
for a
Italy
is
metayer tenure.
The land
is let
share of the crop; often one half of the crop, but more or less according to the fertility of the
contribution.
soil
The
used.
much
drawback which
is
comes from the fact that the landlord also shares in the output.
In the southern part of the United States there
practise of share tenancy
a widespread
of
among
the negroes.
The owners
all)
of the
This arrangement
was doubtless
ern states found themselves at the close of the Civil War, the
Y Y
It
is
x/
[42-7
in
of
any experience
management.
Yet
not comparable in
social
soil.
improvement.
predominance
of cultivation
some
agricultural
by the owners are the most wholeconditions; and it is much to be wished that
The
ceding sections
the need
more intensive, the difficulty of distinguishing between nature's have an important endowment and artificial improvements bearing on some social problems.
It has of
the community.
Rent
is
is
Why
proposed that
all
amount
is
of its
because
expected that so
the
community were
title,
allowing the amount of its rent to keep for himself enough to pay for all his improvements tenant and for interest on them, but requiring payment of the excess. One fundamental obstacle in the way of this program of action
and
let
is,
as regards agricultural land, the difficulty of measuring the inin the soil
vestment made
it.
Rent, as
is
It
nQt_earr
marked as a sej>arate return. Its emergence is inextricably inter-* mixed with the complex processes of tilling the soil and of main-
42-7]
81
must
much
experimenting, plans of
cultivation that run over a long period; not least, constant indi-
No
certainty that he
results of
who makes it yield abundantly will reap the hi& industry. And no kind of secure possession is so
end as untrammeled ownership.
It
is
effective to this
true that
if
by
community
loses
something which,
dis-
might be appropriated without discouraging good management; but the difficulties of discreet^ carving are so
serious
of
against
any scheme
of taxation or periodic
.-i.
"*..
There
is
it
lease
only
it
manner
in the
If
this plan,
and
if its
and excellently administered, this mode of managiiigHtS'"'''patrimony would be preferable to private ownership. But no country has started on this plan; or if it has
honest, highly intelligent^
done so (the historians are uncertain as to the extent to which the Germanic races began with a system of true communal ownership),
long centuries of private ownership have followed.
The spur
civilized
of
where a
com-
new land
as
in the
might retain
in public
But
which
to
The thought
of the conservation
itself
them;
or, if it does,
only.
82
[42-7
Hence
all
communities, whether they have moved slowly thru a long historical development or have begun at once on the plane of advanced civilization, have rested their industrial organization on private
ownership of land.
existed from time
sold for
immemorial
destroy
it
the future.
To
all
not indeed
unthinkable, but
would
whole
framework
of society.
It presents the
unearned increment.
A different proposal
is
unearned increment, but the future accretions. Let vested rights the private ownership of land and the enjoyment of existing
rents
remain
undistiu-bed.
But take
on the whole bring gain to the community. To carve out economic rent proper and to leave undisturbed those gains which
are necessary to secure the effective use of the land, calls for high
intelligence as well as scrupulous honesty
among the
public
officials.
would
work great harm and indeed would probably lead before long to the summary abandonment of the whole scheme. It is to be borne in
mind, however, that where the ownership of land
a wide dispersion of economic rent takes place,
inequalities are avoided
is
much
diffused,
which are the most objectionable results of adminAll things considered the regime of private property. istrative difficulties and the imperfections of government, as well
is
probably in
transfer
and of such legislative changes only as facilitate its and its easy acquisition by those who will use it best.
free
CHAPTER
Urban
Section
1.
43
Site
Rent
The
principle
of
How
manufactures,
than for agricultural land, The Site rent depends upon shrewdness in utilization. 87 Sec. 3. When capital is sunk Sec. 4. activity of real estate speculators, 89 irrevocably in the soil, there is difficulty in separating rent from return on capital. How far ground rent is identical with economic rent, 91
returns on urban sites;
S3 Sec. operation
2.
diminishing
less steep
Sec. 5.
and speculators
is
prois it
land.
results
from the
differential
advantages of
certain plots.
The
some
sites
So long as the
possibilities
on the better
themselves; and
themselves, or
this, irrespective of
let
them
to others.
is
used.
Most
characteristic,
and simplest
in its
manifestations,
Wher-
in the heart
The
is
large
building and
Conlolls
about during the greater part of the day, waiting for a customer;
or
(if
also.
is
84
[43- 1
By
shop,
we mean the
utiHties or satisfactions
the completion
of
what
is
usually the
hands.
expressed
by saying
much
very
little.
The
retail
precise reasons
why some
and
Most
The
transportation lines converge are the most valuable for retail trade.
From such
most advantageous along which the largest number of persons move Anything which causes many perto and fro in their daily tasks.
sons to betake themselves to a given point
station,
post
office,
a theatre
by which one
than
another
may come
into
and
its
profitableness
may
become
(it
greater.
is
Dis-
a cardinal
;
maxim
effect
and with
The
on the expensive
sites are
not
is
usually higher.
many
The
so-called
department
store sells its wares at prices at least as low as those of the suburban
or village shop.
To
this
make
rich.
Here a given
article is
not infrequently sold at a price higher than that charged premises within a stone's throw.
on
less pretentious
Here high
43-l]
prices
URBAN
SITE
RENT
85
But
in
because they can get high prices that they bid high for the premises and pay the
;
way
is
it is
high rents.
well-selected
usually a stock of
articles of
good quality;
there
is
company.
one of the
The
is
utilities
is
are willing to
pay handsomely.
command
where the same or similar busiThis advantage may seem a trifling one,
is
done on a great
rent, or
scale,
paid for
much
in the general
payment
premium
run
Here every
in
in
Wholesale dealers
commonly
the metal district, the dry goods district, the boot and shoe disthe shipping district, and so on.
All together cluster about
its
trict,
of business.
sorts of persons
who need
to be
customers and where their customers can easily get at them, bid
for premises near the heart of things; such as lawyers, brokers,
all
kinds, the
Hence the
office build-
cities.
The
cities,
largest
urban
used_
rents
seem to be
vsecured, at least in
American
on
sites
and
range.
An
acre of land
86
[43- 1
a year.
Manufacturing
sites
intrinsic advantages.
sometimes command their price because of They may be near water power, or a deepFacilities fof ^^ansfacilities.
by railway
tell
no
less
than water
line could
In the
against
if
one
be played
off
in
much
way
as
if
nature had
it
made
When
once a
lishments, for reasons that are often not apparent on the surface.
f
Why
when
sites
^ apparently no
/
country? Here, too, the telephone would seem to remove the draw-
And
shrewd business men, constantly weighing the advantage of proximity against a higher rent charge, cause the gravitation of
many
Easy access
to competitors,
plentifulness
one factor.
is
the
and
flexibility of
moment
in
The
precise point at
which a
often deter-
mined by no natural or inherent causes. The site of a great city _jtself is indeed, usually fixed by natural advantages, such as a superb harbor, as in the case of New York City and San Francisco,
or the confluence of rivers in the neighborhood of great coal supplies, as
usually no reason
why one
small area
It
is
the
2.
43-2]
URBAN
Some one
all;
SITE
RENT
by
and
87
sites for
men
dwelhngs.
prized
will
be
by
Jimes
wtjjmsicaL
value of sites for dwellings
is
The
ciple,
Sometimes such
have
intrinsic
advantages
broad
the
and
sunny
access.
streets, frontage
on parks and open spaces, convenience of But often the advantage is purely factitious. Nearness
is
to one's kind
for
in
demand
streets
som e
spots.
among
among
enormously.
Thither flock
all
distinction
sites believed to
and crannies
of fashionable districts,
narrow
side streets
and dark
high
this potent
charm,
command
on urban
sites.
In these
reached
modern days
of
steel-frame construction,
ten,
twenty, thirty,
is
But sooner
a
and where
further
it
becomes
site.
question whether
it
is
not better
push construction
on the same
cities,
Where
the land
is
American
light
floor.
One
rarely sees a
The
poorer
and
air
on the lower
floors,
the
cost^
lifting
goods and
88
l43-2
supervision, begin to
and
tell
added.
much
higher, at
United States.
is
The advantage
heart of things
all sorts of
occupations, are willing to pay liberally for this facility; and a small city in itself is established in the towering office buildBut even here there is eventually a limit, tho one which the ing. progress of invention is steadily pushing higher. It must be borne
in
all
would cut
too
much
Hence adjoining sites must be controlled and limited; in other words, taking the combined sites, the possibility of intensive use is much more limited than it appears to be when a single Situations on a corner, or those which plot is considered by itself.
and
air.
on Broadway
in
New York
is
Much
the same
made
taller,
Dwellings
tenements for those who must be near their work (or think they
must
be)
and near
their comrades,
ments
for those
whom
profitable
and telephones, a limit is reached where it begins to be less to add more and more stories. The tendency to diminishing returns under the increasing application of more and
same
site, finally
On
few agricultural
sites; precisely
as
43-3]
URBAN
is
SITE
RENT
sites.
89
made
of a
few urban
But
in almost
agnculturaTTand, and the obstacles which cause a lessening of product act steeply.
On urban
One
will find
by
side,
on the same
and com-
is pushed would seem that very large amounts of capital can be invested on some urban sites, especially on business premises,
higher.
On
is
product of
nothing
urban land, as on agricultural land, there is no separate the land. Nothing is automatically yielded by the site;
earmarked as "rent."
on some
What happens
is
capital applied
sites
sites yield
The
being limited, the owners are able to keep for themselves the
yield
skill
all
The
on the
seen
and above what is usually got. on the advantageous sites depends in no small degree with which they are used. Their possibilities are not
them comes most actively from those who have the shrewdness to see what can be done on them and the courage to put their calculations to the test of actual Mistakes are sometimes made and losses incurred by those trial. who lease or buy city land on high terms; while at other times
persons.
for
by
The bidding
success
and unusual
cities is
profit follow
office
from
its
ingenious utilization.
so striking a feature of
building which
is
American
buildings,
more convenient
risk; each,
if
Each improvement
entailed
had a host of imitators. A successful venture inured to the advantage first of the owner of the particular site, and later to the owners of similar sites. Very
a^rtain
fortunate, promptly
90
[43-3
the innovator who has in mind a more elaborate building) will buy it outright from the previous owner at a price based on the traditional ways of using it. Then, if he succeeds in his venture, he finds the return on his total investment handsome, and his site worth in the market more than it was before. Sometimes he leases the land for a long term and then enjoys the gain during the period of his lease. Sometimes the owner himself is shrewd enough and energetic enough to use his site in such a way as to get the maximum yield. In whatever way the more effective and profitable utilization comes about, it soon has plenty of imitators and the new method becomes the common one for sites of the same sort; to be succeeded in due time, especially if the city continues to grow, by other still more ingenious methods. But success does not invariably follow. Mistakes and miscalculations occur, as in every kind of investment. Often enough it happens that a projector pays high for a site and
common!}^, in American
new
vided in
it
demand
accommodation
which he
offers.
men" who
make
for
it
a business to
manage investments
in
urban
realty, partly
Among them
a process of
come
to the fore.
are
and
commonly
make
and managing agents for the owners. They set the pace so to speak, and are followed by the rank and file. There are always others, equally venturesome but less shrewd or less fortunate, whose experiments do not succeed and who lose money for
large sums, sometimes fortunes, either from the purchase
sale of sites or as
The spur
less
of individual profit^and
other parts of the industrial world for the most effective employ-
43-4]
91
4.
The investment
of capital
sites is usually
more
It
when once made, are But most work done on farms exhausts its effects in usually in a few years a short time and the choice recurrently presents itself whether any particular application of labor and capital shall be repeated or shall be discontinued. The investment of
drainage, which last indefinitely and which,
irrevocable.
capital
is
improvements
made with
Thus, in
filled,
many
ha'>
e been
and deep-water sites secured. For such an investment there no wear and tear, and no possibility of shifting the capital in the is manner in which it may be shifted when invested in machinery by letting it wear out and replacing with something else. The
changed land surface
has been leveled or
is
all.
So
it is
whenever land
filled.
is
The
case
is
similar,
It
have to be kept
may last for generations, even for centuries. Commonly they in repair, in order that they may be used at all. So
long as they yield anything over and above the expense of repairs,
it is
worth while to maintain them, even tho the return be but slight It will be profitable to tear down an old or ill-adapted building and replace it with a new building, only
when the new one promises to yield not merely enough to pay a satisfactory return on its own cost, but in addition enough to compensate for the loss of the net revenue which had still come in from
the old one.
it
way
Where a
city
is
growing rapidly.
92
the
l43-4
at a
pay to raze to the ground an obsoleteHbuilding and substitute something new and up-to-date. Where a city grows slowly, still more where its population is stationary, such a building, especially
little
if
need of repairs,
of
may remain
capital and the common and typical mode by an investment the return on that erecting a building on investment
of
is
of
it
it is
The
parcel of
earns
between that return becomes apparent between rent and interest which goes to the owner of the site as such and that which goes to
the owner of the capital put on
it.
As time goes
on, buildings
do
wear out, old ones are torn down, and new ones are substituted in their place in order to put the land to its most profitable use.
full
differential gain
which
capital invested
may
None the
as such.
less, it is
is
of accuracy what
there
is
just as there
practicable
what
Hence the
It
is
selling value of
based on
its
be measured with
sufficient exactness.
by the current
sales of land.
measured by the assessment of land for the purpose of taxation. The rent which the landowner gets, tho it is not earmarked as a
separate return and tho
it is
much
affected
43-4]
site
URBAN
is
SITE
RENT
93
from the upon an investment
happens to be put,
none the
less distinguishable
interest
lessee,
may seem
is
ground
rental.
common custom here is still for the landowner to put up building himself. When ground rent is paid by a lessee to
landowner, the amount received by the latter
is
the
almost always
owner
it,
whatever to improve
his
this nature.
But
by no means
and it is conceivable that he may more than that rent. The long-term lessee
part of the strict rent of the
site.^
may pocket,
city,
for
many years,
The
may cause
on
expected to be
lessee erects
when the
it
more advantageous than it was The buildings which the may bring a return much more than sufficient to
was made.
pay interest and depreciation; there is a surplus, which accrues to him thru his lucky bargain. It is possible, of course, that the reverse may happen. The site may become not more advantageous than was expected but less so; and the landlord will then receive under his bargain more than his site proves to be worth. During the last hundred years, when population in all the civilized countries has not only grown but has crowded more and more into the cities, much the more common experience has been that ninety-nine-year lessees have pocketed part of the site rent. When long leases of
1 In the city of New York leases of sites are often made for twenty years at a stipulated rental, with privilege of renewal for a second and perhaps third term of twenty years, the rentals for the additional terms to be fixed by arbitration, or on the basis of a fixed percentage (four per cent say) of the appraised selling value
of the land.
it
more
94
this sort
[43-5
sometimes a wonderful
An
ancestor of the
Duke
of
London,
for
ground
Ninety-nine years
when
Such windfalls bring into sharp relief the meaning of "unearned increment," and they suggest also questions as to the possible limitation of private ownership in urban land to which
urban
site rent.
we
5.
made
to "real estate
men" and
to the
higgling
makes easy
the transfer of
from hand to hand at fluctuating prices according to the calculaIn cities that grow rapidly, or are tions of sellers and buyers.
expected to grow rapidly, the speculation
is
sometimes furious.
The
end some among them incur heavy losses; while others, more shrewd or fortunate, pocket gains from the accruing rise in the
value of the land or from the mistakes of their fellow speculators.
In
all this
No
small
amount
of energy
calculations, bargainings
intrigues,
whose outcome
is
From
seems to be waste.
True,
it is
not quite
to gain.
Nevertheless, nothing
is
true; yet
it is
subject to
some
qualification.
commu-
it
43-6]
land.
URBAN
It stimulates those
SITE
RENT
hands which
95
possibilities.
the utmost. The successful speculator is commonly a who hits on new and more effective uses of the sites, or a person who fraternizes with such projectors and weighs their
utilize it to
projector
advantage.
and more labor is given There is no small to it, than is necessary to secure that advantage. must be termed unproductive diversion of time and energy to what
community; but more persons engage
in
it,
operations.
How
far these
inducements to improvement
of
modern
There
is
society
demand for urban business sites. What proximately determines the demand for such sites is the
the factors on which rests the
facilities
ways that
add to the
for trade
or manufacturing
in
it
may come
when a
site is
used for
gambling operations.
law (as
it still
is
great lottery,
some European
The brokers thru whom speculative gambling is carried on are among the most insistent bidders for quarters in the financial districts of large cities; for they must be near the center of things to
reach their customers and execute their customers' orders.
6.
As has
is
which a city
shall arise
settle
still less
do such causes
96
[43-6
the precise spot within a city which shall have large site value.
Projectors sometimes try to direct the forces that bring urban rent
into existence.
may
be established in a small
a city will
grow up, with its accruing land values; the owners (or managers) buying up the land in advance and expecting to profit by its sale or Thus the Pullman Company established the town of Pulllease.
The
by placing
its
workshops at
of a city.
may
influence
And
urban currents
banking houses
may may
be attempted.
Two
new
for
street
and and
dwellings:
district
move
to a
new
By purchasing in advance the sites favor, they may secure for themselves
guided or diverted
is
If
population
is
is
distributed
same way,
site
rent
it
sure to arise in
any event.
Then
it is
other; not to
add to
its
amount.
as in
amount may be
aft'ected,
manufacturing center.
All such operations, however,
divert urban values, are attended with risks even greater than those
of ordinary investment
on the land.
Where,
city
is
for example, a new made and water mains, The whole depends for its
A set
of project-
and spent much money in preparatory operations. But they found it difficult to get either industries or people to
43-6]
URBAN
So
SITE
RENT
final
97
failure
outcome was
and
may
new
The
whether
be a set of business
men
is
prover-
bially fickle,
and personality
higher
tell.
Some
will fail.
The
may be
rent pure and simple; they will be to a greater or less degree com-
There are
even
cases,
in
which the
risk
is
small,
negligible.
When
When
an important railway
is,
on a given town as
its
a center for
manufacturing and
It
no
less certain.
may
chance
in
who know
advance what
purchase of
is
sites
mak.money'by clandestine
appeared
in
connection
cases,
In such
by any
individuals,
by the
stock-
by a
clique of managers.
Better
still, it
to the entire
community.
CHAPTER
44
Rent, concluded
Section
1.
The
rent of mines,
how
Sec.
is
influenced
3.
Sec. a capitaUzation of its rent, 103 The problem of appropriating rent for the pubHc is presented most 5. sharply by urban sites. The possibility of leases on long term by the state; the historical development of unqualified private ownership and of vested rights, 104 Sec. 6. The future increase of rent a proper object of taxation, but presents many difficulties. Modes of levying such taxes, 108.
The
1.
in
in
obvious differences
Some
are
more advantageously
we assume
and mobile investment, we may reason that, as the demand more and more mines will
be put in operation
first,
then those
all
less
SQ,;.
for
is,
enough to repay
at the poorest
expenses of
good
of profit.
of risk
and unceris
There
is
some
The
risk probably
run (that
over a series of
98
44^1]
RENT
(Concluded)
99 by any
capable farmer.
there
is
It
is
movements.
It
is
of
mines
Even tho
prospecting
geological
example, that
of a country)
none the
there
is,
it
expensive
trial is
needed to ascertain
ease of
how much
of
what
quality, of
what
procurement.
When
it is
once a coal mine has been opened and put into operation,
usually possible to judge
will
how
in
The
case
is
ore.
drilli ng
how
large,
how
knowledge
got only
by
scoiu-ing
is
a wdde
territory.
multitude
of failures in "prospecting"
relieved
by
occasional success.
both of
failure
and gam-
so-called
bonanza mines
of the
Some
and
silver
owners.
On
In
when the first excavations are promising, there is a stage of doubt, when capital must be invested in the form of shafts, machinery,
concentrating and smelting works.
persistence,
success.
Venturesomeness, judgment,
are essential to ultimate
and
efficient
management
losses, there
states as Colorado,
must be corresponding gains. Nevada, Montana, the sides of the hills and mountains
its tell-tale pile of
rock.
100
[44- 2
The immense majority of these ventm-es were failures. Were it not for the chance of some great prizes, all this necessary work of exploUnder such conditions a ration would not have been undertaken.
high return on the lucky ventures does not constitute a true surplus.
Nor
is it
undue
effect
on the imagination.
it is
The
obvious that
is
men
will often
pay
for the
its
actuarial value.
At
same
sort exists
probable that in
risk is less
now
than
it
was
in former days;
greater.
of geological
and mineralogical knowledge it is much more possible to infer from the surface outcrop or from experimental borings the quality and
quantity of what
ores
is
underneath.
The improvements
in treating
have made available low-grade ores of gold, silver, copper, lead, such as occur, not in pockets, but in continuous veins, or great
beds.
Africa,
This
is
Here mining operations, when once the body of ore has been found, are in no great degree speculative; and the yield on the better sources of supply has more the nature of a true surplus or rent. The same is the case with much mining of iron
during recent years.
ore
and coal
the less
in
modern
times,
None
risk
is
especially
in
most
industrial operations
2.
There
is,
1.
44-2]
mines.
lies
RENT
Yet
(Concluded)
101
which under-
application to
mining.
a tendency to lessening
to keep
it
is
often
them
to the surface.
of
line far
It
And
limit.
A mine is not,
a permanent instrument
exhausted, there
not diminution of
discovery of
new
sources of supply.
The
ings)
is
known with
sufficient accuracy.
But what
is
contained in
less uncertain.
the great Scotch iron ore deposits at the opening of the century,
and
of the
middle.
Not Mon-
tana,
Civil
War, and
the iron ore deposits of the Lake Superior region, of even more
recent exploitation.
The
known that
there are
other untapped resources, such as the great iron and coal deposits
still
others
of.
U^'
102
[44-3
for
its
The owner
of a mine,
when he
fixed
leases
it
payment
much
per ton.
Royalties naturally vary with the quality of the minerals and the
ease of their extraction.
They
are a rough-and-ready
way
of
They
with
all
failure,
the payment
may
stand for no
real surplus.
tries,
But where
known, they are simply rent. Such seems to be the case with the royalties on English coal mines.
It
is
that a royalty
is
is
in
any
on every mine
some
sort of
payment
and that
The
is
The ground
for this
contention
owner
will
not consent to
some recompense.
soning.
its
But
am
The
Sand and clay are thus limited; but the available quantity is so abundant that a clay pit or sand deposit It may is worth nothing unless it has an advantage of situation. (be doubted whether any payment at all, royalty or whatever it be called, can be secured hy the owner of the very poorest mine
owner to secure a
assuming he has done nothing to develop
sort are at the
it.
Deposits of this
is
margin of
sort.
utilization,
no
surplus of
any
Probably no mine in
its
entirety
is
on the
entirety
is
on the margin.
Good
This
X,
On
is Professor Marshall's view; Principles of Economics, Book V, Chapter 6 (6th edition). It was also Ricardo's view; Political Economy, Chapter III. the whole subject, see Professor L. Einaudi, La Rendita Mineraria.
44-4]
bits are
RENT
mixed with
(Concluded)
103
is
ad-
justed
by a higgUng
development.
process, in
which account
all
taken of the
the concrete
with the sharply stated theorems that serve to indicate their general trend.
sort of
development on
agricultural
The
land,
an urban
be
it
is
a capitalization, at the
its
owner.
It varies,
therefore,
the
pay $200,000
On his total
If
sell
5 per cent.
same
the
site
would
site
The
differential
advantage of
buyer would get 2| per cent on his investment by purchasing the site for $400,000. On the $100,000 invested in the building he
and the
total rental
$15,000.
The
The lower the rate of interest on freely offered sum which will be paid for any piece of
what
are
The same
seciu*ities
the shares
principle applies to
known
as guaranteed
tions,
fixed terms.
may
to
be leased (virtually bought up) by another, with stipulation pay an annual sum equal to 10 per cent on its shares. If the
is
assumed to be $100)
it will sell
If the rate
4 per cent,
for $250;
2^
104
[44-5
The
process of capitalizing
In a growing
city,
an advantageous
its
still
site will
command
it is
to
sell
at
its
urban land as
There
at
all,
There
is
neces-
sary,
on the most
site to its
most
effective uses.
,
Why
This question
is
In the
first place, it is
more accuracy
just
what
is
the
We have
any
is
there
difficulty is
It
is
to state at least a
advantage of the
allowed,
it is
Something must be
but for the risk and
But
after the
most
allowance for
it is
all
In other
words,
is
some part
which
in fewer In the second placey urban rent, is ugualljnconcentm ]bands,.and gives rise to wider inequalities of wealth and income.
Urban
rent
may
or
may
In countries
like
Germany and
France,
probably
at least as great.
In England, where
44^5]
RENT
{Concluded)
is
105
gathered in
cities
much
and
in the aggre-
probably
is
for the
abun-
dance of farming land and the efficiency of the means of transportation have limited agricultural rent, while the increase of city
urban land
is
usually, in
is
fewerhands.
of Great Britain
in Austria also there are (or were) vast estates in the possession of
a small number of
titled
proprietors.
In France, however, in
is
its
economic
among millions of proprietors. Urban rent, on the much smaller number of perThe Duke sons, and among these a few receive great amounts. Westminster and the Duke of Bedford are types of British peers of who have been enormously enriched by the ownership of urban
dispersed
'
sites
and the
falling-in of
long-term leases.
in
almost fabulous; his descendants not only enjoy this yield, but
income has
The same
city.
happened
ilies"
in
usually founded by an ancestor the successful businessman type have become rich from the growth the community.
of of
It
is
by
successive genera-
tions of the
same family
is
much less common in the United States The ease of transferring the title to land
own country and a parceling of the increment among a of purchasers. None the less, in the United States, as
urban rent has been a cause
of conspicuous
in other countries,
inequalities in wealth.
whole or a
106
part of rent
is
l44-5
cultural land.
seems to
me impossible to deny
that
a reserva-
community had been made from the start, with due care and discrimination, the community would have been better off. The effective utilization of the land would not have
tion of rent for the
Careful and
essential.
The quinquennial
have raised
would
delicate questions as to
how much
allowance should be
made
and
enterprise.
more a grasping one (and public administration is too apt to show one or both of these characteristics) might bring more harm to the community
mechanical administration of such a system,
still
earned increment.
The
gested
leasing of land
state,
among the
would have
been no
So
far as the
is
promotion of
as good as a title in
the holder during a large part of the ninety-nine years might secure
a handsome
the end
leases
But
at least
when
for
its gain.
could conceivably
uncommon
in
Much
shorter
Land
the city of
New York
In the case
of mines, it
is difficult
to see
how any
other
method
than that of long leases could secure- the two desired ends
effective utilization of the resources
the
public's
fundamental equity.
The
quite impracti-
44-5]
cable.
RENT
The only
(Concluded)
107
of allowing private
feasible policy
its risks
would be that
its
enterprise to take
and reap
itself.
concerned.
by
lease or
by
it
Historically
was an indispensable instrument for the advance of civilization. Surveying the history of European industry and the growth of European cities, weXcannot see how advancing arts, free enterprise, accumulating capital, could have been secured without the
instrument, comparatively crude as
title
it
may
seem, of unqualified
modern times the United might conStates, Canada, Australia, Argentine, and the like ceivably have started with a more far-sighted and more complex
to land.
The new
countries of
so.
The
force
and
unrestricted
title,
law of
of vested rights in
way of the ardent reformer as it does for agricultural land. The purchase and transfer of urban sites have gone on from time immemorial in the same way. To the present
owners the capitalized value represents an investment or an inheritance.
Land
on
different
principles
whole institution
property
may
all
indeed be overhauled
inheritance,
all pri-
may
be restricted,
108
[44-6
respected.
is
6.
The question
There
is
still
to come.
is
no vested right
The proposal that the future increment shall be reserved for the community was made fifty years ago, chiefly with reference to agricultural land, by John Stuart Mill and other reformers. But the advantages of unrestricted property in agricultural land,
especially
of ownership prevails,
and the
difficulties in
accuracy
these
cities
way
of carving out
considerations
by most economists
of the
On
modern
reservation for
and the unmistakable swelling of site rents, a the community's benefit with respect to urban land
Many
ning.
grounds of principle.
this
kind, however, are urged against every proposal for reform, and
if
of the status
The day is gone by when they are felt to be The dogma of an unrestricted right of property and
quo. of
insuperable.
the belief in
tittle
abatement have been shaken beyond repair. The rights of property must prove themselves on examination in each particular case, and must submit to modification where a balance of gain for
the public can be reasonably expected.
whether a
legislative
in
such way
meet the complexities of the situation. How proceed? The problem is by no means a simple one. The accruing increase of rent is the thing which it is desired to divert to public use. But what emerges most openly is capitalized value. The easiest way
as to
of adapting the
44r-6]
RENT
is
{Concluded)
109
to
all
the world
land.
To
may
indeed seem to
since the price
difficulties
rent.
and
complications.
From whom
is
shall
for collection
full
from the
pays the
value of the
and the
But
site;
sell
prevent the
site
seller
he
will
hold
it
rent for
subject to a tax.
if
will
accretion only
inheritance
is
the land
periodically valued, or
by
made
Periodic
valuation
expensive.
is
not impracticable;
but
is
it is it
Indeed, so expensive
a for-
may easil}^
of sites is
On ly if a valuation
undertaken
in
on
real property),
is
It
and
must
arise:
the control of
and central
all
authorities.
They
are
made much
of
by those who
at
heart oppose
On
often
fail
until
it is
seen
in the
form
of a care-
seller's
increment.
They
are, so to speak,
full
its
birthright.
The
capitalized value,
110
perpetuity.
of a
[44- 6
with
is
its
right to appropri-
same would be unthrifty for an individual to spend his principal rather than his income. And obviously the process conate the accrued increase of site rent.
sense in which
it
This
unthrifty, in the
his descendants
The buyer and buy the right to collect for the unlimited future the site rent whose capital value has been paid over to the public. It would seem in principle much preferable to levy all such
tributes to the perpetuation of the leisure class.
taxes,
whether
their intent
be to capture a large
slice of increasitself.
This
also quite out of accord with the tradition of levying all local
a method
difficult
of
adoption particularly
Hence
so because
Yet the
than
in itself not
more
difficult
The
an
every decade.
would adjust
itself
land
urban
by prospects of rise in the rent. The inherent in this method would appear for vacant
whose potential rents are high, but which
sites
for the
time being are withheld from use by their owners. has accrued.
They
may have
state
no rent at
To
leave
contribute to keeping
them undeveloped.
its
it
Yet
to tax
view of
all
once and
all of it
Some
44^6]
sort of
RENT
(Concluded)
111
called for
a partial
tax,
A
less
is all
regard-
whether the
site
sites.
There
is
"rent"
(in
the
mine) and
its
if
own
fate,
made.
urban
The
site
public's
way of playing the game would be heads we The case w^ould be similar if all growth of
full
but
all
uncomnot
pensated.
sites is
urban demand
But there
and that
is
both
it
involves
risk.
.
spontaneously or automaticall;^
The
full utilization of
a city
site,
and
sums; and
it
entails the
possibility of loss
and
failure.
The prob-
lem
is
one of degree.
Risk there
in
matter of chance.
expected by the
and
of
fairly
be expected
in the
way
of
growing
site yield.
Some
112
deadening the
[44-6
full utiliza-
hampering the
efficient.
must be
faced,
movement
of prices.
prices double,
money
rents of land
may
be expected to
it is
advance.
while will
The
still
mean-
be in operation, causing
its
site
perhaps to
of prices
fall,
to
rent to rise or
and
of rents.
How
social
wish to
prices rest
set
aside?
on the gold
The
it
changes;
it
may
by no means prevents fluctuation over the longer period which must be considered in schemes of increment taxation. The difficulties become almost insoluble after such a monetary
revolution as ensued with the Great
there
is
War
social
of 1914-18.
Indeed,
no scheme of economic or
improvement whose
by such
monetary standards.
payments,
all
framed in terms
And
1 In 1911 Germany enacted an increment tax (on increases in urban site value) 30 per cent for the imperial treasury, which at its maximum reached 45 per cent with a possible 15 per cent in addition for local bodies. Great Britain in 1909 enacted a similar tax of 20 per cent. Based as they necessarily were on the pecuniary values at the time of enactment, they were rendered hopelessly out of accord with their professed aims and principles by the subsequent price revolution. The British tax was repealed m 1 920 the repeal was defended, however, not on the ground that monetary standards had changed, but because of the complexity and expense of land valuation under any conditions. The German tax later became merged in a general tax on all increases of values. On the general subject of the taxation of sites, compare what is said below, Ghap< ter 70, on the taxation of land and buildings.
CHAPTER
45
Monopoly Gains
Section
1.
them Sec. 2. "Public service" monopolies. Increasing returns by law, 113 and increasing profits, 116 Sec. 3. Combinations and "Trusts"; uncertainty as to the extent of their monopoly power, 118 Sec. 4. The capitalization of monopoly gains and problems as to vested rights, 120.
rights as instances of absolute monopolies; the grounds for creating
The differences between natural agents, bringing about phenomenon of rent, constitute one great cause of variations in the yield from labor and capital. Monopoly is another. Rent has often been said to be due to monopoly, and to be merely one case of monopoly. But this is not an accurate statement. The characteristic of monopoly is single-handed control over the total supply. Rent is not due to control over the supply by any one landholder or by any organized combination of landholders; it is due to the scarcity of the better sources of supply. But monopoly
1.
the
is
it
some
here.
and
Of
its
regulation
we
The
present chapter
is
to
place in the
theory of distribution.^
Sundry
simplest,
classifications of
The
is
and
industrial monopolies
on the other.
or
is
Absolute monopolies
of all the sources of
by law
by ownership
complete.
Industrial monopolies
are those in which the control over the supply, while not com1
Chap-
ters 62-65.
113
114
[45- 1
of things different
from
is
Where
there
is
is
com-
paratively simple.
sufficiently
The
in
stated
if
the chapter on
Monopoly Value. ^
The
his
monopolist,
vigilant
and shrewd,
which
monopoly by
the holder
is
law.
affected
by competition only
such as to prevent very great gains from some patents and copyrights.
Among modern
making
machine
McKay
light,
The
such patents
is
may
end
gains.
Patents are granted for a limited period, usually for about fifteen
years (this
Britain
is
it is
When
expected to bring
it
community cheaper
otherwise.
The assumption underlying patent laws, namely, that the improvements would not have been made but for the monopoly Though some persons are born privilege, in the main is justified.
with an instinct for contrivance, and
prospect of a reward
will
be impelled to inven-
in
much
1
evoke contrivance as to
See Chapter
45-
11
MONOPOLY GAINS
it
115
This
is
direct
the
more the case with patents, because they almost always involve considerable risk, both for the inventor and for those who supply capital for working the invention. Of the patents actually taken out thousands of them annually in a country like the United States the immense majority come to nothing. Tho most of
(all
sorts of
absurd or
in-
many, involving
labor,
is
uncertain.
and may prove worthless. After a patent has been secured and launched, there must often be expensive experimenting with further devices and improvements.
tions just mentioned
For at
least
two
of the inven-
printing machine
in preparatory
risks
If
and experimental operations. In other words, must be run, and there must be prizes to offset the failures. every process that had been worked out with much labor and
when
much
less
Here, as else-
may seem
out of proportion to
Much
this case,
It
is
true that in
bent of
more than in that of mechanical inventions, the inborn some individual produces its effect, irrespective of rewards.
shows not only
all
But
but
degrees of merit,
shades of motive.
Legal pro-
book writer
is
book can
be reprinted verbatim at once, whereas a new mechanical device may be often shielded from competition for some time even without a patent.
ful activity,
of
reward
in proportion to use-
then copyright
of
it;
116
l45-2
of
an instance.
supplies
of
The owners
have
borax
effected a combination,
of the world's
single corporation.
In both
new
its
known but
nopoly
is
not unchecked in
is
The
usual
situation
but of the
best,
and
hence that their gains are more in the nature of economic rent
than monopoly gains in the narrower sense. 2. Much more important in the modern world are industrial
monopolies.
limitations on their prices
These also are rarely quite unfettered; but the and profits come not so much from the
Broadly speaking, they are
industries
possibility of competition.
sorts
"public
service"
"trusts."
is
phone and telegraph, electric lighting, and the like. These are operations which affect great numbers of people, which usually
some special grant or privilege, such as the right of eminent domain or the use of the public highways, and which are best carried on under single management. The last-named characteristic
call for
is
The advantages
of
single
initial
management
is
are so great
that
consolidation
See Chapter
MONOPOLY GAINS
the fact of the monopoly and regulate
117
its affairs
it
gets larger
line,
a railway
In the case
is
if all
system.
Sometimes,
true,
when the
use
is
may become
necessary;
there
may
Even then
number
of
com-
form a combination.
number
inevit-
is
These industries bring increasing returns in another sense: not merely increasing efficiency of labor, but increasing pecuniary
The growth of numbers in the community will commonly make the single plant or combination of plants more profitable as
gain.
A traditional
that
is
is
As time goes on and popand improvements decline still more. But the
is
In this gradual
es-
pecially of
urban
sites.
Some
inventions of
modern times served greatly to increase the The application of electricity to traction
118
[45-3
The Improvements
naphtha
in
making water gas, were hardly less important. The of cities would in any case have tended to make these ingrowth Cheapened as their operations were by dustries more lucrative. great advances in the arts, they became sometimes fabulously
profitable.
It is part of the irony of fate that the half-fortuitous gains
which
accrued for a while from this situation, and which were expected in
most quarters to
persist indefinitely,
The
large
profits
So long as prices
in general
had promised high returns. But as the prices of most other things and the rates of wages tended to rise, the fixity of the street railway fare or gas prices became a cause of financial embarrassment.
Not only
tradition,
regulation prevented a
rise in charges.
ad-
vance of the price level during the early years of the twentieth century tended steadily to pare down profits. The abrupt ad-
vance during the war of 1914-18 brought the tendency to a sudden climax. The public furiously and vociferously opposed changes
from the accustomed scale of charges. Increases finally had to be accepted they were as inevitable as those in salaries, in taxes, in rentals of dwellings and shops; but they were sparingly allowed.
;
The problem
lem
for the
how
to avoid losses;
became
of
problems of public policy, are presented by the socalled "trusts"; that is, the great horizontal combinations, under
less difficult
45-3]
single
MONOPOLY GAINS
119
difference
management, of a series of separate establishments. The between the monopoly industries considered in the last
and the
trusts lies in the fact that here there are usually a
of physically separate plants.
section
number
each
is
a physical unit.
refineries, or
chemical
in the pres-
likely to
were a general
velop without
Yet even
in the
may
The
may
On
the other
volume
There
is
the
management,
have
left
the
field, of
nepotism and
ossification.
New
may
posi-
tion of
leaders.
dominance
may be
we
are
lost to
To
repeat,
much
how
and monopoly
profit will
extend.
is
many
directions than
If
clear: that competition acts more slowly was believed by the economists of a gen-
eration ago.
likely to
scale.
For an
some-
may
be secured.
Compare Chapter
14, 3.
120
[45-4
management of the great combinations, and the gains may be kept very large by mere force of great size, great capital, great overawing of would-be competitors.
the probability, of a gain which
is
There
is
in excess of interest
and
of eco-
nomic
rent, as these
income
will
be
to be classed as a
4.
of
monopoly return. As the rent of land may be capitalized land, so monopoly gains may be capitalized
monopolized piece of property.
of the
of corporations
"watering" of corporate securities. When a corporation having some sort of monopoly advantage secures high returns, its shares may yield large dividends and may sell at a high premium; or the
number
of shares
may
returns distributed
among
of shares.
The
number
on
in-
vestments.
of exclu-
Even where
but only the long-continued maintenance by the public authorities of settled policy,
degree of consideration.
cities, street
railways have no privileges for any stated period of years and are
subject to regulation at will.
in fact carried
on
indefinite period,
and where
made
45-4]
MONOPOLY GAINS
site in
121
holders have a position not very different from those of the land-
good
faith.
On
more, a future
rise
CHAPTER
46
between interest and rent tenable, in view of the monopoly sort? Grounds for maintaining that all returns from property of any kind are homogeneous, 122 Sec. 2. A different conception of " rent " and "interest, " the two being regarded as different ways of stating the same sort of income. "Artificial" and "natural" capital. How measure the amount of capital? 124 The important questions are on the effectiveness of competiSec. 3. tion, the existence of a normal rate of interest, the justification of in1.
Is the distinction
wide extent of
differential gains of a
terest, 127.
1.
The gradations
(in
of
part
to be set forth)
owy
line of
from property
revision.
all
In recent times
of the distinctions
many
drawn
between the
dif-
and the
to their owners.
The
distinction
interest.
But the distinction between rent and been drawn into doubt, and hence that
capital goods.
all
these incomes
In the
first place,
monopoly gains or as
simple interest.
the phrase
is
rent;
When it is
used elliptically
so, also,
when
it is
122
46-
1]
123
or an industrial
return.
What
happens
is
large in proporit;
and, in the
it.
In either case
yield.
But
this
is
disis
one
normal
for
capital
is always a difficulty in setting apart with precision that return which would be received under competitive conditions from the
if
competition were
free.
many and
various.
They shade
by
gradations.
able patent monopoly, but the factory established at a "strategical" point and that which has a quasi-monopoly of prestige
and
for
trade-mark.
simple interest
secured.
is
secured.
The
older writers
of industries
it is
rea-
sonable to say that monopoly returns are not separable from eco-
nomic
this,
rent.
it, is
we have
defined
he
is
in a different
and so far as a monopolist has possition from the person who has merely
But
is
commonly
Mo-
may
And
in
124
[46-2
yields
more
hence
in the
it
satisfactions
much
as a
a differential return.
What
2.
its
said,
all
They
power
on the
utilities
house
lot
on the agreeableness
on the
site;
Some
of these
utilities
than others
and
more
But
to speak,
in the
It
is
end
a rent not
is its
That "rent"
which
Europe) a "rentier."
or aids to provide.
It is the net
utilities
it
income yield
of the instru-
Whether
much
lot,
on what
way
of addition to the
based on serviceability.
The one as well as the other The owner's income, it is said, may
46-2]
view.
125
ment; regarded as a percentage of the property or capital embodied in the ship or the lot,
it is
interest.
all
ments,
all
return from
it is
is
homogeneous.
The return
is
regarded
in a different light,
but
we dub
capital
is
it
interest or rent.
of
two kinds
artificial
and natural.
includes
all
Natural capital
instruments
that which has been classed under the general head of "land" or
artificial capital
"natural agents";
made
by man.
case
it
Natural capital
may
In that
to contain or
embody
A
pro-
which a monopolized
duced,
amount
of capital.
volume
is
Evidently
the
ure
still
another question
here involved:
how measure
amount
it
of capital?
in
terms of value.
The reasoning just stated would measAnd this, too, is the ordinary business
method
of
measurement.
each
is
estate, a factory,
net income;
it is
capitalized.
The
distinctions sought to be
drawn by economists
no response
in the
its in-
between
world of
interest, rent,
affairs.
find
There
property
is
is
valued in terms of
and all is measThose economists who dissent from the older view follow the business community's way of defining and measuring capital. In that older view, on the
all
come;
alike capital,
its
income.
measurement
in a
very different
way
namely,
made by man
in
terms
not
As
will
appear
With Professor A.
S. Jolinson,
Introduction
to
Economics, p. 107.
126
discussion,
[46-2
and expense
incurred
may be
not according to
its
The
difference
similar
of
to that between a
a railway.
Pushed to
to
its last
some results that take one aback. A public debt, say in the form of a French "rente" (that is, a mere promise to pay an annual sum), is capitalized in terms of selling value; and it becomes "capital." A burden on the community is thus included under
the term "capital," tho that term in general indicates the useful
becomes capicapital;
becomes
it,
can be measured
in
Nay, a
is
human
asset
being, in so far as he
an instrument
for production
becomes
still
an
^
capital;
or "rent."
From
est
namely,
from the
is
To
are unnecessary
and
unjustified.
All result
it is
from a bad
all
abolished.
And
true that
are alike in
make
This
last is the
is
phe-
nomenon
when once
privilege
no longer
46-3]
127
Why
idleness
even the
women
the
That the aged and infirm, the children and married women), should not be enproductive
occupations, seems proper
gaged
in
ordinary
enough; but
why
not labor
In the feudal
In our
own
society,
Is
Is this inevitable?
just?
tion the
same
comes?
capitalist
Do
Two
they not
secure a
income?
important questions underlie these matters of
defi-
3.
nition
and phraseology.
One
is
cold classification:
make
different
names The
a question of large social import: are there grounds for happens, turn in the end on the same point
Both questions, as
is
it
tal),
and
is
induce investment?
ization of return as to
agents.
The
So
better
among
is
less
good.
far as there
and
among
the instruments
made by man
no phenomena essentially different from those But if there be effective competition between
among them
will
permanently bring to
return; then there
is
its
owner
an exceptional or
differential
interest,
and
is
On
this
128
l46-3
notion of full competition between all forms of artificial capital must be given up. There are industries in which large-scale operations and increasing returns lead inevitably to monopoly
such as
many
of the so-called
is
in so far
which
found.
And
by the ownfrom
seems ground
in yield
and so
between rent
Tho
the
down over a
considerable range of
Tho
by the owners
any form
mainly explicable,
and
greater
slowness with which old plant wears out; looking at the long-run
results
we
If
after all a
tion over a large part, probably the larger part, of the industrial
field.
a particular kind of
artificial capital
profitable,
will
more
be lowered.
In this probability
and land,
If
interest
and
rent, competi-
and monopoly
gains.
then
least
alike
yielders,
46-3]
129
on the
utilities
The
however, the
Only a part are limited natural agents or are shielded from competition by a monopoly position. Hence we can speak of a normal return, or interest, in the one case, and of rent and
ments.
monopoly gains in the other cases. The same conclusion can be stated
in another
is
way: there
settled
is
settled
These
greater
and accumula-
some respects
similar
economic rent, in
is
some respects
different.
much
and
the}^
have a great
effect
on the distribution
the distinction between the normal or "earned" return on capital and the excessive or "unearned"
return.
In answering our
implication
first
we have by
on
artificial
Interest
capital, as settled
social
or
by monopoly
The one
is
an inevitable part
of the
regime
Economic rent and monopoly gains are unearned returns, and should be treated differently from return on capital pure and simple.
This
all
is
who
are disposed
to treat
of legislation
of
1
When
it
comes to problems
matters of public
taxation,
for example, or
regulation
they
agree
that
what
is
said below,
130
[46-3
way.i
The
socialists,
and
unjustified,
and
alike should
be swept away.
It
is
from
most important.
Its truths Its ans-
Economics
is
in a special sense a
pragmatic subject.
With regard
any question of classification and distinction, the test of truth In economics the consequences that is, what of it? what follows? follow are ultimately consequences for general welfare and public regulation. So considered, the question whether income-yielding property is homogeneous, and all the sorts of income essentially of the same sort, is to be answered in the negative.
1
6.
CHAPTER
Differences of Wages.
Section
1.
47
Social Stratification
different
Differences of wages which serve to equalize attractiveness of occupations; domestic servants, university teachers, public
employees, 131
effect
Sec.
2.
Irregularity of
employment and
on relative wages. Expense of training, 133 Sec. 3. Obstacles to free movement bring about real differences. Full monopoly rare, 135 Expense of education as an obstacle to mobility, 136 Sec. 4. Sec. 5Inequalities of inborn gifts and social stratification. Uncertainty of our knowledge concerning the influence of inborn gifts, 137 Sec. 6. Noncompeting groups, roughly analyzed as five. The broad division between soft-handed and hard-handed occupations, 141 Sec. 7. Tendency to
risk in their
greater mobility in
Sec. 8.
modern
times.
The
position of
common laborers,
144
148
of
Sec.
What
9.
is
differences in
Why
wages would persist if all choice were free? the wages of women are low, and wherein the labor
*
women
a 1.
Wages
are
commonly thought
Very
of as a separate
and
clearly
distinguishable form
is
of remuneration, appearing
hired to
work
for another.
mixed or combined return, as when a farmer owns his land and capital, and gets rent and interest in addition to a return for
of a
his labor.
a physician or lawyer, or an artisan working on account there some combination of returns. The
another
is
is
not hired by
his
own
theory
wages should consider the remuneration of every sort of labor, that constituting a part of the complex earnings of such indepenof
dent workmen as
hired laborer.
Avell
But most
problems are
sufficiently dealt
inci-
Tho
first
it
would appear
logical to
examine
first
way
is
cleared
by taking up
labor ancT some other topics closely connected with those differ-
132
ences.
[47- 1
of general
wages
is
the very
Differences of wages
may
h^s those
aiwthose that
If choice
//
be-
free,
mer
sort
would
were
exist.
We may
may
be
of the
As between occupations of similar grade, open to persons same class, we find differences that are explicable on this
principle.
A woman
in the
Tho
the
United States a lower rate of pay than a domestic servant. payment in money to both is often very nearly the same,
very
the servant receives in addition her food and lodging and her total
remuneration
in a
is
much
higher.
The main
is
explanation
is
that
repugnant;
it
has
The shop girl often has longer But her work is of a more impersonal
strictly defined.
When
is
done she
spirit of
her
own
mistress.
awakened
than in the United States, considerations of this sort count for much less; and domestic service there receives no such comparatively
high wages.
plain of
American housekeepers of the well-to-do class comthe scarcity and the high wages of servants, usually withis
out an inkling that these are the results of the spirit of democracy.; In another range of occupations the principle
the pay of university teachers.
in this country of the
sibly
it is
illustrated
by
Much
Very pos-
tions of
compared with earnings in other occupathe same grade, and for persons of the same training and
true that, as
ability, the
47-2]
calling
DIFFERENCES OF WAGES
has great charms.
133
enjoys, the settled
The
respect which
it
these make
it
attractive, even
ple;
Peace of mind a nd industrial security, are valued by most peohence governments and large corporations, able to promise
Wliere indeed public business
not managed
show
itself.
United States and Australia, the government is expected pay more than the private employer, irrespective of the steadiness and attractiveness of its work. The great bulk of the workmen, tho they are not in government employ, nevertheless aplike the
to
who
nomic
effects.
Nothing
is
more
wages to
public employees
come out
munity.
ployees, because of
wages at
2.
may
be
It
to
make wages
higher.
largely
from
pay
per day or per hour simply offsets the smaller time actually given
But makes the occupation unattractive to most men, it will cause the total remuneration to be higher. Unfortunately most manual workmen have not the foresight and inis
if
are uncertain.
It
may
itself in
the attractiveis
The law
a pro-
134
fession in
[47-2
the
chance ofji
way.
and fame in those pubHc posts to which the law is the usual pathHence^ aotwUhstaiiding the need of an expensive training and the cgrtaiDLtx of a slow rise to full earnihg power, it draws more
of promise
men
rate
fessions.
highly elabo-
and
the extraordinary fees Yet the great prizes notable few, and their conspicuous tho short-lived fame
failure.
of
the
attract
so
many
is
probably but a
very moderate
An
occupation which
Phyeven
sort of apprenticeship
It
is
been passed.
obvious that
is
a prospect
this
ir-
No doubt
is
and there
great
Not only do
prizes in
an occu-
it,
training
is
commonly made,
first
by mere
calcu-
lations of gain, nor are they the best judges of the probabilities of
gain.
Their
wish
is
greater happiness in
life,
and they
pay
for
an elaborate
supposed
social advantages.
their children
Often they do not weigh w^ith impartiality the question whether have the inborn qualities to profit by such an edu-
cation.
Qn
sive training
people
by that
immense majority
of the
is
circumstance which, as
as
will presently
be noted,
of
at least as
much importance
any other
of education
in wages.
47-3]
3.
DIFFERENCES OF WAGES
It requires
135
The broad fact Js^ that t^^ tell the whole story. and easy employments do not in general command the
It is
lowest pay.
est pay.
more nearly true that they command the highlaborer or the miner receives less for his
The common
;
work than the skilled workman for his lighter and work and this, tho the latter's hours are usually the shorter and his employment no more irregular. The work of the lawyer, the physician, the business man, is easier as well as intrinsically more interesting, more varied, more attractive, than that of most sorts of manual laborers. Yet even after due allowance is made for the expensive training called for by these so-called "liberal" professions, their earnings are large as compared with the sacrifices they involve. This discrepancy between sacrifice (work) and reward could not
hard, dirty
cleaner
if choice between occupations were free. The day laborer would be glad to become a mechanic or engineer, or to advance
exist
more
attractive occupations,
if
the choice
The
obstacles are in
long-establishe,d^,SQcial.^tratification.
is
monopoly
of
any
sort
becoming
less
and
less
important in
Something analo-
occasionally aimed at
by trade
unions,
sometimes proved
effective.
But Jn most
industries the
machine
General ability rather than specialized required for attaining mastery no small knot of mechanics
;
can keep under their control the art of doing any one kind of work. -Attempted labor monopolies have usually broken down.*
I
Compare Chapter
57,
2.
136
l47-4
motion by any group of workmen, but the varied influences, direct and indirect, patent and obscure, which set up barriers
between the different classes of society. They may be considered under three heads: expense of education and training; the
subtle influence of environment; and, finally, differences in inborn
gifts.
4.
most obviously the case where the parents or the young persons themselves pay for the training. It is so, even if the training is supplied gratuitously in public schools and colleges; for tho instruction itself be gratuitous, support must be provided. Only
if
it grants in the United States for the army and navy cadets West Point and Annapolis, would the burdens which education entails be taken entirely from the individual's shoulders. As
which
at
is
it is
one which, as
less
community can
and
undertake to bear.
When
enable him to
is
vanced education
is
virtually
little
more
likely
way
Even
so,
the comple-
ward
selves
its
is
cleared but a
little
way.
As a
also.
Hence
differences in re-
ward, and the social classes which rest mainly on them, tend to
perpetuate themselves.
The very
fact that a
it
man
has had an
The very
47-5]
DIFFERENCES OF WAGES
had
it is
137
it.
Expense
It affects
wages doubly.
lifting
rewards
^to a
It affects
them
by im-
peding access to the better places for multitudes who, were they
able,
it.
To
and family,
all
in the
But
feel
much
rise,
in all countries.
may
ambition to
The
Finally,
we have
Some fundamental
still
In the eighteenth century, the common belief was that men were endowed by nature with the same mental and moral gifts. "The difference between the most dissimilar characters, between a philosopher and a common street porter, seems to arise not so much
Rousseau be-
Owen
on the
So said
Adam
Book
I,
Chapter
II, p.
17,
Cannan'a
edition.
.y^.
138
[47-5
was to turn opinion the other way. It laid stress between individuals of the same species, "the transmission of variations from ancestor to descendant, the A possible corolclose association of physical and mental traits. lary was that the better position of the more favored classes resulted, in part at least, from inborn qualities transmitted from generation to generation. In recent years more and more attention has been given to the bearing of such reasoning upon social phenomena, with the result that no positive proof or disproof has been given as to the part which natural endowment plays in sepaship of Darwin,
on the inborn
differences
Some
society,
differences in remuneration
and
in
due to inborn
gifts.
more
certainly within
any one
some
indi-
rewards.
ors,
business men,
whom
Education
may
aid them,
environment
may hamper,
but
is
in:^
The
influence of heredity
often
The
fact of varying
is
endowment,
follows that
differ-
whether
in the
way
as unmistakable
it
And from
others,
this fact
The more
classes.
difficult
question
is
differ-
ences in gifts of
More
we could
who
first
swung themselves
into favored
by
The
earliest
savage
command
in
The The
feudal lords were at the outset the natural leaders of the clans.
city
merchants
whom we
47-5]
DIFFERENCES OF WAGES
men
of their towns.
139
The
analogies
were trans-
aristocracy.
Tho
heredity
it
is ir-
numbers
shows
and
Take a thousand
class,
may emerge
among
lectual
the latter.
Can
it
between
on differences
Further,
distribution of success in
life
Statistics
men
Eng-
land and France) show that the aristocracy, the well-to-do classes
dwellers,
men
of
mark
the
leaders.
Even
ge-
Such evidence
social classes.
it
is
Any one
of intellectual capacity
who
must
and
gifts.
their descendants
He
cannot but
must be due,
in large
measure
pression of
many who
must be because of the reOnly those of very unusual can escape from the trammels of a deadening enrise, it
are talented.
vironment.
Many
fund of capacity, no
is
found
140
[47-5
variations
among
remains undeveloped.
Tho
become
itself
by continuance
deteriorate.
in privilege.
The
It is only
by the
Such
is
said to be the
is
perhaps the
When
the conditions
Tho
conspicuous
by those
of unusual gifts
enable
The problem
method
of
is
unsolved, and
is
likely long to
it,
remain
so.
it
The
as indeed
sort.
cannot
be in an accurate
way
to social problems of
any
We cannot
them to precisely the same and environment, and watch their careers thru life. Still less can we do so with successive generations of The method of observation alone is available a their descendants.
thousand of the
less
favored, subject
influences of education
method hampered not only by the limitations of the evidence and the complexity of the data, but by the prejudices of those who conduct
the observations.
Tho
ment
view that
life
in-
heritance
prove
they
make them
tell
if
Those
47-6]
gifts are
DIFFERENCES OF WAGES
doubtless least dependent on adventitious aid.
141
Generals
them
to
and captains can be the ranks there may be many men who have it in In become good officers, yet are kept in the ranks because no
But
colonels
way
do
is
possess.
6.
At
is
all
from grade
to grade
not
free.
Amid
may be
distinguished.
These
may
be
non-competing
it is
difficult, for
manj-
impossible, to
move from
more favored.
We may
and convenience
distinguished
They
are not
by sharp demarcation,
relations
between
social classes
diggers
oflFer
strength.
No
doubt,
among
some gradations.
The
ver}'
capacity
and
the simplest tasks, thru nine, ten, eleven hours a day, are not possessed by all men, still less by all races, and mark something beyond the quite unskilled grade of common labor. But labor of this sort is common enough. Almost any adult is able to do the work. For this group, even in the most advanced countries, education is rarely carried beyond the minimum which the law requires. Children are set to work at the earliest age at which they can earn something. The maximum wages of any individual are earned as
soon as he
is full is
grown, andJaecome
less rather
than greater as
middle age
reached.
142
l47-6
is
a certain amomit of
is
needed.
always a sharp demand for such labor at harfor it thruout the year; tho the plancalls for
some demand
simple
muscular
(2)
effort.
In the next group belong those who, while not needing spe-
some
for
.^ertness of mind.
jailways.
Such
here, certainly in England and in Germany. In the United States, there has indeed been a tendency (except where machinery is used underground) to put coal mining The development of machininto the hands of unskilled workers. ery and of large-scale establishments has created a demand for an immense number of factory workers whose tasks are comparatively
who
yet must
have some intelligence in watching and applying machinery. Wages in this group are commonly paid by the week, not by the
day; a circumstance marking a greater continuity of employment
which
situa-
there
is
trained hand.
a trade
in
of
many
directions
indispensable.
Further,
the
development
machinery has
a great class of
workmen capable
Specialized
skill
of
at a
may be less
certain to
command
as high a reward
by competition
is in
constantly
47-6]
erty
is
DIFFERENCES OF WAGES
possible,
143
or
of a dwelling.
by
o\\Tiership
developed, and a
is
^trong
spirit of
Education, too,
carried further
The
lower middle
Here are
cation
this
group
is
Edumore ready
and better able to support children thru a long period. The secondary school (high school or academy) is usually entered, and very often attended thru its entire course. Marriage takes place
at a
somewhat
is
lation
contempt
unskilled,
and some endeavor at saving or accumuThere is commonly a feeling of the manual laborers of all sorts, whether skilled or
later age;
and a demarcation
is
rate
pay
(5)
often
little
from that
in the
third class.
Finally
we reach
who
regard
themselves as the highest class and certainly are the most favored
class.
called
the
lawyers, phyofficials,
sicians,
of industry,
who
form
The
common aim is not merely to procure a suitable support but to save money or to make money. Education is carried to the highest
level,
or university.
Not only
is
'
144
[47-
is
Marriage
often too
confidently
late for full
to do household
or even to undertake the full care of their '-- "^ children, but are given the aid of servants.
.
The first
manual laborers
of all kinds,
by themselves, not only because the gradations of wages are continuous but because their members have the same point of view and the same prejudices. They ex^sct usually to
constitute a class
live
of property
or to
of
There
is
common
sense
common
sense of separation
have similar
last two groups Even tho there are great variations in possessions and income among them, all have the habits and hopes and prejudices of the well-to-do. They share a feeling
class.
The
is
freedom from
it
no
jumpers or
overalls.
Their hope
is
is
for._
prima rjly
Bu si-
work
close to
management and direction of industry, and such management is the core of their doings. We
may
thus divide the workers into the two great classes of the soft
all
belong
nomic sense in a group by themselves: their income is not wages of any sort, but interest or rent or monopoly gain. But in a larger sense they are in the same class with the upper groups of the wageearners and especially with the highest and most favored group, sharing the same traditions, and, not least, intermarrying with the members of that group. 7. In modern times, and especially in democratic communities, the barriers which separate the groups tend to be broken down, and passage from one to another becomes more easy. We
may
consider
first
how
that of
common
laborers.
47-7]
DIFFERENCES OF WAGES
145
common work
will
There always has been and there always will be much hard, dirty, to do; aijxi there always has been and there always
be a desire on the part of the powerful or favored social classes Hence slaver}^ in ancient to get others to do this work for them.
times and serfdom in the Middle Ages.
In modern times
is
an insistent demand:
all
the
needed.
tractiveness in
from being true that unatan occupation causes wages to be high. The reto them,
it is
As
far
verse
is
more nearly
true.
The
work
this
who can do abundant labor forces waues down, and they are prevented from making their way to the more favored" group by the obstacles of environment and lack of training or by deficiency of inborn qualities. So far as these
group must be that there are very
lio
many
persons
other.'Their
offer of
deavor to get out of the lowest group; therefore a constant seepage into the groups above and a tendency towards equalization of
wages.
in the
is
strong
United States.
the absence of rigid class distinctions, the atmosphere of dom, the education of the public schools tend to break down
free-
a democratic society'
The
is,
position
in the
of
the
common
its
Those
among the
The
and
by the
more by
ing half a century and more, ever fresh streams of immigrants have
common
146
l47-7
way
ment
dians; later the Italians, Hungarians, Poles, and the varied races
of eastern Europe.
wages
demarcation between
lines of social
rate of
pay
is it
for
common
much
other laborers
nature.
But
assumed by most people to be part of the order of is by no means a matter of course, and it is very
much a matter
is
for regret.
Freedom
one of the most important conditions of happiness, and the traditional position of common labor is due to the absence of such
freedom.
The
is
disparities in earnings
and
in social position of
which
this
They
are most of
It
is
all
probable
all artificial
barriers to free
its
move-
ment,
plies,
common
the most
labor would
still
remain, as
present
name imdiscrepn
common and
They
But such
not inevitable.
intjensifi-
and
class struggles.
They bring a
all
false
community toward
manual labor
an unworthy contempt for indispensable Vv^ork. An elevation of this group to a plane of higher pay and better social regard would indeed mean that other groups would be relatively worse off
they would no
terms; but
It
is
it
on grounds of
is
Chinese from
Such labor as
days
theirs
"needed" on the
"needed"
it
was much
in the
who
could be got to do
for the
wages deemed by tradition adequate for the work. On strictly economic grounds it was advantageous to the rest of the community. But a permanent group of helots is not a healthy con-
47-7]
DIFFERENCES OF WAGES
It is
147
move
is
into
resisted
all
the strength
The question
is
of the restriction of
immi-
to be decided chiefly, in
If
my judgshould be
But
if
those
their children,
misgiving.
who come
in are transformed in
if
not themselves
into
may
due time
free
the rest of the community; and their stagnation in the lowest group
may be condoned if it is but a temporary stage. The spread of education and the breaking of
environment, which
the shackles of
make
effects
in a favored position,
it
by the
The
There
is
The earnings
of a
good mechanic
are in the United States higher than those of the average clerk.
None
ing.
the
less
is
This
its
ment
of business
and to the
command the alluring tho decepTTve chance of a prize. But it is due chie%Jo a traditional contempt for manual labor. The'ex^
ternals of the leisure classes are aped.
irrational feeling against "dirty
possibility of
manageadvancementto a post df
work"
is
way
148
[47-8
as the pecuniary advantage of the mechanics' group becomes more pronounced and more famiUar. In time people adjust their notions Any occupation that pays well of social superiority to earnings. respected, just as any person (or family) is likely in the end to be
having a
The esteem
in
which
an occupation is for the time being held is a powerful part of its attractions; and the more open is competition, the more will people move into those occupations which are supposed to bring
social superiority.
8. What would be the differences in wages, and to how great an extent would groups and classes persist, if all had the same opportunities, and if choice of occupation were in so far perfectly Would wages then differ only so far as they might be affree?
fected
and other causes of equalizing varimanual labor, for instance, then receive a ations? reward nearly as high as any other labor, nay conceivably (since the work is dirty and disagreeable) higher than any other? Would
by
attractiveness, risk,
Would
coarse
which they now commonly have? The answer must depend on our views concerning the limitation It is clear that some gifted individuals a of natural abilities.
their fellows,
in a competitive society
rewards. But would physicians as a class secure higher rewards than mechanics as a class? They would do so only if the faculties which a capable physician must possess are found among man^iiid-^
in limited degree.
And mechanics
in turn
if it
number possessed the qualities needed. On this crucial point, to What are the repeat, we are unable to pronounce with certainty.
relative eflfects of nature
and
of nurture in bringing
about the
phenomena of social stratification, we cannot now say. One thing, however, is clear: it is much to be desired that
this
47-9]
DIFFERENCES OF WAGES
test.
149
of all arti-
The removal
is
goal of society.
Given
this,
will
be
all will
in
them
fect
freedom
same time the most perbe secured and thereby probably the most even
of
distribution of happiness.
9.
The wages
due
it is
women
This
is
to a variety of causes.
Partly
less general
efficiency.
They
many
less
sorts of
work
less
men,
aii3 therefore
paid
highly
an
productive than
instance of inevitable
would
persist
even
if
choice of occu-
free.^
In some degree, choice of occupations is not entirely free for women. Custom and lack of training long have shut them out Jrom some occupations. But in modern times, and especially in
a country like the United States, obstacles of this sort are becomsteadily less
Jng
effect.
Education for
women
is
qualified.
may be
own
sex.
Such are
needlewomen, able to do this familiar work of their sex and unable to do anything else. Not so very long ago such work held
the same place for
It
women
that
common day
do,
New York
a
man
one item of characteristic testimony: among the shirt-waist workers of "the testimony of both employers and employees was unanimous that if and a woman, who had worked the same number of years at the trade, sat
side at the
same machines, and had been paid precisely the same rate per earn anywhere from 25 to 75 per cent more than the woman. The explanations were that a man worked faster, was stronger and more enduring; that women couldn't do the higher parts of the work; that a man works harder and faster and longer because he has to, has a family to support, 'while a girl is only working until she get.s married.' " Mr. Woods Hutchinson in The Survey, January
side
piece, the
by
man would
22, 1910.
150
that most
[47-9
widened during
congestion of work-
women
in
any one
corner.
Most important
of all, in the
modern competition
of
women
They
live in their
They
are "subsidized."
same
sense; they
working
for
women
many
work
wages
less
than would
suffice to
there being
of them, they
must
on terms
it is
all.
widows, elder
and the
and these must accept the same wages as the rest. Conamong men, bachelors get the same wages as fathers of families. Such disparities between needs and earnings are the inevitable outcome of competitive industry. Since women work for lower wages than men, it might be expected that they would displace the men wherever they could do
versely,
the work.
So
far as the
women
example as typewriting,
over the counter in
find
much
is
selling
did this
work must
loss.
someit
Sometimes,
men in part, they cannot do so" entirely. A certain proportion of men must often be maintained. Thus in the composing room of printing establishments women can do much of the work as well as the men they can operate some of
however, while
displace
;
women
the typesetting machines as well, and can set most type as well.
But
47-9]
DIFFERENCES OF WAGES
151
The situation
But some men
school teaching
there
must
be,
if
much improved if the proportion of men were greater. When men and women thus work side by side, doing apparently the same work, they yet receive different wages. The specious cry of
"equal pay for equal work"
tho in fact the work
pletely replaced
is is
sometimes raised
in such cases;
men
by women without
is
loss in efficiency.
Where
level, if
work
(that
is,
eflSciency)
will in
the end
make pay
equal
equal
competition
at
the lower
enough capable women can be found, and equal at the higher level if men must still be enlisted. This, we say, will be the out-
come
in the end.
But, as in
all
may
be a
its effects
on relative
for
The emplojTnent
society
of
unmarried
women
is
in the
is
main a gain
sisters.
and a gain
for the
women.
This
women from
is
the period
when they
what
or for wages as high as they would like, adds to the social income as well as their
own income.
is
ground that
it
away from some one else a phase notion that the community is worse off
labor force
is
awaiting marriage
at
all;
their
own happiness
1
152
[47-9
its
immensely promoted
market value.
work
of
way
and character.
and
No
The circumstance
and makes legislative regulation of their labor the more imperative. The employment of married women or widows, having minor What it adds to social income is children, is almost always bad. much more than offset by the social loss from unkempt homes and from lack of care for the young. It must be regarded, where necessary, as one of the harsh necessities of an individualistic soSome charitable organizations have adopted the policj^ of ciety. deliberately paying penniless widows, not for work outside the
home but
lies.
for staying at
home and
It has been under consideration in Germany that the great system of workmen's insurance, which now provides for the contingencies of sickness, accident, infirmity, and old age,^ shall be
also.
may
CHAPTER
48
"Expenses of production" and "cost of production" again conIf there were perfect freedom of choice among laborers, value would be governed by cost, 153 Sec. 2. There being non-competing
1.
sidered.
groups,
demand (marginal
utility)
be so divergent as to cause seepage from one group into another; the standard of living may affect numbers within a group, 158 Sec. 4. The lines of social stratification are stable; hence changes from the existing adjustments of value are not usually affected by them, 159 Sec. 5. The theory of international trade
Qualifications: earnings
may
brought into harmony with the theory of value under non-competing Sec. 6. Analogies between international trade and dogroups, 161
1.
we
and
its
So
close
is
and clearness
in exposition
by the phrases
i
By
made
ex-
we mean
commodity to market what must be paid for wages, materials, and the like. Since the materials themselves are made by labor, and the outlays of capitalists are resolvable into a succession of advances to laborers, the
in the
efforts
to
main expenses
of production
and
sacrifices
is an obvious one and an important one, tho unfortunately not indicated by any
1
between
mainly
By
cost of production
we mean
labor.
The
distinction between
See, especially,
Chapter
5, 5;
12,
1.
Compare Chapter
and Chapter
38, } 4.
153
154
[48-
well-established phraseology.
mean
by "cost" employer's outlays; and this current usage was accepted In what is to follow, it will be in most of what has preceded. helpful to keep these two notions distinct, and "cost" will be
used in the sense of labor or
If
effort.
expenses
if
there
of production, so far
effort.
employments. Higher any one occupation would then signify that the work in was harder, more disagreeable, in less esteem; in other words,
it
that
is,
greater cost.
would be possible to maintain a labor theory of value: that the value of commodities measured or embodied the labor given to producing them. Higher value would
Under such a
would mean either more labor or labor of a more irksome kind; that is, higher cost. This conclusion would assume also, to be sure, that competition among capitalists was free, and that all
capitalists' outlays in the
or
added
to,
in
on these outlays
in the
form of
interest.
As
would
affect all
If ten
wage
bill for
commodity, no one commodity would be affected more than any other, and each would exchange for the same quantity of any other
as before.!
of this conclusion,
it
must further be
disregarded.
assumed that temporary fluctuations, or "market values," may be With free competition both of labor and of capital,
supply would be so adjusted in the end that no one set of laborers
or capitalists
1
set.
minded
much dwelt on by
I
;
Economy, Book
J. S. Mill,
48-2]
155
by quantity
2.
is
is,
In fact, however, as
free.
exerted.
of labor
not
Looking to
and disregarding
for the
moment
that
how
what
is,
as-
let
us consider
value
made by them?
and
qualifications
The answer
suggested
is
mind the
distinctions
by
That
will
window,
and other articTes'made by them. The quantity of such articles put on the market will be limited by the number of work-
men
in this group. AsTKe capitalists (by supposition) compete among themselves, they bid for the services of this particular group of laborers until nothing
interest.
lish itself.
is left
and
estab-
wages
of
what we here
call
the "expenses"
The
pay the
for
an
article, forgetting
their
own
willingness to
It
is
the bid-
workmen
wages; but that bidding rests on the high prices which buyers pay for the wares that is, on the desirability of the wares to them.
Not quantity
of labor,
but
utility,
This simple case gives the key to the phenomena of value under
the conditions of non-competing groups.
plied,
See Chapter
9, 4.
156
In the
[48-2
single trade
workmen
in
any
The
case of glass
it
way
of illustration, because
ap-
down
There
sudden changes
in the
demand
for
may
workmen
if
and act as
they would
In
fact,
un-
usually high wages of this sort attract other workmen from the same group in society, and so set in motion forces that bring them down to the level common for the group. Wages tend to be adjusted roughly to the same level for all workmen in any one social
and economic
layer.
The
influence of
demand
is
far
from simple.
Labor
of almost
The
from that
of the glass
But
it is
an
made by
example,
in
The
iron, for
rollers only,
but by them
railway workare employed
ore, the
ers
in
who
helped to carry
it,
not
common
laborers
who
Only
in
utilities
on which
their
pay
rests.
Or-
workmen
of different kinds
commodity.
and marginal
48-2]
157
The
is
Common
is
labor,
for example, is
little
plenty
If
of
it
would be
in the high-
for at a corresponding
Being
plentiful, it
and
less vital,
until
it is
marginal application
is
least needed.
While
in
some
directions
adds enormously to
all
which
it is
combined, in others
it
adds
less.
It
its
marginal
So
it is
pay which the whole must accept. In some directions it is in the highest
were
it
loss,
It is the loss, or
sue
if
The principle,
to capital
:
it is
obvious,
is
same
as that applied
stallment of capital
all capital.
makes to the output determines the return on Similarly, the marginal contribution from any grade
all
within that
Both
for capital
and
works out
process.
by a slow-moving but persistent and powerful The market variations of wages, the struggles and deits results
it.
is
constantly
made
in cur-
The
competing groups,
or effort.
marginal
utility,
not cost
in
Between the members of any one group, it is true, exchanges are conducted, and remuneration is determined, on the
1
5.
158
basis of cost.
[48-3
workmen
in
in
Between groups,
" liberal " pro-
and
manual
laborers,
therefore high.
So
as to mechanics
and
skilled
workmen
of all
demand
gives
them an advantageous
position
remuneration.
Some
must be noted,
in
another direction.
The remuneration
of a
group
may be
so high
The
barriers betw^een
groups are not impassable, and with the progress of society they
tend to become
less
and
less so.
The
of
ambitious into
likely a
movement
some laborers
So
the
alert
and
movement
So
differ-
matter, as
we have
seen),
growth
births,
We may
we may
conceive that
Con-
Movements
of this sort
ofJ[iying
may
and
in the
48-4]
159
is
There
evidence that
and aids
tier of
in
same force is coming into operation manual workers. But on this topic, and on the mode in which wages are affected by the increase of numbers and the standard of living, more will be said later.
there
is
in the
upper
4.
In the
first
volume
It
was treated as
if
in the ordinary
is
These very expenses, being mainly resolvable into wages, depend on the play of value. Nevertheless, the general
principles, as
fied
by the theory
It
non-competing groups as at
first
may seem to
be the case.
still
WTien once the broad lines of social classification are estaband the earnings of different groups adjusted to their numbers and their marginal efficiency, relative wages become comparAs Ricardo said, "the scale, when once formed, is atively stable.
lished,
liable to little variation.
shift
"^
Cha nges
in demaJid__cajise_JahjQr_ta-
from one occupation to another withm each grade, but rarely cause^TTolTceable change in the demand for all the laborers in the
grade.
Hence
his particular
demand, tho
is lost
it
forms
demand
in the total.
Only long-continued
l>enses of
a*nd far-reaching
production (that
1
2
is,
54,
Ricardo's Works,
160
[48-4
machinery were so perfected that ordinary delving and hewing were done by intricate apparatus made and
guided by skilled mechanics
of these
two
numbers were the same, the marginal eflSciency The converse would happen as to less. skilled laborers they would be more in demand, and the marginal Possibly some such change utility of their labor would be greater. is slowly taking place in the countries of advanced civilization.
their
of their labor
would be
:
Common
this
labor,
it is
true,
it
many
for
seems to be becoming
less.^
If
wages
rise, it must be chiefly by a decrease of supply by an increase of demand; by that process of escape into other and better-paid groups which is the natural result of universal education and democratic freedom.
group are to
rather than
To
may
almost be disregarded.
coms when the social stratification of our time will have been obliterated; when all sorts of work will be rewarded in proportion to the sacrifices involved when all sorts will be in equal esteem when the common laborer and his children will have the same opportunities for education and advancement as the mechanic and the lawyer. Then expenses of production or relative wages will have very different aspects from what they have
; ;
now.
Tho
real differences in
wages
may
still
persist;
fail
because of
to be
much
less
are.
Under
may
be disregarded.
Variations in re-
Changes
in value are
The demand
is
demand
more
above that
level.
48-
for,
5]
161
is
that
the
result of
5,
demand and
Similar reasoning
national trade.
That theory,
was stated
in the preceding
Book
try,
value.^
and hence
and were
comparatively
conclusions
At
first sight, it
seems that
all
these
and
social conrela-
wages and
national trade
after
all,
not far-reaching.
vital
if
The
correction
would be
the
phenomena
of
social
stratification
in different countries.
of labor
say
Then
it
skilled mechanics'
of
it
was cheap
labor.
If
in
would
say
But
of such
were cheap in the second country, this country in turn would export the products of that labor.
social
in fact the
phenomena
Non-competing
Such at
least
is
advanced
civilization;
between the soft-handed and the hard-handed classes, the same steps from skilled mechanic down to common labor. Hence, as between the
civilized countries, the
their
exchanges
The
1
international exchanges
rest
mainly
on comparative
efficiency of labor.
will
happen more
162
[48-6
frequently than the older economists thought that peculiar variations in wages
in
wages
in
another
or occupation lower
exportation of
a particular commodity.
The
Certain sorts of
Germany; such is the situation with German compositors trained up books in the ancient languages, and with German makers of some musical instruments. But these are not the ruling or typical cases. The main currents of international trade are still determined, between the civilized countries at least, by the comparative efficiency of labor in producing the imported and exto set
ported commodities.
6.
hand
distribution.
/ ^^ As between nations, so between social groups, the range of t^ money incomes the instrument and the decisive test of gain;
is
is
An American
or Englishman secures
that
is,
things
cal countries.
man
secures his
when he
in the
of
servants, grooms,
in
of
no special advantage
these are in the
for at
"^
/'
paying the
bills of
physicians "ancfTIentists:
their services
must be paid
f/
and dentists were peculiarly efficient, their services would be cheap, while yet their incomes would be high in accordance with the
48-6I
163
any unusual
of high
any country
money incomes,
there
is
The analogy between nations and non-competing groups may be carried further. The rates of exchange in both cases are ^settled by broad_causes, acting slowly and little liable to disturb(n-er long periods of time; and hence they are assumed most persons, and indeed by most economists, as matters of by That money incomes should be comparatively high in course. the United States and England and France and Germany, is com-
ance except
The
men
the
less,
ditions of
back
of these canditions of
^^^earfses
inborn
We
demand between groups and between nations. Lying demand may perhaps be found deeper
and ineffaceable
have seen how
differences
is,
in intelligence
and
character.
difficult it
as between social
So between nations
it is
may
skill.
and a barbarous or
whereas be-
tween the
civilized nations
importance. However this may be, the differences exist, and not only exist but maintain themselves thru generations and centuries; as do those between social groups within a country. At any given time, and for considerable periods, they must be accepted as settled facts and thus as causes, not analj^zed as results.
CHAPTER
49
Business Profits
Section
1.
its,"
164
Business profits rest on the assumption of risks. The term "profPosition of the business man as receiver of a residual Sec. 2.
and wide range of this income, its relation to prices. The part played by Sec. 3. not due to chance, 166 inborn ability; that played by opportunity, environment, training, 169 The qualities requisite for success: imagination, judgment, Sec. 4.
income.
Irregularity
it is
Tho
irregular,
courage.
man to
inventors.
Diversity of qualities
Sec. 6.
tells more than in most occupations, 173 Motives of business activity and money-making. Social ambiSec. 7. tion the main impulse; other motives are also at work, 175 What changes would occur if business ability were very plentiful and capacity for muscular labor very scarce, 177.
1.
We
return
now
to the
main course
of the
argument,
re-
many
^,
Yet they have many peculiarVarious phrases have ities and call for separate consideration. distribution " wages of manbeen used to designate this share in
:
agement," "net profits," "business earnings," the reward of the "Business "entrepreneur" or "undertaker" or "enterpriser."
profits" indicates the sort of income
now
to be considered, and
man" similarly indicates what kind of person secures it. common speech, "profits" and "business profits" are usually stated in terms of a percentage on the capital employed. A man is said to make profits of ten per cent or twenty per cent on his
"business
In
capital.
If
is
inter-
est
is
No
such deduction
on that capital
man
Yet
164
49-l]
BUSINESS PROFITS
capital,
165
mere return on
and business
profits as earnings
which are
be made
in the
second case
as well as in the first. The capital invested by a business man and managed by himself would secure the current rate of interOnly est if lent to someone else and managed by someone else. that amount which is over and above interest on the owner's
capital should be regarded strictly as business profits.
The
is
essential distinction
profits
ignored.
is
It
would be admitted by
If
all,
rate of return.
is six
profits, it is agreed,
expected that in
fact
it will
be higher.
The reasoning
of,
of the street
and that
if
of the
business
months,
come
of
man
usually
managed
his
own
capital
comparatively
little,
not
least,
gross
sum
will
be said as
best to
we
proceed.
During the
first
it is
draw a
business profits and interest but confounds with profits such things
monopoly
gains.
patent worked by
its
owner
is
profits.
Similar language
site.
everyday
fife
leads to
will
166
[49-2
" profits,"
in
fat returns of
in general
one
sort or another.
thru this
book, " business profits " will be used in the sense already indicatedi^-
namely, earnings over and above interest, over and above rent pr_
monopoly
gains.
of industry
is
In this respect
it is
man
operations on a large scale or on a small. The village cobbler and the owner of the large-scale shoe factory, the petty shopkeeper and the great merchant, the peasant proprietor and the
estate farmer, alike are business
men and
The physician
or lawyer
who
is
from
same
class;
way from
that of the
who is engaged at a fixed salary. But usually we think in connection with business management chiefly of those who conduct operations on a considerable scale, who manage substantial amounts of capital, who hire others to work for them and under them, who have to make plans of some complexity, whose own work is mainly or exclusively the direction of affairs. We think, too, of the more common industrial operations in trade and
physician or lawyer
manufactures.
ness profits
2.
by
The
its
business
man
guides
operations.
Similarly, to those
It
is
him
capital
of the
he pays stipulated
interest.
his weighing
and guessing
money-making possibilities of different sites that determines the rent of urban land, and he pays to landowners their rents. After making these various payments he retains in his own hand, what
is left.
His income
may
49-2]
BUSINESS PROFITS
167
This position as residual claimant explains one striking characteristic of business profits
In
lose.
man may
may
even
Another year he
to year of the
may
The
same
Tho some hazards are so number of cases, that they can be insured against (fire and loss at sea), most must be borne once for all by the individual who first assumes them such as those from fluctuations in demand, inventions and new processes, ups and downs in general prices. The net income of the business man
man's assumption of industrial
regular, in their occurrence over a large
;
is
inevitably fluctuating.
The
prices.
business
man more
This
is
When
when they
fall
he
to deal
it is
men
as a class.
in
what
as
way
rising
and
men
whom
on
they employ.
There
is
a close
dependence
of business profits
first effects
man
being
money.
But
this is often a
temporary
his income,
amount nor
many
upon
it all
as a
a great lottery.
game of chance. Some wdn, someTose -^Tt Ts'TrnT** And there are not a few individuals who actually
little close cal-
management as a gambler uses. But it requires no refined observation to show that success is not entirely a matter
of luck.
Somechance.
times
it
is
won by
6.
168
[49-2
fortune
new commodity, a new mine, may yield a goal. One who has thus won a prize
tries
may have the good sense to stop, and to withdraw with his winnings
from the uncertain arena. But usually he
again and
still
again.
Then over a
steady balance of gains, while others in the end lose and disappear
The elements
of success
are
various
skill and ability in organizaBut continued success is not due to chance. It is due to the possession by some individuals of qualities not possessed by others.
results,
is
by
different individuals.
The
great
Every-
They
and
men," admired,
feared,
followed
by
the
select
Thence by imperceptible gradations there is a descent in the industrial and social hierarchy, until we reach the small tradesman, who is indeed a business man, but whose income is modest and whose position is not very different from that of the mechanic or the clerk. A wide range in the earnings of individuals doing the same sort Tho some of work is a peculiarity of all intellectual occupations. mechanics are more skillful and better paid than others, the differences are not comparable to those between lawyers, physicians, This is due to the fact that the differences artists, business men. between men in intellectual endowments are vastly greater than the differences in manual vigor and aptitude. Tho not every man can be made by training and practise a skilled mechanic, very great numbers can be brought to the highest possible expertness. It may be that many more men could be made by training into serviceable physicians and lawyers and business men than in fact are so made; but the number who can attain the highest possible
men."
pitch of
skill in
these occupations
is
4&-3]
BUSINESS PROFITS
169
same questions as were considered with reference to ordinary wages. Are they due to differences in inborn abilities? or are they the result of training and environment? Do the more prosperous business men spring from the general nonness
raise the
men
all
and due
on the
In the
Some
familiar
phenomena point
differences.
to the explanation
rise to fortune.
ground of inborn
builders.
Poor boys
United States the farming class has been a great nursery of fortune
On
all
industry
Notwith-
standing
the advantages of training, notwithstanding the inof favoring opportunities, they are apt to
heritance of
men who
Cases of this
sort, to
The
ments
the
may be due
lacking.
The None
it
whom
fail
the manage-
ment
of
an established business
try.
is
bequeathed
to maintain
away go
management
But
danger in fastenCaptains of
phenomena
alone.
lawyers. Tho there may be occasional suppressed among the poorer classes, ability of the highest order usually works its way to the fore. Talent and good capacity, on the other hand, are much less rare, and they need to be nurtured. A
geniuses
favorable start
may
man
of
good
ability; its
absence
may
prevent another no
less able
from
rising.
Beneath
170
is
[49-4
whom
importance.
,aitd^and[,=Sftaiigctipn
make
ness
Every
will
busi-
command
of means, his
own
or borrowed.
True,
abilities,
lack of
means
not long
embarrass him.
may
be slow, but he
w^ill
soon have
savings of his own, will borrow easily, and before long will find
associates
the
who money he
If
average.
capital,
ability.
So
it is
with connection
all
relationship,
is
but
him spontaneously.
for their
Whatever
ground
development.
than in the other occupations of the well-to-do. Tho it is probable that in the future business training will be less haphazard than it
has been in the past and will be in greater degree the object of methodical instruction, set teaching will never play the part which
it
'K
The
easy of access.
The
obstacles to be
all
surmounted
will
be chiefly
man of the first order must have imagination must have courage; and he must have adminisand judgment; he
4.
The
business
trative capacity.
The
is
successful business
Especially
this necessary in
new
ventures; and
it is
in
most
called for
49-4]
BUSINESS PROFITS
171
Countless schemes for and the greatest profits are reaped. money-making are being constantly urged on the business cQia=.. munity. Most are visionary. Among them the captain of industr3rwin pick out those that really have possibilities, will reshape and develop them, and bring them eventually to success. Sometimes he errs; there could be no great successes unless there were
occasional failures; but the right sort of
profitable ventures.
man
has a balance of
Not
who
may
be deceptive
do not possess
it.
Personality^,
incisive
vigorous presence,
individual with
is
enabled to
Yet finally he comes to grief because in the end he proves not to have the saving quality of judgments Courage and some degr^ee of .yenturespmeues^ are obviously esso much follows from that sential to the successful business man assumption of risks which is of the essence of his doings. But cour-
embark on
large ventures.
age and imagination and personality will not avail in the end unless
Executive ability
probably
less rare
it is
by no means common. It calls on the one hand for intelligence in organization, on the other hand for knowledge of men. The work must be planned and the The selection of efficient right man assigned to each sort of work.
judgment with imagination-.
But
subordinates
vigorous in
is
A vigorous constitution
it is
its
is
business
man
mechanics of industry.
Every director
of large enterprises
must
It
might be supposed, therefore, that men of mechanical talent would become the leaders in industry. Yet this is by no means
the
common
case.
Most
employ
of the business
man.
172
[49-4
in high degree
both
Such were
in the
mans.
textile
Such
also were
some
of the
New
England pioneers
first
and
of
of ability in
life.
cessful perfector),
and
his
But he pinned
on the caloric
made
it
commercially impossible.
failed conspicuously
some notable ventures, such as the utilization of magnetic ores and the construction of standardized cement houses.^
selecting
iron
In
among
man exercises
functions.
Too much
to
stress
must not be
laid
on any enumeration
of
of the
All sorts
and conditions
have the qualities needed for pecuniary success, the cautious and the daring, the sober and the enthusiastic, the loquacious and the taciturn, those given to detail and those negligent of detail.
men prove
own
hands, and not only plan the large outlines of their ventures, but
look to every detail.
1
all
administration to
and Dyer and
The biographies
Martin's Life of Edison, are full of passages on the vagaries of the tribe. I venture to refer the reader to what I have said in the first chapter of my own book on
Inventors
and Money-makers.
49-5]
BUSINESS PROFITS
173
There are those who keep strictly to "their business" the particular branch of industry in which they have embarked; and again
there are those
who launch
freely into
new and
varied enterprises.
No
The
Some
business
men
are of intel-
but business.
Some
Some
others
mean and
selfish.
social questions
as-
many minds
best
is
man at his
his
an admirable
figure in our
worst
is
The
variety
a standing cause of
Among
all
is
to
most occupations.
work. To predict who has in him the much harder than is prediction with regard The aptitudes and abilities which must be
law, in medicine, in engiat a comparatively early
possessed
neering,
age,
But the
qualities that
make
for suc-
late,
or at
show themselves late and only under actual trial. Surprises are more common in this walk of life than in any other. A constant process of trial
for success
is
going on.
requisites
come
who
lack in
some
essential
drop
to the rear.
The
with most others, inborn capacity counts more, training and en-
vironment
less.
of start
seem to be
of
174
[49-5
consequence in what we
pation
tial
the businesses of
for
may
call
moderate
a substan-
capital
calling
ability.
and yielding respectable middle-class income, but no unusual degree of judgment or administrative
of large-scale operations in every direction
The growth
has
and numerous than they were half a century ago. No doubt, they are still numerous and important; and, as to them, there may be something like a caste or non-competing group. They tend to remain
businesses of this sort relatively less important
in the
made
hands
of those
who have
nection.
So
may
who
and But
in
in
of
modern
times,
men
rising
Yet most of those who come begun with the associations and envi-
ronment
of the
of property
and
of business.
The commonest
case
is
that
young man born in the middle class and imbued with its traand ambitions, inheriting vigor and judgment, but not enervated by the inheritance of large means. As has already been reditions
class in the
in
traditions
and outlook rather to the possessing than to the nonPossibly there a fund of such ability hidden and
possessing class, has been in this country a great nursery of business ability.
is
smothered among the hired workingmen. But the ease with which capable men make their way, even from the poorest beginnings, speaks against the supposition.
this career, so
So simple
is
access to
common
is
so constant
we may
gifts
regard
it
as probable that
all
who
It
is
gifts are
in
49-6]
6.
BUSINESS PROFITS
.TJjje_aim of
175
1
money," and the making it is social ambition. The successful business man is the backbone of the well-to-do and possessing classes of modern society. His ambition is to
the business
stirs
is
man
to " make
chief
motive which
him
to
'
The
reasonably content
if
he succeeds
ing
in
and
he
may
be infected also
But the business man cannot The aim of all in his class is to gain more
To
He must
days to
We
who
do not com-
monly think
makes.
of the
is
money-maker
is
infrequently he
a liberar spender.
to
make
sa\es. Not But he spends less than he great deal more than he spends
as a person
and to put
little
by.
may
involve
conscious sacrifice, are none the less real savings, and con-
stitute
supply of capital.
Tho no
it is
statistical or quantitative
measure-
ment
is
feasible,
come from the competences and fortunes of the business class. Every successful business man thus leaves behind him a trail
accretions to the well-to-do classes.
of
command
of capital.
living, are
on a new
at once.
this
plane.
If
If
it
made
of
by
training.
gift,
treacherous
There was a tradition in older days that new-made wealth did not remain long in the same family.
was
said to be
176
sleeves.
[49-6
The
machinery
is
any one's command. They who once possess can continue to hold, and persons who have been lifted among
highly developed and
at
While there
is
a continuous
movement upward
and considerable
there
not
is
no appre-
movement downward.
peat,
The most powerful spur to the business man's activity, to reThe deep-rooted impulse of emulation is social ambition.
and swing himself into the ranks
of his "betters."
The
pride of
commanding
Other motiyeg have played their part. A true taste for the re life, an appreciation of what is
and permanently
beautiful, has
it is
sometimes been
common among
is
the business
selves
the latter.
The
stinct of emulation,
With
Many
a business
ambition of his
of
The
thus
much
to be wished
that other and nobler motives could be substituted, and that the
same courage, judgment, and strenuous work could be brought to less unwelcome con-
49-7I
BUSINESS PROFITS
177
Something
dreamed
of as feasible
by those who would completely private property. Not high money gains,
suffice to
What may be
these possibilities,
we
shall
Certain
vailed.
it is
movement
of the
of the last
two
centuries.
It
is
same
and
will
long
The
man
as
his virtues
and
good and
importance in the distribution of current earnings and in the shaping of social stratification.
7.
By way
suppositions:
first,
of the highest order are very plentiful; second, that stout, able-
In other words,
let
at present.
capable business
every species of
enterprise
and
intelligence.
would be conducted with the utmost judgment, vigor, The smallest retail shop would be managed
present, the highest ability
it tells
At
is
enterprises in which
most.
With an
it was most effective, but to others in was less effective. The gain, or addition to the output, resulting from this application under the least favorable circum-
which
it
3.
178
stances
[49-7
in
other
words,
from
its
marginal
effectiveness
having such
these to be
We may
all
among them
ment,
.
it is
would
plentiful than
and
their gains
would be very
men of similar ability now are, much less than are now the gains of
the labor of society under such
greater than
it
such men.
The
general efficiency of
all
much
now
is.
Every would be
plentiful.
managed
expenditure.
and
services
would be more
less.
to the business
men would be
If
we
con-
common unskilled laborers now are, their reward would be on very much the same level as that now current for common day wages. Turn to the other supposition. Suppose the human race vastly deteriorated in its physique; the great majority of men incapable Then the few who were of holding the plow or lifting the pick.
ness
men
to be as plentiful as
still
rewards.
No
kind of labor
is
As
the huge warrior was the admired hero in the days of Achilles,
so in a society
He would
be highly
would be great;
is
scarce
and
is
commands
business
man now
Social
49-7]
BUSINESS PROFITS
179
tions
Brains being scarce by nature, such a complete reversal of posiis beyond the range of possibility. But some approach to a
position
midway between
the extremes
is
not inconceivable.
it is
BusIn
iness ability
now.
the course of generations, the supplies of the different sorts of productive capacity may be greatly changed; and then the variations earnings and the consequent differences in social station may be
correspondingly changed.
CHAPTER
50
profits
and
rent.
similar analogy
in other occupations.
180
Sec.
How
2.
The
cost of production.
settling
The conception
is
Sec.
as
3.
One
of the
mani-
in the selection of
good natural
resources.
In the end, an important d fference between economic rent and differential The connect on between the return on Sec. 4. business profits, 185
capital
and business
profits.
For considerable periods, command of capital brings in a given enterprise the probabihty of larger profits; but Sec. 6. For industry as not in the long run without business ability, 189 a whole and capital as a whole, there is a connection between interest and
5.
Sec.
may
separation of
business profits.
How
profits
they
Sec. 7.
which distinguishes them sharply from wages, as Sec. 8. Another view, which arising solely in a dynamic state, 192 lays emphasis on risk, and distinguishes between the wages of salaried managers and the "profits" of independent business men. The salaried Sec. 9. manager often rewarded de facto in proportion to "profits," 193 Legitimate and illegitimate business profits. Their restriction within the legitimate limits depends on the removal of monopoly gains and the
view of business
1.
men have
connected with differences in wages and with the social consequences We may proceed now to the relations between of such differences.
profits
rent, wages,
and
interest
on the other;
money
An
pointed out.
analogy between business profits and rent has often been High capacity in a business man is like high profi
ductiveness in
site.
The
and capital
50-ll
BUSINESS PROFITS
(Continued)
181
managed by a capable man is greater than that of labor and capital managed by one less capable just as labor applied on good soils yields more than labor applied on poor soils. If there were an
;
men, no one of them In the same way, good land would not
it.
This mode of
was developed most systematically and emphatically by Francis A. Walker, and it became a corner stone
treating business profits
of his theory of distribution.
men
The
talented sur-
is more and so the lawyer, the engineer, the architect. In any group of men who compete with each other at the same sort of work, the more efficient that is, the more productive earn more in proportion to their efficiency. So far as the differences are due to inborn gifts, the results are in the nature of rent.
efficient;
To
shall,
this it has
made
that,
is
fully
shorn of most of
its significance.
Tho there
When
may
well
the blanks, and then the earnings on the occupation as a whole contain no surplus
and there
no element of rent.
This,
it is
said, is
is
it
Success in business
highly uncertain.
is
who
enters
extremely
difficult, especially in
It has
own
The
estimate
but guess work, and very likely exaggerated. But it points to a fact. In view of the risks and theobvious possibilities of failure,
When
regard
is
ness profits as a whole, can the high reward of the fortunate few be
182
There
is
[50- 1
not conclusive.
It is
only because
it is
assume
risks,
new
aspirants,
it is
they possess the qualities which fit them to meet and overcome the On the other hand, the extent of the risks assumed is easily risks.
exaggerated.
The very
fact that
is
who
and fail. True, they may lose some of the means which they owned or which have been intrusted to them and this loss is some;
times large.
first
on a modest
whether there
lucky aspirant
If there is failure,
class,
the un-
falls
and be-
comes a clerk, bookkeeper, superintendent. His earning power is less than he had hoped, but it is not reduced to zero. There may seem to be a difference in this regard between the
business calling and the professions that require set training.
The
thrown away.
in
him
to attain success in
is
of this in
professions
ness.
Ordinarily he
is
from
He may
not
win one
of the prizes,
likely to secure
a modest income,
sufficient to
make
Such
ers.
is
The
greater.
Some
aration
certain.
is
required,
and
in
may end
50-1
2]
BUSINESS PROFITS
Even
here, there
(Continued)
is
183
routine of
a valued success.
teaching to
artist
fall
back on
sadly
the
humdrum
tistic callings
men
On
its
return.
In business, the
initial
stake
is
is
winning of a
fair
return
not so uncertain.
Some men
are born
more capable than others, and the higher range of their earnings, due to unusual gifts, is analogous to rent. Since inborn differences play a relatively more important part in business profits than in
other earnings of the well-to-do, the analogy to rent
is closer.
But
of business profits,
incomes to
In the lower
in general.
IJence the rent theory of profits can throw no light on the funda-
mental questions.
The
men engaged
in
many
we
observers
the
variations in the
In
determined by expenses of
all
competitors.
But
it
In no modern times are competitors on the same Some produce more cheaply than others, having better
1
184
l50-2
of more efficient or cheaper more "strategic" location. If such differences were permanent and unalterable, they would bring all industries into the class of diminishing returns and would
make
cheap
limited.
Most
of the circumstances
which are
commonly
have
greater
skill and-Jotesighjfe.
rapid advance, in the-^rts-whieh -characterize ^odern~ times, opportunities for improvemets in the industriatjoutfitare
first
by the captains
still
of industry,
of less tho
of notable capacity.
^en. industry
succeed
still
To
fit
of
production,
we may adopt
resentative firm"
one
the very latest and best plant and machinery, but well equipped,
and able to maintain itself permanently with substantial Side by side with such representative firms are the exSide by side with them are also the weak and ceptional leaders. some under inept management and doomed to the struggling
well led,
profits.
and others under good management but still in the early Prices tend stages of scant capital and unestablished connection. to adjust themselves to the expenses of production at the hands of
failure,
When
such
business
men of good ability secure in industry at large. much more. Their inferiors earn less; perperhaps
rise
haps go to the
wall,
50-3]
If
BUSINESS PROFITS
ill
(Continued)
185
now an
turn
is
if
demand
should suddenly
state
fall off,
the
first
effect
heavy taxes should be imposed by the will be to cause the weak and struggling
money
or at
make money,
Tlie ultimate
efi^ect will
Some
of the leaders
Indeed, a keen
donment
of those threatened
fications of the
money-maker.
The converse
takes place
if
demand
or a
in
it
makes money, even the ill-equipped. The able and well-equipped, who happen to be in the best condition for taking advantage of the favorable conditions, may roll up fortunes in short order. How soon and how easily the readjustment to normal conditions will take place depends on the extent of the irrevocably invested plant, on the predictability of demand, and in some degree on the personal
characteristics of the active leaders in the industry.
ters that
to be expected.
It is
men
it is
and
effect
on the range of
3.
The
differences
between individual producers not only have., effects on rent and on distri-
A
site
capable business
to
tageous
may
be
said to get
own an advan-
margin as
186
well as
[50-3
it
he usually applies
is
above the
usually
margin.
full
One
sites.
They
by purchase
or
by
lease, of
and are exploited to better advantage by these than they would be by the less capable. In agriculture, the better farmers
or rent the better lands,
buy and
of ability
urban
rent.
The expensive
utilized
by the upper
tier of business
men
more
likely
is
is it
to be in the hands of a
man
men
of
exceptional
gifts.
kinds of rarities
the
There
sites
If
business
of
marked
ability are
by
so
much
higher.
in their
own hands
All differences in
wages which
result
peting groups and which thus are not of the equalizing sort,
may
The carpenter
greater.
There
rent.
is
thus in
all
real
But there
is
an
In the one,
human
action and
human motive
alone are in
The
and are stimulated to put them forth the more as the reward becomes higher. The differences between good sites and
of a reward,
bad
such motives.
It
And
this distinction
all-important.
is jiot impracticable
for society
to appropriate in
gains.
se-
50-4]
BUSINESS PROFITS
(Continued)
187
It
may
are,
now.
But as men
petition
now
The
extra gain
is
a price which society must pay in order to secure the extra service.
4.
If
to rent,
We
come
that
have
is
tacitly
man's
in-
to be regarded as profits as
in excess of interest
on the
capital
is
which he manages.
clearly true.
If
He
and above
is
him
as business prof-
own
(or
that of relatives or friends, put at his disposal from other than cold-
On
is
his
own, he
must indeed remember that interest could be got at current rates without the risk and labor of actual management; and therefore he must reasonably reckon only the excess over such interest as his This way of regarding earnings of management or business profits. the situation is followed in an arrangement found in many firms which have silent or inactive partners. Out of the net earnings of
a given period, say a year, interest
is first
put
in,
The
ex-
cess, after
proper.
Out
of this, there
is first
between active and inactive partners in proportion to capital provided by them, and constitutes a return for
general oversight,
and judgment.
Such a sharp distinction between the constituent parts
profits is of course
of gross
more
likely to
work
of
where
is
a corre-
188
risks, others
[50-4
common form of
Then the investor, the person lookway of interest only, had little to do with business his investments were in land or in public funds. The business man borrowed occasionally from banks or professional money
as to suggest the distinction.
lenders,
management.
business profits
Hence the economists of those days regarded as one homogeneous return secured by merchants
and
capitalist employers. of
Among
mode
to the
Adam
by
men and
investors,
Many corporations borrow on long time in the form of bonds, whose holders are supposed to be free from risks and to receive pure interest, while yet they are permanently associated with the enterprise.
The
They
are, in a
risk.
way,
silent partners;
they exer-
in the
not be stockholders.
most
scale enterprises.
The
investor
who
is
way
of interest
;
Those who
new ven-
men and
the clientele
in" largely
in.
They "go
John Smith,
whom
they believe
5(>-5]
BUSINESS PROFITS
(Continued)
189
They expect
to secure
more than
As time goes on, if the venture has proved successand dividends at a good rate have been secured for a considerIf the enterable period, they sell out to investors at a premium.
the risks.
ful,
prise
is
may
take vir-
tually no risks,
and
some degree
of stock.
of risk,
even
if
slight, is
The
active business
man
other
new enterprises,
and
may
gains.
5.
Large,
command
of capital,
at his
who produce
or
sell
same
less
smaller rival;
it
management
command
more ability than that of a small one, and if the abundant capital came solely by inheritance or favor, the consequence would certainly follow. But in the long run the connection between extent of capital and volume of profits proves to be by no means automatic. Large-scale operations require
ness called for no
of
ones,
more
insight
and judg-
190
[5(>-6
command
At the
of capital
start,
comes not
in ordinary
ability.
and
manage a
large busi-
of capital
and connec-
man's
career.
Hence
But with almost all enterprises conditions change as time goes on, new methods or processes are devised by the keen-minded and venturesome, and adaptation to new competition must take place. Then only the able and enterprising continue to control large enterprises and The less capable fail to make the profits they expect. large capital. If, as not infrequently happens, they persist in trying to manage what overtops their capacity, bankruptcy ensues and their all is
get beyond the simplest conditions of management.
swept away.
The adjustment
its
to individual capacity
much
affected
by custom,
established
up by an
This
own momentum.
much
in holding customers.
may
play an im-
portant part.
most
where reputation
and good
Those who
marked
ability.
New
firms
and a
different
generation of business
men comes
into control.
But most of the new men are not the descendants of the old. They rise by force of character from small beginnings. Into their hands comes the control of large capital and the grasp of large business profits. 6. The same close connection over limited periods, and the
capital
and connection.
50- 6]
BUSINESS PROFITS
(Continued)
191
same divergence over longer periods, appear in the relations between interest as a whole and business profits as a whole. The factor that most directly and continuously acts on interest is the amount which business men can afford to pay and which competition compels them to pay. The process by which the return to capital is settled works out its results thru its influence on business profits. The advances to laborers are made by the active capitalists the business men and the ensuing increase in the output comes first into their hands; for they act as intermediaries between hired workmen and the investors. When gross profits (in Adam Smith's sense of the term) are high, they are able and willing to pay higher interest or higher wages, or both; and conversely they are able to pay less when gross profits are low. Improvements in the arts
As time goes
modified.
movement
is
likely to
be
The mode
and
If savings,
of
capital, are
capable business aspirants bid for the savings, a larger share goes
to interest.
If
plentiful,
and the
it is
by
so
much
In modern times
ceeded in retaining a
The
when
long periods
vances in
All the
of progress, during
192
[50- 7
the opportunities have been favorable for large gross profits and
high interest.
first
of
Germany during
all
the last quarter of that century; of the United States during almost
the whole of her history.
Tho
interest has
gone up in
these
it
has
each slackening.
But business
profits, for
those
Some
be considered.
wages.
posite
They
man
gets
is
regarded as a com-
income even
gets
Part of
is
what he
is still
neither
it is
different
from any
of these;
and
element
is
Among
solely
if
perfectly,
if
prices were to
of industry
of production, the
wages determined
But
in a
managers
in the
dynamic advance
a there
state
same
is
men
By
they
make
ever reappearing.
the
They
improvement and
reward
for
improvement is fully applied. Whether the term "business profits" should be thus limited is primarily a question of phraseology. The emphasis which this
view puts on the relation between improvements and the business
50-8]
BUSINESS PROFITS
is just.
(Continued)
193
in fact
man's gains
The
large
associated almost invariably with advances in the arts, with boldness and sagacity in exploiting
new
enterprises
None
the
less, this
mode
wages seems to
me
artificial.
Even the
and so
judgment and administrative capacity, the same faculties that are more conspica successful
"profits" in
business
To separate even roughly the earnings of man into two parts one wages, the other
would
among
regard them
peculiarities,
returns marked
simplest to
by many
among which
in
uncertainties, the
8.
Another view,
some respects
from wages by considering as wages that amount which the individual would have been paid if hired by some one else. An inprofits
Here emphasis is put on the element of risk. Profits differ from wages in that they are the result of the assumption of risk and the reward for that assumption.
is
business profits.
The question
derlying
it is
here again
is
of demarcation can be
dis-
management have
process of transfer
tween the salaried ranks and the independent business managers. Both are affected by causes of the same sort. A capable man will
make
more
if
may
will really
earn
hired
by
others; he
may have
The growth
of large-scale operations
and
of corporations has
in-
194
[5(>-8
in posts of leadership,
and
re-
The
sorts of
devices.
On
Qardihmesjdire,
set salary.
common; that
is,
a share in the
profits, additional to
it is
common
make
to
the
profits large
enough to
If
place,
especially
the case in the United States, where larger salaries are paid than in
is
expected from
$50,000 a year, $100,000 a tho they may stand some instances for mere year, even more
heads of great American enterprises
in
;
them
in the
way of
" results."
'
own immediate
would bring
out.
dependent exercise of such ability, and the employing corporations must bid rewards on the same scale as those which it would so yield.
This sort of de facto profit-sharing explains why, even under corporate organization, private industry
is
usually
more
efficient,
or
conduct of
advantage
cials
and
and
But governments cannot deal with officials with the freedom of private corporations. They cannot pay salaries so high or so elastic; sundry political forces make it impracticable. Tho
oversight.
there
is
may enlist
capable
50-9l
BUSINESS PROFITS
{Continued)
195
owner-
ship
tionable advantages.
9.
The
business profits as due in the main to efficiency and ability. The community on the whole gets an equivalent for the business man's earnings; indeed, must allow some such earnings in order to secure the useful services rendered. But it is often maintained that such justifiable earnings form only a part of business incomes and that
the total incomes much exceed the range of the worth-while returns. The contention has truth; there are illegitimate as well as legiti-
mate business
"business"
of the
is
profits.
To put
it
it
in other words, a
good deal
of
unproductive;
community, but to get something away from other people. is simple. Gambling speculation, such as
is
clearly unproductive.
Corrupt con-
government
class.
officials,
ruptor to another
in the
same
who actually does the work contracted for, are The deliberate manufacture and dishonest
is
to be
Commonly, however,
and
useful
and harmful
activity, legitimate
Take such a
case as a subsidy
The
serves to rob the public but his labor in guiding the industry
may
A consistent
tariff legis-
was the reverse of productive; the industries may manage them well.
of unorganized
workmen of any sort, and may secure their labor at less than "fair" rates; 1 at the same time he may organize that labor with high
efficiency.
58.
196
[50-9
useful.
Such are
gulli:^.
an
article
its rivals,
but foisted on a
by mendacious
advertising; cheating of
"company
ments, thru
fines
most conspicuous and far-reaching forms of predatory business work is in the abuse of positions of trust by directors and managers, often
One
The same man and gamble with loaded dice on the stock exchange, yet be a captain of industry. American industrial history is full of men of this type, and our great fortunes are due in no small measure to this tainted sort of business activity. The proximate aim of the business man is to make money. All is Unless restrained by law or public fish that comes into his net.
closely associated with stock exchange speculation.
may
The
bounds
and
free competition;
freedom of competition.
Monopoly
ille-
gitimate" in the sense in which those are which result from sharp
practise
in being greater
productive facul-
that the public pays more than there is any need of paying. Shrewd understanding of the possibilities of monopoly and skillful management of monopoly industries have been great sources of business men's incomes and fortunes; and this without violation of
mean
life.
The
regulation of
among
moproblems and
reasonable or legitimate.
The maintenance
50-9]
BUSINESS PROFITS
(Continued)
197
on law^ partly on public opinion and the pervading moral spirit. The aim of the law 13,^01 should be, to make men's relations with
each other such as to promote the general good and to inhibit predatory doings. This is the basis of the main provisions of the law
of private property
vention of fraud.
consciousness of
modified.
common
Slavery, which
was part
till
nearly our
own
day,
forbidden in
is
all
true of serfdom.
and
on
this basis
or to this extreme.
own day
is
the regulation
laws
illegiti-
mode
mum
mate.
stores,"
and the
be
in the
same
class.
So do the
improvement
tion
and enforcement
is
to compel
all
persons,
PubUc opinion
legislation
is
also
an important
factor,
both in leading to
and
in
adding to the
effect of legislation.
The more
the
and frowned
upon, the more will business energy turn to ways of true service.
men
live
money-making
classes are really do,
will
permeated by intelligent and high standards as to what they should do, the better be the working of the system of private property under the
much dominated by mere The more these insight as to what business men
198
[50-9
such as
colleges
is
American
universities
and
and
At the
best,
however, there
business profits.
So long as there
Shrewd and strong persons will take advantage of the ignorant and weak. There will always be operations in which it is difficult to draw the line between fraud and sharp barsighted bargainers.
gaining.
little.
There
will
always be
men
to
whom
Some
evil.
CHAPTER
51
Great Fortunes
Section
1. The development of large-scale production and the growth of numbers have been the fundamental causes of the growth of great for-
tunes, 199
Sec.
2.
The
Sec.
3.
Influences
urban
site rent,
monopoly gains. Unearned and fortuitous fortunes, 202 Unearned gains are mingled inextricably with earned, 203 Sec.
Large fortunes as a spur to productive activity. The building of and of fortunes out of accruing profits, 205 Sec. 6. The need of better direction of economic and social forces, 207.
plants
1.
modern
tously great.
Thru most
last
common.
Accumufor the
made
money; the
five millions of
much
more than the million of 1890. Properties of all sizes, from small thru moderate up to great, have multiplied, and the average has probably become larger. But when all is said, the number and the
size of
How
ex-
plain them,
and what
of
good or
evil find in
them?
It is the first
and
we
pro-
said
must be
in the
nature of
bution at large.
of great fortunes
is
the develop-
199
200
[51^2
Hardly
numbers.
These
may
be
classified
more
in detail as derived
of the follow-
gains;
Each
of these
may
be taken
up
in turn.
2.
Simplest of
all is
common
case.
Every day we
shoemaking,
tive businesses.
and large accumulations in the strictly competiSuch are any number of manufacturing industries
textiles,
collars
and
neckties.
Sometimes the making of an apparently insignificant article, a small specialty, becomes the basis of a fortune when the article can
:
is
on each item.
Mercantile
The modern jobbing firm can and reach an immense number of people.
Often merchandising has been supplemented with manufacturing. A distributing business, once established with its circle of habitual
customers, sets up a manufacturing adjunct and combines the profits of
Some
this sort of
ent possessors to have a reputable flavor not attaching to properties perhaps of larger size but of new-fangled origin. Banking is an-
51-2] other
field of
GREAT FORTUNES
the kind often regarded as more distinguished.
201 Here
too there are pure banking firms, and on the other hand some that
The
that they
may
is
be
fairly said to
be earned
No
restraint on
The
ones.
field is
making
of
new
True,
when once a large concern has been set going, it keeps on for a time by mere momentum. Prestige, established connection, brands,
trademarks, enable profits to
process.
This
is
up thru an apparently automatic particularly the case, as we have seen, with bankroll
ing operations;
it is
hardly
less so
end the master mind must be there; if not, the business begins to run down. The founder and owner may run off for weeks and months, and things go on as well without him. But the very
But
in the
built
and organized.
possible in a budding
And
It is the scarcity of
it is
this which,
Under the
existing
economic and
purpose
and the trend are that reward shall be in proportion to efficiency; and the ground of justification for a high reward is that it stimulates efficiency.
Certain
it is
a tremendous incitement to enterprise, energy, persistence, the manifold improvements in the arts which have
bilities of
made
the possi-
be one's
belief on the need of this sort of motivation for the future no sober observer, no thoughtful socialist, can question that it has
been powerful
in the past*
202
3.
[51-3
many ways
by the
for-
Such
for
spicuous
form urban
its
most confamilies in
made
some ducal
sites fell in.
London
Not
dis-
who
certainly in the United States, this particular form of gain has been
diffused thru
many
has
left
great
amounts
and
families.
Analogous, yet not quite the same, have been the fortunes resting
on such natural resources as ores, forests, oil. They are not quite the same because here we have more of the elements of investment, deliberate development, enterprise, risk. Often it would be
difficult to
how much of a fortune derived from these sources is earned, how much unearned. But of the latter sort there
say precisely
Above
all,
been enlarged by the exploitation of rich natural resources. Unexpected growth of population, unexpected improvement of transportation, unexpected advances in the arts have caused mines and
forests to yield surpluses of gain far
prietors could
far
de-
Next among the fortunes due to non-competitive conditions are those from monopoly. So far as resting on a patent or like legal
protection, they
may
be said to be earned.
ex-
are
But the
which has resulted from the sudden growth of large-scale production and the concentration of an entire industry in a few huge establishments, perhaps a single one, has given rise to surpluses far
beyond those
of competitive businesses.
the technical
51-4]
GREAT FORTUNES
203
rail-
electricity,
and to monopoly
class,
gains.
In a third
that there
a sort of
omnium
may
be placed a
having varying degrees of demerit but all alike in no connection, or but the remotest, with operations Sometimes there is plain violation of useful to the community. tracts of timber land are filched from the existing law, as when great
series of fortunes
is
or forgery.
way
by stock-jobbing speculators who gamble with loaded dice: insiders in a great corporation who play the game against the outside public in violation of fiduciary obligations.
Here, as in the
is
Specu-
ered ;i they are not wholly devoid of advantage to the public, but
when the
hands
of
and turns
a daring adventurer.
like those
which are
which
in the
Some ventures
of peace
same dubious
4.
The
puzzling thing
earned gains are mingled inextricably with those that are earned.
Business profits of the sort that
may be termed
It has been
remarked
men
who
may
be alike in
business virtues
have the
See Chapter
11, 1, 5.
204
[51-4
all
as earn-
and
of
unearned increments.
The same
qualities that
make
a good business leader make him a good business chooser. a keen eye for the economic possibilities. He judges shrewdly of mines, timber tracts, oil, urban and surburban sites. Social institutions as they stand invite
man He has
a
him
to pick
find
toward money-getting.
best of
sential.
making the that which nature offers, his skill and management are esHow discern w^hat is ascribable to his judgment and his
gift?
At the same
It
is
it is
immensely difiicult
to
draw the
line in a
given case.
Another circumstance promotes gathering accumulations and The prospering business man can wait. /gives to him who hath.
Midway in his
career,
and large credit, he looks about for ventures outside of his first and more immediate business. He foresees what the future will bring; to use he buys cheap lands, cheap mines, cheap stocks; and then he sits on them. In time his foresight the jargon of the street
will
be
justified
by
fail,
and
disappointments in these ventures; but the far-seeing and discriminating in the end reap ample return for their patience and acumen.
Nothing so well
century.
Here we
see
A great
continent was opened, an unexampled sj'stem of transportation created. Extraordinary natural resources were uncovered; railway
units of prodigious size built up; railway
;
management
of a special
51-5]
GREAT FORTUNES
few,
205
more or less of inside managenot quite the ment and deliberate wrecking. The same round was repeated in the late growth of same, but of the same kind the great industrial combinations and trusts. A like extraordinary
prices
jumble and a
5.
like
climax
an array
of conspicuous fortunes.
What grounds
been
These prizes
new
enter-
and improvements in the arts, lead to the increase of capital. Money-making is part of the individualist system. Such as that system is, good or bad on the whole, likely to endure or certain to disappear, it stands; and in it and in its forward movement the potentiality of fortune-building is imbedded. Great
advances in the arts of production are to the
common
The
them
for itself
why,
interest.
it
So long as reliance
will
is
emerge.
And, as
has been more than once said in these pages, the accumulation of
savings and the increase of capital are promoted
of inequality.
by some measure
exists, so
many
and so great fortunes, are not indeed indispensable. But the plain fact must be faced that without marked inequalities in earnings and possessions the material progress
not have taken place; nor
is
of the
The building-up
of great plants
is
of the
and
it
illustrates the
The
process as
profits at all
as
if
It
is
often suggested,
really
an
altruistic one:
the surplus
is
And
there
is
modicum
of truth
206
in all this.
[51-5
They
not enjoying
is
what
is
set
aside
and invested
in capital
is
it is
All invest-
ment
community's material
promotes the
common good.
It
may be
is
in a
many
New and
largements and technical advances of a novel kind, take place most commonly in just this way. Funds for them cannot be readily
secured by public subscription.
" Outside
' '
investment
is
attracted
The
that
mean
abundant production of goods promoted. But the eventual outcome is the emergence
of a fortune, per-
haps a colossal fortune. Eventually the owners do get the benefit Talk about their altruism may be swept aside. of their earnings. at last is capitalized for all that has been put into it, very The plant
likely for
is
cut.
Often
it is
founders
just in
who reap the final harvest. It boots.then little to inquire what way the saved earnings and surpluses of a past gener-
whether by sheer
ability
and
efficiency, or
by
how far due to deliberate planning, how far the mere result of growIt is impracticable to make a separaing population and wealth.
tion,
and
it is
There the fortune stands, a warning that a repefor the future, and a
problem
of its
own
moment,
nevertheless, a
51-6]
GREAT FORTUNES
207
6. The objectionable aspects of large fortunes are more obvious than their causes and the possible grounds for justifying them. The evils center about inequality, and most of all about that sort of
few
live in
Princelings
privilege.
No
stretch of psychological
maximum
of
human hapheavy
The
readiest
this situation is
on death.
It raises
one of the
many
Of
more
will
goal,
difficult
movement, how unconscious it is of any its phenomena. Nothing raises more questions, nothing shows more plainly the need of girding
its
are
and
social forces.
CHAPTER
52
The fundamental question on the general level of wages is raised case of hired laborers, 208 Sec. 2. The notion that lavish expenditure creates demand for labor and makes wages high. Conse1.
by the
quences of investment as compared with "expenditure," 209 Sec. 3. The fallacy of "making work." Why hired laborers universally desire that employment should be created and dislike labor-saving appUances,
Sec. Wages depend on the discounted marginal product Explanation of "margin" and of "discount." Advances to of labor. laborers, 214 Sec. Some The current rate
wages, 213
5.
6.
210
Sec.
4.
The theory
qualifications.
(1)
of
is
interest
is
assumed to be
circle.
settled
hy time
preference;
otherwise there
reasoning in a
wise there
is
(2)
The mechanism
no settlement either of interest or of wages, 216 Sec. 7. of advances to laborers, the flow of real income into their
other-
hands, the reservoir of existing supplies, the replacement of what is advanced, 218 Sec. 8. With the increasing complexity of production
interest tends to be a larger part;
of society,
221 Sec.
wages a smaller
of high
9.
The theory of
life, is
of real
1. Wages are so immensely varied that it may seem idle to aim at any generalizations regarding them. They range from the earnings of the highly paid business manager or professional man to those of the mechanic and common laborer. Notjess varied are The simplest the methods by which those earnings are got. method, and that which we most commonly associate with the term "wages," is the payment of stipulated amounts by an employer.
The
whether he be business
the position
in
are almost always more irregular, man, lawyer, farmer, craftsman and almost always include some elements (in the way of interest or
rent)
for labor.
Still different is
of the
of the fisherman
the catch.
208
52-2]
It will
209
by the day or by the piece. This mode of remuneration brings up the "wages question" in the narrower sense. It is the mode of remuneration becoming more
that of hired laborers, paid once for
and more common with the spread of large-scale production. It raises the fundamental question concerning the causes determining the general range of wages.
2.
First,
is
somejerroneDUs notions
may
be disposed
of.
Oncof
and
is
these
demand
for labor,
good
sorts
for laborers.
On
this
of all
have been commended, expressly or by implication. The falThat which is it has often been pointed out.
is
saved
spent quite as
leaving
it were merely a matter of putting money by, and bank or other safe place. The money which is put by is turned over to some one else, usually to a person engaged in oper-
ment
as
it
if
in a
It
is
It
employment of labor, and is equally the means by which the employers and workmen get command of the things The difference between expenditure on they wish to buy. luxuries and investment is merely a difference in the direction in
which, labor shall be employed.
That
in
consequences.
may mean
less in
demand.
If
influence
But such a permanent change is very improbable. Temporary changes in wages, on the other hand, caused by shifts in the demand for labor engaged in various directions, are not only possible, but are among the most common of economic phenomena.
These
likely
from
automo-
210
biles
[52-3
They
do not influence
results,
compared with "expenditure," we may agree with the older economists who maintained that saving was advantageous to laborers. Investment uSTially leads to the increase and the tools, machinImprovement in the apparatus of production
is
The eventual
result
the production of
more consumable commodities than would otherwise be procured. Were tools not successful in bringing about this result, they would not prove profitable and would not be made. The consumable
commodities presumably
laborers themselves buy;
are, in greater or less part,
such as the
and by their greater abundance and cheapOn this ground it may be said that investis
ment
laborers as a whole.
In the
first
all sorts of
forms,
that
great
fire
or a great
war
is
sometimes
comed because
it
brings employment.
ments and labor-saving machinery are thought to diminish employment; do they not dispense with the services of many work-
men? Laborers themselves are almost invariably desirous of "making work." They believe that a more difficult way of doing a thing, one that calls for more labor, is better for those who have to
Few persons maintain views of this sort deliberately and steadily; yet there are few who do not sometimes fall into ways
sell
the labor.
of speech that
It
is
imply them.
made
better off
by causing
work
and a need
less labor
much
stantial results.
The
labor which
is
52-3]
211
stroyed by
or
much new
on which
wealth.
war might have been given to the creation of so The abundance of consumable commodities,
all material prosperity is bottomed, evidently depends on getting as much done as possible with as little labor as possible.
How
creating
employment?
is
The
explanation
Where
can never
there
is
no division
of labor
and no exchange,
this notion
arise.
it Is
No
moment
that
for his
welcome every laborand ex-' change, every individual's earnings depend not only on the quantity of things which his labor produces, but on the terms of sale for
will
He
is
saving appliance.
But when
there
division of labor
be to his individual advantage, and still more often may seem to his advantage, to produce less and sell for more even tho it be obvious that if all men did this, all would be
those things.
It
;
may
worse
off.
And
similarly
in
it
may
should be more
lessens the total
income of society.
A great
hailstorm with
many
glaziers.
struction went on all the time, the number of glaziers in the community would accommodate itself to the situation. More persons would do this sort of work, and less persons would be available for
The
glaziers themselves
in
the end unless indeed they happened to constitute a non-competing group and so to possess a labor monopoly.
glaziers
But
who happened
Most men
sort of
services.
on hand, ready to do this particular work, would gain by an increase of demand for their
to be see only
immediate good
all
effects
They
for
suppose, or talk as
is
for a limited
number
of
work-
men
time
is
good for
workmen
an
indefinite time.
212
[52-3
Most important
tude of workmen
is
common
For them
attiit is
Where permanence
of
employment
appliances.
is
But when they are engaged on a given job, and will no longer be wanted when that job is done, they wish that it shall continue.
it is
ble
and that
something
else.
But
it is
natural
that they should wish the existing employment to hold out as long
It is the difficulty of transition to another
employ-
ment that explains the desire to make work, or to keep work going. It is that same difficulty of transition that goes far toward explaining the disadvantages of the workman in bargaining with his employer, and constitutes one of the main justifications of labor unions.^ The situation is essentially the same where the workmen of a given trade are confronted with some improvement that causes labor to be more productive. For them, it may mean less employment and the necessity of either accepting less wages or moving to some other occupation. The inventions of the linotype and the
typesetting machine greatly increased the output of labor in print-
the demand for for a time at least They diminished also Some of the older members of the trade who could neither operate the new machines nor turn to anything else found
ing.
compositors.
happened
and so the demand for labor in its former employment, did not become less at all, or less for a short time only. The cheapening of a commodity may mean an increase in the market demand such that the total sum spent on it may be as great as before, even greater than before.2 With lower prices for books and newspapers, it is
1
See below, Chapter 57, on Labor Unions. That is, in technical language, the elasticity of demand See Chapter 10,
2.
may
be greater than
unity.
52-4]
213
not
less,
is
in printing
such
But
this
The outcome
evidently
depends on the
demand
of price,
commodity.
rapidly,
be no displacement of labor.
4.
Very
different in character
is
by many
able economists of
is
the specific
is
is
V<(v
product of labor.
capital,
each
supposed
a specific
There
^
'**-^
product ascribable to
Each
it
what
if it
distribution of rewards
be granted
by no means a matter
is
that distribu-
always
To enter on
applied to this
present book.
mode of treating wages would pass the bounds of the The main ground on which it is open to question
It
But
made by
If
labor;
it
one person
tool, the two combine in making Thru this time-using and elaborate process more consumable things ore likely to be made than w^ould be made
makes a
tool
in a simpler process;
and
plain
why
there
is
But
of
to explain
how
There
is
no separate product
the tool on the one hand and of the labor using the tool on the other.
There
w^ell
is
a joint product of
all
earlier labor as
as later labor.
1 2
See what is said under the head of Socialism, Chapter 66, In Chapter 38, 4.
214
[52- 5
and how the laborers who use and make the tools get wages, from why and how the owner of the tools gets interest; but we can disengage no concretely separable product of labor and capital. It is on this ground, here stated as concisely as
the causes determining
may
be, that I
of analyzing the
The
mode
general wages is, in my judgment, to say that wages are determined by the discounted marginal product of labor. Let attention be given to the two elements in this somewhat cumbrous formula: "margin" and "discount." What is meant by marginal product will be obvious enough. It appears most clearly as regards agricultural produce and the theory of rent applicable to such produce. Wages and interest are determined at the margin of cultivation. Any excess secured on land better than the marginal land goes to the landowner and does not affect the returns of other persons. The same principle is applicable to monopoly gains and to all differential gains. The laborer who deals with the owner of good land, or with a monopolist, must accept what can be paid him by the marginal landowner or the
competitive producer.
Any extra
by nature
or
by
social institutions
Let
made by laborers.
Wealth
is
unequally
of the laborer?
by some one
its
else.
The
The
gain thru the process of handing over to the laborers less than
The product
of labor is dis-
terms,
4.
by saying that
Compare Chapter
5, 5;
Chapter 38,
'
52-5]
labor
is
215
store of material
The
terest
is
The same
sacrifice,
proposition
is
put in
still
different
and
will
is
The
must be regarded.
The
"practical"
man
will readily
ment of industry with which he is familiar. It will be obvious to him that the laborer cannot be paid as much as the product will
sell for;
left for
owner. But the advances to laborers are needed for a much longer period than that which must elapse until the mere stage of saleThe product which is sold is likely to be itself ability is realized. some sort of "capital good"; it represents only one stage in the The person selling machines or materials reseries of advances. discountSj so to speak; the capitalist-employer who buys them
recoups the original employer, and then, in the course of the next
own to other lanot merely in the payment of Not thru one stage only borers. wages by the individual employer until he sells his goods but
stage of production, adds further advances of his
thru
first
all
first
workmen
as a whole are
made
by the
capitalists as a whole,
successive stage.
This discount we
may assume
the more predictable their outcome; the more effective, too, the
>
Compaxe Chapter
40, 4.
216
competition
[52- 6
the closer
Where the
its
will
be the correspon-
The discount
is
be easy to calculate.
process
complicated,
long-stretched-out,
and uncertain as to
is
Such an operamaxi-
Panama Canal
it will
illustrates the
mum
It
its effects
and
still
Those en-
They
output.
pri-
profit.
Under
Even where
above
all if it
involves the
making of new plant, is conducted under by the experience and the traditions of
industry at large.
his
man
exercises
highest returns.
the discount, on the basis of the current rate of interest and of the
man
for his
own
labor,
is
one with regard to the discount, the other with regard to the margin.
(1)
was assumed
52-6]
217
part at least,
it
"productivity" of capital;
in
results
If this
by the fact that there is a from the application of labor were the whole theory of inter-
est,
we should
by a process of discount. If interest depended simply on the excess of what the laborers produce in the future over what is advanced to them in the present, the rate of interest then would result from the
process of advances to laborers
;
it
of those advances.
The conditions of supply and the equidemand and supply are also to be considered. If there is a regulator of interest in the way of a general or marginal time preference a minimum return necessary to induce saving and then and then only have we an accumulation on a large scale
demand
price of capital.
librium of
wages as the
result of
an operation
of discount.
which we have
of such a
At
all
competitive margin
is
discounting
carried on with
is
some approach
to certainty-
At
nor
is
by a business man
of unusual capa-
city.
more.
What
is
and what
is
is
settled
4, 5.
218
[52-7
The
distinction
between interest on
the one hand, and rent and monopoly gains on the other, depends
on the assumption
the existence of a
on
is
no ground
for distin-
and land.i
And
If
if
is
no
ground
wages are
any determinate
relation to the
is
product of labor.
only a
power
is
will
advance to laborers
subject to no conis
said
eral level of
of
depend on the relation between the number the laborers and the amounts which the capitalists are induced
wages
doubtless a lessening range of competition in modern
is
to advance.
There
times.
try; rent
is
The margin
There
far
field of
indus-
and monopoly
is
than
in previous
generations.
The
concentration of the
and monopoly,
disap)-
may
be
in process of
complete
pearance.
If so, all
becomes nothing more than a struggle between hostile forces. But the same considerations which lead to a conclusion that there
is
is settled, is
lead
also set-
A very large part, probably the larger part, of modern indusconducted under the leveling conditions of competition;
is
try
is still
and there
7.
The fluctuations
level
52-7l
219
much
mental cause
is
superficial factors.
money.
The money
is
used by the
chiefly goods.
Both the
are made,
money advances
and the
The
come
We may
drawn
on, con-
stantly refilled.
The
Back
among
the "producers."
chinery
may
be said to contain
The very
buildings
and ma-
may
made
available
where they are ready for enjoyment. So conceived, the whole mass may be described as a reservoir, from which the community is constantly drawing a stream of finished goods (and so of enjoyments),
and
into
which
its
labor
is
is
drawn
is
off.
The
elastic.
is
evidently
subject
The
to considerable variation.
community may be
said to be predetermined
any particular
class in the
community may be
220
[52-7
more
sumers
and hence
by
money advances from the capitalists. The money advances from the capitalist-employers,
affected
their expectations of gain.
again, are
In times of hopefulness
freely,
and
activity,
money wages
will
and the
freedom.
will
faster
stant, and real become larger. The business men and the investors secure between them the excess of product over and above what has been advanced If the excess is large, and if competition among to the laborers.
wages, employment
is
be led (especially in
In the long run, the amount which can be drawn from the reservoir
by the
into
it,
as well as
on the competition of the capitalists among themselves. A high general rate of wages for hired laborers thus depends on general or, more precisely, on high marhigh productivity of industry
ginal productivity
of capital.
work for themand the productivity of selves, the relation between their reward The broad differtheir labor is obviously more direct and certain. ences of wages which appear in different countries are explicable by this main cause. If wages are higher in the United States than in England and Germany, higher in these than in Italy and Austria, higher in all European countries than in India, China and Japan,
Where
the explanation
is
So
it is
52-8]
221
in all the
The
arts.
of a discount
and to the
relations
interest, it is to
is
wages to
is
comparatively small.
The amount
of
of the advances
that
is,
made by them, and on the rate of the discount rate of interest. With the same rate, their income
as
it
more
of production is long
and the
capital per
large.
The
inequalities of
income tend
larger.
in this sense to
become greater
greater; for the
fast as its
as total income
itself,
becomes
capital-owning class
become
trated.
number of persons owning capital may increase as amount increases and ownership may be no more concenBut the absolute amount of income going to this class
its
income
may
income
Hence
it is
large.
tions of materials,
normall}^ secured.
new
in
may
bring about
high wages.
Labor
them
is
likely to
is
little
of the
United
222
[52-9
is
that of Canada,
Austraha,
that
Zealand. But in old countries the cause by which made possible a high productivity of industry very employment of much capital which brings a large
New
capitalist income than the countries of the Continent; European countries both are larger than Japan, China, India. In general, the forces which make the total income of society high and the general level of wages high, cause the proportion of income which forms return on capital to become large.
and a larger
in all the
becomes accentuated
in the degree to
which there
is
departure from
competitive conditions.
Monopoly
Such gains, even tho they have not become so all-pervading as to wipe out the whole regime of competition, have become In the main, they too are large of wider extent in modern times. where prosperity is widely diffused, where the general productiveLike the ness of labor is great, and where the rate of wages is high.
classes.
and of advancing population. They are more readily subject to regulation and curtailment than interest, and hence are not so inevitably the consequences of modern industry. But some degree of accentuation in inequality seems unaof large-scale production
An
enlargement
tem
of private property.
9.
The
many
of real
perlife.
one, remote
many
Yet
this defect
is
inherent
almost
all
52-9]
223
phenomena.
medium
de-
price
truths which are of direct and practical concern, even tho they
state tendencies
indistinctly.
Like the others, the doctrine here presented concerning the general
level of
forces
increased,
if
the margin
is
keyed up,
if
the discount
of capital.
Everyonly
thing that raises the productive margin, that lessens the rate of
discounting, tends to raise wages; and in the last resort
in these
it is
Is there
ment
mass
of
mankind?
The
usual rate of
first
is
wages
This
much
any country.
Yet
it is
much
less
than
is
needed for a
life
It gives little
leisure, for
chance for
development of personality.
no more
is
in pros-
something better
is
We may hope for a gradual rise in v\^ages, under the influence of the
forces considered in the preceding pages,
from the
for-
ward march
arts has
century or two,
likely to
be even
224
[52-9
is
more effectively than the rival system of collectivism. It is at least an open question whether it will not bring in time a diffusion of comfort and economic security among the masses greater than can be attained under any other form of industrial organizaprogress
tion.
That
and
this
end
may
be reached,
it is
necessary,
first,
that very
made from
numbers
of the
all
manual laborers
shall
swallow up
ditions will
The
fii'st
of these con-
be
of
considered in the
two
later
Books, on Problems of
second, that of popu-
Labor and
lation, will
Economic Organization.
The
following.
CHAPTER
53
science,
rate, the
far
strengthened by biological
a tendency to rapid multiplication; the positive and preventive checks, 226 The actual birth rates and death rates of some countries in Sec. 3. modern times. A high birth rate ordinarily entails a high death rate. Explanation of exceptions. The situation in the United States, 230 Does a high birth rate cause low wages, or vice versa? InterSec. 4. action of causes. A limitation of numbers not a cause, but a condition, The standard of Sec. 5. of general prosperity and high wages, 236 living affects wages, not directly, but thru its influence on numbers.
Fallacies
on
this subject,
237
Sec. 6.
Mode
in
1.
The supply
of labor
bers of mankind.
but on other
divergence of practise
among economists
as to the place
Popula-
often assigned
to
it.
Although discussed
from that
topic.
in the following
it will
some
digres-
IMalthus set
in the large
numcould
bers of
mankind
1 The second edition of the Essay on Population (1803) is that in which Malthus stated his doctrines in the form in which they continued to be maintained by him
and
his followers.
225
226
[53-2
not take place unless the tendency to increase among the laboring
was checked; that in the absence of a check no plans for improvement in the condition of the mass of men had any prospects of success; and that for these reasons all proposed reorganizations Moreover, Malthus was not of society were doomed to failure. would in fact be applied. It canhopeful that any salutary check not be said that he was hopeless; but the drift of his teaching, and certainly the point of view of his followers, was that the number of laborers was likely to increase very rapidly and that wages would
classes
level.
In this state of
to
of
mass
Some
by the
Man
is
an animal, physiologi-
numbers are as unlimited as they are for any form of life. It is an odd circumstance that Darwin, reading Malthus's Essay, was led to the reflection that not man only, but any sort of creature, has the pos-
there
is
an unceasing struggle
and hence reached the conclusion that for room and sustenance, and a surDarwin's
human
species.
his
hundred years,
man
and
fishes
Any
maximum
rate
en|^
2.
human
The
possible increase
possible ex-
The maximum
as
birth rate in a
is,
is
for
a population
may be
53-2]
227
the reproductive ages, the rate might be for a brief time very
higher.
If
much
is
Even
for a
maximum.
That maximum
is
comparing
year.
On
lation
minimum death
certainly as low
must be assumed.
life
would
rate;
bodied
an undue share
say
be able,
low.
of very old and very young would hardly most favorable conditions, to show a rate so even under the
is
certainly possible.
Some such
would be
if
found
if all
there were no deaths from curable diseases, and none due directly or indirectly to poor nourishment, insufficient care, unsanitary
surroundings;
if
by Hrcare and
in
ae^^nedical
skill.
Indeed,
if all
tainly be lower.
low
is,
in fact,
found
and
it is
many
rapidly advancing.
It has
past generation the death rate from infectious and contagious diseases;
it
may
tive diseases
rate
1
may
life
Newly
prime of
are fiocking,
and rapidly growing cities, into which persons in the show death rates as low as 12 or 13 per 1000. These rates
228
[53-2
infor-
No
we have accurate
maximum
But
minimum
for the
it is
It suffices to indicate
how wide
is
the
rate,
and
If births are
45 per
1000 annually, and deaths 15 per 1000, the excess of births over
numbers
deduced a similar
With this rate double every 23 years. Malthus himpossible rate of increase from what he found,
30 per 1000.
will
"
America
in less
for
even more rapid might take place, and that the doubling period
might be as low as
possibility
potentiality of increase.
But it is certainly within the bounds of that the numbers of mankind should double within such
in a quarter of a century or
Not only
is
is
a tendency toward
is
By
is
we can say
sell
for a
price determined
by
In speaking of
rate,
mean something
the same
difi^erent
that
is
maximum
we
In
fall
pperatipn
way we
a tendency for
all
bodies to
are sometimes paraded as evidence of unusual healthfulness; they are due (when not explained by inaccuracy of the figures) to the absence of the normal proportion of
children and the aged,
among whom
mortality
is
greatest.
Zealand a death rate of only 10 per 1000 was found during a ten-year period (1887-1896), and was not accounted for by any very Such a rate exceptional age distribution (Newsholme's Vital Statistics, p. 88).
It is reported that in
is
New
extraordinarily low,
and
53-2]
229
something prevents.
The tendency
of population to
of
They
do so unless
among animals. Each maximum; tries, that is, by an intervening cause num-
But no
rate.
maximum
continual
If it
did
so, it
would
in
all
Nor
man an
exception.
having
it
room
for growth.
situa-
North American colonies during the period to which Malthus looked for an example of the possibilities of increase.
tion in the
ing the greater part of their history, of the Canadians, the Aus-
human
cases
species.
They
a moth, a
it,
bird, a
mammal
migrates
for a while
without finding
its
food scarce or
its
In any
long-settled country
the
maximum rate.
at anything like
this
is
to be found
soil.
On any given
It
arts.
tendency shows
agricultural produce.
may
But a continuous doubling of numbers every quarter of a century must eventually encounter the obstacle of increasing difficulty in
securing the food supply.
increase in population
in
and
it
may
be counteracted
230
[53-3
starvation,
By preventive
rate, the
The
first
thru
an excess of deaths, the second thru a limitation of births. It would not be going very far astray to say that the extent to which one check or the other check prevails is a test of the advance-
ment
of civilization.
more
of reproduction to
The question is, to be sure, not one of yes or Mankind rarely exercises the power full. the Some limitation of births appears in
or less.
more and more forethought is exercised. is some operation of the positive check also. Except among a small stratum of the well-to-do, more beings are brought into the world, even in the most advanced countries, than can survive. Numbers are kept down in part by a death rate
civilization advances,
all
As
Among
peoples, there
needlessly high
that
is,
minimum from
is
limitation of
of
more excess
With
and death
own day
in
some
maximum
birth rates
comparison then follow figures for the rates in some selected countries.
The " doubling period " means the number of years in which
if
Note the wide divergence in the birth rates. Roumania and Hungary and Saxony have rates not very much below our supposed maximum. Other countries have markedly lower rates.
France, which comes at the bottom, has a birth rate about one
half that of
On
The death
53-3l
rate in
231
Roumania and Hungary is nearly 30 per 1000, or twice as At the lower end of the list, the death
Birth and Death Rates
Births
Deaths
Excess of Births
Period Years)
45 (Max.)
15
(ilfira.)
30 (Max.)
23
Roumania Hungary
Saxony
Bavaria
Italy
11.4
10.7
15.5
11.1
10.7
11.7
11.1
61 65 45 62 65 59 62
0.7
990
rate sinks to
figures
little
above 20 per
1000 for France, and noticeably below that figure for England and
Sweden.
In general, a high birth rate
is
rate.
fist
in
Such
is
the case in
all
This cor-
respondence of high birth rates with high death rates means that
Here are
It
is
pressing on subsistence.
means
of support
make
possible,
and the
its
positi\;;e
check
is
in operation.
Not the
positive check in
most extreme form; the birth rate is not at the maximum; some limitation of births there is. But more children are born than can
survive and
become
adults,
The populations
in
are
ill-fed, ill-
sickness.
Hungary
and Roumania are in the worst case; Saxony, Bavaria, and Italy are in a bad case. In all these countries, an indispensable condition
for a
permanent improvement
mass
of the
232
population
is
[53-3
relaxation of the
pressure on the
means
of support.
is
always highest
among
the
very young.
is
one of great sensitiveness to physical ills. Even where the general death rate is very low, as in the Scandinavian countries and
in
some Australian
first
Between ten and fifteen per cent and Massachusetts and New York. Twenty per cent and more fail to live one year in Austria and Hungary, twenty-five per cent in Russia; there are extreme cases where
completing the
year of
life.
die in England,
France,
under
we
Bavaria
in Austria
in Italy in
France
in
i
1
Sweden
among
means simply that babes are brought into the world who cannot survive. It means suffering, with never a chance of a happy outcome. Those children who do survive and grow to mature age must face low wages and hard conditions of life; yet they in turn marry early and procreate freely-.
tries
The round
Consider
of misery goes
~-|
//
now some
Note
first
that the
quite as
rate of increase
the excess
is
It is
about
But both
Tho
Hungary
1
cited
Figures of this sort can be found in any book on vital statistics. Those here may be found in Newsholme's Vital Statistics, p. 130 (taken from Bertillon), Bailey's Modern Social Conditions, p. 224, and the Massachusetts Registration Reports. For a comparative survey, with figures for the United States, see E. B.
Phelps, in Publications American Statistical Association, December, 1910.
53-3]
faster.
233
the
down by
positive check.
is
is
much
the happier.
amount
of avoidable suffering.
would almost
up in some corresponding degree. Numbers would not increase more rapidly, but would simply be prevented from increasing thru a different and more miserable process. The fact that population advances with some rapidity in these
surely go
it
In Sweden
it is
due
chiefly to
is
emigration.
actual gain in
Such
figures
the
numbers in the several countries; they indicate only what gain would have taken place by internal growth. The final on effect on nmnbers depends also on the inflow and outflow imjnigration and em igration. The emigration from Sweden durmg the period under consideration was large relatively to the population. Except for this, either the death rate would have been higher or the birth rate lower; for Sweden is not a country with
,]
its numbers grow as they would have done by natural increase alone. It is
to be noted that
outlet in
emigration notably
some
have found an
not been for a
Had
it
would
In the
main, her excess of births over deaths has meant an actual increase
of the
number
in the country.
able to grow
I
England had supported them and supplied them with raw materials from her own soil. But she is a great manufacturing country, obtaining food and maThis could hardly ha\'e been the case
234
terials in
[53-3
was
So long as
it
expanding numbers, she can maintain a high birth rate and yet
a low death rate.
When
growth of
when
by
it
becomes more
difficult to
buy ever
ex-
alternative will
itself.
As
the
mode
in
advanced
accommodate themselves
to conditions of
'
France
is
Her popu-
has failed to grow by natural increase. Such slight gain in total numbers as appeared has been due to immigration. The death In part, it is true, rate in France is not as low as it might well be.
it
may be
mere
among whom
But
both
her
has
what
strata
industrial
and
None
the
less,
on the whole
is
France
is
of Italy,
Hungary,
For the United States as a whole, trustworthy and deaths are lacking.
figures of births
The Census
53-3]
235
But both
figures are
open to suspicion.
The
and
the birth rate rests on compHcated calculations, in which the uncertain death rate enters.
It
is
whose
But
,
averages for
even
if
based on accurate
figures,
'
would be
of uncertain significance.
The
population of the Soutk also has a high birth rate, and a comparatively high death rate, tho
negroes.
In the
is
New
com-
Thus
in
far
death rate in that state has been low, from 17 to 19 per lOOO.^
here again the population
to be interpreted.
The But
prime of
life,
which
in
is
On the
The birth rates and death rates in Massachusetts have been as follows, arranged for quinquennial periods:
Births
Deaths
24.2
236
foreign born
[53-4
higher
among The
remarkably low
ently.
be said pres-
High birth
low
is
conditions,
wages
these
is
which
view
is
commonly go together. But The unqualified Malthusian population, indicated by a high birth
effect?
all
is
from which
fective m,ea,ris of
improvement
But
the situation
is
High birth
rates
and misery are largely interacting causes. A ^^afijp, in an old country, mi^^r}-; and
When
a people
is
it is
in danger
becoming demoralized.
thought
hope. That
manufacturing
districts
where there
the center.
is
much employment
There
of
women and
Saxony
dren
of
offer
children:
which Chemnitz
for securing
on
family
Where
way
of escape to
The causes of demoralization and niisery become cumulative. Even in countries where the general conditions are good, there is commonly a low-lying stratum of
something better
is
hard to
find.
the population in which there are high birth rates, high death rates,
pressure for employment, low wages
of the other.
it is
53-5]
237
numbers
Malthiisian propositijsiiisJiiiipregnable.
is
limitation of
it is
a condition oi tbe
maintenance
pf hi^h wage^.
y^
High wages depend fundamentally on high productivity of inIn new countries, where the increase of population is not dustry. confronted by limited natural resources, and where capital also increases rapidly, the laborers
may
long period
may
sure appear.
tal limitation
But in countries already well peopled, the fundamenfrom diminishing returns on land
effective.
is
ever present.
But mere exercise of the preventive check can accomplish nothing. Only if there be the other conditions needful for prosperity
improvements
produc-
tivity of industry
will
Then
restraint
on
multiplication, tho not in itself a cause of gain, will enable the gain
to be maintained.
It
is
certain that
if
population increases at
its
maximum
will bring
rate, or
anything
like that
maximum, high
birth rates
also.
But
if
a sense in which
it is
a fun-
damental cause.
numbers.
wages.
It
Yet
it
acts,
its effects
on
itself
increase
may
a large demand
nothing to pass.
But
for laborers,
productiveness of industry
a
on
fallacies
this subject.
notion
is
preva-
of the
upper
tier
238
like)
[o3-5
is
bad
for
them and
of
They suppose
ple)
advantage
somehow be taken
them and
their
wages
re-
duced; whereas
will
be kept up.
of using
and cooking
of
getting as
down wages. Nothing is more irrational. much as possible with your income
of so directing
which make
Every way
maximum
of utility
is
What
or
way on
depends
on
as one factor;
bers.
and the standard of living has an far as it has an effect on their numless guilty of
confusion on
They have discussed the this topic than the laborers themselves. acting directly; whereas it standard of living as if it were a force
acts only indirectly.
This proposition,
like so
many
Tho a high standard of sentially true, needs some qualification. living exercises an influence on wages chiefly thru its effect on numbers, it does have some effect also on the bargaining process. The
first
is
a con-
of which
pay
just
or living
An
more
workmen
to stick
stubbornly to a
demand
for
as decent wages.
Within the debatable ground subject to the higgling of the market, a high standard of living thus may have some direct effect on the
outcome.
53-6]
239
Tho
a lowered birth
with
difficultj^ in
a population steeped in
is
not so great as
that a real
many
They thought
uplift, giving
time for
new
habits.
From
is
outlook gave
little
more
bring about
Happily,
been shown bj^ the course of recent history to be During recent generations, there has been in the more advanced countries a slow and gradual improvement in welfare, and with it a slow and gradual fall in the birth rate. All the
unfounded.
leading countries
rate, side
is
by
it
side with a
more.
The change
most unmistakable
appears also
faintly,
among the
It
is
well-to-do, but
in the
among
gradually affecting
all classes
and
ing.
all
is
perity,
It bids fair to
The
birth rate in
countries has
was 35 per 1000 in the decade from 1850 to 1860; in 1900-1905 it was about 27 per 1000. In France during the same period it went down from 26 per 1000 to 21. In Germany the decline was less striking, but none the less unmistakable, from 36 or
37 to 33 or 34.
There
is
In other words,
there has been an application of what INIalthus called the prevenFor a and selected figures, see MajT's Statistik und Gesellschaftslehre, Vol. Ill, pp. 113-114; and for the United States W. F. Willcox's paper inthePuWications American Statistical Association, 1911, No. 2. Professor Willcox has brought
1
careful discussion
out the surpri.sing fact that the decUne in the United States has not been of recent origin, but has gone on continuously since 1800. See also two admirable papers, one by Messrs. Newsholme and Stevenson, the other by Mr. Yule, in the Journal Royal Statistical Society, 1906, pp. 34, 88.
240
tive check.
[53-6
But the change has taken place by a process different from that which Malthus recommended and expected. Mai thus desired that the time of marriage should be postponed and that marriages should take place at a later age. Were this done, the marriage rate would decline, because of the deaths of some persons who might have married; a change, however, which would be The birth rate slight unless the postponement was very marked.
too would decline somewhat, because of the shorter duration of
fertile
married
life
it is
and because
periods.
But
that the result desired by Malthus has come to pass. sJCitg^.^iJn cause has been deliberate interference with the natural and
biological processes.
The marriage
rate in
it
shows a
slight
It
is
usually
not far from 8 per 1000, and very nearly the same in France, in
Germany, and
birth rates.
in
different
change.
It
Nor has the average age at marriage shown a sensible is the number of children per marriage, varying tho it
alit
most
all
has reached a
no question that this general situation marriage rates virtually due to deliberate stationary and yet declining birth rates
is
minimum where
number
of deaths.
There
is
chil-
The tendency
more marked,
It
is
more
marked
in
in others;
for ex-
appears
among
it is
among the
poor, yet
spreading to
all classes.
It raises
some
To
these questions
we
next
chapter.
CHAPTER
54
Population, continued
Section
1.
and
their relation
is
Sec. 2.
of the
social ambition.
Its connection
Illustration from native-born United States, 245 Sec. 3. Is the preventive check being carried too far? Eugenics and race suicide, 249.
and immigrants
1.
social classes or
non-competing groups
marked
tBaiT the
Differences
within any one country are even more significant then the differences between countries, for they bring into fuller light the nature
of social stratification living
of
The
statistical
evidence on this
goes far to
make
Marriage
among
men.
at marriage of bachelors
in
and
spinsters
{i.e.
^
was found to be
Miners
Artisans
Shopkeepers
Professional
and independent
classes
The
Statistical
Society,
1890,
pp. 274-275.
241
242
[54-l
Another indication
same
situation
is
found
same
who
married, 704 were under 25 years of age, while out of every 1000
under 25.
The later age of marriage in itself tends to bring a smaller birth But the birth rate is smaller to a derate among the well-to-do. gree far beyond what is explained by this circumstance alone. The
lin
In Ber-
women
in
many
births as those in
the richest, and that the inverse relation between birth rate and
prosperity held thruout the scale.
of child-bearing age (15-45) there
poor st quarters next poorest quarters 191 births in the next poorest quarters 180 b-rths in the next poorest quarters 161 births in the next poorest quarters 127 bi ths in the richest quarters
in the in the
not often that direct comparison of this kind (between the number of married women and of births) is feasible. But it has
It is
been frequently shown that in comparison with the total number of women (married and unmarried) of child-bearing age, the number of births is large for the poor, small for the rich. This result
appeared for
1000
all
the
German
cities
re-
Hamburg
were 59
older
women
An
and much-quoted
European
cities
(per 1000
women
Pabis
London
Very
rich
54-l]
POPULATION
(Continued)
243
In Boston the average birth rate for the whole city was, in 1900-
ward inhabited chiefly by the rich it was only 13 per 1000; in wards of the poor it was from 28 to 36 per 1000. In the ward where the newly arrived Italians cluster, it was 46. It is part of the same phenomena that in the United States the
1904, 27 (per 1000 inhabitants); in the
birth rate
is
foreign born.
among
the
women
and 45 was for the native-born women about 120 (ranging from 111 to 127) and for the foreign-born women about 230 (ranging from 221 to 235).
between the ages
of 15
Similar figures as to varying death rates are not easy to get; but
facts.
The
higher death
is
and
children,
too sadly
in every
familiar.
children,
and
is less
than in a
of dif-
same
relatioiT
among
social
do to the standards
The
rea-
demand
1 The figures for Berlin and Hamburg are from Momberfc, Siudien zur Bevolkerunasheu'eginig in Deutschland, pp. 149, 150. An excellent survey of all the e^adenoe on this subject for various countries is ?iven in Mombert's book. The
figures for Paris, Berlin, etc., are Bertillon's, in the Bulletin de Vlnstitut Internal,
2, p.
p. 128.
servants,
whose presof
ence brings down the birth rate in comparison with the total child-bearing age.
2
number
women
of
rates
following figures are for London in 1903. They give the birth and death by groups of the population of London, Group 1 being the poorest, Group 6 the richest (the test of riches and poverty being in this case the proportion of servants kept) Both crude and corrected rates are given for births and for deaths the crude
. ;
The
244
of the group's
[54- 1
in
low.^
any group
remain large or small according to multiplication within the group. Not solely, it is true, according to this factor; there is transfer from
in the
Yet
in the
main each
group
est of
is
all,
recruited from
its
own members.
from within.
so
The wages of day laborers are low because there are them and there are so many of them because, notwithstanding low wages, they continue to marry and multiply, and as a rule marry early and multiply fast. Here, again, the relation between standard of living and wages The mere fact that the well-to-do are is not direct, but indirect. comfortable living and wish to maintain comforthabituated to But the fact that there able living, does not make earnings large.
many
of
business
men
of the
upper
tier
this serves to
in-
comes
of the class.
The wages
numbers
There
is
of
common
the
maintenance
of their
It
is
ing wages thru the ultimate effect on numbers, but as fixing wages
rates being per 1000 of population,
and
Crude
Birth Rate
Corrected
Death Rate
19.1
(poorest)
.
35.0 38.3
2 3
15.0
15.3
26.0
25.9
25.1
18.2
4 5 6 (richest)
. .
. .
25.5
25.3 20.4
12.7
15.5
14.8
13.0
14.6
to, in
Journal Royal
1, 2.
54-2]
at a precise point
POPULATION
{Continued)
245
that which cost of production has upon the long-run value of com-
Thus a given group say that of the upper set of manual workmen, the mechanics and skilled craftsmen may be supposed to have a specific standard of living, to multiply fast when earnings exceed the amount so defined and to check multiplication when earnings fall below it. But such a conception of the situation
modities.
is
Other
and
births.
The
motives
is
They
are
more
more likely to keep wages from declining than them from rising. ^Mien a moderate increase of wages in a given group is made possible by greater demand for its services, it is not to be thought probable that higher birth rate and internal growth will check the advance. It is much more likely to be kept within limits by seepage from without by the success of some individuals from other groups in finding their way into the more prosperous employment. Not only for the population at
plication; they are
to prevent
large,
but also
it, it is
a high standard
ings than that
2.
tries;
it is
a cause.
The
among the
to
well-to-do; the
all classes
all
due mainly to sQLialand indystcidi-aaibition. Some writers have discussed the change as if it were automatic, as if the lower
this is
birth rate
among
The connection
The fundaown material
is
the other
way
rising prosperity is
its
welfare.
Malthus spoke
medicatrix of society.
Certainly with
246
[54-2
When
some chance
a better-paid oc-
some savings and some accumulation appear within reach when it is seen that more mouths to feed mean a lescupation, education,
;
The
and material
cation,
forces
new
by the changes thru emigration. have been steadily at work in the same
system,
Not
all
of these forces
direction.
The
factory
system has seemed at times simply demoralizing, tho in the long run
it
also has
uplifting effect.
Where the
most surely to
from the
the
new
Germany.
Where the
and Hungary, they have needed a stirring from the other world, thru emigration, to rouse them to the outlook for improvement. Thruout, it has been awakened ambition in the ittdhddji&l that has
caused the standard of living to
rise.
Malthus was induced to write on the question of population because he believed that here was an insuperable obstacle to Utopian
schemes.
way
of
The
obstacle
may
it is
certain
it will
have to be overcome
in a
way
On
tlie
tacle of a higher
interest,
economic and
self-
movement
of popula-
64r-2]
POPULATION
(Continued)
247
tion,
advancement and
is
material well-being.
Individualism
*^ phenomenon. All these individualistic forces have been most strongly at work Nowhere has there been more freedom of in the United States.
at the root of the
Hence
social strata
teticlecl
where the pressure of advancing population por""^ danger, pressurehas begun to relax.
England, for example, the native-born population has
"In
New
The
gross increase in
the population of
siderable;
England has indeed continued to be conbut the increase has come by the steady inflow of immi-
New
grants and
by the
The
for-
striking difference
women and
eign-born
igan.
women
In Massachusetts
the foreign born
is
among
show
among
1888-1892
17.1
1893-1897
17.1
17.0
48.4
49.6
52.1
These
lation)
figures are for the crude birth rate (births per 1000 of
popu-
two
classes; for
among the
is
age of reproduction
proportion to
births in
women
among the
being:
1
foreign born
twice that
among
R. R. Kuczj'nski, in Quarterly Journal of Economics, Vol. XVI, pp. 143, 146, Cp. some equally striking figures given by A. A. Young for New Hampshire in Publications American Statistical Association, September 1905.
183.
248
[54-2
Women aged
14-49
54-3]
POPULATION
{Continued)
249
of growth In population.
sources
come
is
to be
of increase
Malthusian
difficulty, there
off
by the increasing application of the preventive check. 3. The question which now faces the advanced countries, and especially the more prosperous classes in those countries, is whether
the pEgyentjvexheck^^is not likely to be carried too
tion of France as a whole barely maintains itself;
far.
The populaall.
it is
probable that
fail
to maintain themselves at
The
na-
fails to
maintain
the wellis
.
is
the case
among
of the
phenomenon
an
of timidity.
J
I
|
People's nations as to
mode
come more
exacting,
m aintaining..a.iaajily
on
the conventional scale becomes g reater. Marriage s t ake plajc e at a comparatively late ag e, and the proportion o f those who do not
marry at
all is
is
accumulated property,
up among
all.
j
too many.
The vejUMJBi^.seem
evils.
to multiply i6a^tu'api.dJy of
It takes
away part
of the stimulus
Children
who
are
would seem,
also,
who have
especially
if
whose newly accruing members are thrown more upon resources, is likely to be more progressive.
Further, the more prosperous strata
their
own
among
They
among whom
main because they have such gifts. No doubt commonplace persons in the favored classes multiplication is so markedly restricted. But the
among them.
250
4- 3
Hence
is
a danger that
who
by
active
com-
The lower
strata of
the population, on the other hand, multiply most rapidly. Tho some individuals of high qualities emerge from among them, the great mass are mediocre and perpetuate mediocrity. Those few whose unusual abilities enable them to rise, succumb to the social ambitions and inhibitions which prevail in the prosperous class, and, like their new associates, fail to propagate freely. More and more thought has been given of late years to the strange contrast between our care in breeding animals and our carelessness in breeding men. The human race could be immensely improved in quality, and its capacity for happy living immensely increased, if those of poor physical and mental endowment were prevented from multiplying. But it is very uncertain how far it
will
Tho
fact of heredity
man.
that
is,
More
light will
known to us, above all in their application to come in time from what is called eugenics;
from systematic inquiry as to the transmittal of inborn and acquired traits from generation to generation, with a view to
the possibilities of selection and breeding.
is
do
we know what
And even
if
more accurate
se-
free-
dom
of opportunity
and
for individual
development which
is
the
It is difficult to conceive
any such system which would not imply the sacrifice of present happiness by countless individuals, for the sake of a cold and distant ideal of ultimate racial improvement. Only some very limited applications of the principle, in
now within
breed only their kind, and society has a right and a duty to protect
54-3]
its
POPULATION
{Continued)
of maintaining
and
to put a check
prospect, under
on their transmission. Beyond this, there is little any social system which we can conceive, that
a portion
mankind
among
its
members
as
Too much stress should not be laid on what is called " race suicide." The extent of the drift toward restraint among the wellto-do is often exaggerated. Tho prudence might possibly be carried to the point of impending annihilation among the higher
Rapid multiplication and large But a maintenance of their numbers and a moderate increase are by no means improbable. Something will depend on the ideals which influence their
strata, it will
probably not
be.
lives.
rri'^iQlous,.iambition,
and timorousness
fecundity.
in begetting offspring.
On
rates
and lessening pressure on population mean progress, a^adfo, terioration. The prevalence of habits of prudence among all strata means a gain in human happiness. Possibly the time will come
when
this sort of
prudence
will
Then a
will
and disease
life will
it
duration of
or at least
be longer.
will
be
in a different direction,
with
is
differeTit coiise-
There
no reason
why the
and certainly
no reason
ward.
why
life
should not
The
struggle
and competition
of rapidly increasing
move upnum-
252
population in
[54-3
a cause of unhappiness.
of the
In a stationary state
all
much room
much
more
to be en-
grossed
by the
made from
be made the
common
means
of
Political
V^.
CHAPTER
Inequality and
Section
55
its
Causes.
Inheritance
1.
The
Figures indicating the distribution of income for Prussia, for Great Bri-
London, 253 Sec. 2. The distribution of property, as indicated in Great Britain, by tax statistics in Prussia, 257 Sec. 3. Sec. 4. Is inThe distribution of income in the United States, 258 The causes of inequahty: equality becoming greater? 263 Sec. 5. differences in inborn gifts; the maintenance of acquired advantages thru Sec. 6. Inheritance opportunity and above all thru inheritance, 265 to be justified as essential for the maintenance of capital under a sj'stem Sec. 7. Possible limitations of inheritance, of private property, 267 Proposals for the radical Sec. 8. thru taxation and in other ways, 268 The grounds on which private restriction of inheritance, 269 Sec. 9. Sec. 10. The leisure property rests. The utilitarian reasoning, 273 class; its economic and moral position, 275.
tain, for
by probates
1.
The overshadowing
is
and
income
its
inequality.
How
great
is
causes?
this subject our information
It is still far
On
have
was
prisingly meagre.
is
What we
by
such figures as
we
inequality, but to
show
its
We know
that the
sons
number
of the rich
who
is still
and that the persons with slender incomes are the most numerous of all. With only one exception of importance,
small;
to be noted presently, distribution, both of wealth
form
is like
253
254
[55-
very large extension, and thereafter steady shrinkage as the highest point
is
The best tax statistics, of a kind to show the distribution of income among individuals of a large country, were those of Prussia in the days before the war of 1914-1918.1 The following figures are for the year 1908; almost
It will suffice to give a few typical figures.
any other year of that period would show the same results. Out of a total Prussian population of 38,000,000, no less than 18,000,000 (8,330,000 taxable persons) were not affected by the income tax, because the income of the several taxable persons was 900 marks.2 There supposed to be less than the exempt amount were taxable and assessed, because having an income exceeding the exempt amount, 5,872,000 persons. Among these, incomes were
per cent, 5,284,000, or 90 " " 411,000, " 7 " " 76,600, " 1.3 " 83,200, " 1.4 " .25 " 18,000, " " .05 " 3,800, "
If
had incomes
"
of
900
" "
"
than ten per cent of the taxed belonged to theVell-to-do classes. The figures, be it observed, take account only of the persons who
came within the income tax limits and in fact were reached by the As many more, roughly speaking, had incomes below the tax. exempt amount. Of the whole number of families, about five
per cent were well-to-do.^
The
an estimate
can be made,
The
1 2
is said below, in Chapter 69, of income tax methods. In considering these figures, regard must of course be had t the monetary scale
Compare what
of pre-v/ar days.
8
See Schmoller's estimates (for the year 1899), in his Grundriss der Volkswirth-
3.
55-l]
255
"
" "
"
"
" "
"
"
having incomes under 160 was 6,775,000 between 160 " 700 " 830,000 " 700 " 2,000 " 122,000 " " " 2,000 5,000 324,000 " 5,000 " 50,000 " 14,200 over 50,000 350
The
result
may
160 a year or more, and these 5,000,000 have about one half of the
income of the British people; the remaining 38,000,000, with incomes of less than 160 per family, have the other half of the total income. Such figures cannot pretend to rigorous accuracy. Pertotal
sons
who
and
number
of very great
The
details
and importance
for statisticians,
but are of
little
The
income in advanced
countries.^
NuilBER
kept,
" " " "
. .
.
.
.
. . .
.
"
"
"
d.
e.
/.
g.
" "
"
"
" "
2 3 4 5 6 7
.
.
h.
more than 7
.
256
[55-l
An
was used
by-
obviously a
of servant-keep-
There
is
sub-
'
number of servants. It appeared that four fifths of the population of London (80.1 per cent), or 3, 372,000 persons in all, belonged to the non-servant-keeping class. The upper or servant-keeping class numbered 476,000 persons, or 11
per cent of the population (the remaining 9 per cent of the population included the servants themselves,
'
and inmates
of hotels,
On the basis
lation of
of direct observation,
London
as follows
Mr. Booth
classified the
popu-
Number of
Persons
Per Cent op
Population
Class
" " " "
A B
(lowest)
(very poor)
(poor) (comfortable, working)
E
G
C and D and F
(lower middle)
(highest)
These
few
moments
is
pyramidal shape.
reached.
tier
In that
tier,
preceding.
1
Not
of 1903).
and Labour of the People of London, Second Series, Vol. I, p. 5 seq. (edition For brevity 1 have described section a as keeping one servant, section b In Mr. Booth's careful analysis, section b inas keeping two servants, and so on. cludes some small families with but one servant, as well as large families with two servants; section c some small families with two servants, aa well as larger families with three servants; and so on.
Life
55-2]
257
able working class, constitute the largest single element in the population of
if
London.
also to
we admit that
of less
income
class,
an income so
large.
would be reached
The
is
property
One
or
two
The
same
basis for
many
out with the same rates of taxation, but in a manner to show for a
long period what are the numbers of estates of varying
sizes.
Tak-
ing the ten years from the fiscal year 1899-1900 thru the fiscal year
1908-1909,
we
find that,
:
500
1,000
to
" " " " "
" "
" "
10,000 25,000 " 50,000 75,000 " 100,000 " 150,000 250,000 " 500,000 over 1,000,000
In 1908,
property of
numbers 1,500,000 persons assessed as having 6000 marks or more; these persons and their families
in
all.
numbered 5,350,000
1
Among
all
except the smallest estates, from the figures given for the several years in the Statistical Abstract for the United Kirigdom. For the smallest estates, the Statistical Abstract docs not give the full total, since it takes no account of estates less than 100 net. The figure given above (the first in the table) is in round numbers, and is not statistically accurate; but it is accurate
enough
2
for the purpose in hand. take these figures from the Vergleichende Uebersicht submitted to the Prussian
258
[55- 3
marks
5^3]
259
As in was attained
all
and administra-
as time
went
on.
led to
Even
many
ill-
The
was
been
administered
left
very
brief;
moreover,
the
drafted statutes
by the Bureau
law,
partly
compiled by the
of Internal
Revenue, tho
for
much
revision
But they were carefully analyzed by a group of competent statisticians, and were corrected and supplemented by the use of data from various other sources. They thus served as the basis for
a conspectus which
may
be regarded as
fairly accurate.
The number
was judged to be as
follows:
" "
"
"
3,000 " 10.000 " 50,000 " 200,000 " 500,000 " 1,000,000 and over
369 145
"
/
V J
is
to state the
Individ-
whose incomes
amount
number and
received 40
Income in
staff of the
the United States: its Amouiit and Distribution, 1909-1919. National Bureau of Economic Research, New York, 1921.
By
the
260
[55-3
in-
and
received 73 per cent of the income while those, with incomes of more
of the
per cent of income receivers, the most prosperous tier of society, received 26 per cent of the total income; the absolute amounts being
60.5 billions of dollars of total income, of which this fortunate tier
received 16 billions.
more
detailed representation
is
given
by the appended
dia-
gram.
On
number
ceiving
of persons re-
the
incomes
Each upward
top
2000
tyipe.
The very
widest parallelogram,
indicating in what
single
largest
number
of inis
come
receivers,
not
the lowest of
all; it is
this
the
fixed
strata
of
55-3]
261
figure
this range,
That line, if plotted on the same incomes up to the very highest, would
The
and
money incomes. Some qualifications are obvious. Others are less so;
the critical application of general economic principles.
An
the century, to which the figures for Great Britain and Prussia
for
figures.
An American income
$1,500 in 1913.
countries,
is
of $3,000 in
Roughly speaking, a British income of 160 (about S800) say in 1913, the same social standing, tho probably not
that year, or of $3,000' for
figures for 1913, the
line
so
much
sum
of
160
may
The much
statistics
sum
of $3,000
may
As
is
indicated
by the
do
is
Another correction
class
of a
more troublesome
sort.
It bears
on
in
which
is
Great Britain
Compare what
Similarly 3,000
said on this topic in Chapter 23, 6. marks in Prussia for 1908 correspond roughly in
social signifi-
262
to-do
line,
[55-3
and indeed seem to be below the average of working-class I say seems to be for the method of calculating the farmThe price er's income requires explanation and raises questions. him and his family is reckoned as of the farm produce consumed by
incomes.
;
The only what price would this produce If his yield if sold by the farmer and not consumed by him? farm supply of butter, eggs, fruit, vegetables, poultry and meat (not to mention the rental of his dwelling) would have sold for $300, his direct money receipts should be supplemented by $300 in order and here comes to show his effective money income. But this extra $300 means much more the troublesome point in commodities, in "real" income, than the same sum means What the farmer for the workingman dweUing in a city. could have sold at his farm for $300 would have cost the urban doubtless twice as much on the average. dweller much more The spread between the price got by the producer (using that term in the everyday sense) and that paid by the consumer is a standing source of wonder to economists; it is perhaps largest for farm
part of his income, and constitutes a considerable item.
way to measure
its
amount
is
to ask
When
judging of
we must apply a
factor of correction
Tho
the
of an American mechanic be twice as high as that of an English one, and thrice as high as a Frenchman's, his real income Similarly, tho the Ameris by no means higher in the same degree. ican mechanic's income be fifty per cent larger than that of the American farmer, the real income of the two may be substantially
money income
equal.
These are matters to which little regard is paid in popular discussion, least of all as regards comparisons within a country.
They
illustrate the
statistics,
especially of statistics
of a people's
among
different strata.^
1 Applying this correction to the peg-top figure on p. 260, we should have to conceive tax income strata below (say) $800 to be much narrower than there shown, and those above $800 and up to (say) $1500 much wider. By so changing the figure we should represent with much closer approach to accuracy the distribution of "real" or commodity income.
55-4]
4.
;
263
whether inequality
is
becoming greater
or less whether
we
possess
cer-
and
careful comparison
made
for
and 1913, showed that during the interval (about a generation) the average incomes of the wages-receiving classes had risen 45
per cent, those of the well-to-do classes (having incomes above the
Of the
total
income of
the British people, almost exactly the same share (not quite one
in 1913 as in 1880.
That
fraction, be
observed,
States.
tion of total
is
about
number of the prosperous had nearly number in the wages-receiving class had risen by less than a quarter. The most noticeable change in the apportionment of the population between the several strata was in the inabsolute
to country the
Britain
In Great
change as
appears in that
salaries,
and laborers. A had been able to achieve an ascent to the levels of the intermediate and the prosperous classes. Those who remained poor, on the other hand, had yet become somewhat less poor.i
larger proportion of the population
Germany about
1 See the analysis by A. L. Bowley, an admirable example of statistical technique. The Change in the Distribution of the National Incomes, 1880-191S (1920).
264
tion.
[55- 4
indicate that in
Germany
were
a more prosperous
tier.
class
and the
nor any
There was no
class,
number
rival
Germany during
before.
It
is
that
which her
to be
and
Hence we
of
find in
Germany
growth
indications of
an increasing concentration
class,
income and
of
less
inequality
For the United States we are less informed about the trend of than about the exwhether becoming more or less
But it is altogether probable that during the genEuropean war the course of development was in general like that of Germany; for both countries were in a similar The accumulation of conspicustage of rapid industrial growth.
isting situation.
many
was becoming much more accentuated. But the country is vast and its population enormous; the persons of the middle class,
whether in
rich, are
its
numbers and the innumbers and incomes of those simply rich or well-to-do; for the topmost class was swelled not only by the working of the modern tendency to large-scale industry, but also by the peculiar conditions of American corporations, by the wider range of privately managed indusvery many.
possible that the
comes
tries,
of material progress.
It is
prob-
able also that the pressure on the very lowest class from inflowing
55-5]
265
Whatever be
lines of
change
'
Such are the broad facts as to inequality. be explained? and how, if at all, to be justified? The causes of inequality are reducible to two
5.
inborn
dif^;
ferences in gifts;
of acquired
advan-
The
of
endowments
men;
its
No
all
some men over others. The savage chief excels his and in cunning. Thruout history the strong and able have come to the fore. They continue to do so in the
superiority of
fellows in strength
the incomes from the differences in wages that labor are the differences large degree at
in
results, in
least, of
in
endowments. The striking case in modern times is that of the business man. Especially in the upper tier, high native ability explains
the exceptional earnings of the fortunate few
class.
among
the business
for
much, inborn
dominant importance
development of
in explain-
But
by the
per-
1 On the tendencies in distribution shown by German figures, see the well-known paper by Professor Adolf Wagner in the Zeitsc.hrift d. Preuss. Statist. Bureau, 1904, p. 92, and passim. His conclusions are confirmed by Robert Meyer, in the Handwdrterbiich der Staatswissenschaften, Vol. Ill, p. 688 (third edition, 1909). Cp. Som-
im
tendency in mathematical terms is in his Cours d'^Jconomie Politique, Vol. II, Book III, Chapter I, where are also figures from various sources. It is subjected to searching criticism in A. C. Pigou, The Economics of Welfare, Part V, Chapter II.
of Professor Pareto to state the general
266
[55-5
any
main-
tained
by
modern times, advantage still tends to maintain thru the influence of environment It does so in two ways itself. and opportunity, and thru the inheritance of property. Environment and opportunity have already been considered.^ Tho it is not certain to what degree social stratification rests on factitious advantages, to what degree on the inborn moral and intive society of
it is
above
it,
below
it.
More
important, how^ever,
Its influence is
enormous.
property of
all sorts,
and so explains the great continuing gulf beIt serves also to strengthen
of
Persons
who inherit property inherit also opmore stimulating environsecm'e higher incomes,
portunity.
They have a
better start, a
by
late marriages
and
The
institution
inheritance promotes
social
than thru
its direct.
Nothing
combined influence
of inborn gifts,
of property inheritance,
and
modern
society
the money-
stages of any individual busimeans counts for much. After the initial stage, native ability tells more and more. By whatever ways he gets his start, the leader of industry prospers and accumulates; and, as he accumulates, is again favored more and more by
In the
first
large possessions.
When
he
1
dies,
he leaves a
47.
trail of
descendants,
Chapter
55- 6]
267
who perhaps
ties.
inherit a
and almost certainly inherit property. new environment and new opportuni-
may
minute portions.
if
they occur,
among heirs into But neither of these results is probable; and even the descendants have ambitions and surroundings
In every
very different from those of the poorer class from which the ancestor
may have
sprung.
way
inequalities,
What can
erty^
which acts
The
much
the im-
owned the property. Its devolution to the surviving members was no change of ownership, but a transfer to new repreBut this explanation of insentatives of the continuing owners.
family which
heritance, tho historically sufficient, serves little to explain the institution as
it
stands now,
is
still less
to justify
is
it.
The ground on
In
is
which inheritance
essential to the
It
now
to be defended
frankly utilitarian.
maintenance
of capital.
may
be open to question
the
first
steps in accumulation.
how far inheritance is necessary for The motives that lead to moneysaving and investment are vaself
initial stages of
and
For sustained accumulaand permanent investment, however, the main motives are domestic affection and family ambition. The bequest of a compeimpulses to activity and to domination.
tion
is
a mainspring for
its
If
we were
to
property.
One
of the
motives for
owner would commonly dissipate his its first acquisition would be gone,
268
[55-7
and certainly the chief motive for its maintenance. Why accumulate and invest for the benefit of the community at large? This is the ground for maintaining that the taxation of inheritance should be kept within limits. As will appear later, the transfer of
property at death gives a convenient occasion for the levy of taxes
and
to trench
on
capital.
paid out of the principal of the estate, not out of income; and this
lessening of the individual's "capital" presumably leads to a corre-
More than
this:
the higher
more probable
be checked.
7.
it is
It
does
not
follow
that
stricted.
Some
do
Others, tho
they
may
may
bring countervail-
ing advantages.
By
may
bring social
There
is
definitely
no reason why intestate succession should proceed inWhere a man does not trouble to the most distant kin.
himself to
make a will, it may fairly be presumed that his property was not got together with an eye to distant heirs. Neither his accumulation nor that by others will be checked if the public appropriates a great slice, even the whole, of such windfalls.
On
similar
grounds
it is
justifiable to
make
amount
transmissible to
any
be limited.
Let a
maximum
be fixed
which a person can acquire by devise or inheritance or by donation inter vims. The sum might be fixed at a million dollars or much
less or
1
and
in general
what
is
said in Chapters 68
and 69 on Pro-
gressive Taxation.
55-8]
269
successful
money-maker would be
divide
it
He might
himself
among many
recipients or erect a
by
Left in
he might refrain
it
so
expect
capital
from
the proponents
dissipating
during
life.
The accumulation
would not then be checked. But the devolution of very great fortunes and the perpetuation of an upper crust of plutocrats would be prevented. The greatest and most glaring of inequalities
would come to an end.
is
uncertain.
money-gather-
be stimulated by the
other.
means
in
some way or
Yet
amount
We
should have to
fall
back on the
is
reflection
ill
not only an
And
might readily be made up from the growth of accumulation elsewhere. It has been recapital thru this reckless expenditure
marked
in
make
for
for
Tho a few
great properties
might be curtailed
provide enough.
afford.
8.
of their conceivable
The
loss
More
radical in character,
and
measures
complete
appropriation of devised property by the public after the lapse of a cotipTe of generations. A novel and ingenious scheme is that of
\
1
6.
270
[55- 8
an Italian writer.
{i.e.
minimum. minimum,
devolu-
first
third
and
last.
The owner
on the second devolution; the remainder on the (testator) might dispose of as great an
many
as he pleased.
first
generaof the
most
of the property
would
still
beneficiaries.
them
in the second
stage,
and
The assump-
more concerned about his children than about his grandchildren, and progressively less concerned about remoter descendants. So long as most of his property can go to those whose prosperity he has at heart, he will keep it intact. Abthat the testator
is
him.
It
is
line of
questions of principle,
of life-interests
when
it is
four lives
public
is
as
many
to take everything.
it is
Of
all
such schemes
to be
by a public
authority.
there
is
original
money-makers.
The
state
several inheritors,
was
1
left in their
hands.
The
E. Rignano,
Un
The proposal is the only one I have seen. and considered by H. Dalton, The Inequality of Incomes, Chapter IX.
(1909).
The French
version
is
explained
55-8]
271
principal, in order to
less this
remains unimpaired.
Un-
capital
sums
material outfit of
It
is
is
not at
all
that
there
no such wastage.
pay to and
of a greater
greater mass of property, which could be put thru loans at the dis-
management might
might
go on.
But the
is
the essential.
to be a vast
permanent
And
here
we
which confronts us
Has
it
and
self-restraint?
Is there
good ground
officials w^ill
be well handled?
Capital
The
little
encouragement.
sums which come into the hands of the state are usually "borrowed" by the state itself. They are turned over to some department or bureau, and then spent. The money sums are dissipated; no permanent material gain accrues, still less any spiritual gain.
It
is
easy to conceive
spent
by
the bureau to which they are assigned, for useful public works,
far
needed housing projects, great educational facilities. But it is from easy to prevent their dissipation in the ordinary course
of public expenditure.
The
public treasury
is
is
like
an individual.
What an
he
will
likely to
watch with
\
much
hilarity.
272
[55-8
great majority,
fad.
is
The sums
will
to be bui*den-
some
be applied
much more
critically
and
wisely.
In both
v
And even
wise
is
if
how
The American
business
man
would shrink with horror from the prospect of a vast public bureau, virtually a loan bank, making advances by millions and billions to
borrowers singled out by elected or appointed
the economic problems and economic
sidered,
officials.
Not merely
possibilities
have to be con-
the community,
but the far-reaching questions concerning the character of its ability to reject demagogs and to enlist good
its
public servants,
good
policies
and good
tion.
legislation.
This sort of problem and this sort of doubt face us in every direc-
The problem
is
it is
very
difficult to devise
the ma-
it is
most
There
is little
so
institution
of private
made
over.
What
is
more probable
down
of great of
by
this process,
public finance.
of the
Not
be a tendency to curtailment
social
community's
capital,
gain
be hoped, by
55-9]
9.
273
Something
may
even
is
socialism
on
labor,
has produced, has gone into the lumber room of discarded doctrines.
It
But
it
plays
little
part in
of
modern
fashion.
"Natural"
is
rights
Where
there
impossible to distinguish
how
Even
right
if it
possible on
As the
institution of inheri-
may
be summarized as follows:
Men
behalf.
will
own
LgJ^^^-^frsitlilgom e,
common
interest weak.
Labor
will not"
''-' '"'^
-^
tfte
'-^'<~-
This indeed
is
the crux of
whole matter.
is
If it
be believed
common
interest
their fellowdis-
be as active
in
then
one's attitude
different.
The
truth, in
my own
view,
is
that tho
men
'
are neither
an impelling
274
[5&-9
nearer the
How
modification in
human
traits
may
Men
are
now
actuated, in
lives, chiefly
which we
call self-regarding,
continue to be so actuated.
Inequality arises, even under the simplest conditions, from the
It
no
man
is
led to
own
he
do that which brings indirectly the largest return; that which others value highly and for which they will pay Competition and self-interest thus promote not only the highly.
is
Above
appears
due to
remains an indispensable
spur to the
full exercise of
Wide
surplus.
The essence of capital is surplus. Accumulation takes by many individuals, and surplus means are utilized by those who see time-using ways of directing labor with effect. Sustained accumulation and investment on a large scale will not take place unless there be an inducement. The phenomenon of interest on Not less than interest, inheritance, whatever its capital appears.
place
historic origin, operates as of private
Compare Chapter
55-
10]
275
The immediate effect of idleness on the community is obviously to lessen the total part of a fraction of the available labor force; the great mass must work not only for their own maintenance, but for that of this privileged fraction. But the prospect of being a member of the leisure class has proved a wonderfully powerful bait to effective exertion and permanent intion, interest, inheritance.
vestment.
may
of leisure, the
hope
main motive
Property in land
tive labor
is
and
effective investment.
all plant must be established on a site. Full title and ownership to land have been indispensable to the growth of capital. Such unqualified property right may not be essential in
on without land;
an ideally constructed
in existing societies
society;
and the
possibilities of restriction
is
may
be greater than
commonly supposed;
been the sure
means of securing its effective use. Thus rent develops as an element in distribution, in part intermingled with return on capital beyond possibility of discrimination, and in any
case an inevitable outgrowth of the system of property in
its
cruder stages.
10. The reasoning of the preceding paragraphs, followed without flinching and without qualification, would lead to the con-
members of the
leisure class
is
not
and comfort
is
would seem to be immaterial. Yet the current notions of justice, vague tho they are, connote some closer relation between service and reward; and the question persists whether the personal
qualities of the privileged
common
welfare
and their immediate contribution to the must not be considered in any solid justification
of existing inequality.
276
[55- 10
The question is answered in the affirmative by many thinkers,^ who hold that there must be a continuing service from the class as
a whole,
if
It
is
endowIn the
ments
of
men,
it is
earlier stages of
sprang
whether
indi-
up because some
Not merely predatory strength and cunning, but abilities exercised in a manner to advance the common good explain the universal differentiation of society. But during the later stages, when the
superior classes have attained an established position of privilege,
becomes doubtful whether ability and service are maintained and whether the justification of inequality still holds.
it
On
may be
The
personal desert
is
immaterial.
may
is itself
to the preacher.
I will
not under-
take to say what are the last criteria of justice, for individuals or for
but
it is
Tho
if
serve capital,
position
is
immensely stronger
if
the individual
members contribute
ature,
and
art,
Whether contributions of this sort will, in fact, be rendered, depends not only on ability (and this again on heredity), but on the public opinion of the privileged class and indeed of society at large. It cannot be said that the habits and ideals of the rich give great
promise.
1
t
I,
pp. 409-411.
:
Cr>-
Paulsen, Ethik, Book IV, Part III, Chapter III, and Tufts, Ethics, Chapter XXIII, 1-3.
and Dewey
55- 10]
277
This
is
idolatry;
Nor
are the ideals of the great mass of the people essentially dif-
ferent.
They
How
and the democratization of society will affect the Something is gained prevailing ideals, it would be rash to predict. if the situation is laid bare; and herein the growing attention to
economic and
social subjects
promotes improvement.
wide-
from useless
lives, of
do
now common on
social subjects
among
the well-to-
and
especially of those
it is that the opinions of most perimbued with some sense of social obliby the immediate and visible contributions
class
may make
to the general
References on Book
V
first
On
V,
book to be mentioned
VI
is
in T.
N.
On the
on the topics in the subsequent parts of the present is in A. C. Pigou, The Economics of Welfare Entirely different in method, with a wealth of historical and sta(1920). tistical analysis, is G. SchmoUer, Grxmdriss der Volkswirtschaftslehre, Books III, IV (1900-1904; French translation, 1905-1908). Still different, and proceeding from a new point of view, is J. A. Hobson, Work and Wealth, (1914), a book which justifies its sub-title "a human valuation." Among the many modern books on capital and interest, Bohm-Bawerk,
distribution,
also
and
Not inferior to this in intellectual incisiveness, but marked, like it, by some excess of refinement and subtlety, are I. Fisher's two volmnes, The Nature of Capital and Income (1906), and The Rate of Interest (1907);
and G.
Cassel, The Nature
and Necessity of
Interest,
English translation.
278
London, 1900.
[55- 10
H. Wicksteed, The
Sense of Political Economy (1910). An able book by a French thinker is A. Landry, L'mteret du Capital (1904). J. B. Clark, The Distri-
Common
bution of Wealth (1899), sets forth a theory of wages and interest as the
specific
reasoning, but to
products of labor and capital; I find myself unable to accept the some economists it seems conclusive. An attempt to
nomic Principles (1915). On the theory of business profits an able discussion, with a point of view different from my own, is by F. H. Knight,
Risk, Uncertainty,
J.
and
Profit (1921).
Bonar, Malthus (1885), gives an excellent account of Malthus's writA. Dumont, ings and of the earlier controversy about his doctrines. Depopulation et civilisation (1890), not a book of the first rank, states the
modern French view, laying stress on "social capillarity" as explaining the decline in the birth rate, and enlarging on the desirability of an increasing
population.
gives a
E. Levasseur,
La Popidation
good summary statement on the increase of population comI, pared with the growth of wealth. G. Mayr, Statistik und Gesellschaftslehre:
Vol. 11, Bevdlkerxmgsstatistik (1897), Vol. Ill, Parti, Moralstatistik (1910),
gives a
tions of principle.
On
and
without attempt at
statistical information, is in
Modern Communities
BOOK
VI
PROBLEMS OF LABOR
CHAPTER
The Wages
Section
1.
56
System.
Introductory.
The wages system necessarily involves restricSec. 2. sympathy, 281 tions on the individual's freedom, 283 Sec. 3. It has material drawbacks and spiritual drawbacks, yet brings a net balance of gain, 284 Sec. 4. A strike is not a mere cessation of work, but a fighting move. It is the set-off against the power of discharge, 287 Sec. 5. Should Sec. 6. the right to strike be restricted? 290 Employee representation:
its possibilities
and
its
hmitations, 295.
1.
The
subjects to be taken
up
in this
Book and
in that to
follow differ in important respects from the subjects of the preceding Books.
sis,
They
and for more than with previous matters, on a weighing of pros and cons. Many of the doctrines laid down hitherto have been definite and positive. They are either true or not true. Such for example is
tutions
degree for mere description and analyjudgment on the value of existing instiadvice on reform. Hence the conclusions depend,
call in less
money and the range of prices, of rent, and interest and wages. No doubt questions of policy have also been considered, and necessarily have led to some balancing of conflicting considerations; as for example with regard to banking legislathe value of
tion or the circumstances under
may
be
advantageous.
social questions
almost
of
all of
which are now to be taken up. With respect to them, something is to be said on both sides; in favor
laid
No
law can be
conclusions proved by
Almost invariably
there will be
room
for
Of
this there is
282
ample evidence
PROBLEMS OF LABOR
in the
[56-
bitter controversies
by the point
makes
ali
warmth
of one's social
Some men
some
Between persons
temperaments there
is
is little
common
premise
for
of
argument.
There
view
is
different
Most
by
no means
by
and are unconsciously disposed to be antagonistic to measures lookIt is ing toward equalization of opportunities and possessions. true that they are not so critical and antagonistic as they were
fifty or
is
becoming
kinder,
less,
None
the
appears
ness
an underlying opposition to schemes for social equalization among the possessing classes, and not least among the busi-
On
the other
hand
Most
things in the
and competition are repugnant to them, regardless of the beneficial effects of that order and the inevitable concomitants which the benefits entail. Here again is a cause of
differences in opinion not to be reconciled.
will
Both sets of problems center about the inequalities of wealth and the ways of mitigating them. I shall try to consider these knotty matters as objectively as possible, not unimbued with the spirit of social sympathy, yet constrained to face the limitations imposed by men's rooted habits and traditions, by the defects of governmental machinery, most of all by the moral and intellectual weaknesses
and the reorganization
of
human
nature.
56-2]
2.
283
They
arise in connection
on the grounds
as
and
its
drawbacks.
it
stands
is
and
its
single-minded
is
management.
thority^restricted.
The
workman
necessarily
He
is
tme^which
possessed
He must work
hours, his speed,
or the farmer.
his tasks,
his
of the whole.
He must
obey orders.
This limitation of freedom
often regarded as a special char-acteristic of enfpldying capitalism
is
But
It
is
it
as
it is
it
What
is
true in regard to
that
it
this
In saying
this, I
no system or plans of
its
own
it
ments
of private industry.
It, is
pointed the
way and
284
PROBLEMS OF LABOR
far,
[56-3
private
manMost
and forever indispensable. Itjs not so; control and the restriction on individual
it
liberty
which characterize
In this sense
away
with.
The wages system thus entails serious drawbacks under any form of organization. Whether under private ownership and management or any of the non-private forms, the interest of the
work cannot be as direct, as strong, as personal, as when he works for himself and under no one's direction. But the drawbacks are beyond doubt greater under control by capitalist owners. Capitalist control may indeed justify itself and continue
laborer in his
\^..
own thru special effectiveness in securing the essential advantages. None the less the drawbacks must be faced and every means of mitigating them sought. The drawbacks are of two kinds: material and spiritual. The output of material goods is smaller than it might be. The spiritual The happiness of living is ills are greater than they might be. marred by many incidents of the wages system as it stands. The failure to secure the maximum of effectiveness and of product is patent. The universal testimony is that hired workmen do not do as much as they readily could. To state it more accuto hold its
rately: unless the
is
great
workmen
^
fail
to
do
It
is
is
of this something
said
nor
is
is it
work.
These factors enter, but they are not the most important.
that hired
men are directly interested, not in their What they turn out inures"l;b the employer, not in any visible way to themselves. The far-away prospect of an ultimate enhancement of the social dividend, their own
work,but in their wages.
1
eventual participation in that dividend, have no effect on their imSee Chapter 62,
3,
and Chapter
57,
4.
56-3]
285
who becomes
Naturally the evil is less where where output can be accurately gauged and controlled, where machines set the pace. It is surIt is greatest where prisingly large even under these conditions.
production
is
observed^
is
not a net
It
is
loss.
from a
is
conceivable
maximum.
out-
less
than
if
they did
would not have developed. The capitalist can pay the hired workman, even tho he works with half spirit only, more than the latter" can earn while working independently. The cobbler cannot do as
well for himself as he can
t
The
spiritual loss
when
'^
one of the
plain
many
between
and simple
if
immensely
promoted
their daily
work be made
interesting
and pleasurable.
Even
at
its
happiness.
his spirit
and
method
which
is
is
followed, in
an endeavor
to secure
by threat
or force that
is
increment from the drive offset by the spiritual loss of the driven.
There
is
all this;
and more-
concerning which,
The exaggeration comes because those who descant on the losses of human happiness are themselves persons with a bent, a marked personality. They are thinkers, speculators, writers; they have
in themselves
something of the
286
inventors.
instinct
is
PROBLEMS OF LABOR
[56-3
No
in each
doubt some spark of individuality and creative and every one of us. Only in a small minority,
insistently for expression.
Most men probably are not made unhappy by simple and monotonous work or by The charm of life which the medieval direction and command. artisan is supposed to have had is much exaggerated and so is the loss of happiness from prescribed tasks. The temper in which power
however, does
it call
;
is
;:
exercised
is
more
/guardedly, are those on the relation between the present distribution of control
and the qualifications of the persons who now exerThat there are differences between individuals in
be contested.
in
their
powers
of leadership is not to
Some
are born
to
command,
others to obey;
commanding,
others in obeying.
But
are those in
And
are those
designated
by nature
for obedience?
Much
and supposedly
now exists. Those who urge sweeping changes, on the other hand, commonly ignore the very existence of the problems of differentiation and selection. Elsewhere, when considering a related topic,^ I have pointed out how inconclusive is
proper division of places
our information on the whole question of social stratification. It
is
some evidence points that way,) that the possessing classes and those who manage industry for them are by nature different from the rank and file of hired workmen.
by no means
The present
distribution of functions
is it
at
all
human
happiness.
In any case
as
system
1
on the material, the loss of human happiness under the wages The fact of everyday choice indicates is again no net loss.
Business profits and the distribution of managing ability
among
social classes;
see
Chapter 49,
3.
56-4]
287
that it is not so. The cobbler's work may be more interesting, more consciously creative than that of the machine hand; monotony and routine may make the factory dull and lifeless. Nevertheless, the cobbler will leave his bench and take his place in the^
factory
if
higher perhaps by a
is not simply because crowds (which serve in some part to offset of the diversions and
The
material loss arising from uninterested labor but such spiritual loss
as comes from repression of personality.
losses;
how
is
been mentioned.
Under the wages system, it is said, there is com- The laborer must accept employment and submission; he cannot escape by betaking himself to work under
other conditions.
And
true
it is
that
transition to
the
new
order
is
established, he
But that it has been established at all due fundamentally to choices which have been repeatedly exercised. True it is, again, that the history of modern capitalism is
full of
an ousting by
stress of
need from the simpler, perhaps more attractive conditions of an older day. These, none the less, are exceptions. The main driv-
mg
-"-
been the flocking of multitudes of men to workshops, factories, towns and cities, because life there has seemed to them, on the whole,
more
attractive. Not t\Tannical power, not wage-slavery, but the silent^stained exercise of preferences explains the modern industrial order and the existing wages system.
4.
I pass to
is
there
loose thinking
some other aspects of the wages system on which and vague talk: strikes and "the right to
strike."
288
PROBLEMS OF LABOR
it
[50-4
Tho
none the
less
true
system
is
established
and
all
restricted
whether a
man
shall
be
hir ed or
for the
time being at
least, of his
The
means employment
more or
less precarious.
strike
is
commonly spoken
is
of as
if it
This statement
y^
more than either of these. JLt_isL_,a .conwork with "the design of-securing-xeturn to the same employment under better conditions than are offered at the time by employers. The betterment of the conditions may
such a contract.
It
is
be in various directions: to get higher wages, to prevent a, reduction in wages, to change hours or other conditions of work.
But the
strike
ff'
is
intent always
is
a concerted withdrawal for the purpose of bringing presnot merely a matter of definition.
really
This
ing
is
It
is
one of recogniz-
what people
mean and
do not
legal
In any consid-
//
to
right
on the ground
tlia^^it
of slavery.
'
56-4]
to their places.
289
ever contemplated
by those
who propose
restriction; nor
is
by those who go on strike. The same positions. The strike is conceived to be successful when the strikers, after having left in a body, are reinstated on the terms desired by themselves. If another employment has to be sought, the strike^ is deemed to. ]ia\ e failed, exen tho the new employment be in fact secured, nay even tho the strikers in the end prove to be better off at their new
occupation which
in fact desired
is
to retain the
places.
strike, to repeat, is
way
of exerting
pressure toward
the ,^old_4Qb-.
The
pressure
means
eyes
damage
own
The
petitors
and saying that others are free to take them if the offered terms are found satisfactory, aim above all to prevent others from replacing them on any terms whatever. Persuasion, appeals to class feeling and class loyalty, physical violence, are resorted to in order to keep away the interlopers. A peaceful and satisfactory conduct of a
strike takes place, in their opinion,
fill
when both
of dull waiting
The
most
strike, then, is
constitutes
by
far the
hands
weapon which hired laborers possess. It is the one weapon which is in the employers'
always
in
_^
Jthejmck of the hired workman's mind. Much is said in all the books on economics"about his bargaining disadvantages, his com-
290
PROBLEMS OF LABOR
employment much
;
[56- 5
also said,
No
of feeling:
Thejrightjo discharge pn an indispensable part of the present order of industry. Tho some limitations on it may be set, tho abuses may be checked, it is essential to discipline and to effec-
so-called masters.
is
tiveness in production.
But liability to abuse there is. The unby employers not merely because esin
but
about a state of opposition among the workmen, and this in turn the a cherishing of their own instrument of offense and defense
Without that weapon they feel themselves helpless. And strike. since men tend to make the means an end, the strike and the right
to strike
of principle.
become matters not merely of tactics and expediency but As the right of discharge is regarded by employ er^ as an inalienab;e right, so that of striking comes^toJ)e_regarded by
5.
the men.
How
on those ready to take their places, in what form the power of the these are questions of the greatest intrilaw shall be applied The law itself, both statute law and judgedifficulty. cacy and made law, is in a state of flux and transition. And there is no
underlying set of principles so settled as to constitute a firm foundaand adjudication. In the last analysis all de-
pends on one's attitude toward the existing industrial order. He who expects and desires far-reaching changes toward th? remodeling of the social structure and the lessening of inequality, will favor a wide extension of the right to strike; since this is a means of curtailing the
power
of
way toward
56-5]
291
management as indispensable and unalterable will insist that strikes must be curbed. On this matter, as on many
erty and employer
Their
all
by
their prepossessions.
for the legislative
problems involved which should be observed irrespective of one's views on the aim and ultimate outcome of social and industrial
development.
a tactical
Consider the strike not as a mere withdrawal from work, but as move designed to bring complete cessation of operations.
Those operations
water.
may
urban transportation,
disaster.
light,
Stoppage
may mean
peril,
even
On
the other
may
di-
Such
is
likely to
management.
have an
some check on the arbitrary determination of employment should be made a part of the orIt
Is
Some-
is
de-
on a larger scale and on wider grounds, participation by the hired workers In the settlement of the conditions under which they work. The possibilities and also the limitations of such participation will be considered presently.
Assume
for the
moment
that
it
strike
Then the strike and the right to The strike Is no longer indispensable
combating absolute control
entitled to protect itself
Is
as a
weapon
over employment.
The community
The w^orkwhat
men may be
292
PROBLEMS OF LABOR
is
[56-5
:
whether
make
work.
The
question of principle
all
is
on the right to
strike
shall
it_
be restricted at
and where the employer himself is restricted in the use of his main weapon of domination? This question of principle is most clearly presented in the indusThe community, by the very tries managed by government.
circumstance of putting them under public management, has expressed
welfare.
its
would seem incontestable that on the one hand the men should be given a standing in the administration of employment, on the other hand that they should not be given a free Here
hand
Hue between public and non-public industries is not Often there is a sort of half-way arrangement easily drawn. ^ private management controlled and regulated, as in the case of the
so-called "public utilities."
management?
The
public
is
quite as
much concerned
owned by a corporation as of one publicly owned. The conditions of employment and the right of discharge, again, may not be essentially different from what they are under government management; tho in this respect the same protection of the men against arbitrary acts is by no means so readily instituted or so
of a railway
easily maintained.
On
it
may
risks
of Industrial organization.
Privateownership^_carneaJsdth-"
it
as
we may,
Compare Chapter
64,
56-5]
293
conflict
this
is
may submit
only
more than countervailing. If private management of j-ailways is preferred to public, the ground must be that on the whole it works
better; that the spur of self-interest, the incitement to enterprise,
be better conducted.
If coal
mining
is
is left
in private hands,
it is
com-
The
its
private employer,
methods
It
is
of
manin-
agement as subject to
variably urged
his
own judgment
only.
almost
by him and his spokesman that the effective working of the business machine depends above all on unfettered freedom in the selection and tenure of employees. So long as
this attitude prevails, the
workman
If
will feel in
retam
his
weapon
even tho
entail injury
ment,
it
offsets
which
stoppage.
trol of
To
side
is
terms too
There
to the far-
general to
are gradations, from well-administered public industry thru quasipublic and publicly controlled corporations
all
the
way
and management. Public industry itself is by no means invariably conducted in a spirit of consideration for the rank and file of the staff. It happens often enough that the officials in charge accept the point of view and the methods of private industry, and are equally intolerant of
sort
is
any derogation
of their power.
it is
An
attitude of this
main-
always a mere
At
all
294
strike is not to
PROBLEMS OF LABOR
be ruled out as ipso facto a punishable
is
[56- 5
offense,
on
in
a public one.
On
ways
and
profits,
The
conditions of
may be subject to such regulation as would be expected under ideal public management; and this may be part of the very terms under which private management is authorized. When this is the case,
the strike becomes an inadmissable weapon.
The
it is
The
game
the one to be
and given up if the other also is given up. No such mechanical method of dealing with the problem can meet its complexities or reconcile the convictions and prejudices of the contending parties. Xhe right to strike is cherished by workmen not merely as a means
of defense
More
or less consciously,
more
on
in
or less widely,
readjustment.
their
brew.
Even if employers were to consent to restrictions power of discharge, contests would remain, strikes would And on the other hand, discharge is but one of the matters
rule
is
to be questioned.
Dis-
charge
all
conspicuous because
it is
But
Not_
may
of control
control
is
to be applied to the
workman
rules,
also.
firing,
rates, appor-
tionment
of tasks, the
may come to
but
be
settled not
by the employer
untrammeled
discretion,
by
When
tlement, such participation in the contract of employment, are established and in effective operation^, the strike
may
be subjected
It is to greater restriction than can be imposed in their absence. the endeavor to stop quite conceivable that in its militant sense
56-6]
295
it shall
be made un-
The
is
in favor of
what
is
Works
Councils, Indus-
Shop Committees, Employee Representation these are the names of various arrangements for participation by the employees in some at least of the problems of management. Each particular scheme is apt to be considered by its ardent proponents a panacea, capable of removing all social ills. No device has this wonder-working power. The best hope for the future
Councils,
lies_hi_a successioa^of reformatory steps, each needing to prove
itself
Among
the steps
employee representation
The
Something can be
will
accomplished by
In the
first
it,
place
doubtful whether
much
be gained as
regards those evils of the wages system which were considered in the
earlier sections of this chapter.
itual
drawbacks
of the
of
democracy"
on councils or
be their own,
boards
is
work
will
will
be revolutionized.
The men
it,
will feel it to
will
as similar expectations
This seems to me quite Utopian, just have proved to be with regard to profit
The
fact that a
man
has a vote in
not likely to
It
is
may
indeed have some effect toward strengthening other factors working in the
istered
same
and well-adminleast,
a steady
But
296
PROBLEMS OF LABOR
factory
[56-6
The
hand or the railway fireman will go his way with his albefore, one
lotted
work much as
among hundreds
or thousands,
by"
in
and to receive
Least of
the
all
workmen if these devices are used as maneuvers against their own organizations. Precisely this is in the minds of many employers who set up shop councils. They expect the new arrangement to supersede existing unions of their employees. The expectation
is
the
"what
is,rigiitll_are_/^
.^.^^^
dwelt on.
is
occasionally thought
Yet
in
many
cases,
labor unions.
So long as
this
is
movement
my
judgment
come to nothing. Employee representation and the labor unions are by no means incompatible. On the contrary, the successful working of any system of representation depends on the very existence of organization among the men, and probably on organization outside of the system itself. But the employer commonly believes the two things incompatible; and the employee himself is prone so to believe. As long as mutual suspicion exists^
will
and the
it
real
aim
is
disguised,
will
have the
desired results.
A real
meeting the
of their
this
is
own methods
it is
of
indispensable.
On
improbable
its
management.
It
is
prob-
likely to
56-
G]
297
The
There
is
management and Probably they should not a curious range of extremes in the expectations en-
at
Hardheaded employers of the ordinary money-hunting type look them as sops to Cerberus, specious concessions meant to keep
the spirit of unrest.
down
order.
Imaginative and
idealistic persons
new
social
and committees as the first stages toward complete control by the rank and file over the establishments in which they work. Neither party is likely to witness the
councils
outcome
it
expects.
indeed
be under control not only as regards labor but as regard prices and the public interest generally.
will
will
They
But
it is
be a revolutionary change in
The
The
instances in
which
it
socialism
trial
The dreams
of radical reformers
mdus-
democracy
plete reorganization in
ters. ^
any form
will
be considered
For the present we are concerned with the wages system as it stands, its defects and the ways of remedying them. Among the remedial measures is this of employee representation not a
:
CL^
ills,
working
1
of the industrial
CHAPTER
57
Labor Unions
Section
1.
Weakness
Immobility of labor; lack of reserve funds; perishMonopolistic tendencies of trade unions of skilled ability, 298 Sec. 2. workers; not often of permanent importance. The open union, such as alone can develop among the less skilled, a potent instrument for good, 301 Closed shop or open shop? A strong prima facie case for the Sec. 3. The danger of a check Sec. 4. closed shop with the open union, 304 Limitation of output; to progress and efficiency under the closed shop. piece work; the standard rate; labor-saving appliances; discipline, 306 A division between open shop and closed shop not unacceptable. Sec. 5.
of the single laborer.
The question of Grounds of employers' opposition often untenable. The scab and the use of violence. Sec. 6. union leadership crucial, 310 The unionist movement likely to extend, and Sec. 7. The tie-up, 313 entitled to sympathy, 315.
1.
The
labor-union
movement
is
modern.
It
is
mainly a eon-
The number
single
employed
and under a
come larger and larger. Hence personal ties between employer and employee have relaxed or disappeared, and bargaining has become more impersonal and cold-blooded. At the same time concerted action by employees has become easier. Combined with this economic tendency has been the growth of democracy and of the aspirations that go with democracy. The union movement is one of the most important signs of social unrest and social The laborers have become increasingly dissatisfied with progress. a condition of dependence. They wish not only for higherjyages, but for emancipation from semi-patriarchal conditions. They de-
mand
offer,
all
on the employer's
effective part.
57-l]
LABOR UNIONS
299
We may
On
tion presented
by labor unions
it
their possible
fifty
effect
on wages.
this subject
many
qn wages, while the unionists themselves ascribed every actual rise The labor leaders are still disposed in wages to their own efforts. to lay undue stress on the effects of concerted action but a middle
;
hired
workmen
Where
may
men
be said to be
goes or stays
man.
is
The
difference to
of his
But
alternative
least
unemployment.
may be
he
will get
for
to the
workman the
the moment, at
and
will;
it
contended that,
rates,
employment from some one but only after an interval, and with more
Probably he
or less uncertainty.
It
how powerful
is
Where, however,
all
his
workmen
is
present a
in a corstop,
demand
and
at once,
Then
;
have to
moment
will lose
Jm
set of
market
rate, doubtless
and with
more
or less uncertainty
and temporary
loss.
The advantage possessed by the large employer becomes clear when his position is contrasted with that of one hiring but a single
person, or very few persons.
holder, with one or
The
cook can find another place at the going rates; but not at once or
300
PROBLEMS OF LABOR
If
[57- 1
without inconvenience.
with no
States,
mistress can find another at the going rates; but not at once,
less
and
do-
inconvenience.
Hence
United
of well-to-do persons
who demand
mestic service
number
of those willing
limited,^
The
single servant
level of
wages would doubtless not be affected, each case the actual pay would conform to
less.
due not only to the fact /that he gaining quickly find the best market for his labor
serve fund^ and to
respetrfes
tlie
immobile
l
''
cannot
hisj:e>-
buffo
on
ack of
perishability of his
often one
of degree only;
none the
their relative
positions.
Tho
much
less
may have back while waiting and bargaining, than those of the employer, and in the
most unskilled laborers are virtually non-existent. So with There is a sense in which the employer also is like the vendor of a perishable commodity. Machinery and tools depreciate while idle, thru the mere lapse of time and thru obsoperishability.
means
sorts of
some
definite loss.
But
it is
working time
As regards some
is
negligible for
most physi-
man
is
is
much
of
his earning
power
57-2]
LABOR UNIONS
301
do much to mitigate the immobiHty of labpr^ by collecting information aFout the demand ajid^bxajdlng. their members in reaching
the right places.
managed
Labor unions, by
of
all,
Most important
concerted
work makes the employer feel that the workmen are as necessary to him as he to them. Labor organizations are thus effective toward securing "fair wages"; that is, the current or market rates determined under the
conditions of competition.
get, in
They
comin
petitive
demand
of private prop-
doubtless
all
that unionism
can achieve
in raising wages:
is
But
it is
a great deal.
The
cur-
_^_;2^
2.
_^.
And they relate usually to the trade union as distinguished from the more generic type, the labor union. The trade union,
is made workmen belonging to one trade or to a group of trades closely related. The wages of each such group in the specific case depend on the play of demand for the special kind of service rendered. Limit the supply of workmen in a given trade or group, and the
still
up
of
chance
is
set.
This
is
the skilled
like.
These
Their
more or
less in
a non-competing group.
302
PROBLEMS OF LABOR
l57-2
and
of the
machine processes,
is still
strong,
and
is
sought to
The number
is
of apprentices is
restricted
by high
is
initiation
dues.
threatened
For
humanly speaking,
Capitalists
no
less desirous of
profits.
Tho unionism
large
movement
for
all,
mand sympathy,
undisguisedly
est friends.
it is
warm-
It
is
monopoly
is still
Such
is
They had a
and secured for themselves unusually high wages. As machine methods come to prevail and specialized skill counts less than general training and intelligence,
becomes more and more
difficult to
it
expert glass
skilled
man
None
the
less,
the
workmen
as a class
workmen.
It
is
instinctively protectionists.
workmen in general. Most workmen are Not only do they fear unemployment
57-2]
LABOR UNIONS
303
ular case and assume that what is advantageous to some laborers must prove advantageous if applied to all. The bracing doctrine that every one should do his utmost in a free field finds as little spontaneous welcome among the employed as among the employers.
would disappear
if
is, if all
persons
The
for collective
bargaining.
This
skilled.
is
The
has been supplemented by a great development of labor organization in the lower ranks, both
among
unskilled.
as for
shoremen ("dockers"
in
of experience, to
in the
man
and free from the reproach of selfish exclusiveness. At the same^time they affect just those classes of workmen who are as individuals most helpless. Unionism among them, so long as it is kept free from the taint of physical brutality, brings a great preponderance of gain.
earlier
No doubt,
sometimes dema-
During the and formative stages of organization, they overestimate the gains which the union can bring, and may be turbulent. On the whole they are potent instruments for good. They not only improve the bargaining position of their members, and raise their wages so far as this factor can further the rise; they bring also eduDuring the last generation, workmen of these grades in the United States have been largely foreign born, often
cational benefits.
304
PROBLEMS OF LABOR
all
[57- 3
have
been helpful
and amalgamation.
opening the union
time,
is
In .the
learned,
always
At the same
and most
safe policy.
them probably will learn, that it is the only Exclusion and limitations, as means of forcing wages
of
in particular trades to
own breakdown.
and
it
an abnormal level, bring sooner or later their Employers are put to their wits' ends to find
improvements w^hich
will
make
The spread
of edu-
manual training, combined with the steady make the position of the monopolistic union more and more precarious. Where trade schools are established and notwithstanding the opposition of the unions, they are steadily extending, and will extend more and more in the
cation,
and especially
of
future
the
unions find
it
men
so trained.
Trade^
employers to try
jobs; with, the
workmen
to try their
monopoly.
even the
skilled
men
are in
open union.
The most hotly debated question regarding unionism conShall all workmen be brought together in unions, and all bargains as to wages arranged by union represen 3.
tatives?
Shall non-union
men be
shop, in
ganizations
unless they
do so?
The
alternative
the open
them
irrespective
of their being
members
of the union.
is
the
admit newcomers to
57-3J
LABOR UNIONS
305
by exceptionally high wages, are very great. In almost all enterprises the employer needs a trained and coordinated staff. If the union men leave in a body whenever he employs an outsider, he must substitute another full complement. Even if the work is not very difficult to master, and if plenty of outsiders are attracted by the wages offered, it is at the least a troublesome matter to break them in. If the trade be a skilled one and training in it hard to secure, the union, insisting on the closed shop, has the situation well in hand. Only extravagant demands will lead the emOrdinarily he will prefer to join with them, pay high wages to keep them content,, and reimburse himself by high prices Jo purchasers. There is an obvious limit to this process, in
the conditions of
demand among the purchasers but if the to its ranks by restrictions on apprentices
;
and the
like
measures,
it
the open
shop
This would remove one of the evils ascribable to the closed the creation, or at least reenforcement, of a monopoly. If
were admitted in good faith to the union, the primary effect of the closed shop would be simply to enforce^
alT qualified applicants
collective bargaining.
No
workmen
All bargains
The case,
would be concluded thru union representatives. so stated, is prima facie in favor of the closed shop.
much
way.
follows from
They get better terms by bargaining in this They are the most numerous and the most needy members of our modern societies; what improves their condition increases most surely the sum of human welfare. Let us consider more closely, however, the industrial situation
would beJf^the_close_d shop^jvere universal. A great power in the hands of the workmen or of their representatives. That power would be by no means confined to questions of rates
as
it
unions by laborers.
would be
of wages.
of wages involves many other and hours, but the mode of payment, pen-
306
alties, fines,
PROBLEMS OF LABOR
[57- 4
and numberless details of administration and discipline. Where a trade agreement is drawn up between the representatives of emplo^^ers and employees, it is never a simple contract dealing
with wages alone;
organization.
it
In any case,
we imagine the
closed shop to be
is
employer.
He has no
alternative as to
must be members
of the
union or no one.
is
The
workmen
power which is given them. If used simply to strengthen bargaining power and prevent exploitation (in the narrower sense in which that term is here applicable), unalloyed good ensues If^ised to hamper industry, there is mucli to the workman.
of the
evil also; and, unfortunately, in the present state of
make
mind
of
work-
men and
their leaders,
there
is
so
much
sympathies with laborers, can look forward to the universal closed shop without grave misgiving. The grounds for this feeling need
.
The
workman,
as already
remarked,^
Every improvement,
every labor-saving device, means some shifting and readjustperhaps tempoment, and hence commonly entails hardship
less.
Once
settled
in
a job, the
of this attitude
is
the_IimitatioB-of~-
amount a man shall accomplish example, the number of bricks he shall lay
on the ground
stints
it
Such
tha.tjt
by emon
this
Very
likely there
ground.
it is
simply
3.
57-4]
It lessens the
"
LABOR UNIONS
Moreover,
it
307
saps the spirit of
product of industry.
willing
factors
and cheerful activity, and so contributes in any case many and unfavorable
still
more
to those
irksome.
So
it is
The workmen,
it.
when gathered
ground
oppose
of opposition
The
rate of
pay
is
alleged to be based
on the capacity
is
workman, which
man to
is
extreme exertion.
at the
Beyond doubt
for getting too
it
much w^ork,
or at all events
more work
same
pay; and this supplies one instance more of the individual laborer's
disadvantages in bargaining.
But, after
all,
about piecework
the
is
that
it
increases output,
.
and
amount
Something
same
demand
is
for a stand-
much more
to be said in favor
is
for es-
minimum
rate, less
than which no
is
member may
accept.
The
general drift
among
trade unions
This drift
work
is. to
On
it
scale,
many an employer
to be established,
away a
rate that
is
supposed
by
special
in practise
308
PROBLEMS OF LABOR
[57-4
Any
who
less
who in
fact
may be simply
able to resist.
in individual capacity
alleged to
is,
in practise,
no great mat-
Hence
this policy,
much
as
it
who
bad
done
little
to
The
rests
and opposition to piecework namely, the dread of unemployment. All hired workmen (barring perhaps agricultural laborers under some conditions) dread such improvements. In the old days, they rioted, and destroyed the hated comlimitation of output
petitors.
In modern times, a
silent,
stolid resistance is
apt to
devices
new
from working
successfully.
It
is
true that
many
up the policy of opposing improvements and machines, and advise the members to accept them and to become proficient with them; this is simply because they submit to what experience has shown to be inevitable. If the closed shop w^ere the universal rule, no entering wedge would exist for compellabor unions have given
ling acceptance of the better
methods.
The
tions
and improvements,
itself,
The employers
sell
try to hire
men
and to pocket a higher profit. The men once they try to get for have made up their minds to accept the new ways
isting prices,
and each
being,
is
57-4]
of
is
LABOR UNIONS
among
309
prices; which, of course,
the
On
higher
In be said that the employers, rather than the workmen, are "entitled" to the gains of the period of transition.
this sense, it
may
less
is
with those of the public than are those of any one group of work-
men.
are to be
discipline.
our day call for semi-military organization for punctuprompt obedience, submission to orders. Discipline in the employers' hands rests, on the power of discharge. That power
ality,
the
workman
naturally resents
The
strong union
tends to hamper
it,
it.
more
to
hamper
and the universal closed shop would tend still All depends on the character, intelligence,
The
men
walks of
life
for those
been " caught,"always bring a danger that the needful effectiveness of discharge will be broken down.^
Of the various objectionable policies of trade unions, those which hamper progress seem to have had most effect in GreatJBritain,
those which fetter discipline most in the United States.
In the
fullest
development,
In
and
collective bargaining
it
is
most widely
practised.
many
Brit-
ish trades,
no longer occurs to any one that the individual w^orkwith the employer;
The
Steel
man
shall bargain
1
all is
310
This growth, in
PROBLEMS OF LABOR
many ways
and
gratifying, does
[57- 5
silent
saving appliances.
The
failure of
making,
progress.
is
due
in part to
little felt;
and welcoming improvements, but probably in the larger part because unionism has hardly ever had complete sway in any industry. A demorajization of discipline has been much more common in this country, especially in railways and similar industries, and
ing
effects.
is
of control
less
Yet
it is
no
that degree of control which the universal open shop would give.
The
situation as
is
it
actually stands in
States
shops.
not unsatisfactory
partly
of
The
pomt
The
exist-
ence of the closed shops prevents the employers from abusing the
advantage which
It
the}'
have
in dealing
employing half union men and half Employers sometimes take the position that while
opposition to union membership on the part of
will
they
their
will
make no
all
men, they
which
would compel
rarely
men do
as thej^ please
works
well.
hold, there
constant
57-5]
LABOR UNIONS
Their
lives,
311
and the
lives of their
made
miserable.
Better one
becomes
intoler-
em-
fairly.
Unionism
is
workmen, whether they be is their goal. To most employers, on the other hand, unions and closed shops are anathema, and in fighting for the open shop they believe they are
sympathy
of the great
its
mass
of the
unionists or not;
universal extension
own
interest
social
Even the most humane and public-spirited among employThe bitter opposition with which ers commonly have this feeling. such emplo^'ersJace-the-union movement is no doubt due in part to the mistakes and extravagances, of the workmen; extravagances
not only in their endeavors to restrict and control, but in their bearing and temper.
if
and gives
terms which
employer
its
arises
Human nature
plays
The generous-minded employer, disposed to do the best he can for his men, yet wishes to do it in his own way. He likes to have a patriarchal position; and precisely this is what the workmen tend more and more to resent. They wish to be dealt
gains and losses.
feel
command
tactful as
No
man who
is
humane, who meets his employees as men, and who has enough ability and success to be able to pay full market wages without bickering, can carry on the open shop indefinitely without ever having "trouble." It is well that a good part of the community's industry should remain under the leadership of men of this tj'pe. But even the best of men are better when they know
that
it is
politic to
312
PROBLEMS OF LABOR
is
l57-5
a possibiHty,
great
many employers
closed shop
is
them the
is
a needed alternative.
A common
sider.
contention
among employers opposed to unionism own men, not with any out-
In this respect they seem to be quite in the wrong; or, to state it more carefully, the balance of social advantage is against such a procedure. The workmen clearly gain by having their case
in
As to the
is
who
pre-
demand
He
will
be
but
in fact
because he has
"made
trouble."
to state and argue the workmen's case and to negotiate with success, is possessed
by
few.
and
like to
But they
in the long
run
it is
advantageous
The only
of social
is
clearly justified
is
on grounds
known
when
found to be a blatant
may
be reason for
no ground
for refusing to
spokesman.
question of leadership
is
The
crucial.
on
all
the prob-
lems of the labor movement; indeed it bears on all problems of economic and social organization. Leadership depends essentially
57-6]
LABOR UNIONS
intelligence
313
on the
and moral
qualities of the
workmen
themselves.
men
will
bad
so ob-
perhaps in that they are ineffective, bad perhaps in that they are
corrupt.
little
Yet
is
fundamental,
it is
reference
ordinarily
made
to
it;
partly because
slow in operation.
It is the
ing quickest effect that most readily enlist the interest of the ardent
reformer.
Such are the powerful labor union and the closed shop,
Yet
how they
they deal.
shall
work depends
in the
of the
men
whom
is
not to be escaped.
sal organization of
power
of
in the
ness leaders.
uneasiness.
conflict.
to be contemplated without
The two
will
As
many who
to
ward
approach.
He who
some generations of the main features of the existing industrial organization must look with misgivings at any movement which
leads to great concentration of
lected
power in the hands of men not seby the public and not responsible to the community for the
The
is
the inevitable result of class feeling on the one hand, on the other of that same specter of non-employment which explains the many
contradictions between the laborers' point of view and the strict
In the
is
not merely, as he
is
has chosen to
reject.
He
is
And
no other pos-
314
sible
PROBLEMS OF LABOR
way
of settling
[57-6
offer;
tempered
notwith-
doubtless
by
collective bargaining
and
also
by humanity among
And
standing the pressure of class feeling against the scab, this in fact
permanently, strike or no
who
In such case an
new
fear of taunts
will
enable only
to be won.
No
movement
say, that
usually a
young unionism, outgrown and discarded as organization becomes more permanent and effective. In the United States, at least, it has lasted long in some occupations, such as mining and
stage of
street railways,
(there
is
too
much
reason to
Unfortunately,
it is
apt to be cumula-
breeds more.
if it
When
in-
temperately
filling
There are always some floaters, not permanent retention, who can be used for a
in addition,
while as stop-gaps.
found
really
its
(as there is some capital) which has not The question whether a force of efficient men can
be had by the employer at the old wages will be settled only by considerable experience. The employer may find in the end that he cannot secure and retain good men. In the first stages of
a struggle, however, the long-run factors are little weighed. The temper of both sides is up, and the employer, tho conscious that he
disadvantages in bargaining.
The workmen then feel keenly all their They cannot wait, especially if their funds are scant. The tactical move of the employer in reserve filling the places with any one that comes along is met by the tacis
bluff.
57-7]
-tj.U '-^
'/
LABOR UNIONS
If
315
carried
on
in the
of
teaming or railways
as in the case
phenomenon
the
work
effect of violence
are so
much
greater.
curious
of
reputable in character,
first
who for a bonus will risk limb and life in the The mere presence of such a violence so much the more. Worse begets
war
is
threatened.
The sudden cesand the more or less disguised threat of brutality against any who would replace the strikers, amount to seizing society by the throat and calling on it to stand and deliver. Yet the tactical weakness of the laborers, especially as regards the unskilled
public
is
sation of work,
or little skilled
The
tie-ups, indefensible as
They have
The
is
sist indefinitely.
The movement
will
be organized
in militant
So far as concerns the unskilled and little skilled, this development is to be welcomed. They most need to be safeguarded against overreaching, and they most need the training in
subordination to a
common end.
Turbulent
men
As
so
much
that
is
narrow and
selfish as to
command
less unqualified
sympathy.
The sober-minded
higher wages, shorter hours, restriction of the labor of women and children would have them reached
the unionists attained
in
TROBLEMS OF LABOR
[57-7
can be
far as
found than with regard to the demand for the same rates of wages
So
en-
in unions
employed at the same wages, but that the women are to be employed as little as possible; since, on the whole, they are less efficient, and What the men therefore, at the same rates, men will be preferred. So it really want is a limitation of the employment to themselves. is as regards restrictions on the labor of women and children. With reference to both classes, restrictions are desirable on large grounds of social policy. But the men who demand them often have a thinly disguised aim to seciu-e more employment of their own. By no means all labor unions or all labor leaders are open to this Still less are they consciously selfish. Like all men, criticism. they are apt to believe that what is for their own advantage is for the common good also. The fact remains that the compact and
often means, however, not that they wish the
to be
women
workmen
from the
social reformer.
by no means a majority of such laborers are now members of unions. But they wish to be, or are disposed to be. The union policy and program have the sympathy of the overwhelming majority. The movement will almost certainly grow to greater dimensions than it now
has,
and
will enroll
of the laborers.
among its adherents a much larger proportion And this, to repeat, is to be welcomed, notwith-
standing
all
On the whole,
They
unions are
own
condition.
Compare what
is
9.
57-7]
LABOR UNIONS
317
inrtheir^effetrte
is
questionable gains which organization can bring to laborers lead them to overlook the source from which alone can come a large and
permanent advance
set of laborers leads of the
in wages.
The
them
to think primarily
means
They
are naturally
se-
in
profits
can be got
own
all
The
is
gain to
the
community and
is
all
the laborers
vance
in
ble output.
This
most
likely to
be secured by
full
competition
among both
especially
if it
capitalists
and
laborers.
Effective organization,
is
competition.
None
the
less, it
the output.
It
is
only with reluctance that laborers and their leaders accept laborsaving devices as part of the inevitable; they never welcome
them,
still less
promote them.
CHAPTER
58
Labor
aims to standardize
conditions of employment.
women
typical case.
Other sorts of
2.
restriction.
Situation in
laborers'
paratively rare.
legislation
supplement behind it is 3. Limitation of hours for men comAre there grounds on principle for confining such
efforts.
to
women and
Sec. 4. The demand for an eight-hour day deserves United States, 324 Introduced suddenly and universally, the eight-hour day support. would mean a decline in product and in wages; introduced gradually, and 'pari passu with improvements in production, it brings unmixed gain, 326 Minimum wages introduce no new principle, but present the Sec. 5. problem how to deal with the unemployable, 330.
children?
Constitutional questions in
the
1.
Any
is
contract
makes
it
way
of saving expenses.
Hence
hours, -settledxules.
in labor legislation.
minimum wages, fixed employment The same sort of standardization is aimed at The plane of competition is made by law the
is it
same
all
for
all.
Not only
shall carry
level.
made
it is
intentionally
insists that
raised.
The
community
employers
The
of the
is
employment
of
58-l]
319
see a
a machine,
a thread.
profit in the
members
women and
work
but
are put
14,
to
work
sometimes 13 or
shifts as well as
hours a day.
shifts.
They
are
are
employed on night
day
Women
and
employed not only for the same long hours on coarse and heavy work that brutal-
izes as well as
exhausts them.
Lamentable conditions
of this sort
appeared in Great Britain in the early years of the nineteenth century, as the
in
Italy, Russia.
its
Where a
self-respecting
women and
children to such
been more or
less modified, as in
Scandinavian countries.
them have failed to take root, as in the The great inflow of immigrants to the
from countries
of
low
Thejnachine_ process and the factory system. are not the causes
of these evils; rather,
which they
find.
The fundamental
for emplojonent,
In Great Britain
its early days found ready for its use a mass by a bad poor law, weakened by a long period of food scarcity, cut off from the land by a feudal system of land ownership. In most countries of Continental Europe there are
similar low-lying
itself.
human
strata.
Among
But the modern system of production, tho it does not create the evils, concentrates them and makes them more serious and no doubt it increases them, by giving added opportunities. The very fact of concentration, on the other hand, makes it more easv to
;
320
PROBLEMS OF LABOR
[58-
1]
It
is
probable that in
many
made
things no
made
possible a clear
labor legislation.
The
first
in
1802;
it still
those
of
which
it
employment
children under nine years of age as "apprentices" in cotton factories, restricted their
own
day.
The Ten-
Hour Act
of 1847
restrictirig"the
was afterward rearranged, to 10^^ hours on week days, and 5 hours on Saturdays. The Half-Time Act of 1844 was perhaps not less important; it provided that children (under 13 years by later legislation defined as under 14) should work but the time, either full time on alternate days or half time on each half
10 hours a day, or, as
day, and that the remaining half should be given to school attendance.
is
because of
its
influence as
an
/
work
in the
women and
children.
Both
for
women and
women and
men
the
children,
of legis-
on which labor
may
be employed or
the
mode
in
ditions of
may be conducted. Gradually a comup in the advanced countries, regulating conemployment in all sorts of ways. Dangerous machinery
which industry
58-l]
321
appropriate safeguards; sanitation and ventilation must be proIndustries threatening to health are specially or sale, of matches
liable to
now
prohibited in
all civilized
countries.
As
Great Britain was historically the first country to enter on labor legislation, so she has remained foremost in extending and enforcing
it.
many
ways a model
ferred to, but
many
others also
is
to begin
and cease, pauses and rests, overtime, the dates and places of wages payment (the payment of wages in dramshops, for example, is forbidden), the employer's power to impose fines for negligence or
damage, the mode
writing
in
which piecework
so
shall
be computed (rates
in
on thru a great mass of detail. In the several states vary greatly; many
them are lax; often they are ill-enforced, whether lax or stringent. The backwardness of this country in labor legislation and in its administration
is
laissez-faire traditions of
former
more
The changed
social
and
industrial conditions
ham-
whether the constitutional powers of the federal government should not be enlarged.,.,,....,.
..
1 It is true that hours were very long in the Massachusetts cotton mills, for example, before the Civil War. But until the influx of the Irish after 1846, there was
no permanent mill population the employees were chiefly women who came to the factories for a year or two in order to accumulate some savings. And the pace in the factory probably was slower than in modern days.
;
322
enforcement
well trained
for
PROBLEMS OF LABOR
[58-2
There must be a staff of inspectors, is indispensable. and well supervised, and there must be ample provision prompt penalties on delinquents. Every movement for social
industrial reform
and
depends for
for success in
its success on good public officials, any country are gaged by the ex-
provides such
officials.
In this respect
also,
our
The new and complicated problems of modcome upon them suddenly, and political tradimachinery have not been adjusted
presents
itself:
and
political
for dealing
with them.
2.
The question
why
legislate
on
all
these
matters?
of the
Why cannot the same results be reached thru the efforts laborers themselves? Why do they not refuse to allow
children to work, stipulate for fencing machinery,
women and
The answer
work
shall
to such questioning
in part obvious.
stipulations as to the
mode
in
This
is
which
bad.
finds
tition
all
can be raised
is
by the
same terms on
employers.
But
it is
workmen from
of legislation
is
The need
due largely to
their
short-sightedness,
and un-
dangers of an occupation.
effort for
It
them from concern about the was not the miners who made the
but the
of
compulsory use
men
of science
and the
social reformers.
file
men
are singularly
58-2]
323
or recklessness,
must commonly be forced upon them. So it is with the unhealth}^ trades. Those engaged in them seldom protest, but
ing accidents
risk their health
future.
The
initiative in legislation
social reformers,
on
all
come
mainly from
men
of science, physicians.
Social reformers
about
dren.
The
laboring
Long
women
and
birth rate
To
lift
conditions calls for strong compulsion from the outside, not only on
The parents
are them-
children.
Legislation
be
by education.
Nothing
so effective
as the
rights
social
marasm
equal
sense
of
and and
free opportunity,
and a
stir of social
ambition.
of labor regu-
The moving
lation
mass
restriction has
human sympathy
civilized world during the last century and and has so profoundly (often unconsciously) influenced the
all
attitude of
men on
;
social
and
political problems.
Altruism has
widened
children distresses as
now not
to be
324
selfish
PROBLEMS OF LABOR
But the main
life is
[58-3
its effect.
aims to make
that there
happier for
all.
needs but to be
made known
world
and an eager
is
The
civilized
has been;
all
much
better;
all in this
regard, that
human
of public
and private
given to lessening
all
men
has stood in
coun-
children.
on a different footing from such limitation for women and In England and in the United States no general regula-
men
The men
ave been left in the main to make their bargains in this regard as In some other best they could. The same is true of Germany. countries of the Continent a maximum working day for adults has been fixed by law for all manufactures, as in France and SwitzerBut the limit permitted (12 hours in France, for example, land.
11
in Switzerland) has
legisla-
true,
have
re-
conditions have
come
to
in
The hours
in
Germany and
in
some American
some
of our
now
I^vada, Missouri) there has been legislation limiting the hours in all mines to eight. But these are exceptions; for most industries there is no direct limitation on
Western
states (Arizona, Coloraclo,'
^...-''tEe e
number
of hours
men may
work.
By
far the
most important
women men are employed in the same establishments, the hours fixed for the women and children are in effect fixed for the men also, and indeed are sometimes (as in France) made applicable by law to the men in mixed establishments.
restriction is that
legislation as to
and
children.
So far as
58-3]
325
is
of law,"i
in
many state
legisla-
among
Some
the work-
are allowed to contract out) are held to deprive them of liberty work as they may please. Laws restricting women's and children's labor have not been held invalid, because these classes are supposed to be amenable to control under the police power. Even as regards men, some laws restricting hours in particular trades, where grounds of health are supposed to justify an application of this power (as in bakeries and mines), have been held valid. The general doctrine, under which men may not be deprived of their "liberty" to work long hours, results from an interpretation of the term which is easily open to criticism. It is probable that the judges who thus construed it were affected, more or less consciously, by a general prejudice against the laborer's demands. In any case the exact definition of so vague a principle could not but
to
men
be
difiicult.
The questions
But the
a point of principle
between
legislation
men and
legislation for
women and
children?
seems to be that
it
may
by their own efforts than There are no tenable objections of an abstract or general sort. The same social sympathy which leads to interference in behalf of the women and children may lead consistently to
to get shorter hours
men
by
legislation.
This prohibition
is
put on Congress by the Fifth Amendment and (what is much states by the Fourteenth Amendment.
326
PROBLEMS OF LABOR
men.
If it
[58-4
be thmightintolerable that
women should work more than ten Lours, it may be thought no less intolerable that men should work more than twelve, or eleven, or
ten.
The
question
is
loss
how
offsetting disadvantage.
Something
is
men
by
There
Labor
The ultimate improvement of the conr dition of the mass of mankind depends on an elevation of chaj^g and intelligence. Tho the relegation of progress to self-help is often but a specious means of blocking reform, it remains true that selfwhich they
give.
^
help
is
On
men may be
should not set
to
carry
on
for
is
themselves the
in
there is no reason at all for opposing legislation in where short hours are called for on clear grounds of physical welfare. Thus, in Prussia, labor in mines where the temperature is higher than 28 C. (93 Fahrenheit) may not exceed Such legislation is analogous to that which comsix hours daily.
industries
pels the fencing of dangerous machinery, the proper ventilation of
And
The demand
is
and especially
for a general
eight-hour day,
of labor organizations.
Apart from
legislation
what
is
to be said
of it?
The same obvious reason which makes one sympathize with the demand for higher wages makes one sympathize with that for
means improvement in the condition of the mass And it means improvement at a most important of mankind. Specialized machinery and the division of labor tend, point.
shorter hours.
It
58-4]
as
327
wehave
is
attractive.
tendency
more monotonous and irksome, less unwelcome but inevitable Hoiifs and increasing the period of leisure b^shortenfng
labor
make
The
The cynical by the mass of But in fact laborers for drunkenness and demoralizing idleness. drunkenness is an accompaniment of long hours, and of the things
velopment of higher
faculties
in fact used
true that with shorter hours there should be other agencies for
playgrounds and
Shorter hours
an overwhelming balance
of gain in happiness.
The debatable question concerns the effect of shorter hours on wages. Tlie demand for them is invariably combined with a de-
mand
less
for the
same wages;
less
work, or at least
less hours,
but not
Are these combine3 demands reconcilable? Will not the source from which shorter hours lessen the product of labor
pay.
done by the
piece,
men may
is
often accomplish as
is
hours as in ten.
but
is
b}'
not
without check.
in
make employment then operates Even where machinery sets the pace, a reduction hours may be offset by a gain in efficiency. INIachinery never
the pace quite without regard to the intelligence and watch-
fixes
fulness of those
who
set
it
in
motion.
An
alert
and wide-awake
laboring force
may turn
out as
much
in eight
in ten or twelve.
But
all this
much in eight
and not
infre-
much in six.
Factory opera-
do as much
328
PROBLEMS OF LABOR
much
in eight as in ten.
[58-4
It
is
not easy to
national dividend.
and mercantile occupations would lessen the other things being unchanged But a re-
fail
what has happened in the civilized century; this is what we may confidently
is
The tendency
and
now
in
usually 10 iir"N
England.
Un-
now are more than 10, as in the textile mills of the South and the iron and steel industries of Pennsylvania; a result due to the same cause which has led to the abuses of women's and chilthe hours
dren's labor in these regions
'of living.
a laboring
class
even
15,
By
the close o?
the century they were, for the majority of workmen, as low as ten,
and
in
hours, pari passu with a general advance in wages, has been due to
John Stuart
all
much
quoted passage written in the middle of the nineteenth century, declared that
it
diminished the
toil of
;
human
being.
it is
men
and women
toil
And
it
will
less
hours; or a middle
58-41
329
Chosen
"
"
deliberate choice.
There has been simply a vaguely guided steady for both higher wages and pressure for the better conditions shorter hours. The successful attainment of both has been due to
with apprehension.
as almost
all
The
gain has
come by
industrial changes
do
first in
The
mechanics get
short hours
first
sort of
same reason that they get higher wages because the demand of the rest of the community for this labor is high as compared with the available supply of it.
first,
for the
The
all
can
among
in the
ways
work and
for
work
When once the general level of wages has got above the minimum
mere subsistence and physical
It
efficiency,
is
a diminution of the
for
some
day
is
leisure
The
de-
mand
before
exist.
sympathy and
support.
them and
which the laborers are right in keeping ever in pressing for whenever favorable conditions
in so
No
doubt here, as
many
cases,
it
The
skilled
already high, get the shorter day soonest, and without any reduc-
Those industries in which operations are continuous night and day as iron and steel works and in which the twenty-four hours are often divided between two shifts working twelve hours each, need the shorter work period most of all. The
tion in pay.
least that can be here regarded as decent is a system of three shifts, each working eight hours; an arrangement common in the mines of
330
PROBLEMS OF LABOR
all
[58-5
selfish
progress as they sometimes are, in this case at least set a good pace
and
offer a stimulating
example to the
.,
^.,.
5. Where there are very low earnings and the conditions that usually accompany low earnings, such as long hours, bad work-
rooms, harsh bargaining with the weak, the question arises whether
there
may
minimum wages
The demand
more
is
by
and the
pressed
form of labor
legislation
Is
loosely used,
first
of
when
tract
applied.
Originally
and domestic industry, work being parcelled out on piece terms and done at the home of the workers. The making of clothing
tj-pical industry.
Machinery and
large-scale pro-
making of textile fabrics, were not easily applied to the cutting and sewing of garments. The wholesale dealers and
lutionized the
women, and children who did the work at their homes. The most striking instance in the United States was in the East Side of the city of New York^ where hundreds of thousands of newly arrived immigrants, largely Russian Jews, were engaged by subcontractors in sewing vast quantities of clothing for the
American
people.
The
tics of large
Wretched conditions often appear in this organization of indusbut they do not arise from it by necessity. The earnings of ^,^,^^he so-called sweated are by no means universally low. They are so when very many compete for the work and can turn to no other
try;
58-5]
331
all)
sort of work.
of
the
New York clothing trade; since the hordes of newly arrived imfind
it,
their
compatriots
doing
this
thing,
easily
join
and can turn to nothing else. The subcontractor may then be what he is pictured in popular imagination a prosperous of the helplessness and unscrupulous person who takes advantage of the sweated and grinds them to long hours and pitiful wages.
them
at
But quite
no
as often he
is
4^^
less poor,
wherever there
will also
JUj
.^"v^
^r^
work out
its
May
shall
minimum
ployed"?
of
employ or be em-
Shall
who works
is
to
wage"?
it
There
is
much
an absolute physical
fit
minimum.
try.
They have
is
in
mind
a standard of
or decent living;
and such standards vary from age to age and from country to coun\^^lat
is
Germany
or Italy.
Like
in reality
something to which
men have become habituated and which reflects the general attainment of a given stage of well-being. The feeling that none should fall j^^g^suchj/^v ing " wage rests on tbjs samejba sis^as most pftople's feelings in favor of social
all
reform
should share in the gains from progress within the bounds that
demand
minimum
rate of redif-
332
PROBLEMS OF LABOR
and
might
[5S-5
yet,
if
pushed to
question.
its
farthest consequences,
it
easily raise a
new
a
As with
legislation
like,
would be affected
difficulties of
alike;
es-
met only by a staff of by support from public opinion. Such difficulties, serious anywhere, would be especially serious in a country like the United States, whose methods of legislation and administration are still crude. But they involve no new quesat evasion, to be
inspectors,
attempts
by
admin-
publicity,
tions of principle.
more fundamental question, yet still not of an essentially There novel sort, would be how to deal with the unemployable. would unfailingly be a certain number not capable of earning the the aged, feeble, maimed, the dissolute or half disminimum solute. It would be impossible to compel employers to pay the minimum to those whose services were not worth it. It is a fair
question whether
fect, that the
it is
community would be compelled to face squarely the problems of decrepitude and degeneration. Among those who are incapable of work or but half capable of it, two classes may be distinguished those
:
and those
helpless
tend to be cumulative, such as congenital feebleness of body and character, alcoholism, dissolute living. The first class may be dealt
with charitably or provided for by some system of insurance. second class should be simply stamped out.
The
minded, nor those saturated by alcohol or tainted with hereditary disease, nor the irretrievable criminals and tramps, should be al-
lowed at
be allowed to breed.
We
have not
we
but at
least
58-5]
333
opinion
at least
moving to the conclusion that so far we may apply the principle of eugenics and thus dispose of
rapidly
of the
of this
problem
of the
problem
one
unemployable.
which does
in-
new
principle.
all
What
who apply?
The
by such legislation would be those in the lowest The wages at which they can find employment depend on the prices at which their product will sell in the market or in the technical language of modern economics, on the marginal All those whose additional product would utility of their services. so depress prices that the minimum could no longer be paid by employers would have to go without employment. It might be practicable to prevent employers from paying any one less than the minimum; tho the power of the law must be very strong indeed, and very rigidly exercised, in order to prevent the making of bargains which are welcome to both bargainers. In any case it would be quite impracticable to compel payment of the minimum to all
affected
economic group.
who
Back
movement,
in other words,
is
The danger of pressure from uncontrolled increase of numbers exists in modern societies chiefly for the lowest stratum.
thusianism.
it
No
legal mini-
numbers increase so as to bring an ever growing competition for employment. How far this obstacle would really stand in the way of minimum-wage schemes would depend, as we have seen, mainly on the extent to which the stir of
ambition reached
all classes,
low as
w^ell
as high.
Freedom, edu-
make
all
probable that increase of numbers will not destroy the possibilities of permanent uplift. Yet, tho we may have hope and
1 2
2.
Compare Chapter
53,
3.
334
even confidence on
of nature
PROBLEMS OF LABOR
this score,
[58-5
we cannot be
sure
how
may be curbed.
this
Whether
be fixed
fundamental
in
difficulty will
whether at a
w hole
to
market
compul-
The
fixed
by law
wages
They
will
They
w^ill
"just" and
in
accord with a
"minimum" standard
Such at
in the
sense that they will tend to aid and strengthen the forces that pre-
least has
been the
much
especially Victoria,
INIinimum Wages
in large terms,
Act
will
of
Great Britain,
like others of
ment,
mental
6.
CHAPTER
59
Some modes
Immediate and deferred participation, 335 Sec. 2. Profit sharing will not be widely applied unless it pays, by increasing efficiency. Uncertain connection between profits and workmen's eSiciency. Importance of the employer's personality, 339 Sec. 3. Other methods of linking employee to employer: "gain sharing" and "welfare" arrangements, 342 Sec. 4. The sliding scale applicable where product is homogeneous. Not in harmony with the general principle of employer's assumption of industrial risks, yet often helpful toward avoiding friction and dispute, 343 Sec. 5. Arbitration, private and public. Not applicable where such matters as recognition of the union or the closed shop are in dispute; but applicable to the questions of wages and the like. Private boards imply trade agreements and organized unions. Public boards are usually boards of conciliation, but none the less helpful, 344 Sec. 6. Compulsory arbitration, carried to its logical outcome, means settlement of all distribution by public authority, and may be the entering wedge to socialism. Possibility that it will remain indefinitely in a halfway stage and not proceed to this outcome, 348.
of applying
strikes
and lock-
have
ways
of strife.
To
the main
in
mind
regarding them
Profit sharing
we may now
give attention.
Trade-unionism
common
action
against
sion
:
all
the employers.
336
PROBLEMS OF LABOR
common
[59-
welfare of their
It is
go on side by side
their fellows for
united with
all
and with
their several
who
The
it
make
the
workman
interested
in
that of
all
workmen
business
man
is
alone.
deavor
is
made
to
The
usual
provision
(say five or six per cent) and that wages shall be paid to the work-
LTsually, too,
it is
shall
sum
as salary
as wages
be allotted a stated
part of
The
all
then
and employees.
given up because
it
failed to
prevent
strikes).
is
to the
workmen,
Leclaire house-painting establishment in Paris, where the proprietors get one quarter of the net surplus, the
ters.
workmen
three quar-
Company
in the
.
in
wages
In a French example no
less
noted than
59-l]
337
the division
is
in the proportion
amount paid
in
wages
evidently an arStill
another
is
that
any inspection
of the
books by
way
In
is
among
the individual
his
wages to
so that those
who
and steadily employed get the largest amounts of bonus. Steady employment, to be sure, is usually a condition of any bonus at all;
as a rule those only
of a
permanent
staff
to
The amount which goes to the workmen is not them in cash. A part of it, even the whole of
working
capital,
necessarily paid
it,
may
be kept
in the enterprise as
interest
and
vested the interest and profits being paid in cash, but the accumulating bonuses retained as additions to capital.
but
in
all
buying shares
it;
selves
not so
much
The
same result was eventually reached in the Leclaire establishment. There only part of the bonus was paid in cash, the rest being turned
over to a workmen's Mutual Aid Society and invested in the enterprise for the benefit of that Society.
effectually, the
Indirectly, but
none the
less
main owners; and this arrangement too has become one for coopera-
338
tion.
PROBLEMS OF LABOR
In the Nelson Company,
left in
[59- 1
also,
must be
by
cooperation.
no essential part of
endeavors to get rid of the business man, not simply to strengthen the bonds of interest between him and his employees.^
of
workmen
way
in
which
to
is
pay
their share in
the most
common
and
is
practised,
on a consider-
The
make
it
more
attractive to
many work-
and a few conmen there than it spicuous examples of success, as in the enterprises of Leclaire and Godin, have contributed to the spread of the movement. In other
seems to be in other countries;
countries
it
much
In the United States the term profit sharing is sometimes apand plied to an arrangement by which employees are enabled
indeed tempted
to become stockholders
is
in corporations
which
employ them.
just outlined.
This obviously
Tho
like
them
in that there
expectation of enlist-
ing the men's interest in the general pecuniary outcome of the enNo one becomes autoterprise, it differs in essential particulars.
matically an interested party. Only those become participants who elect to put aside something out of their regular earnings, or authorto do so for them; and they are usually a small and the better paid employees at that. Their participanumber, tion, further, is not in the total profits, but only in that part which in dividends. There is distributed at once among the stockholders
ize
the
company
59-2]
339
common
fected,
stock), the
of the
employees
af-
employers a firm
The plan is usually adopted, the case with profit sharing in the more exact sense, for the purpose of making the men conservative, checkcontrol over the enterprise as a whole.
even more
than
is
It is not often
has
it
Even less than profit sharing a claim to be regarded as a "solution" of social problems.
sympathy.
Profit sharing It
was at one time proclaimed as a solution of was expected to be widely adopted and to bring general industrial peace. Slackened growth of the movement, and a more critical consideration of its methods, have dampened these expectations. Yet there still are earnest advocates,
2.
it pays the employer. generous-minded employers who will adopt such a system, even tho it brings no pecuniary gain. This has been the basis of some of the most conspicuous and long-continued cases.
who believe that it has large possibilities. The plan will not be widely adopted unless
There large enterprises have been conducted by men of strong altruism as well as of high ability, who have gathered about them a staff of managers and workmen imbued with the same spirit. Unfortunately this spirit
of
is rare. Were it common, the whole aspect economic world would be changed. The immense majority the business men, and of workmen too, are not disposed to hand over
of
to
themselves.
to be sure,
is
So
not necessarily a direct pecuniary one. Freedom from labor trouble and strikes has come to be of indirect but considerable
Conceivably there may be an advertising be led to make purchases by preference from those w^ho are supposed to be generous with their workmen. Some
advantage; people
will
pecuniary advantage.
must accrue
if
to prevail widely.
on the part
work-
340
man.
PROBLEMS OF LABOR
[59-2
Knowing that he is to have a share in the profits, he may be expected to work more conscientiously and more assiduously, to save materials and to care for tools. Thus he will contribute as
Any scheme that really system has already been pointed out. promised to eliminate or lessen the waste would be welcome from
every point of view.
this
welcome
result
may
Where the industry is considerably and directly affected accrue. by the way in which the laborers do their work; where those laborers are intelligent
enough and persistent enough to keep to better the novelty of the scheme has worn off; where the
there
Such seems to have been the situation in Leclaire's housepainting enterprise. There the work was widely scattered, diflficult of supervision, and much affected by the care and skill of the individual workmen; the employer was capable and warm-hearted, earned the confidence and loyalty of his men, and gathered about
sharing.
him a staff above the average in intelligence and character. In most industries of modern times the conditions are not thus It may be a question how far deficient intelligence and favorable.
farsightedness in the average
in the
way,
if
other things were propitious; but other things are not propitious.
and
activity,
and the
Tho he do
may
humdrum thing,
profits
may be
sharing.
high.
This
is
not only
To
this
59-2]
341
stints
and
commonly done in factories with much regularity and routine. Even when there is not piecework, it is possible to fix the normal performance for each man. The power of discharge is a more coarse and cruel stimulant to eflSciency than a bonus from eventual profits, but it is more direct and with most men, unfortunately, more effective. To repeat, unusual employers can achieve unusual results. The
to supervise the
is
Work
spirit of
it
does a regi-
ment
or a school.
promising
Even
and eventual
remote
have
by
minded men.
The
list
of enterprises in
The
infer-
the stronger that the personality of the leaders has been the
chief factor.
itself,
Where once established, the system long maintains even after the death of the founder, for the same reason that
for a considerable
when once
it
has got
its
impetus.
enlisted associates
who
and
spirit.
its
That
The
The prevention of strikes has been a strong motive with some employers. The fact that the trade unions look on it askance, and
the growth of other methods for linking the interests of employer and employee, have made it of diminishing promise on this score.
Sometimes, as has already been noted, an advertising advantage is supposed to be secured. A business concern turning out an article
widely used by the general public ingratiates itself by what is supposed to be kindly and generous dealing with its employees. It is a
of advertising,
if
342
PROBLEMS OF LABOR
Unfortunately
it is
[59-3
than
nil.
The prospects that profit sharing will be universally adopted are Even the prospect for w ide spread is slight. For good or ill,
is
be-
coming sharper.
association.
The decay of semi-patriarchal conditions and movement make against close vertical This does not mean that relations are necessarily beindustrial peace
is
harder to
this
much promoted by
way
is
only one
of reaching the
desired results.
as
we have
than
way.
shar-
more promise
is
of effect
"Gain
ing"
is
Piecework pure
Sundry schemes have been devised by ingenious managers premiums on output per man or per group of men; bonuses on savings of materials, oil, fuel; and the like. Simplest and perhaps most effective of all is general good treatment
and simple
an obvious
:
case.
combined with general good discipline. Some tautness of organization, some threat of punishment thru discharge, there must be so long as men are hired by others for profit. But a humane and farsighted policy can do
much
wages at the going rates, ready attention to complaints, straightforward and non-patronizing dealing, wise selection and supervision of the understrappers, well-equipped work-
Prompt payment
of
all
They
are helpful
most
of all
sonality; for, as has just been said, the personality of the industrial
What
midday meal; gardens, playgrounds, and club rooms; dwellings (when supplied by the employer) of good
factories; decent places for the
59-4]
343
design at moderate rentals; pension plans and mutual aid societies, aided and subventioned by the employer; and so on indefinitely.
All these are good, not as "solutions" of the fundamental problems, but as mitigations of existing evils. The increasing adoption of methods of this sort is in part but one manifestation of that growth
we have seen, underlies labor legislaand the whole movement for social reform. In no small degree it is due also to pressure from labor unions. The fact that
of altruistic feelings which, as
tion
workmen
are
formidably organized
makes
it
pay
to minimize
discontent.
culation, this
^Miether due to
humane
spirit or to
mode
may have
among employers and salaried managers brings to the fore those who are not only energetic and capable, but far-sighted and of good heart, so much the better.
If
sympathy.
the competition
Development
take place than that of profit sharing in the strict sense, and promises more for industrial peace in the future.
4. this, as
An
by
is
is
By
of
bad
sought; but in
declining
falls.
A minimum rate,
usually set,
below which wages shall in no case and a price of the product is agreed on corre-
by
As the price rises above this point, wages stages agreed on in advance; and as the price declines,
(perchance)
wages
fall,
is
until they
The
is
method
turned out, and where the price of that product can be ascertained readily, say from published market quotations.
The
it
sliding scale
seems at
first
The
principle
is
(if
principle
ploying business man takes the risks of enterprise, and that the employee does not. The employee gets once for all a stipulated sum, which is independent of the price obtained for the particular
goods
sold, as it is
344
ployer.
If the
PROBLEMS OF LABOR
product In the industry or estabhshment
loss.
[59- 5
falls in
price, the
The presumable
consequences might be outlined thus a decline in the profits of the employing capitalists, then a reduction in the output, then a transfer of
workmen to
no changes of wages
from the
level fixed
by the general
forces
This very statement of the presumable or " theoretical "consequences of the usual wages arrangement indicates why the sliding
scale
may commend
itself
and capi-
is little
an industry often think there is less than in fact exists. When there are lower prices and lower profits, the decline in output, tho it comes, is carried out slowly and reluctantly. A shift of
engaged
Employers and employees are in a sort of de facto prodluctantly. uct-sharing situation. Both are for the time being settled in the existing employment, and between them can get out of it only so much as the output of the industry in gross makes possible. It is true that a prolonged period of high prices and high wages tends to
attract capital
a lower range of returns; while conversely a period of low prices and low wages has the opposite effect. These further consequences, however, are
ple; for
future.
they rarely look beyond the present and the very near Only a small number of far-sighted business men and a few
economic students give thought to eventual results. Most persons think of the laborers and the employers in a given industry as committed to it once for all. Friction may be avoided and the continuous conduct of operations promoted
that both wages and
if
there
is
agreement in advance
some degree at
strife
is
least,
arbitration.
Why
by
his decision?
o9-5]
345
Arbitration
radic
If private, it
may be
it
spo-
pubKc,
may
be
And
work
of
much
in the
By
mean
would obtain
if
results
When
what is "fair," they are commonly not very far apart; and commonly each side would lose less (certainly for the immediate future) by accepting the terms offered from the other side than by a strike or lockout. The frequent outcome is to split the difference, often no great difference; and this is much eased if the whole dispute be referred to an impartial arbitrator or board of arbitration.
Not only
is
by turning
to arbitration; there
Men who have backed their demands by threat and ultimatum find
it difficult
know
that
it will
be better to do
The
:
Hague Court
of Arbi-
withdraw
without
loss of pride
are, indeed,
some questions of principle which it is difficult and which it would be no less difficult for an arbitrator to settle. Such are questions as to the recognition of the union shall the employer deal with his men one by one, or in a body thru their chosen representatives? Here, as we have seen,
There
to refer to arbitration,
:
346
PROBLEMS OF LABOR
[59-5
the balance of social gain, and so the answer to the question of principle, is
But an
and ethics to give a satisfactory answer to them, and certainly would fail to convince both disputants even if he attempted such
a discussion.
Again, as to the closed shop: shall the employer
doubtful, and the answer
men?
of social gain
is
be settled by arbitration.
closed shop, they can get
If
it
whether they
will
succeed in getting
ill
Most
ing
disputes, to repeat,
and
especially those
wages,
is
on matters
of less
like.
profound bear-
horn's,
these
facilitated
by
or public boards.
Permanent private boards rest on trade agreements. They depend on the existence of organization among the employees as well Thej' are an outcome of collective bargaining. as employers.
Carried out with rigorous consistency, they entail the closed shop;
since they
men.
None
trade agreements
may work
in practise with-
out the universal closed shop, since union terms and bargains set
a standard to which the non-union establishments tend to conform. Such compacts, as they have developed in course of trial, provide for regular meetings, for a settled course of procedure, and for refer-
It
is
be binding.
Their function
tion.
may
it is
be that of conciliation rather than of arbitraprobably better so; since in any case they can
Indeed,
Whatever the
precise stipu-
They
make make
59-5]
347
and unruly
and employees, and levy on the public by restricting supply and exacting a monopoly price. The seriousness of this danger depends on the extent to which competition from outside employers and non-union workmen can be shut off. We have seen that, as between workmen, the drift of industrial change is against the permanent maintenance of a monopoly position. As between the employing capitalists, this comforting assurance is by no means so clear; their striving for combination raises questions of a somewhat different kind from those
ganization, keep out other employers
The same
disputes,
is
number
and
of industrial
of arbitration, such as
in
been established in
many
have England.
we.ll
as arbitration.
They
ators
when a
dispute occurs,
action
and
to
make
As boards of arbitration, they provide a standing tribunal to which the disputants can refer, and so can save their pride and probably their money. Their efficacy
to bear in aid of a settlement.
of the individuals
appointed to
judgment on their part, there will be some disputes, very possibly a large proportion of the whole, which will not be referred to them. Among those which are referred, or are taken in
best exercise of
hand without any reference by the disputants, many must fail of settlement by arbitration or conciliation. The sj^stem is no panacea against strikes or losses.
success
it is
On
well
worth while.
work
have taken place in spite of the standing public boards, they more than repay the expense of maintenance if they succeed in preventing a moderate
number
ills;
of struggles.
Arbitration
is
but a
pallia-
none the
less it is helpful.
348
PROBLEMS OF LABOR
On
common
[59-6
the latter
it is
to have
member
ployees,
selected by the employers, another selected by the emand a third selected by these two (or by some other
.
In practise, this leaves method supposed to guard against bias) to the third member, and loses the advantage the decision virtually of real contribution by all the members to fair-minded consideraPublic boards, especially when appointed in advance and tion. without reference to the particular controversy or trade, are more
likely to bring this advantage.
difficulties of
It is
an indication
of the inherent
private boards, for the very reason that each wishes to have
among
6.
arbitration; that
Its essence
is
may be made by either party. become binding on both, and failure The terms fixed by to carry on work under these terms becomes a criminal offense. A The tristrike or lockout is punishable by fine or imprisonment.
cation for the settlement of disputes
the tribunal
bunal
may
may have
in addition
Obviously,
open unions, and the statutes or the courts must make provision It is hardly less essential that the employers for their being open.
1
In
New
first
(in
1896), a strike or lockout became a criminal offense only if one of the parties has made application to the arbitration court. "If both parties prefer to settle their
In the New South Wales difficulties by a strike, the law permits them to do this." law (1901), however, every strike or lockout, prior to or pending consideration by the court was a misdemeanor and punishable as such. In other words, in New South Wales, all disputes had to be referred to the arbitration court. See V. S. Clark, The
59-6]
349
should be organized, since for them also there are to be rates and
rules of general application.
involves a court,
of
powers
of coercion
by that
court,
both emit.
The
is
likely to
be com-
when
first fixed,
still
The adjudicated rates of wages are somewhat higher than those previand not higher to such an extent as There is usually a certain
which can be taken up
"fair,"
amount
community
scale.
As time goes on, the workmen and the become accustomed to the new
almost certain, will before long ask for
still
The workmen,
more; until
far
it
be compelled to consider
how
What
"fair" wages?
That question cannot be settled without settling what is fair interest and fair business profits. Ultimately, the tribunal must determine what is fundamentally just; how much the owners of wealth
are justly entitled to in the
to the employer in the
way
of interest;
what
is
a just return
laborers
way
of business profits;
why some
are to receive
more than
others,
and what
is
just as
between the
dif-
different groups.
wages.
hibit
some
impose upon
all
employers
Compulsory
itself
arbitra-
bounds within which competition shall work. It supplants competition. Wages, interest, profits, are not to be determined by the bargaining of employers and employees, with liberty for each
party to desist at will and see how the other can get on without. They are to be fixed by public authority; and this involves settlement by public authority of the distribution of wealth.
350
PROBLEMS OF LABOR
may
be disguised and postponed.
Possibly the
[59-6
It is
be postponed indefinitely.
custom push
limit.
is
enormously strong.
their
demands so far as to raise the question of the ultimate They may content themselves with such minor changes as
which
it
in Australia.
With the
increas-
any
still
have to be faced, and somehow solved. What the outcome then might be, it would be rash to predict.
wages means a cutting down
of the returns
to investors and business men, and so we should argue on the basis of our general theorizing on distribution an eventual check
to accumulation
early reaction,
sistent
and to business enterprise. This may lead to an and to a reduction of wages once more to rates conwith the present mode of conducting industry. Or it may
is
equally possible) to
still
In
other words,
the
settlement of distri-
Few
it
Nothing of the was established in New Zealand and and tho it has already become appar-
ent that
much more
is
up
and economic problems; both to see whether the temper of the workmen will lead them
social
59-6]
351
to press their
and what
may
be the conse-
quences
if
they do.
Many
will have been carried so far as to make clear the ultimate outcome. During the intermediate stage, when no very radical changes are
experiment
attempted
longed
appear:
indefinitely one
may
be pro-
other difficulty
is
more than
likely to
how
to be against the
is
workmen.
easy enough.
They have
ample and
and they can be brought to book by fines. Against employees fines must remain a merely nominal mode of enforcement. Quite apart
from the expense men, the
cratic
political
odium
any demo-
way
only
may
it is
CHAPTER
Workmen's Insurance.
Section
1.
60
Poor Laws
Irregularity of earnings
is
and
its
causes, 352
Sec.
2.
Provision
against accident
lish,
The German
sj^stem, the
Eng-
the French.
The
Insurance against sickness Sec. 3. come ultimately out of wages, 353 no less feasible. The Friendly Societies, the German system of compulsory insurance. The possibility of malingering and the need of superOld-age pensions in European countries and in vision, 357 Sec. 4. Austraha. Are they deterrents to thrift? The pecuniary difficulties Sec. 5. The situation in the United States as to not insuperable, 359 accidents long chaotic; the need of reform. Rapid spread of compensaThe pohtical difficulties in the way of this reform and tion for accident. Unemployment, tho it tends to correct itself, is a Sec. 6. others, 362 continuing phenomenon. Difficulties of applying any method of insur-
likely to
ance.
Possibility
of
supplementing trade-union
out-of-work benefits.
The
Sec. 7.
Poor laws: the conflict between sympathy and caution. Relief may be For the able-bodied, it liberal where no danger of demoralization exists. needs to be administered with the utmost caution, 369.
1.
Irregularity of earnings
is
much more
frequent cause of
distress
Men accommodate
Where the margin
is slight,
Few men
any
inter-
are
such as to
make
insur-
How
is
sequent suffering
among
one of
more and more attention has been given in recent times. This increase of attention has not been due to greater irregularity in
earnings or greater need of provision for contingencies.
of
I
know
illness
60-2]
353
uncared
now than
in former times.
is
clearly
more
now regarded
as intolerable,
and a strenuous
remedy them. Accident, sickness, old age, unemployment these are the main causes of irregularity in earnings. As to all, it will be necessary to keep in mind a large question of principle how far can aid be proeffort is
made
to
ance.
The only
way
of
making the
insurance effective.
By
far the
most important
is
class of accidents,
that of accidents to
workmen
Such
It
will infallibly
made
ful
against
even doubtw^ould
made which
The
men
an employment are accepted by almost all workwith virtually no attention or allow^ance; and when, sooner
The
It
is
most occupations to be susceptible of insurance, both for accidents having a fatal result and for those bringing permanent or temporary disability. When once the possufficiently well ascertained in
is clear; when workmen themselves will not insure; and when the sense of social sympathy and duty becomes so strong that provision of some sort is insisted on the only solution is to make the employers responsible. Let them do the insuring, paying premiums from time to time which will enable a death benefit or pen-
sibility of dealing
it is
abled
workmen
all
themselves.
widows and orphans, or a pension to the disThe premiums required, if paid uniwill enter into the
formly by
expenses
354
of production of all
PROBLEMS OF LABOR
and
[60-2
Such a plan
will
have far-reaching__
made of compulsory and universal application, and if the mere fact of employment fixes the obligation of the employer, irrespective of any agreement between him and the employee.
The
by
by simply imposing on them a liability against in companies existing for this purpose. Of the former type of procedure, Germany supplied the earliest and most conspicuous example; of the latter. Great Britain. The Gertions of their own, or
man
first
^
workmen's insurance, compels the employers elaborate system in each trade to form a sort of insurance company carefully super-
by the government, to contribute premiums adjusted to the and thereby to enable the pa^Tiient of pensions to disabled workmen (at the rate of two thirds their former wages for those completely disabled) and corresponding pensions to widows and minor children. The British Workmen's Compensation Act (1897), on the other hand, simply provides that the employer must pay a pension (of one half the former wages) in case of disabijityrand in case of death a lump sum amounting to three years' wages, with stated minima and maxima. In what manner he shall
vised
risk of accident,
make
the provision
is
left
to his
own
discretion.
In practise
he almost always insures in an employers' liability company; very few employers carry on their operations on so large a scale and
with such continuity as to
stantially
make it
is
Sub-
two
thirds of
the wagies
rate,-
and where
is
and the
effect is to
com-
liability.
This system forms a consistent whole, and might be dcscriljedas a whole; but up separately, according as they involve different
60-2]
355
is developed to high efficiency, and where by government authority is helpful and not unwelcome. The English and French methods are adapted to communities whose traditions and habits are against such faj-jea-ching government regulation. Each makes certain, tho not in the same way or quite to the same extent, provisions against accidents
administrative system
doigiled-super vision
No
shammed, nor
will
will
they be
in-
No
is
doubt they
The
negligence
It
probably not
made
by the
assur-
ance of prevision.
the
if
workman knows
or does not
know that he
will
be taken care of
by, stringent
anything happens.
by guarding machinery,
is
precautions
is
stimulated to
premiums will be lessened by them. In the legislation both of Germany and of Great Britain it is enacted that a workman who intentionally brings an injury on himself shall have no claim; but this sort of contingency
certain that the
of his
adopt when he
amount
may
be disregarded.
Tho there is a danger that accidents and made to appear more serious than they
and a pension may continue
longer, the
possibilities of
On
human
im-
by a
immediate
relief
sufferer.
they
at
on consumers.
Employers, no doubt,
bear them
first,
payments
from taxes).
1 It should be noted that the English statute gives the workman an option between proceeding under the Compensation Act and suing the employer for his liability under the law as it stood before. The trend is for less and less recourse to the latter method, and more and more resort to the Compensation Act; and it is prob-
able that resort to employers' liability of the old sort will eventually disappear.
356
PROBLEMS OF LABOR
Hence
[60-2
argued they
will
be
It
much
commodity
and
affects the
But a tax
on
all
commodities cannot
So
far as insurance
premiums bear more heavily on one industry than on another, they will have an effect, under competitive conditions, on relative prices, and so will be felt by the consumers of those things made in the hazardous industries. But so far as they bear on all industries alike Employers must accept the charge prices will not be affected.
once for
all,
they qjaj^
to be
enough some tightening, some drain on profits, without immediate effect on wages. When such a system is in steady operation, however, and has been for some time in operation, every employer knows that the act qf_, employment involves not only wages, but these additional charges His calculations must be correspondingly affected. The also.
Here, as in other similar situations, there
is likely
outcome is likely to be that the insurance charges will ultioiaielycome out of the workmen's own earnings. This will not necessarily take place by any process of direct reductions in wages. More probable, in progressive countries like Germany and England, is a failure of wages to advance as much as they would otherwise do. Obviously it is no objection to an insurance system that the premiums ultimately come from the beneficiaries themselves. In case of industries having a monopoly or quasi-monopoly, this Such inshifting of the charges is much less likely to take place. dustries will indeed share with others any general effects on all
j
j
wages.
So
far,
they
will
Compare what
is
said below,
6(>-3]
357
accommodate themselves most easily They have large resom*ces, allow a good margin for contingencies of all sorts, commonly lay their plans with reference to considerable periods. Smaller emto a compulsory insm-ance system.
Employers on a large
The
in the
way
of restriction or of
in ac-
is
not welcome
reform.
by
most
of
all,
possible
and desirable
arti-
an opportunity
in
some
independent
own
is
be availed of only
relief.
is even more feasible, since longer observation has supmore adequate data on the frequency of illness in great modern communities, and on its greater frequency with advancing age while the progressive gain in ways of healthful living has introduced
accident. It
plied
is
other mishaps
class.
ance proper.
The Friendly
on insurance against
illness
(and other
ill
fortune also) on a
large scale.
them, have done the same thing in the United States; and there are
358
PROBLEMS OF LABOR
[60-3
some associations of this type in most countries. They provide commonly against disability of all sorts, whether the result of illness or of accident. The same is done by the British trade unions, among whom the benefit system has an established and important part, including sick pay as well as trade benefits (strike pay and the like). It is true that the premiums or dues of all these organizaThey promise more for a given tions are commonly inadequate. weekly premium than they are able in the long run to furnish. Like the "fraternal" life insurance organizations which have had and still have such a vogue in the United States, they undertake to pay amounts greater than their dues warrant them in undertaking on sound actuarial principles. None the less, and notwithstanding frequent collapses, they have done great service in mitigating the hardships from illness and consequent loss of earnings.
Their serious and irremediable defect
comparatively prosperous
skilled artisans.
is
It
is
German statesmen
sal)
No
it
other
method
will
bring
relief
most.
1883, the
commonly organized by lowhich all workmen Contributions are payable by emare insured against sickness. ployers, whose obligation to pay is fixed by the act of employment; but they may deduct two thirds of the amounts from the stipulated
of measures, established associations,
cality (one for
district), in
gets, while
ill,
ment.^
ramifications
call for
and
details of the
an enormous and
skillfully
Cases of injury from accident are treated in the German system as cases of
first
Only
in case of
disability
sumably permanent
apply.
disability,
6(>-4]
359
illness.
The question
in this case.
somewhat
differently
shammed malingering is a clear possibility. For many a laborer half pay and no work make an attractive combination. The administration of any system of sick insurance hence calls for watchfulness. The Friendly Society, whose local lodge is made up of a comparatively small number of persons known to each other, can supervise its benefits without cumberIllness
may
be
some machinery and yet with sufficient checks. A visit from a committee of members attests sympathy and at the same time secures an inspection of the invalid.
The same
is
management
physicians'
calls for
visits
and
reports,
more or less of red tape. If badly administered, it is likely to become demoralizing to the recipients of aid, and in the end more harmful to them than complete indifference and abstention from aid.
elaborate records, systematic supervision,
It
is
German
system.
it
On
the
whole these drawbacks have been no greater than was inevitable; and the social gain has vastly exceeded the loss. The administration of the
German system
of
efficient.
staff of trained
pub-
Old age
will
is
a contingency
it.
no one knows
whether he
insurance,
reach
so
made by
and
is
360
PROBLEMS OF LABOR
Even among the
In the social
tier
[60-4
it is
insurance companies.
well-to-do,
not often
made
systematically.
below that
of the well-to-
and trade unions sometimes have a system of superannuation benefits but it is effective only for an insignificant
;
Among
commonly no
set provision of
any
and when infirmity comes, the aged are dependent on the younger generation or on charity. There is nothing more pathetic than the position of the workman, skilled or unskilled, who has passed the age of efficiency, has no resources, and is a burden, often borne grudgingly, on a household with slender resources. Old-age pensions are now provided by public authority in sundry The German system (1889) includes them, and applies countries. rigorously the principle of insurance. Employers there to them pay the premiums, with the same arrangement as in sick insurance One half of for deducting from wages part of what they advance.
the premiums can be so deducted, the other half remaining as a
fixfed
sum
is
contributed toward
is,
by the taxpayers.
The amount
premiums due
for
each workman, and the pension payable to This system requires an enorof accuit
mous amount
is
of bookkeeping,
an enormous investment
Probably
characteristic provisions.
Much
simpler
is
workman
or to every needy
workman, once
countries
This
what
is
done
in the English-speaking in
which
Great
New
Zealand.
In
all
of these,
Only those having no other income, or but a slender income, are pensionable; and in the Australian states there is a restriction also for those who have some accumulated means.
Old age cannot be shammed so far, an old-age pension can lead to no demoralization. But it is maintained that it will discourage
;
60-4]
WORKMEN'S INSURANCE.
takes
POOR LAWS
make independent
361
proof
thrift, since it
away the
incentive to
is
vision.
thrift to
Unfortunately there
in fact
no appreciable amount
be discouraged, least of
all
workers.
They
exercise
no
thrift
among the great mass of manual and make no provision, and they
such
Some
there
amount
done
The
the
make
The German
may
He
premiums paid on his account thru the preand anything he has done for himself, in the way of
is
a negligible
ele-
ment.
If there
were such,
it
It
all
know
it is
nearly on them.
fa-
some persons of the comparatively well-to-do classes, such as teachers and public officials. These pensions are not found to discourage thrift or undermine character, and they prevent much anxiety and suffering. Why should there not be a similar balance of good in the case of aged workmen?
Obviously, a system of old-age pensions must entail a very heavy
financial burden.
state, the
Where the
provision
is
made once
for all
by the
difficulty
money is often regarded as an insuperable obstacle. most matters of public expenditure, the question here is not whether the community can raise the revenue, but whether it really
of getting the
As
in
wishes
to.
When
is
poured out
362
on a
scale that
PROBLEMS OF LABOR
[60-5
would cover, many times, the expenditure needed If the impulse of sympathy were for the contested social reforms. as strong as the ancient and brutal fighting instinct, we should hear
little of
way
of
social
5.
improvements.
In the LTnited States the whole movement for workingmen's
made
is
slow headway.
The
situation
is
and
small.
Elsewhere there
action,
relief
by public
In this
backward as in many other matters of social reform. We are wont to flatter ourselves that our condition is a superior one, and that we are not confronted with the same social and
country
w^e are as
The
superiority
is
only one of
that.
The need
for ameliora-
hardly
less.
So
was wretched.
for injuries
on the employers
workmen
But
was
so
hedged
in
uncertainties, that
it
Most cases were settled out of by a compromise between the parties, with outcomes varying
Where
cases got into court, the question
employers' counsel.
whether the workman should get compensation depended on the lottery (such it virtually w^as) of a suit at law and a trial by jury.
The
an injured laborer,
in
the shape of a heavy lump sum in damages. This sort of prize blinds the workmen at large to the immensely greater number of They overestimate the prize, just cases in which nothing is got.
as they underestimate the chance of injury in dangerous occupations.
In
its
Most
of
60-5]
363
was
simply un-
State after
unconditional requirement of
way
was
of uniform and unconditional provision there by the workmen themselves to the option for
its
delusive possibility of
and not infrequently the compensation was inadequate as Usually the same method was followed as in Great Britain and France the burden of compensating the workmen was put on the employer once for all, but some freedom was left him as regards the manner in which the provision
:
should be made.
In
many
jurisdictions
company
or in a
cooperative ("
and competing with the private companies. There were instances (as in California) of an all-inclusive compulsory organization managed directly by the
jurisdiction.
state.
It
was not
The
is
significant:
shows how, even in a conservatively-minded community like ours, a gathering and cumulative public opinion brings about, when once
a
first
deemed impracticable.
The
problems.
put
But
if
in principle is
many
364
of
PROBLEMS OF LABOR
[60-6
compulof
of medical attendance
contributions
up only by
well-
devised legislation, and can be effective only under administration at once stringent
and humane.
In the
field of social
reform,
as in so
many
United States.
The national government is limited in its constiThe states can never act in unison, and are often tutional power. deterred from proceeding separately by mutual fears and jealousies.
Their large and cumbrous legislatures, elected for short terms, do not easily frame careful and consistent laws. The absence of per-
manent tenure
trained
better,
in the
officials.
and the conditions will become more favorable for the assumption by the state of larger and more diiEcult undertakings.
Among
such
is
and old age; concerning whose future hazardous to predict more than that
certain to
6.
country
it
would be
tolerably
in
some form
it is
difficult
than
Marx and Rodbertus contend that a large reserve of unemployed workmen necessarily comes into being under the In answer, it may be maintained that a steady capitalist system. unemployed laborers tends to bring its own remedies; it supply of
brings a competition for places, a bidding of laborers against laborers, a readjustment of terms
and the
final
absorbed in industry.
As a matter
more consistent and logical than the socialist attempt to prove that continuous unemployment on a large scale is inevitable. To put an extreme case, if one half or one quarter of the total number of laborers were long unemployed, it is certain that readjustment would
take place, by lowered wages and probably altered industrial ar-
60-6]
365
its
left.
bring
its
the
Such condi-
and never
An
automatic adjustment
all shall
under which
be
in fact
of
money,
So
unemployment
its
extent,
make
it
diminish, there
The
any given moment a certain proportion of men are being displaced in one industry and are not yet absorbed
employment
in another.
of labor; at
moted
as
it is
of shifting.
The restlessness of the workmen themselves proby the monotony of factory work is another cause The periodic maladjustments of industry and the re-
unemployment.
more continuously
in
These are sometimes inevitable, as in the work of the harvests. Often they are not inevitable, but due to the mere crudeness of our organization of production and exchange. In such industries as the making of boots
operation, are the seasonal oscillations.
and
and the
like,
there
is
no inherent
reason
why
by
slack,
and overtime
is
work by unemployment.
inevitable, as in loading
sometimes
vessels
and unloading
freight
from
and
railways; and
it
is
many employers are disposed to favor casual labor rather than take
366
PROBLEMS OF LABOR
staff.
[60- 6
So constantly are
Any method
larities of
of
adminare
istration.
offset
The
They
margin of "loading."
pation
is
to occu-
not so serious a
ment would doubtless have to be organized, like insurance against accident, on the basis of occupations and with differences of rates
according to the varying risk of unemployment.
All such difficulties, however, are slight in comparison with the
men were
work,
relief in
other method, would be a comparatively simple matter. But for most men, assured support until a job is found makes it too
One method
results
is
The
many
years.
The
and other members of the local union know what is the state of trade in their district, what are the possibilities of employment, what the spirit and habits of the recipient. They are watchful
officers
against fraud
give out-
all
work are utilized, and that benefits continue to be paid only so long as unemployment is inevitable or at a rate declining with the lapse of time. This mode of coping with the problems has seemed
so promising that experiments have been
it
made toward
utilizing
in the
number
60-6]
367
by the union.
basis
Essentially the
in
enormously
That great measure provided not only for an all-embracing system of insurance against sickness and permanent infirmity, but also for a large tho not uniA'ersal one against unemployment. Thereby Great Britain came to provide, like Germany, for sickness and disability, as well as for accident and old age; and in this humane rivalry took the lead by providing for unemployment also. In certain
important occupations (such, for example, as building, the so-called
engineering trades, shipbuilding) insurance against being out of
work was made compulsory. Contributions were required in equal amounts from employers and employees, the state also adding a share. A system of labor exchanges had already been established for facilitating the mobility of labor; it soon became so extensive in its operations as to serve effectively as a test of nonemployment. Like the German insurance code, the act of 1911 was a remarkable piece of legislative workmanship; while its chance of successful operation was immensely increased, as had been the case in Germany, by the existence of a trained permanent administrative staff, to which could be allowed much discretion on details. An extraordinary forward step was taken in this field of social reform. Public relief works are a tempting device. Yet they have proved of service chiefly as safeguards against imposture; and for the latter
purpose they are of uncertain effect
posture.
It
is
368
PROBLEMS OF LABOR
unemployed
laborers,
[60-6
To bring these fied for the community by the labor of somebody. two together, and set the men to work on things they can do and on which their labor tells to full advantage, is the most difficult task a public official can be confronted with. Both the public employer
and the aided employee almost always feel it to be perfunctory. Only where the simplest and most monotonous of tasks can be asis it possible to prosigned as wood sawing or stone breaking hold them to a fixed stint. Very vide work for the unemployed and little work of real utility can be laid out in this mechanical way. Most things worth doing are more complex. It is difficult at best to find work that is thoroly worth doing; it is even more difficult to get it efficiently done by relief operations. For one thing, the power of discharge is lacking; and it must be sorrowfully admitted that this power, heartless tho it seems and subject to abuse as it is,
None the less, public works of a kind that are certain to be carried later, may best be set going in times when there is unusual lack of employment. Some palliation for the recurring stages of depression may be found by massing in such periods setout sooner or
tled public expenditures.
In a country
like
is
we have
seen, are
If
that
make
times of depression
standstill.
merchant shipping
at a
Similarly, a country in
managed may arrange for new construction and extension at times when private investment is halting. This calls for a firm hand in
checking the public expenditure as soon as private undertakings
.revive.
an uncertain device, subject to the dangers of perfunctory public works. Nevertheless, it is better than the common pro1
2.
()0-7]
369
cedure of letting the rush of speculative activity reach public operations also, thus exaggerating both the
sequent
recoil.
Arrangements
for
Much more
can probably be done in this way by public authority than has yet
been accomplished.
Private agencies are subject to great abuses.
They
bargaining, and
when he is least capable of holding out and when it is most easy to take advantage of his weakSomething, too, can probably be done
in
dock and railway labor, harvest hands, men engaged in construction work, Germany and England are now experimenting on a
large scale with labor exchanges;
and some
is
ferment
fore.
is
at work,
To
it is wanted, and to systematize casual labor, officials must be put in charge who are capable, well-trained, and highminded. Such men are wanted in every direction where the sphere of public activity is enlarging; and the success of all work for social betterment, most of all perhaps of work for relieving the poor and unfortunate, depends on success in selecting and permanently re-
places where
No phase of social endeavor illustrates more clearlj'- the conprovision for the relief of the indigent there will always have
Some
to be.
of
The
altruistic
misery to be reached.
The
untouched cases of misfortune, improvidence, wreckalways be occasion for simple charity; and charity can be given without danger of harming
age.
There
will
Some
houses,
sorts of relief
character.
The pauper insane were formerly cared for in local almsoften under wretched conditions. The better way is to
370
PROBLEMS OF LABOR
[60-7
take care of them with reasonable comfort in special asylums, administered not by local bodies but by the central government, with
skilled supervision.
The
and deformed, those incurably ill, can be mercifully segregated in the same way, and with the same certainty that no one will be tempted to make himself an object for this sort of charity. It is doubtless true that much money and effort is devoted to these distressing cases which might be turned with better results to work of
prevention, not of palliation.
for upbuilding
than hospitals.
and wretched and maimed is not to be resisted and it is at least to be said of hospitals and asylums that suffering can be relieved in them without sowing the seeds for still more suffering.
Old-age pensions, when they are really pensions and are restricted to persons in need, are virtually a
form of poor
relief.
of pensions, administered
without the
may
be allowed
its
way.
The The
case
is
Poor laws, as
the greatest
enemy
to vigor
and indefirst
pendence.
The
third
of the
popu-
more
coming a recipient
after surveying
came
way
it
to administer
in
poor
relief for
workhouses
or almshouses.
Outdoor
60-7]
371
made
effective
of outdoor aid
method
of
qua non of
was regarded by the English as the only feasible carrying out the principle. It was thought the sine Such relief in fact successful poor law administration.
Further
that
it
ought to
often a
itself is
expected to be so unso.
The keynote
in the
relief is
of
modern charity administration is differentiation Outdoor of the various kinds of needy persons.
used freely.
treatment
admitted
an
inflexible
almshouse
test.
Again, indoor
relief, i.e.
be of various kinds, different for the young and old, the sick and the
well, the habitual
workman temporarily
in need.
They show
the
widening influence of altruism and at the same time the search for
Thru
all
mental principle:
aid the
weak
in such a
way
as to strengthen
them permanently.
CHAPTER
61
Cooperation
Section
Cooperation attempts to dispense with the business man. Its Cooperation in retail trading, when done Sec. 2. by the well-to-do, of no social significance. When done by workingmen, Methods of the workingmen's as in Great Britain, it has larger effects. The movement elsewhere, 373 stores and causes of their success. Credit cooperation in Germany; its methods and results. Other Sec. 3. Sec. 4. sorts of societies, and development in other countries, 378 Cooperation in production would most affect the social structure, but has
1.
had the
qualities
least
development.
Causes of failure; the rarity of the business The future of cooperaof workingmen.
tion, 381.
1.
means
method seem
less
good
The co-
only because of
its
extent and
its
man and
of business profits in
modern
is getting rid of the managing emany set of persons whether laborers ployer. or not, do for themselves that work of planning and direction which They not only do his is ordinarily done by the business man. they also assume his risks. There must be in any case suwork;
The
essence of cooperation
Laborers, or indeed
perintendence and administration; these are delegated partly to salaried agents, in part are undertaken by committees or officers
serving gratuitously.
The
policy and assume the risks of the undertaking, just as the stockIn this last-named way, holders do in a joint-stock company. they aim to supplant the business man in his most important and
characteristic function.
372
61-2]
COOPERATION
retail trade, in credit
373
and banking
finally in
some phases
of agricultural work,
and
"production."
of success:
least so in production.
What
ences?
2.
Cooperation in
A number
of
workmen
buy
selves.
its
complexities.
convenient quantities,
with due variety, easily found for the customer; those that become
erences and
must not be allowed to accumulate; the prefmust be humored. The cooperative stores have found that they must assume the outward appearance of the ordinary retail shop, with its show windows and At one time in the hisplacards, decorations and temptations. tory of distributive cooperation in England, it was thought possible to save rent by taking premises on a back street. But it has been found advisable to do as the private trader does take conspicuous premises on the main thorofares. Thus only can the purchasers be effectively reached, and shopkeeping conducted on a large scale and with real economy. Site rent, in other words, has
obsolete or shopworn
whims
of purchasers
price,
but a result of
efficient
mean
a real saving.
Where
middle
class, it
As regards
difference
little
profits or a
body
of cooperators
This
is all
that
meant by such great cooperative stores as the London Army and Navy Stores, the Civil Service Supply Association, and others. These excellent institutions owe their success in large degree to their requirement of cash payments. The traditional relations between
374
PROBLEMS OF LABOR
[61- 2
still
combined with
payment on the customer's side combined with affected indifference Long credits, bad debts, high prices, and large to the prices. advance of retailer's selling price over his buying price had been the natural consequence of this pseudo-aristocratic regime. The cooperators, by agreeing to pay cash, made possible much more businesslike methods and considerable economies as to bad debts and interest. In the working-men's stores, however, cooperation has meant something more. These stores had a remarkable growth in the
half century which elapsed since the first small start about 1850.
their
of
portion
on the Continent, and has not been without its influence in the
United States.
A type of the workingmen's store is the Rochdale Equitable Pioneers' Society, the earliest
of them.
The
Rochdale
attempt
stores, as the
sell
workingmen's stores of
first step.
to be called,
They make no
to effect
a saving at this
Periodically, say at
made by these.
some
process, in
which
mem-
bers themselves.
Tin tags
in
cardboard
slips)
are given to
members
amount
of every
purchase, and these memoranda are turned in by them at the close of the quarter in order to make up a record of each individual's purchases.
61-
2]
COOPERATION
It
375
:
advantages.
Where the attempt is made to sell mark may be overshot thru failm'e to
and the
like.
the en-
much more important advantage than this financial safeguard. The rills of gain on the several purchases, swollen at the end of the
quarter to an appreciable volume, are not so likely to be dissipated.
The chance
saving.
is
The
left
may
is
to interest.
when so left are entitled At the very outset the store needs some capital, which subscribed by the members (usually in modest sums, the share
be
at the store as capital, and
for
each
member being
1).
The
dividends, largely
left at
the
add to the capital. It is in this way that the capital of the workingmen's stores, small at the start, has been brought to great
store,
dimensions.
The
make
savings banks.
is
intentional.
The
have always regarded themselves as something Rochdale more than storekeepers and penny savers. The early promoters and spokesmen of the movement were men of noble spirit, and
looked on the cooperative store as the
first
men's movement.
there
The
an atmosphere
of
high-minded endeavor.
easy for
Thus the
They make
it
members alone are entitled to share in the dividends. But non-members are often allowed half dividends on their purchases, the amounts so allowed being credited as installments of subscriptions to shares until the full share is paid for and complete membership so secured. Substantial sums from their profits are sometimes allotted for educational purposes and the like. At the annual
376
PROBLEMS OF LABOR
[61-2
ment and laudation sometimes, no doubt, in empty phrases, yet in the main with a real spirit of social sympathy. The causes of the remarkable success of this form of cooperation Not least among them are the genin Great Britain are several.
;
eral influences
of the Brit-
ish
working
classes,
tier of skilled
work-
In this
march
of industrial imall.
provement under
the stores
The
re-
No
is
and
own
The
much
who
in
working order,
for
men
who can follow the new paths opened by the real leaders of industry. The success of the British cooperative store illustrates, too, the
difficulty of getting rid of
may
be.
accustomed industrial ways, bad tho they Abstractly considered, it might be supposed that an en-
Some displacement
curred in the United States, where the bonds of custom are more
easily
shaken
off.
habits change
less easily.
its
new method
of
cooperation, with
61-
2]
COOPERATION
377
men but to their sense of solidarity, to bring about a more rational and economical organization of retail trade. For many years, the cooperative store movement in Great Britain has been so strong as to go on largely by its own impetus, yet
possibly with something of artificial stimulation.
The
traditional
on the
compared with current retail practises and prices. The cooperpay a little more in order to get their accustomed dividend. However this may be, the cooperative stores are an established and important element in the industrial system of Great Britain. They have done much to promote the material welfare of the workingmen, and somethinf^ to train them in
as
ators seem willing to
ways
of
common
action.
On
and so more significant. The greatest growth of the workingmen's stores has been in Germany and Belgium, where the
altho, as
in essential points.
The opportunity
yet
much
the explanation
felt
probably
only
The
movement,
as of others,
same
sort of
growth or importance.
many
at-
The
is
due to various
cities and between separate regions, is an obstacle. The comparative ease with
rise in
378
PROBLEMS OF LABOR
it
[61-3
deprives cooperators, as
And
finally, retail
shopkeeping
is
is
fair efficiency.
The occupation
of
ciation, as it
attracts
In the urban
centers
large
more than fair efficiency. The shop and the department store have nowhere been carried to
much of it is
carried on with
a great deal
dependence; but the ways and habits of the people seem not to
favor independence
by the method
is
striking
made up
of the
clannish immigrants.
facilities,
Germans
lead.
The name
in
of Schulze-Delitzsch
associated
movement
Germany,
as the
name
of the
Rochdale Pio-
town
of uniting
way
simple enough.
the like
form a credit
In essentials
by subscribing a small
Schulze
Initial capital.
liability
by each member
(as in a partnership)
essential; not
only because the person lending to the society thus had the security
of being able in case of default to levy
individually, but because this very liability made the members and managers unfailingly watchful in their dealings among themselves.
61-
3]
COOPERATION
sums got together,
their
379
are then lent
The
total
out to the members in modest amounts at a moderate rate of interest; this rate of interest
members
is
commonly
less
And
of interest
face.
By combining
which as individuals they would almost always have to their resources and their credit, and by man-
erate rates.
among themselves, they are able to borrow at modKnowledge of each others' capacity and probity is important, and enables the credit society to make advances and take apparent risks which no outsider would assume except on buraging the loans
densome terms. As with the British stores, the system, once established and perfected, has proved capable of wide development. The societies number many hundreds (about 900 in 1909), and play an important part in Germany. Some among them are large financial institutions, with members (i.e. borrowers) who do business on
a considerable scale as tradesmen, merchants, manufacturers.
man.
Its spread
and success
of
it
in
Germany
small-scale production
persists in
still
any country. Large-scale operations, far spread are, have nowhere swept the field entirely'. In Germany, perhaps, more than in any other advanced country, the artisans and small producers have held their own, not only thru inertia, but thru an adaptation to modern methods of production that has given them real vitality. The Schulze-Delitzsch societies have done much to maintain them. The unflagging industry of these Germans and their content with sparse gains, have in turn
and growing tho they
provided a favorable
soil for
Another phase
of the
Germany
is
name
who
also
was a leader
in
380
prietors in southern
is
PROBLEMS OF LABOR
and western Germany.
[61-3
Their organization
monly urban or semi-urban. Some capital is subscribed by memmore is got outside (sometimes with government aid). The loans to members are for longer periods than in the urban societies,
bers;
as
is
necessary
if
they are to be of real service to agricultural prohalf the smaller agricultural propri-
ducers.
of societies,
as members.
Each
society has
com-
Other sorts of
purchase
Germany
purchase and
The
credit
has
class of small
tradesmen and
arti-
and
it
among
northern Italy.
no one of these forms of cooperation for credit, or for other analogous ends
growth.
striking
extent in
other Scandinavian
up on
own
agricultural producers
But
tem
of land
improvements;
culti-
position,
constitutes the great obstacle to the spread of this sort of cooperation in England.
61-
lord
4]
COOPERATION
381
ising field;
and the transfer of the land to the cultivators, there is a promand an earnest effort is now being made by the best
them the
principles
and
practises of
agricultural cooperation.
4.
partial cooperation.
in their
main
industrial activities.
tion in production.
is
made
business
ciu-e in
tal.
sell
man at the vital place. Workmen get together, and prosome way (by saving, borrowing, public aid) an initial capiown tools and plant, buy their materials, among themselves the proceeds. They own managers and their own employers; and if successful
possess their
They
are their
Evidently,
if
this
and
employing
capitalist
would disappear.
carried to its
by a set of salaried agents. Cooperation some fringes and loose ends of the modern
various phases of cooperation in agricul-
industrial s^'stem.
The
ture are designed to aid the independent farmer and strengthen his
position, not to supersede him.
if
full,
and
industrial organi-
Even
if
hundreds of
or
societies,
hundreds
of
if it could show and with members by the tens of thousands its spread would mean something of thousands the present and future.
or, if it
382
PROBLEMS OF LABOR
or untried.
[61-4
of experiments in
it
unknown
considerable
number
in various countries.
one of
This
is
numerous.
to find
As was
seem
no favorable
appeared to make
trial of
workmen
aid
is
and probably
who
begin in
a small
in of
The
striking thing
is
by the state
or not, whether started from the beginning as productive societies or the outgrowth of profit sharing, they are so few.
The
net result
as nothing,
compared to industry
is
in general,
even compared to
In recent years these have been bolstered up by the great distributive stores,
not neces-
any more than is public aid. But that it is welto, shows that the prospects of indepenLTnless the cooperators
can do so well
and
and
in the earnings
which they
secure for themselves, that they call for no favors, simply competing with capitalists on even terms, there
is
no chance
of
any
large
development.
It
is
have
1.
Gl-
4]
COOPERATION
way on the field
of production.
383
The
have established
factories
some of the individual retail societies, and workshops of their own, for making
and pickles; they have even tried tea planting in Ceylon and (with doubtful success) farming on their own account in Great Britain and Ireland. All these
shoes, clothing, hardware, biscuits, jams,
The workmen
is
in
them
way and
substantially on the
same terms
as in ordinary private
establishments.
Obviously, this
by staple methods. None the less, it is surprising that workmen should have achieved success in managethis route, when they have failed of it by the more direct ment by
staple goods
the associated
route.
The
is
way
of cooperation in production
that
man where
he
is
most
needed.
at once a result
and a proof
of the rarity
and
Intelligence, imagination,
management
are
by few
individuals.
it
Coopera-
them.
No
spur to the
full
head
and
Such
apparentl}'^
But these
are exceptions.
Most men
when work-
may
384
PROBLEMS OF LABOR
[61-4
Coop-
put on
trial
in the midst
of
an
individualistic
and
capitalistic organization,
ship.
The
tion
more
managers
and
resources.
Even
little
in various directions
to work.
As with profit
from experience that the character of the industry makes a great Tho the cooperators undertake an industry requiring difference.
comparatively small plant and no elaborate organization, and tho
they possess in their
genius
own ranks
the right
man
perhaps a hidden
be jealousy, vacil-
it is
far
will
fellows,
and kept
There
is
likely to
lation, stagnation;
farther
and the industrial world is moving farther and away from the methods of town-meeting democracy. The capable man finally sets up for himself, or enters the employ of
others in an administrative post.
in the simpler industries,
If these difficulties are serious
growing scale of complexity of modern business. The conclusion both from experience and from general reasoning
is
that cooperation
is
It
may grow
ready carried
But the hopes entertained a generation ago by many economists, that it was only in the first stages Other of a far-reaching development, are now cherished by few.
on with success.
ways come
and
of
to
the
enthusiasm
of
social
reformers
labor
management
way.
To
61-
4J
COOPERATION
References on Book VI
385
and
General consideration of the topics in tliis Book is in J. R. Commons J. B. Andrews, Principles of Labor Legislation (2nd ed. 1920). On
there
is
many problems
Welfare (1920).
H. Herkner, Die
field.
On trade
book by
S.
and
B.
Webb,
with special regard to Enghsh experience, and stating without reserve the TJw History of Trade-Unionism (revised ed. 1920), by the same authors, is a classic in its field. On the American situation excellent studies on some phases are in J. II. Hollander and G. E.
case in fa^^or of the trade union.
Recent books on
Carlton,
An
excellent
is
volume
R.
on American problems
by
J.
Trade Unionismand Allied Problems (1921). On Ausstralasian experience see V. S. Clark, The Labor Movement in Australasia
Commons
and good compact summaries in two Research Reports, on Ausand New Zealand, published by the National Industrial Conference Board (1918-19). On the history of labor legislation in England, B. L. Plutcluns and A. Harrison, A History of Factory Legislation (1903). J. Rac, Eight Hours for Work (1894), is a good inquiry on experience to the date of its publication. On workingmen's insurance and aUied topics see H. R. Seagcr, Social Insurance: a Program of Social Reform (1910), brief and excellent. More detailed and more informational are L. F. Frankel and M. Dawson, Workingmen's Insurance in Europe (1910); I. Rubin ow, aSocig^ Insurance (1913); W. H. Dawson, Social Insurance in Germany (1912). W. H. Beveridge, Unemployment (3rd ed. 1912), is at once sympathetic and searcliing. On profit sharing and kindi'ed arrange(1906);
tralia
by R. E. Heilman, with
contribu-
from various hands. A good general account of the cooperative movement is by C. R. Fay, Cooperation at Home and Abroad (2nd ed.
1920).
BOOK
VII
CHAPTER
Railways
Section
62
Sec.
Railways an instrument for furthering the geographical division Corollary from this that they are not to the public interest unless they pay, 389 See. 2. Economic characteristics of railways; first, the great plant. Consequent tendency to decreasing cost. Hence also frequent transition from financial failure to financial success, 392 Sec. 3. The element of joint cost, both as to fixed charges and operating expenses. Charging what the traffic will bear; classification of freight, 395
1.
of labor.
4.
Justification of charging
what the
Sec.
traffic will
5.
bear hes in
full
Other consequences
flexibility of rates,
Sec.
6.
and difficulty of deciding what is a reasonChaotic rates in the United States, and con-
cession to favored shippers, partly corrupt, partly the result of competition, 400 Sec. 7. "Rebates" and the grounds for prohibiting them. Rate agreements and pools as aids in preventing discriminations. Inconsistency of our legislation on rebates and rate agreements, 402 Sec. 8. In an industrially solidified and thickly populated country the principle of joint cost becomes less important in determining railway rates: monopoly position of railroads more important, 404.
The
present
Book
it
is
inequality
of
But
manageboth as
industries,
own
special problems.
on the economic structure at large and as regards More than any other single factor, the
Its
large-scale production,
mensely promoted far-reaching geographical division of labor, impending monopoly, great fortunes. The
itself is
railway
390
[62- 1
conditions in
to
inherent workings;
it
it
ment,
it is
desirable to analyze
larger
and more
difficult
is
a railway most common aspect as a freight carrier which things are made cheaper because simply an instrument by
In
its
made to advantage. Peocommonly forget that all agencies of transportation are but means of furthering the geographical division of labor. An enormous amount of effort is given to activities which are simply ancillary which serve only to facilitate the more effective apportionment of the community's labor. The railways of the United States in 1900 employed one person for every twenty-nine who
transported from a place where they are
ple
employed
who
had worked on
vestment,
is
their construction
and we
the amount of such previous work, as indicated by the capital inexceptionally large.
ancillary activities,
we should have
an enormous
where they
can be produced cheaply to other places where their expense of production would have been greater.
tive in
promoting exchange
as that of transportation
ways.
by the expense
of transporta-
beyond a short distance, now suffices to concentrate industry in one region, and to induce exchange on a great scale between it and other regions. It follows from this obvious but forgotten fact that a railway is not economically advantageous to the community unless it pays
1
The
total
number
in
round numbers,
more than
1,000,000.
62-
1]
RAILWAYS
This conclusion
is
391
its waj''.
common
opinion.
It
is
means
it
of transportation
may
its
be not profitable to
owners.
Similarly
the people as a whole have gained something that offsets that loss.
just one.
No
that
can be produced at
place so
it
Early in the
enlarg-
ment
tional
an expenditure
and
fast
method
of constitu-
enactment) that no
tolls
With the completion of the canal it will be as if nature had made a navigable river. Doubtless, more traffic will go to and thru
canal.
the city of
further;
it
New York;
still
some consumers
But
will
canal yields
remain an open question whether the labor which built the its full normal result to the community. The test of its
tolls, sufficient
to
pay
be borne by the
trafiic.
tion free,
it
would be desirable, obviously, to have all transportaand to have every commodity produced once for all where could be most cheaply produced. But so long as transportation
involves labor and the use of capital, a real advantage from ex-
change is got only if at the point of consumption the total cost can be met, including that of transportation.
It will
This case
pay at the outset. analogous to that of protection for young industries. Eventually the railway should pay; if the losses of the early stage
is
392
[62- 2
where
be in the nature
of loans, to
The
which
ply
which yield
more
is
directly.
Some
financial loss
water sup-
may
none the
less
post office
measured by the price people are willing to pay. The also may be administered with good reason on non-comis
a boon not
measured by
newspapers
Passenger
traffic.
is
its
market value.
its
The
deficit
Some passenger
is
and
satisfaction
than freight
traffic.
freight traffic,
a consumers'
utility.
The only
ground for managing passenger traffic on non-commercial principles is to be found in a possible immobility of labor or crowding of population.
It
is
ditions
may
Railways have two marked economic characteristics not such as to make them in the last analysis different in kind from other industries, but so great in degree as to bring railway problems into a class almost of their own. These characteristics are,
first,
the great size of the plant; and second, the fact that the oper-
62-
2]
RAILWAYS
is
393
A
put.
railway's plant
more important
for
one
gross receipts (the measure of the output) are but a small fraction
one tenth,
manufacturing plant
in
which the
How much
more
is
five or ten
times as great in
Connected with the large plant is a great flexibility in its and a tendency to decreasing cost per unit of traffic. When a
use,
rail-
way
is
once
built, its
will serve,
be large or small.
An
in-
means some
no increase of plant.
traffic as
a whole,
it
means
traffic.
is
may
need to be
and terminal
facilities
enlarged,
and so on.
is
Then
there often
A
is
great and
not growing
satisfactory
employment and
The
overworked with
ness for
its
its
former
outfit,
new outfit. This sort of trying transition stage is most noticeable when a railway passes from a single track to double track, yet shows itself almost as much in the enormous new facilities needed in regions of dense population and traffic by roads
already double-tracked or even four-tracked.
Thru
all
in-
394
[02-2
of traffic; that
A double-track
sengers more cheaply than a single-track road; a four-track road more cheaply than a double-track one. It follows that two single-track roads over the same route are a wasteful application of the community's resources, as compared with one doubletrack road; and so on. And it follows further that concentration and monopoly promote the thriftiest ways of laying out the
railway net.
is
the fre-
of
This
When
make
a road
the
traffic
may
operation profitable.
is
able to carry
A
it
stage
is
thus reached
is
where the
traffic
little
or nothing.
it
outcome takes
place,
and with
on railways.
traffic
heavy
capital charges at
little.
all,
and can
expenses but
an increase
responding.
and railway
and speculative in\'estment, and for large gains by the shrewd and far-sighted. These conditions exist in the United States more markedly than in any other country, and have had much to do with the great forinvestors the "builders" of railways have reaped large gains,
tunes
made from
first
62-
3]
RAILWAYS
395
made
3.
from the
the ca e
railway.
first.
is
When any
large plant
is
So
it is
with a
and
and
freight.
If
the outlay
service,
for plant
the case would be one completely of joint cost. There are, of course,
of the plant
(represented chiefly by interest on the investment) forms an unusually large part of the total cost of transportation.
In other
is
if
of the expenses
far,
In so
the prin-
applicable.
But the operating expenses also represent in large part joint cost. of them are incurred for the traffic as a whole, and must go on whether or not individual items of traffic are undertaken. Such
Many
is
nance of way.
be
and
repaired from the wear of exposure and use; and this whether there
much
or
little traffic,
traffic.
Safety
Much
So
it is
as to general office
At
least
one half
traffic,
for joint
Even
common
for the
traffic as
a whole, there
is
wholly joint vary in the main according to the number of trains run
396
[62-3
Every
train mile
means
so
much
and
of rolling stock
But a
train
may have
may be full
or empty.
Train miles,
and consequently the immediate expenses, will be substantially the same whether the train be long or short, full or empty; but the tonnage carried
will
be very
different.
It
is
a cardinal
way
capacity.
But
this ideal
maximum
is
impossible of
(especially
attainment. There are inevitably some short trains as to local freights) and some cars empty or half full.
train
For each
by itself there is one cost, joint for all it carries. The same situation is even more obviously present in passenger Passenger trains must run on their schedule time. Their service. expense is substantially the same whether the cars be full or empty, whether they have the maximum number of cars an engine can
haul, or only half or a third of that number.
in traffic entails,
it is
true,
an increase
in
But a very considerable increase in passengers and in revenue may come without any additional train miles that is, without any ap;
On European railways,
riages
first-class, second-class,
and
third-class car-
of the
same
train,
The apportionment
among
rough way) on that basis of utility or demand, which, as has been shown, dominates where cost is joint.^ The principle of joint cost underlies the much misconceived practise of
traffic will
bear."
That phrase,
will
it is
rates
and very
be said
1.
62^
4]
RAILWAYS
As commonly
for a
397
used, however, the phrase
of production
and
it calls
word
of further explanation.
No
item of
traffic, it is
pense must be got back somehow, or else railways will not be built.
Some items
that
is,
of traffic will
will
they
"stand" a heavier charge than others; continue to be offered even tho the transportation
Other items
will
charge be high.
is,
they
will
will
ter.
is
that
unit of weight on
some than on
others.
Railways
in all countries,
Thus coal,
ores,
class" articles, on which rates are relatively low; textiles and groceries are "high-class" articles,
coal, ores,
The
be low; the
will will
bear no more.
The
textiles
and
groceries
traffic
The
textiles
and
much more
ber.
and lum-
greater than
on the other; which means that there is a greater excess of receipts over separable expenses. Where both kinds of commodities are
carried
no separable
4. To explain an economic phenomenon is by no means the same thing as to justify it. People constantly confound these two proceedings, and suppose that because an economist shows how a given result comes to pass, he therefore implies that it is a right
398
result.
[62-4
practise of charging
practise to be just.
what the
traffic will
As to the question
is
among
persons
such as railway
if it
commodity having higher value should be charged higher freight rates. It must be confessed that some trained economists have spoken in the same loose way. Yet no one would apply such a notion to transportation by pack mule or wagon; the charge here is the same (aside from insurance and the like) whether the articles be silks and precious metals or Being habituated to a different mode of fixing coal and brick. railway rates, people think of it as righteous; for they commonly regard the wonted order of things as just. The justification of charging what the traffic will bear must rest on a further principle namely, that it conduces to the fullest utilization of the railway. More service is got by the community on this plan than would be got on a plan of uniform rates. If all rates were on a uniform toll plan, being the same per ton mile on each and every kind of freight a so-called system of "natural" rates bulky articles would have to pay more than now, and compact and expensive articles would have to pay less. Of the expensive freight, however, little more would be offered because of the lowered rates; whereas the amount of the bulky articles offered for transportation would be greatly diminished b}^ the higher rates. The only way in which the bulky articles can be made to move in great quantities is by carrying them at low rates; just as to re:
now
the only
it
way
price
in
by
offering
fiber.
is
at a
which
Most
incurred
anyhow;
it is
utilization
G2-
5]
RAILWAYS
and expense
is
399
to
fix
affected
The geographical division of labor has been most profoundly by railways in the production of these very articles, having
coal, ores,
lum-
and the
like.
The
Thru the general practise of charging what the traffic will bear, the railway plant has been made to produce its most far-reaching results. 5. Some other consequences of the principle of joint cost have
great scale at low rates.
flexible.
Even tho
is
rates as a
clear rela-
cost, there
no
between any
specific rate
and the
The
plausible
must be
in
any case,
according to
or supposed benefits.
"Where govern-
may be
dis-
ments would hesitate as long before conceding specially low rates as they do in granting direct money subsidies on exports. The question of
money
loss or gain is
and
may
be similarly
in
apparent
To
arrange railway
aging a railway,
is
The same
it
400
does not
[62-6
corporations.
This
is
of the
its
United States
control.
under
The
It is
not
range.
yield a
in railways, a "nor-
mal" return being understood to include not only interest, but something in addition by way of compensation for risk and judgment Even tho no absolutely precise settlement of ^ueka rateof
.
it
can be reached
sort.
,
-f- six
very
rate
little
is
as regards
any individual
is
rate.
its
"reasonable"
a question of
traffic
demand and
It
happens that
been de-
The
That
rates should
be
is
Simi-
and between
different places,
have
been
left in
Any scheme
of traffic
development
by
railways.
United States especially, was a perfect chaos in the rate system. This was unmistakably the situation before the enactment of the
Commerce Act in 1887; and tho matters mended theremuch confusion still remained. In this country, as in others, railway rates were developed tentatively. The possibilities of carInterstate
after,
rying bulky goods at low rates over long distances, and of the other
62-6]
RAILWAYS
401
No
any
existed, they
is,
were disregarded.
in
All rates
were reached
carrier.
doubt promoted
plant,
flexibilitj^ in rates,
and economy
in its operation;
but
it
evils.
of the
man who
got as low
for-
Favors
in rates
tune.
or that town.
men without
being abused.
government management or indirectly by government regulation. In the United States, the power was sometimes used corruptly.
Those
in control of railways
shippers got.
and managers
it
their
is
to
loaded dice.
is
made
pe-
Rather than
will
any particular item of traffic go elsewhere, the railway manager accept any rate which yields something over the expense (com-
by that
specific item.
A large shipper,
off
one against
traffic
manager
say
by
402
offering
[62-7
him shares in the large shipper's corporation played its But competition between railways, and their inevitable eagerness to "get the tonnage," were the main causes of the favors
part.
to large shippers.
Not
would deliberately
securing
traffic.
its
agent in
He could carry on operaon a larger scale, and was likely to wax strong and rich. This tions was not unwelcome to the railway, so long as he enabled it to hold
over others in the same sort of business.
But eventually, in not a few became so strong and rich that, from having been the servants of the railways, they became their masters. Their operations grew to be on so huge a scale that they could throw traffic from one road to another, and bring any and every road to accept their terms; that is to give them lower rates than the ordinary shipper. This was the case conspicuously with the Standard Oil Company, which began as the favored shipper of one of the Eastern trunk lines (first of the New York Central, then of the Erie also) and by this advantage finally was enabled, or at least aided, to get into its hands so preponderant a share of the business of refining and shipping oil that it could virtually dictate Such, too, was the development its own terms to all the railways. of some of the great Chicago packing houses. These extraordinary effects of railway competition showed the modern business system at its worst. They unexpectedly and artithe traffic as against rival roads.
cases, these favored shippers
ficially
premium on untruthfulness, intrigue, bullying, spying. must be said also that this same factor of railway competition immensely promoted efficiency in operation. Every railway manager was put on his mettle to carry the tonnage at a profit, even with low rates. Freight rates on American railways became remarkably low, and especially low on that long-distance traffic which was most the subject of competition.
placed a
Yet
it
7.
"Rebates," of which so
in discussion
62-
of
7]
RAILWAYS
403
American railway regulation, are not bad in themselves. They are bad if not given to all shippers on the same terms. The thing
which
rates.
legislation
is
inequality of
because thej^
means of discriminating between different shippers. In the earlj^ days, when railways were looked on as businesses like any other, it was natural to leave their charges to the higgling of the market and to accept without objection those inequalities which higgling always brings about and at the same time ordinarily tends to minimize. As the immense importance of railways in affecting other businesses came to be seen, higgling and discrimination fell
are the
into opprobrium,
like devices
were prohibited.
much
In the
forced to a concession
by the competi-
an end to comby combining to fix rates once for all. Hence railw^ay pools and combinations appeared at an early date, as a means of
is
The
to put
petition
Such
pools are hard to hold together, at least under the English and
American law, which make them void and non-enforceable ;i but so far as they go, they check the tendency to special rates for favored
They are thus a means of furthering equality of treatment and equality of industrial opportunity. None the less, our Interstate Commerce Act prohibited combination of any sort; and the prohibition was made even more drastic by the general antimonopoly act of 1890, known as the Sherman Law. The Interstate Commerce Commission repeatedly recommended the repeal of this sort of legislation, and the authorization of pools and rate agreements. The anxious fear among our public men of being supposed to favor monopolies has prevented any relaxation of the stringent restriction; and this, even tho the recommendation is
shippers.
coupled with the proviso that the rates fixed after pooling or agree1
Compare Chapter
65,
1.
404
[62-8
ment should be subject to public approval (say that of the InterIn the absence of any available state Commerce Commission). means of escaping the stress of competition, railways were impelled
to combine once for
control.
all,
The
sage of the act of 1887, tho by no means due solely or even chiefly
was promoted by the fact that railways were deprived means of self-defense against competition. Our legisIt lation on railways was in this regard inconsistent with itself. discrimination, yet also prohibited one of the means of prohibited checking discrimination. It prohibited combinations and pools, yet promoted the rapid march of complete consolidation. The great and flagrant inequalities in rates, by rebates and otherwise, were largely brought to an end by the activity of the
Interstate
Commerce Commission.
will
always be
difficult for
managers to
resist the
by
in the way of allowances for switching or for damages, "defeating" the nommanipulations of one sort or another
sought
for
inal rate.
The
make
rate
agreements openly.
is still
by a panic
essential
8.
monopoly and an unwillingness to face the problem, how to regulate monopoly successfully.^
fear of
The
been given in
same
significance in all
is
importance
less in thickly
in
coun-
It bears
^ This anomaly was at last removed by the Transportation Act of 1920, which authorized tho pooling of freight traffic by railways, under the supervision of the
Interstate
Commerce Commission.
62-8]
RAILWAYS
405
pervading.
The
more application
United States of 1870 than to the United States of 1920; and more
to the United States in general than to the older
tries like
European coun-
The
which yet
in the
is
that
traffic;
or else operating
but would
suffice
could be secured.
The most
an almost
inevitable
striking illustration
that of "back-loading."
Here
is
That
that one of the joint commodities be produced in unalterable proportion to any other so
;
pound
of fibre.
Precisely in the
there
is
back-loading, just so
road service are available when the equipment makes the back journey. From this extreme case railroad conditions shade off into
those at the other extreme, where
at the doors for utilization, but the ordinary case of a large plant
of fixed charges.
gions they serve emerge from the pioneer stage; as traffic becomes
more homogeneous; as the railway becomes able to and its whole operating force continuously
and systematically
this chapter
the
less
special
become
is
dominant.
It will
But tho
always be
less
dominant, they
say with
It
difficult to
what
traffic.
or to say that
406
[62-8
in
specific cost of
If
indeed
road were
used
only for
if
and were
for that;
no occasion
roadbed and
then
The
is
utilized (as
with a coal a
jumble of diversified
and
traffic
demand
for transportation
flexi-
To
full
becomes
utilized to the
dustrially solidified.
a railway becomes relatively more significant for the explanation of the special characteristics of railway rates.
subject attention
is
To
this
phase of the
CHAPTER
Railway Problems,
Section
1.
63
continued
Effects of railways
on
distribution.
Tendency toward conogous to rising rent of land, 407 Sec. 2. centration of ownership; how promoted by American methods of corporate organization. Overcapitalization and its consequences, 409
Sec. 3.
An unearned
increment anal-
Stock speculation, stimulated by overcapitalization, has facihSec. 4. tated acquisition of control by the "great operators," 412 Sec. 5. What benefits have "Inside management" and its evils, 414 come from private ownership in the United States, and how far railway Increasing tendency to mofortunes have been earned, 415 Sec. 6.
1.
modern times and in bringing about They have had this effect in directly by promoting the general tendency to large-scale production. They have had the
ing the disparities of wealth in
great fortunes.
same
effect
more
directby', thriTthfe
tendency to i ncreasing
gaijns
on the distribution
United States, and
of
wealth have appeared most markedly in the with the course of development in this counis
it is
chiefly concerned.
railway in
ad vance
in
This tendency
ward a rapid
prosperity.
sion pf
The two combine to make the railway a frequent occa" conjunctural gains," as the Germans call them.
is
1
due to purely
Some lines have better natural- nc^tLons than The New York Central Road has an exceptional location in
407
408
the
[63- 1
Any
tion
railway which
and ease
of operation.
But an even
tries
greater part
Is
line of
on the
becomes
less.
Tho
it,
may
be built in such
way
as to compete with
lost
only
minal
facilities at
the
cities.
its
true that this sort of advantage, like others that rest on social
causes,
lation
is
of
urban
New York, has also deprived the New York Central Railway of the
differential
advantage which
it
None
by this advance in value are the same as by the same advance in the case of urban sites and agricultural land. The increase has been no more rapid in the railways than in the other cases, and in general has been less striking than that in the value of urban sites. Sometimes it is proposed to tax railways at an especially heavy rate, or to compel them to lower
The
questions presented
those presented
It
may
it is
unearned increment.
or
is
The
a "public" industry
treatment.
This
is
63-2]
RAILWAY PROBLEMS
(Continued)
409
simply means that, under the technicahties of om* legal and constitutional system, the process of regulating incorporated companies
less fettered in itself
is
than
is
The
Neither
is
there
real
problem from
calling a railway
way
of expressing
them
2.
More important
in their social
ies_
both
toward the
CQn=>
cen.ti:atioft-Qf_i:mitrol in
The concentration of
promoted by the way
Loose
legislation,
and
(it
must
of private ownership.
is
amount
a certificate
not mean anything Our laws have been so framed that certificates of stock have been handed out with little regard to actual investment. Very commonly they mean nothing
to the enterprise.
In practise,
may
or
may
United States.
be a dividend.
Among
common
and $100
bonds
or $200 in nomiin.
"OverIt
capitalization" of this sort has been a well-nigh universal characteristic of corporate operations in the
United States.
has
led to bad results results bad, however, not so much in the way
410
[63- 2
and control
of the railways.
is
Overcapitalization
not in
itself
The mere
securities
no source of
less
riches.
If
investment than
profitable,
none the less income-yielding and must be because the enterprises which they represent The real cause of gain in such cases is either good are profitable. monopoly; the greatest gain comes from a combinmanagement or So far as railways or other industries are moation of the two.
their face value indicates, are
it
that
is,
successful,
is
monopoly
any case
To
almost
all
general statements in
It will
happen
high prices.
The managers
of
an overcapitalized monopoly
may
They
any
We have
profit
is
maximum
net
not applied in
Where abnormal
returns
opinion, in the
likely to
on the original investment have been made, concessions to public way of lower rates or better facilities, are more
come when capitalization has not been inflated. Whether there has been in fact overcapitalization, and whether
has served to conceal profits unduly high,
1
it
is
often difiicult to
See Chapter 15, 6. That the question of capitalization is chiefly one between investors and managers, not one between these various interested persons and the public, is illustrated the Standard Oil and the Tobacco by two conspicuous oases among the "trusts " combinations. The former is, from the business man's point of \new, undercapitalThe former has been managed without manipulaized; the latter overcapitalized. tion as regards "insiders" on the one hand, the investors and "outside" speculators on the other. The latter has been much manipulated. Both have been highly profitable; both present essentially the same problems as regards competition,
2
monopoly,
prices.
63-2]
decide.
RAILWAY PROBLEMS
The
(Continued)
411
plexing case.
and when first put in operation, they were but half completed. Unlike European railways, they began with a plant and equipment adapted to a scant traffic, and largely provisional. Graduall}', as the country grew and traffic increased,
But
at the outset,
ments and betterments. This process continued decade after decade, and was combined with the direct and unmistakable investment of additional capital, thru the issue and sale of more stocks
and bonds.
What
came very
difficult to say.
made on
The
case
is
further complicated
and
for skill in
some on an
due to general physical and economic causes, partly to varying judgment and skill. The mere
differences are partly
fact that a railway has of special
The
is
no more a proof
In
is
an all-important
their
returns
by long
initial
call for
the
may
be true, as
is
all
all
the
skill,
by the investing
412
large,
[63-3
energy and
It is
sacrifice involved.
swollen capitalization
was at any time necessary or wise. Why all by law that securities shall be issued only
It is true
tion
a liberal
margin as to permis-
sible returns.
The
profits.
risks of
of
tempting
Railways
have been
ment)
built
by
no more than
return.
maximum
It is
was
en-
same time concealed these returns from a grudging public. for example, would not have been sanctioned but five per cent on a doubled amount of stocks and bonds caused no outcry. Possibly, too, there is a seductive effect on the promoter and investor from the appearance of getting something for nothing. A more simple and straightforward way of dealing with the issue of securities might thus have dampened in some degree the feverish speculation and restless progress of railway development. But a slower pace would have had its advantages also, and, not least, restriction of securities would have saved great complications in the later stages of established monopoly and needed regulation.
at the
3.
Certain
it is
promoted acquisition
magnates.
by the
The separation
of control
make no
are sup-
investment of their
real risks.
They
posed to secure
all
ing in\estors, keeping for themselves the stock (issued for nothing),
and
any
risks.
63-3]
RAILWAY PROBLEMS
like to
(Continued)
413
No
But usually the matter is not quite so simple. The "insucceed. " must set the enterprise going, must put in their money and siders
stretch their credit, take the securities on their
own
responsibility.
its
assume some
bonds are often deceived and often they deceive themselves, thinking that a so-called
"bond" has
offered
a rate of interest
is
which on
As time goes
the least risks, get into the hands of the general investing public,
of stock
remain
in the
hands
of the projectors
and
Shares of stock
control.
law, the holders of bonds are simply creditors, entitled to their interest,
in the
and in due time to their principal, but quite without voice management. The stockholders are apt to be a shifting and
speculative body.
The
stock
itself in
is
is
commonly
fig-
has
little
only because
ures.
secures control.
It
It
is
precisely
the sort of security that finds favor for speculative purposes on the
stock exchanges.
The
more or
less,
as
They
are concerned
much
of the stock
quite
company
The
common
ven-
the others
These are the conditions under which the "great operators" appear and under which the vast railway fortunes have been made.
1
2."
414
[63-4
and control of the railways get into the men. These see the possibilities of future gain when stock quotations are low. Very likely, once in
hands
of shrewd, able, daring
Ownership
it
But they come into control by the Such is the explanation of the riches of the Vanderbilts, Goulds, and their fellows. The founders of these fortunes were not the original projectors and promoters
service for the
community.
machinery
of stock speculation.
Over and above the great fortunes and the concentrated power over industry, speculative ownership has brought some special evils, of the kind designated by the phrase " inside management." Perhaps the most striking and serious evil is the corrupt or semicorrupt manipulation of the railways. Those in control may
4.
"wreck"
failure;
it;
may make
it,
in
appearance or in
reality,
a financial
may
its securities;
and
when the bubble has burst. A phase siders of the same sort of thing appears when other railroads, or associated
buying
in again later
bought by the
insiders,
and
sold to
same thing if they had the wit and the opportunity. The greatest harm from it all is a demoralization of the whole class in the business community which has to do with railway administration. Still another phase of inside management has been the manipulation of rates for the advantage of the directors and managers; promoted, as has already been
said,^
by the
flexibility
which attaches
iSee Chapter
62, 5, 6.
63-5]
in
RAILWAY PROBLEMS
railroad charges.
{Continued)
415
ill,
any case to
The
and
spirit,
good or
which anibut
mates the
enterprise.
Not only
directors
influential stockholders,
their pickings.
whole sys-
tem
easily
These
and
them.
No
it
doubt,
it is
must be remembered that they were not peculiar to railways. The}' were part of the raw stage of industrial development. Nor were they all-pervading among the railways themselves. Tho hardly one has been without some touch of diswhich arose; and
honest manipulation,
many were
it.
Even where
community at large was mainly responsible. The whole situation was accepted as a matter of course partly because the economic and social conthe worst has been experienced, the
;
standards were
lax.
first
of the twentieth.
speculative railway
ards to business
of our
The public began to understand better what management entails, and to apply higher standoperations in general. The great moral advance
of the social responsibility
and
solidarity.
common
no
longer tolerated.
5.
"i"^^
now came from
all this sullied
What
benefits
growth?
'v
Under the stimulus of speculative construction and operation, the American community got its railways earlier and got more of them. This the community universally desired, and for this it was willing to pay handsomely. Our political and industrial policy has been dominated by an insensate desire for swift development, for unlocking the land and its resources, for the utmost increase in numbers and wealth. The sober observer may question whether it
doubt, rapid railway building was promoted.
No
416
has
all
[63-5
But our
ideal,
improvement was hastened not least among the railways themselves. And it was hastened, paradoxical as the state-
The march
The
effect in the
One
was the
consolidation of the railway net and the growth of the great sys-
tems.
of railways
facilitated
to
and
fro
extraordiso-called
Erie,
nary.
One
line
great advance
trunk
systems
Baltimore and
the New York Central, Pennsylvania, 1873 Ohio were formed. The depression
of
Still
came
in 1869-1873,
when the
1879 gave another opportunity, just when the stage of revival was
few years to the Hill system in the Northwest, the Union Pacific or
Harriman
in the
Southwest, the
Morgan system
in the South.
The
the
railway efficiency.
of
of long-distance transportadivi-
and
in the
exchanges with
sum
by a
fatal destiny.
of public
development
63-6]
portation,
RAILWAY PROBLEMS
and
its
(Continued)
417
was prepared for the daring and able operator. Perhaps all the advantages from rapid construction, wide permeation of the land with railway facilities, from competition and consolidation and vigorous management, could have been got in some other way; but a train of deep-seated causes seems to have decreed that they should come in just this way and with just these checkered results.
6.
The railway
shape.
The
period of
and railway problems took a new speculative building and promotion came
to its end.
to
monopoly.
As
to
True, there
by wagon.
that
it
so great
charge of
a reasonable rate.
Its
very ability
situa-
and brings a
high.
which
own
charges
Yet competitive
of points
traffic,
on the railway
Local rates cannot be too flagrantly out of accord with other rates,
partly because of public opinion and possible public action, partly
will
dwindle
if
disproportionately burdened.
persists
and
it
it is
apt to remain
exercises a check,
more
some degree
effective,
But
become
established, competi-
418
[63-6
toward
the severity of
is is
rail-
traffic is
superseded by consolisuperseded by
rapidly settling
is
Competitive building
down
The
railway net
no longer
needed, but to the stage where no new great systems are being
all
among the
As the stage of monopoly is reached, a railway is tempted to quite a charge what the traffic will bear in the monopoly sense
different sense
Managed
as a private or purely
money-making
enterprise,
it will
maximum
extremes
of
monopoly
prices to
called.
On
demand make
that of monopoly.
To
traffic will
former principle
what it will So far as monopoly becomes effective, railway rates call the more for public " regulation, even tho the problem of settling what is a " reasonable rate in any particular case must remain a very knotty one.
is
CHAPTER
64
4. Are there criteria marking some industries as suitable for management? The tests suggested by Jevons; distrust of pubUc officials underhes them all, 427 To secure trustworthy and Sec. 5. efficient public officials is partly a problem of pohtical machinery. Some difficulties of public management, as regards the employment of labor and Sec. 6. The fundamental requisite in the maintenance of progress, 429 a democracy is a generally high level of character and intelligence. In what way corruption is connected with monopoly industries, 431 Sec. 7. The
425
Sec.
public
its
Experiments in ownership to be welcomed, especially in municiThe prejudices of the business class on this matter, 433 Sec. 8. Public regulation the only alternative to public ownership. The two types of regulating boards. The essential object is to limit prices and The elevation of the standards of private management, 435 profits. The Transportation Act of 1920. Provisions on valuation and Sec. 9. on rates. A half-way step toward pubhc ownership, which is likely to
palities.
come
1.
How
be carried?
To
the point
These questions, of ownership and management once for all? most conspicuously presented by railways, become of greater and
greater
moment
in the
modern world,
as large-scale operations
420
[64-
means
necessarily
them are raised by taxation. They are then suppHed by general levy and under public management.
questions are as to those services which are
still
The doubtful
post
office
its
ren-
dered essentially on the quid pro quo principle, as in the case of the
with
its
with
freight charges.
if
These institutions
may
be
in private
in public hands,
of education
and
of ordinary highways.
among them
management?
The doubtful
commonly
designated, espe-
such as
rail-
ways, the telephone and telegraph, the supply of water, gas, electricity.
service"
is
implying as
be drawn between the operations that are and those that are not
appropriate for public
management and
control.
Such industries
senses.
two
The one
and comparatively easy to define. The other is economic and more important, but more difficult of precise application; it
rests
on the character
right of way.
Without the right to take land at a valuation the right of eminent domain it could be blackmailed or blocked by any landowner along its route. A gas company, again, needs the right to dig up the streets, an electric company similar
ing
its
street-car
company
ipso facto
pendent on public authorization, and so subjected with comparative ease to public control.
But
it
The
them
as
"public service" industries, in the sense that they call for public
1
1.
64-
1]
421
control,
son
is
tive in them, as
in the
the fact that some use of the highways was necessary would not Le thought to entail public regulation; any more than the fact that the
streets are used
street venders,
On
specific authorization,
no grant of
bination,
making or bread making were in the hands of a tight comwe should soon hear it dubbed a public service industry.
being of vast imporregulation so long
is
tance for
all
the public.
is
But
it
does not
call for
as competition
lic
sufficiently effective in
it.
Water supply
is
a pub-
indispensable,
the industry
supremely important,
it
Tho the extent to which combination or monopoly will proceed among modern industries is uncertain, it is clear that it will extend far. That the industries now commonly called "public utilities"
belong in the monopoly
States.
class, w^as
not at
first
Competition was invoked in the early days as the means Rival railways, rival street railways of regulating their charges.
make
in the
in a tight
combination!
an illusory hope
of competition.
cherished in
many
inevitably ensues.
The simple and obvious fact is that monopoly The need of regulation in some other way
all.
The cause
of
monopoly
in
many
422
strictly
[64-
and power,
are
used by John Stuart Mill, in the early days of the present industrial
regime, are as true as they were
sixtj-
years ago
When a business
on advantageously
upon
illusory, it is
up
It
much
bet-
if it
be not such as
government
itself
it
should be
made
it
company
on
managed
which
if
the public
by one
urban
the
set of
companies in the
rates could be,
if
country.
The
districts,
and
price.
of
at a
To
this, of course,
must be added,
in the case
That
is,
3.
Economy, Book
I,
Chapter IX,
3 The expense of the post office is largely for collecting, handling, sorting. These items are the same for every letter in a given district. Mere transportation costs comparatively little. Hence a uniform charge, irrespective of distance, is not so far out of accord with cost as at first it seems. This was among the main grounds on
64^2]
423
from a uniof
all-inclusive service.
is
most conspicuous
is
The
set
to be able to talk to
its
any and
every subscriber.
own
The
elimination of
competition
ficial.
is
The only
whether there
shall
be public
In virtually
all
where
it
has been adopted, has been preceded by private; and this for the
reason that the spur of profit
is
advances in the
arts.
We are here
on disputed ground
predominate, and
how far do the selfish motives how far must they be appealed to for the further:
unequal, and
Among men of genius great painters, poets, musimen of science the coarser motives are often veiled or over-
borne.
is
strong; they
is irresistible.
work not
So
it is
to
per-
holds.
For the vast majority of men, the argument from the bribe The prospect of gain is immensely powerful in bringing
This
is
men
the
It
is
as
we descend from
gifts,
much
men.
not only
indispensable.
Almost
inventors and
men
of
which Rowland Hill argued for his great reform (penny postage). In a comparatively small and densely settled country, a uniform postage rate thus rests on an economic as well as on a social basis. In a vast country like the United States, the economic reasons are less strong. Distance and cost of transportation count for more in the expenses, especially where not only letters are carried, but bulky printed and miscellaneous matter. Uniformity of charge, like the extension of free delivery into sparsely settled country districts, can be justified chiefly on larger social,
grounds.
424
[64-2
profoundly the
life
They work
and
This
is
the
Further, for the progress of industry, there must be not only in-
new ways.
The
history of
all
especially the
epoch-making changes
modern
the business
sential part.
capitalist
have played an
In
fact, there
once for
all
at a precise date
has
per-
many
rival projects
and
slow
emergence
The steam
engine, the
went thru
To
select
among
new
in-
man
is
also a business
man.
More
often
as
The
management has been a necessary stage. Public management has come as a transition and a growth, not by an independent start. \Miere indeed an industry has been developed by private activit}^ in one country, it may be
we
are
now
considering.
Private
WTien the
working order
in
England,
it
had been brought into was easy to introduce it on generation later, it was easy
iMost railways on the Continent, none the less, were built, and at the outset managed by private companies. The first construction was usually undertaken by
64-3]
PUBLIC OWNERSHIP
AND CONTROL
management
425
of rail-
men
was
The
future.
same course
will
be followed in the
The
tricity supplies
bilities,
an instructive
illustration.
possi-
The simple matter of building water can indeed be done by the state.
plant,
and the transmission and distribution of the power, involve risks and call for enterprise and vigor (not to mention technical progress) such as public officials are
not likely to supply.
tricity
The
utilization of
Ob-
viously, a
is
monopoly
situation exists, or at
all
it
just so
much
power, and he
who
controls
trial possibilities.
The
away
it
in perpetu-
Yet
can probably
for private
secure
profit.
its effective
It is at a later stage,
when
When
ment takes place, the question of vested rights will always arise. The terms of purchase must not be such as to deter future investment in other enterprises. But, on the other hand, only so much
should be paid as
is
unlimited
larger than
and at the
The
and he
the
financial
will
markets
however
high,
It
^^alue.
is
first
English contractors, among whom the Stephensons and Brassey were conspicuous. In the United States, the railway grew independently, and thruout by private
enterprise.
426
l64-3
There should
chase at terms based on the cost of the plant, not on the capitalized value of
its
earnings.
simply given
away.
The explanation
is
obvious enough.
is
In
to
the pioneer days one of the main objects of the early settlers
possess themselves of the very things that will
the future
chises."
land, urban
may pay
sites,
No
which posterity
tion,
a large price.
by
When
made
monopoly
it
in-
has
is
nothing to do,
if
must then be fixed, not on the basis of on that of the capitalized value of the earnings. The case is the same as with land and urban If the community has sanctioned investment and purchase sites. on the basis of a perpetual franchise, it must itself buy, as it has authorized others to do, on the basis of present value. At the
price.
The purchase
price
most,
it
itself
may
appropriate
sites.
Un-
property
is
64-
4]
PUBLIC OWNERSHIP
AND CONTROL
in
427
1878
liberallj^
on the market
Great Britain
will
may
reaching change.
for
hands
by the middle
pensation at
4.
all for
The preceding
monopoly
and as
if it
were dependent
solely
on the attainment
velopment.
and
industrial de-
not so simple.
Public ownership
a long period of priconditions on which
or
it
may be preceded by
The
the choice of policy must depend are here not economic in the nar-
social
and
political.
it is
true,
nomic characteristics by which the line between public and private industry can be drawn. A well-known older attempt was that of
Jevons,
lic
who
management
(4)
This
enumeration,
to the state
made
when the
first
to
fit
later exigencies.
is
The very
capital account,
we
have public management on a great scale. None the less, the enumeration still deserves attention; for it points to some of the
political difficulties of the
problem.
428
[64-4
a suspicion of public
first
requirement
is
small capiand
tal account.
Where the
of
capital account
technical
outcome
an enterprise
is difficult
to judge.
The man-
Conversely, a skimp-
may
son
who has
all,
To
supervise
complex.
becomes the more difficult as plant is larger and more The more one is disposed to entertain general doubt as
to the probable success of public officials, the intrusting such business to their hands.
more
is
one averse to
Something
operations.
of the
same
easily seen
it is
sometimes said
was by Jevons) that an industry is more likely to be well conducted by the state if its operations are constantly under every
one's eye.
The
post office
fulfills all
we
officials
we end with
ment such
as Jevons suggested.
officials
Now
in a of
need to be constantly
this, again,
watched depends on
democracy depends ultimately on the character and quality the electorate or other body that chooses them. If we are sure
and
to
them
of industrial operations.
large, or
We
because
the operations are irregular and complex, or are concealed from the
64-5]
public eye.
429
of all the
We may
in
intrust to
monopoly industries which have passed the formative and experimental stage, and
fairly settled.
To sum
officials;
and monopoly. But the state means state and whether these are competent to take charge is a troublesome political and social problem.
industries are maturity
5.
Two
body of public servants: first, well-devised political institutions; and second above all in a democracy a sufficiently high level of intelligence in the great mass of the community. Not a little depends on tradition and habit. The spoils system LTntil it is rooted out, good public manis largely a bad habit. agement is hopeless. The bureaucracy of Germany has the support of ancient traditions, long bound up with devotion to the
politi-
It
The
as
it
it
had a
of
and
may
of checks and and divided responsibilities, work against efficient public management. Our traditions have been inherited from the days when the would-be absolutist was at the
head
on
of the state,
officials
liberty.
more freedom
of
action, less
is
number
of elective officers
and
430
and
for
[64'-5
In
all
The employment of public laborers in a democracy is always a thorny problem. They strive to become a favored class, w^ith exAs has already been said,i other tra pay and extra privileges. laborers commonly support them in such endeavors, from a confused notion that the process will raise wages and privileges generally.
on the other hand, are apt to accede to compact body of voters needs to be conciliated. At its worst, the employment of large bodies of laborers means a political machine and political corruption. Even at its best, it is likely to bring place-making and easy stints; hence, inElected
officials,
their
demands;
for this
efficiency
and expense.
evil.
The
manager looks
to
money-making, and
that
is,
it for;
will pay his labor no more no more than other labor secures.
is
The
lic
public
official,
;
the test of profits he can dip into the apparently bottomless pubpurse.
The
state should be a
set
an example of good wages, moderate hours, steady emplo^Tnent, humane surroundings. But the state should set also an example
of requiring for its full day's
pay a
full
day's work.
The
ideal of
too
many
people
is
that
it
"the government
finds
it difficult
There
is
public
official
democracy always
all
to exercise the
is
charge, above
atory.
disdil-
The maintenance
Technical maturity
is
is
never
is
always possible.
There
improvement on
being
The
is still
made
1.
64-6]
PUBLIC OWNERSHIP
but the great
AND CONTROL
Tho
431
more
efficient;
lines of technical
may
Nevertheless, in
rail-
ways
management, to be fully satisfactory, should not be content with doing passably w^ell what the world has
atively settled stage, public
The continued
progress which
it
should
maintain
calls for
and
Only an
intelligent
and
self-restrained
democracy, or a
enlist such men and get them to do work in the best spirit. The German Empire and the German states, in their post office, telegraph and telephone, perhaps in their
we
No democratic
its
In the end,
all
management
the
good average
of
There must be in the community a character and conduct, in order to secure even
honesty and faithfulness; there must be, in addition, a good average of intelligence and self-restraint, in order to select and retain a
body
of trained
first of
and progressive
these things
;
experts.
It
is
hard enough to
to get
se-
cure the
it is
We
in the
to learn
how
common
Antiquated
political institutions,
all
432
political
[64-6
But
in the
end we have
will
good electorate
choose
officials,
The
traditional
method
of
committee
No
doubt
it
has had
its
ill
effects.
But
it is
striking that
way
of
Reform
in the
machinery of
little
From
no escape.
It
is
is
the cure.
To
reason so
is
to mistake
The
occasion
is
demoralization.
which the monopoly enterprises can yield; the cause is political It matters little whether the initiative in corrupt ways
or
is
by the public
whether the
it is
first
step be bribery or
blackmail.
In either case
and administrators that brings coarse and characterless persons Honorinto the management of the "public service" industries. able men withdraw from the unsavory affairs and are replaced by those less squeamish. The root of the difficulty is that a bad political situation invites corruption, not that corruption makes the
political situation bad.
On
has
an on the quality of government from giving government much to do that the mere assumption of larger tasks will make the body politic fit for accomplishing them. But pride can
It
is
automatic
effect
II,
p. 179;
and
282
307.
64-7]
PUBLIC OWNERSHIP
AND CONTROL
stir
433
thereby be
be enlisted, especially local pride, and some given to smoldering forces for good.
7.
may
It
is
not too
much To
less
democracy
will
depend on
its
nothing
in private
hands
is
to allow an iviperium
than a plutocracy.
To manage them
still
them
effectively while
in
method, intelligence
lowing them.
in choosing
good
in a day, nor
is
there
any certainty that the mere increase of public industrial management will cause them to be learned. It may be that we in America
shall
that the great monopoly industries should be under efficient and progressive public management; but he is sanguine who believes that the
will
come
easily or quickly.
is
To admit
say that
it
that a task
not to
The experiment
field
of public
owner-
made to bring it
would seem to be
To put
vast industries
now
or
New York
But
may
Even
have been wretched, the movement for "municipalization " has better prospects, and a trial is to be welcomed. If it fails, it will show that those are mistaken who would make haste
in
If it succeeds, so
much
Success or failure in such experiments cannot be gaged in a short time, nor without reasonable discrimination. Mistakes and dis-
appointments
will
be inevitable
it
A considerable
can be known whether the needful And as regards the final outcome, it must
434
[64-7
The opponents
of public
its
ing to
its
weaknesses and
ugly aspects
slowness
and inde-
cision in adopting
cessions that
make
The
real question
is
ownership.
He who
tralia.
and Australia
will find
in
Aus-
But he
United States.
He
management, and ominous consequences in the greater inequality of wealth; and he will not render an unhesitating verdict against
the state railways of Australia.
an
open mind.
They
prospects.
The persons now in control of the money-making monopolies supply them freely with all sorts of distorted information and superficial
arguments.
else
In part,
it is
an
inlieritance
philosophy of
laissez-faire
and non-interference.
But
to no small degree
of dispossession.
Public
management
"socialistic";
priation.
The
will
be considered elsewhere.^
is
But
this
much may be
It will
said at once:
private property
more
likely to
maintain
itself if it is
coupled
if
be more secure
away
1
with, and
if
64-8]
PUBLIC OWNERSHIP
removed.
AND CONTROL
may be
435
inequalities are
The clear alternative, then, and the only alternative, to Ideally, regulation is less public management is public regulation. good, but practically it may be much better. Reasonably suc 8.
cessful regulation
is
successful
public management.
Some matters
of political
this case,
The
pends on the quality of the individuals who are to regulate. should have stable tenure of office and adequate salaries.
ment.
They They
American
of finding
is
men on
and retaining men capable of efficient management. Two distinct types of board or commission have appeared in American experience: the commission for investigation and recof finding
on publicity; and that with power The first type, of which the Massachusetts railroad of command. commission was the earliest and the best-known example, was
ommendation, relying
chiefly
commended for a long time by the sober American observers. None the less, the second t\'pe gradually came to prevail. Investigation
is
needed.
and publicity can do a great deal, but not everything that The milder form of regulation was a natural first step,
still
of
commission of
this state,
all
the
was
powers on the
436
[64-8
All the
same end
is
control of prices
and
of profits.
likely to
be under-
it is all
steps
and publicity which they commonly approve. Reforms of this sort proceed by stages which follow the slow growth of public opinion, the meaning and probable outcome being concealed at the outset by ambiguous phrases and mild measures.
Direct control
may
be of prices or of
it
profits, or of both.
Like
whole easier to regulate than profits. Restriction of profits, i.e. of dividends, may be evaded by extravagant salaries and bonuses.
so evaded,
is
it
efficiency
Prices, it
is
a "rea-
sonable" point as
ideals
Not the
ment.
accomplish
The
brought
in.
To
this
end publicity
will
do much;
and pressure will do much, too. Let it be made a paying policy to have honest and far-sighted management, content with moderate but sustained profits, and considerate in its dealings with the community. There are able business men in plenty to whom manage
5.
64-
9]
PUBLIC OWNERSHIP
AND CONTROL
437
ment of this sort appeals. There is no harm in mixed motives, and some mixture of pubHc spirit and private interest is a remedy worth trying. The now-pervading conviction that these are not strictly private industries, and that the people in charge of them have duties to the community as well as to the investors, leads to a very
different attitude
The
public
is
no
longer damned.
legis-
demagogs' attacks,
tude.
9.
Let
it
all
We
The
likely to
be followed for
all
lem
of public
management.
The
Interstate
Commerce Act
of 1887
was the
first
step toward
It
is
not
its details
or those of the
it.
We
must
Commerce Commission,
effective, and indeed became more rigorous than had been expected, because of an unexpected circumstance the upward movement of prices which
became
Tho when deemed too keep them unchanged when deemed high enough, it
first
was the
specific
latter process
which proved
of substantial efficacy.
Re-
Delays in
if
probed.
was comparatively easy to exercise over a great range of rates the power of keeping them as they were of vetoing advances. Here the inevitable delays served as a brake on the
it
But
438
[64-9
railways, not
The
railways
for materials
their rates
this
an unexpected turn
and
rates,
but
and Gradually a situation developed in which the country had less. the advantages neither of private nor of public management. Private management was almost stifled. Enlargement of the
their receipts from operations, steadily grew less
railway ceased;
facilities
minimum; the
management
remained those of an industry primarily directed to getting profits. Something like an impasse had been reached even before the
country entered on the Great War.
When
it
when
the rise
and at the same time the transportation needs for war purposes there was nothing to do except for the were suddenly intensified take over the operation of the railroads. Without government to this emergency step, the railroads would have been bankrupted;
and without
it
From
roads.
rail-
the consequences
it is
if
as difficult to say as
of this period
ulation of industry.
autumn
of 1918,
it was By general consent the railroads were emergency measures. returned by the government to their owners. But the return took
64-9]
439
the one hand to control the raihoad system to a greater extent than
before, on the other
ever before.
The Transportation Act of 1920 gave the Interstate Commerce Commission greatly increased power. Not only was its control over rates maintained it was also given large control over organMost Important in this latter regard ization and managsmjgnt. was the authority to comp.eLthe.x?onso],idation.of the railways into large^ competing systems, whose make-up was arranged by the Commission itself. On the other hand, the Commission was di;
a "fair" return; a
An
how
far there
had been o vercapitalizati on. But no tests had been set up; nothing
The
it
made
beclouded as before.
is
common
in
our legislation to a degree that sadly tasks the patience of the discerning.
The
(of
The
acts
of the several
Yet
The
railways were to
remain
in private
by a
somehow
equit-
440
able.
[64-9
the
new
policy
was one
of delegated
management:
fair
fair
return
and no more.
How
On
question depends the trend of public policy not only for the
It
was
freely
recognized in 1920 that the plan then adopted constituted the last
trial of
Should
My
own judgment
slow.
is
But the radical change will come in the end. Just as supervision and control by commissions began modestly, first with mere supervision
for a considerable period.
may endure
on capital;
management,
of a sort of partnership,
Democracy sooner or later must undertake this great adventure. Of its dangers enough has been said in the preceding pages; nor can any open-minded person, however ardent for the
agement.
The
difficulties to
be faced are bound up with all the problems of democratic government, of political and social progress. But to this sort of task we
must
CHAPTER
65
Combinations
void.
in restraint of trade
them
Sec.
rule
2.
mak-
Mod-
company, the unified corporation. The Kartell in Germany. The fact of monopoly, not the form of combination, the important thing, 443 See. 3. The permanency of combination as affected (1) by the economies of large-scale management; (2) the devices of "unfair" competition railway
so
The effective defense against "unfair" competition is not from legislation much as from large-scale competition, 447 Will large-scale Sec. 4. competition persist? The pressure from constant accumulation of fresh
capital.
management tinctured by a sense of public responsibility, 452 Sec. 5. The possible public advantages of combination lie in the mitigation of industrial fluctuations. The supposed ruinous effect of competition to be Sec. 6. judged from this point of view, 4.55 The legislative problems.
haps on
profits,
profits
States.
Federal
Sec. The earmarks of monopoly: Legislation the United The act of 1890 and enforcement. The acts 1914. The Trade Commission, 461 Sec. Economic problems have
and
prices,
458
7.
size,
Sec. 8.
in
of
9.
outrun
Attempts at combination and monopoly are as old as inIn European countries, during the earlier stages of their dustry.
1.
economic development, such attempts were subject to prohibition and penalty. During the modern period, the trend has been, until
very recent years, to
let
of themselves, competition
level.
In English-
mon
They
are not
Just what
442
[65- 1
Some
agreements which
restrict
them
will
The
astonishing
how
has been.
among
the most
common
phe-
nomena of modern industry. Almost invariably (unless bolstered up by some independent cause conducive to monopoly control) they have gone to pieces of themselves. The persons forming them
have been both shortsighted and covetous. It has often been the case that all would have made larger gains if all had stuck to their But each has been desirous of increasrestrictive agreements.
ing his
own
particular gains,
of his
The usual result has been that price combinations are made than broken, with much lament that there is so no sooner Even where the would-be molittle honor among these gentry.
associates.
nopolists
from outside
own entrance
have been covetous and shortsighted, failing to see that into the field tended to destroy the very gains
which they were trying to share. The truth is that few men, business or in other doings, look beyond the present and imme-
diate future.
Had
would
have proved much less effective. In our own day the situation is changing fast, at least in manj^ directions. Far-reaching plans and ultimate results play a greater
in industry.
Still
The attempts
at
65-2]
443
a policy of non-
more persistent and ingenious, and the interference becomes more uncertain.
2. First among the modern endeavors in the United States to prevent the disintegration of non-enforceable agreements and so
was the
trust device,
which gave to
was arranged that the holders of stock in the several companies to be combined should all transfer their shares
few selected persons as trustees; these trustees then holding the and having the rights of vote and control which belong to titular shareholders, but being under obligation to manage the
to a
shares,
property for the benefit of their cestuis (to use the legal phrase) and to turn over to these all dividends and profits. Thus the
scattered owners
and
their enterprises
to the combination,
and the
trustees, as
in their
own hands;
summary
by courts
it
In a test case
it
the ordinary machinery of the law would not be used to carry out
a scheme in effect monopolistic; and
it
itself in
its in-
dustries in which
was tried. The only permanent outcome was came to be attached in popular parlance to
any and every
is still
A corporation is formed
was first used by the Standard Oil combination. The Sugar and it was in their case that the courts refused to apply the law as had been expected by the astute lawyers who had framed the scheme. These enterprises, and the others that tried it, have all turned to other forms of combiRefiners tried
it later,
The
nation.
444
[65- 2
enough to give
be.
Its directors
thus become the effective managers, just as the trustees under the
trust
The
their existence,
but
all
and nominally continue to do business as before; control is united in one board. This device, nowadays so
has the advantage, for the would-be monopolists, of
it.
familiar,
It
may
all
has been
effected.
within wheels,
holding
same
by a small knot of insiders. These main disadvantageous from the public point
corruption.
There
is
holding
company
by
prohibiting
and the one to which the others lead, is simply that of the great or giant corporation, into which all the former competing enterprises are formally and completeh' merged. The holdlast stage,
The
its
and
pany.
attainment of
Sherman
company might be
simple ground that
obviously
stifled
never belongs to a This power to hold the stock of another corporation corporation under Enjclish and American law, unless given in express terms by the grant of its charter from the sovereign power. In the absence of express grant, such holding is ultra vires. Our American states have been so complaisantly liberal in their laws as to incorporation, and have so frequently given the power, that most people are unaware of its being dependent on specific authorization, and do not to check this form of combination. know how easy it is given only the will
6o-2]
445
of the statute,
a question
much
tions
less
it
"outside"
rivals.
As
will
it is
often difficult to
company
and
more
difficult to
decide
moYet these problems will have to be faced before long both by the judges and by the legislators; for the holding company is likely to be succeeded by the form, less vulnerable before the law
is
what
nopoly.
as
it
now
form. There contracts in restraint of trade are not void; they are
may lead
to penalization
public interest.
The
much
and the
like,
The parties having once come to an Hence they are not prompted to The German
Kartell
is
American development.
commonly
fixes prices
and prevents the members from competing with each other. In its tjT>ical form, it includes a central sales agency, to which orders
go and by which sales and prices are effected and, not
;
less
impor-
tant,
it
1 See the excellent article by Dr. F. Walker, "The Law Concerning Monopolistic Combinations in Central Europe," Political Science Quarterly, Vol. XX, p. 13 (March, 1905).
446
[65- 2
Kartell leaves to
members a
;
American forms
any
unified corporation
in his
since each
is
own way.
It
spiu*
management on the American plan. Nor is it clear whether the German Kartell is a mere transitional stage, likely to be followed in time by complete consolidation. There is no such pressure from the German law toward forming an all-embracing giant monopoly and the course of economic development has been slower and more tentative. The form which combination may take is obviously less important than the fact of combination. The essential question is whether the conditions of competition are in effect supplanted by Combination does not necessarily mean mothose of monopoly. nopoly; it may mean only a regulation or modification of competiBut the object of those who plan it is to stifle comj)etition tion. in some degree, and to secure greater gains than competition will permit. In the United States, a new goal of business ambition
;
specifi-
decade 1880-1890)
for full
but in
The Standard
Oil enterprise
was the
another.
gree.
first
Both proved
marvelous de-
Toward
in
At the
same period
increased the profits of the mine owners, and served to raise in even
greater degree the quotations for shares in their companies.
too, a conspicuously successful cage led to a rapid spread of
combi-
nation.
The
trust
full-fledged.
65-3]
3.
447
Two
One
relates
it wull
it
to the
permanency
in
whether
will
have advantages
hold
is
methods
of production
its
which
enable
to
its
own and
promoters.
it
The
other
concerned with
brings ad-
These two
sorts of possible
advantage we
real
may consider
in order.
The permanency
man's
sense,
economies which
it
makes
possible, partly
on some
tactical
advantages.
The
real
and have been already considered. ^ They vary from industry to industry, and, within a given industry, vary from
scale production,
No
down
regarding them.
Only the
test of competition
and
and more
cheaply' as
it
larger.
by the
trust
large
efficiency,
can yet be so
several estab-
managed
lishments
as to produce
when independent; in other words, whether large-scale management adds something to the gains from large-scale production in the narrower sense.
Here, too,
it
may
be allowed to
settle itself.
that form
of organization survive
The question
of a great
arises,
combination
may
not enable
it
to
overcome
rivals,
even
tho these can produce as cheaply and serve the public as well.
May
size,
mere length
mere pressure thru influence and threat and manipulation, which will enable him to destroy his smaller yet
of purse,
See Chapter
4,
4.
448
[65- 3
One
the
much
on
this
from preferential
way
of rebates
and
The
especially in its
the railways.
days
Tho one
competing with
dation
subjected
when
consoli-
among
danger has come from the widespread dominance of the persons who
engineer the trusts.
industrial, banking,
The concentration
'
an
interrelation of
and transportation enterprises has threatened " interests and a moneyed oligarchy over great
'
They
promoted was this general development, inherwhich led to the general movement for
The evil of railw^ay preferences has been industrial combination. immensely diminished, almost w^iped out, by the penalties imposed in the interstate commerce act of 1887 and the later measures of the
same sort, by the consolidation
industria' combinations
of the railway net,
methods
of operation.
And
it
that, notwith-
notwithstanding the
many ways
concealing
an advantage
be of
65-3]
449
way
are
Simplest of
all is
cutthroat competition
bank-
ruptcy or absorption.
Mere
any
real
advantage
in efficiency,
may
warfare.
similar
is
method
of crushing a competitor,
more
insidi-
manufactures a variety of
in order to
articles
bankrupt a
its loss
rival
who produces
its
on the contested one. This result is also secured if the combination can discriminate in prices on one and the same article, lowering the price where there is competition
part or entirely
but maintaining
All su
it
elsewhere.
h maneuvers were again and again illustrated in the history of the Standard Oil Company, the archetype of the industrial
was the main was to sell In the phrase of the mercantile community, to retail dealers only. In the regions where there was competition it did its own jobbing from other refiners, it cut prices ruthlessly. But it kept prices up in other regions where there was no competition, and so maintained its own profits. This policy would have been difficult to carry out had it sold to jobbing wholesalers, since these not only
trust.
product
In
its
its
sales
of
illuminating
oil
which
skill,
compete with each other over widely extended markets, but know of each other's doings and buy and sell among themselves. Each
on the other hand, covers a limited region only; he does not compete with distant retailers, or concern himself about the Obviously', some geographical prices at which they buy and sell.
retailer,
limitation on
its
must have been kept from reaching the retail market at all points, either by transportation rates higher than those granted to the Standard, or by the isolated
working of
this device; the competitors
another device
is
a conto
sell
by which he agrees
450
[65-3
combination has
If
many
on a
same
Mere effrontery in puffing your wares is an important factor in modern trade. The advertising problem is a curious one. It is not easy to say just how far advertising serves a good purpose, how No doubt, it introduces new contrivances, far it means waste.
promotes variety
in production
means
is
of useful competition.
and consumption; and it is often a But sometimes it is a weapon of dearticles equally good, that
structive competition.
Among
is
which
People
sup-
systematically paraded
likely to
be most readily
Jones's.
sold.
are led to
One might
pose that if Smith's wares were equally good, and were sold at a lower price (made possible by eliminating the advertising expense),
he would hold his own in spite of Jones's preposterous puffing. But, in fact, Jones's wares are preferred; some vague impression
of superiority
is
Plentiful
cash
is
the
sifie
The
advantage.
The same
prizes,
is
true of other
gifts,
premiums,
means for popularizing your goods These delude the purpictures, what not.
is
man-
in the
by the
fact that
commodity
It has
by
legislation.
the lowering to be
is
65-3]
451
civil
made
unlawful.
action for
Discrimination in prices
is
is
made
unlawful.
A
He
producer
to
is
sell
at the
same
and
in all markets.
carriers,
now
deals with
common
who
now under the ban of the law in English-speaking countries. They are not punishable, or cause for civil suit, under the common
law nor usually under statutes.
is
The
public good
is
The ques-
work
The
is
case
is
Unless one
is
simply a
of all indus-
management by the
is
state,
good.
It
may be
that the
and that over a wide and widening range of industries nothing can stay the march of combination and monopoly. At least let all be done that can be done toward checking
hopeless,
this kind.
Not too much, however, should be expected from legislation of There are those who believe that, unless there be other
prevent that control of industry and that eventual
rise
of prices at
But
"fair" competition
by
unless
in-
own
little is likely
to be gained
by
this
method
of staving off
Such
legislation
is,
What
is
452
[65-4
cutthroat competition?
the ordinary
make
is
dif-
ficult to
prices
these cannot be
They
is
prove.
Cost of production,
market
legal procedure.
some vagueness.
All
easily evaded.
who on
would-be
monopolists' competitors.
suit at
The effective defense is found only when Greek meets Greek when the big monopoly meets with a big competitor. All the devices of "unfair" competition are devices of the large producer
is
make
his
own
factors'
agreements.
Large
producers will
The real question is whether competition among large producers will be permanently maintained. 4. With regard to the permanency of competition between
remains unchanged.
large-scale producers,
two
and
it is
the
the
growth of large-scale operations reduces the number of individual establishments to a dozen or so, they are almost sure to get together
sooner or later.
On
and
able openings.
an incessant search for profitAt the same time the supply of managing ability is
men.
New
capital
and new
ability will be
turned to every
this is the case,
monopoly gains
of the possibility,
nay the
probability,
65-4]
of
453
some
things go very
agreement among the large-scale producers. These much by tradition and habit; and the former indibroken among the capitalists themselves
the social philosophers.
as well as
among
The
is
notion of getting
becoming a familiar
and is thrusting aside the older feeling of pride in independent management. It is extraordinary how far the experiments in combination have been carried; not only to those industries are left a dozen or so where but a few large establishments in the field, but to those where the number is thirty, fifty, even a
hundred.
It
is
more
dif-
ficult it is to
form an effective
what
limits
and the more probable it is It would be difficult the movement is confined by the techni-
One
way of getting
capital to
embark on a
New
The
financial leaders
where the consolidation of banking had proceeded farther than in the other countries, each one of the great banking institutions had under its wing a set of industrial
In the
of pre-war days,
Germany
ventures.
newcomer
also.
finds
it difficult
wedge
of a banker's backing.
Something
is
of the
same
sort
is
true in the
United States
It
The
constantly
accumulating savings must find an outlet somewhere, and no combination can prevent
financial
new banking firms from and industrial leaders, who will try
the forces which are likely to give a
arising,
with new
Among
tition,
new
start to
compe-
we
capital
of
new
decay
management
of the
combination
itself.
success-
454
ful
[65-4
combination
ganization the largest and best-managed enterprises in a given industry; the lesser establishments being bought up or "frozen out."
Initial success is
due to the
ability
and prestige
of the leaders.
is
As
But nepotism
likely
management. Competition, which had managers to the fore, no longer acts to bring
itself
fittest.
True,
prestige go a long
way, and
management, as well as the tricks of "unfair" competition, can be learned by others; the stimulus of ambition is most powerful among those who have their fortunes to make; and any settled enterprise is in danger of dry-rot. be it a trust, a bank, a newspaper Whether or no, as the outcome of these contending forces, com-
own permanently,
it
seems certain that in the ordinary manufacturing industries, even in those where large-scale operations prevail, nothing but a pre-
and limited monopoly can result. The trust must be always on its mettle, always on the watch against interlopers. These may be browbeaten or bought up; nevertheless new ones will constantly appear if the profits are very high. The trust may become a dominant form of organization, and, by good management, may maintain itself permanently without bringing about true monopoly
carious
prices or extraordinary profits.
There
for
is
sort of the immediate under far-seeing management and with some sense of responsibility
to the public.
petitors
The
guiding spirits
must be
faced,
Such
is
the outcome
expected from "potential competition": unified control, a stable course of industry, but prices and profits not greatly different from
what would result under competition. Very likely the profits of the commanding corporation would be liberal, but dependent, after all, chiefly on sustained good management.
65-5]
455
Such a turn for the better in the combination movement may be promoted by pubhc regulation of this more presently. Much will depend, also, on the state of mind of the business men and
Tho these still worship the moneymaker, the pervasive movement for promoting the common interest
the well-to-do property-owners.
social legislation
and economic
fair prices,
beginning to
make
is
its
and
ideals also.
More
heard of
and
public
phrases used
in a
none the
is
less significant of
Even tho he
is
compan}^ of those to
he
feels
whom money
feeling
works
management which
at
all
both
the community
5.
What now
so large
and so nearly
seriously
worth considering
is
the avoidance or
The
irregularities of pro-
among
The removal
of chaotic competition
It
is
The possibility exists; but much depends on the trend of development in the combination movement. It is quite conceivable that it may intensify rather than mitigate fluctuations. A gambling promoter and a patched-up combination; an attempt to raise
prices
and
profits;
manipulation; the
inflated enterprise
competitors; a sudden puncturing of the and a collapse on the stock market, followed
456
[65-5
and reorganization these are familiar episodes of recent times. They do not make for economic steadiness. Perhaps they are but transitory, and will cease as the limits of combinations are better gaged by the investing and business There may be a development of farsighted management public. and stable combination, and therewith the lessening both of specuThe United States Steel lative and of industrial irregularity. Corporation has attempted to moderate the fluctuations in an industry which has been peculiarly subject to them, and, it must be admitted, with some promising results. It is true also that
by a period
among
if
industrial
allied
supposed ruinous
it is
Under modern
conditions,
said,
comis
petition
is
maintained to the
it will
last ditch.
once started,
over
illus-
operating expenses
earned.
by the
peculiar con-
in a similar case.
which
it is
concluded
is
vation.
foundation; but
it
cannot be carried
far.
No doubt,
Both have
ard prices.
there
is
capitalist
producer who
has a going concern with large plant, and the unorganized laborer.
to face a tendency to competitive undercutting of stand-
loss.
when they
are
Hence, a wholesaler or "jobber" can play against another, and nibble away at " f air " prices.
off
one producer
65-5]
457
by manipulation of discounts, by allowances for packing and freight charges, by easy Similar disguised cutinterpretation of what are damaged goods. ting of the standard rate takes place when laborers are overcharged for tools and materials (in the case of miners, for example), or are called on to work overtime without extra pay, or to submit to manipulation of piecework rates. The analogy must not be pressed too far. The capitalists are not so likely to suffer seriously as the laborers, nor is their bargaining so much weakened by the lack of standardized definitions. Yet some analogy there is. In both cases
There
is
there
other,
is
a chance for the purchaser to play off one seller against the
in
and
is
ization for
combined action.
from saying that a tight and exclusive combination
sellers,
is
This
far
An
Yet many persons of the nowadays as if competition were necessarily ruinous to producers, and as if there were no escape from disaster except thru the trust or Kartell. Competition does not go on autofrom one
for eliminating competition.
The
troubles
will bring in
time their
in-
own
cure.
People
whose profits are wiped out by cutthroat underbidding. The real source of difficulty for the capitalists, not clearly perceived by those who say that modern competition of necessity works disaster, is the constant pressure of new accumulations for investment, and the constant tendency to a decline of profits in known and esFrom this pressure the business and investtablished industries.
dustries
ing public
cess of
is
partly
by the noxious one of combination and monopoly.^ The real evils to the body politic from "ruinous" competition,
this topic in
458
[65-6
and the real gains which combinations may bring, are of the sort mentioned a moment ago: they bear on the steadiness of industry. Competition does tend to alternations between feverish activCombination may conceivably mitigate ity and dull depression.
fluctuations.
If
it
does
so,
nopoly
if
a gain
To repeat, it is of no mean social import will have been achieved. by no means certain that this desirable outcome will be reached;
and
in
any case
it is
its
welcome.
such as
there
inevitably a lack of
The underlying
Germany, or stern
Even
if
method
of applying
it,
permitted or regulated.
and the incidental practices which may be For the time being, something like a
Fabian policy
is
alone practicable.
in developing a legislative policy such as the
None
the
less,
is
United States
committed
to, resting
nopoly and the enforced maintenance of competition, some things are tolerably clear. Legislation may begin on certain lines, the
results of experience being awaited before proceeding further.
thing to be secured
is
by public
ac-
Tho
and
the
so far not of
less of
is in great part a matter between inhand and promoters and managers on the other, the first concern to the general public, it is none
publicity
for there
is
need of infor-
mation on which to base legislation. We know too little about the extent to which combination has brought monopoly conditions,
65-6]
459
bringing
its
them
more farsighted in competition, more moderate as regards prices and profits. How far a turn for the better will come in these matters, how far private industry will become tinctured with some
sense of public responsibility, remains to be seen.
licity will aid in
Effective pub-
direction.
Another object
of control should
is
be capitalization.
Here, too,
is
pri-
So
far as the
concerned overcapitalization
is
on essentially the same grounds as the general requirement of publicity. It can perhaps be supervised with effect only
therefore,
by incorporation under
federal law.
is left
to fifty-odd legislatures, there will inevitably" be or indifferent states which will virtually nullify
strictive
many
come
may
be,
it
among the possibilities of the future. One immediate and important phase
tions
is
of the control of
It
may
hibit at once
At the
least, full
any corporation from holding the shares of another. information should be had as to these interrelated
are often merely devices
companies.
by
a few insiders.
regulation
record.
will
made
put on public
The
perhaps mere definition, perhaps regulation, perhaps stern inhibition. This is a thorny matter, as has already been indicated.
460
[65-7
may
need to be revised;
itself in
a state of
and uncertainty.
still less
It
is
called for,
clear
needed,
should take.
is
the
As
is
wealth.
Publicity,
all
competition,
Perhaps comparatively
mild measures
binations
prices
will suffice to
reasonable" prices.
fail
But
if
and
must be resorted
It
may
Commerce Commission on
it will
It
sive gains.
In either form
be
difficult
enough, necessarily
The open-eyed
very
it
as a possible measure.
how
define
combination or
the economist.
What, in the eye of the law, shall conmonopoly or trust? The law cannot use
It
must
What
as to capital
not conclusive. A concern may be of huge extent, and output, and yet may not control the output in such manner as to bring to itself monopoly returns. Nor is pos-
Mere
size is
In current discussions
virtually in
a given industry,
it
is
The
trust maj'-
have
65-S]
461
on a
scale much beyond those expected under competitive conditions. Yet here too caution is needed. Large profits, of 20 and 30 per
cent on capital and more, are constantly secured in industries subject to unfettered competition;
managing
None
the
less,
scale
Thirty per
cent on a capital
usual return for a
may
not be an un-
capital of a million,
more on a
we have
seen, a
symptom
of
if
a considerable
Some
troduce goods in a
price in the old.
plied in legislation.
large
in
such as
se-
capital, output,
and
profits.
cured for a series of years, will serve as the basis for further inquiry
and very
8.
The American
of all
For some
the
efi^ect
was long a flat failure. Sherman Act of 1890 the prohibition and penalizing was nil. Not only
policy of repression
passage of the
iCp. Chapter
4-5.
462
of
[65- 8
new combinations to which reference has already been made. The great combinations were not driven into hiding. The business world
of the
went on with
its
An
partly
and
still
more
fied
administrations of Roosevelt, Taft, and Wilson to vie with each other in more and more drastic applications of the law.
large
number
of combinations,
the
oil
and
The
None
the
sufficed as a
permanent
nation in some form and under some restriction to be the more ad-
on
vague than
provisions.
in 1914.
and other devices for concealed combination. The second, more novel and more important, established a Federal Trade CommisMuch sion, with large powers of investigation and supervision. might call For example, it discretion was given the Commission. i.e. seciu"e what may be termed a "round-up" of the for reports on any principle or to any extent it enterprises to be supervised the vexed question of unfair competition it was also saw fit. On given wide discretion. No attempt was made to define what was
unfair; the
of quasi-judicial
inquiry and of issuing orders, with appeal to the courts in case the
orders should be disputed.
As
65-9]
463
precise
No
solely
economic.
economic
not
must be considered.
The
trust
problem
and administrative machinery. The right men must be found, must be given secure tenure and adequate remuneration, must be able to carry out deliberate policies undisturbed by popular impatience and partisan recrimination. How slow has been the political organization of American commonwealths progress in
political
Nor need
it
which the community is made, constitute the foundation on which must rest all political
stuff of
and
social betterment.
all
In almost
directions,
it
chiefs acquire
power and
The
political agencies
giants.
Public control
imperative; in
many
directions public
ownership and management loom up as inevitable. But parliamentary government, representative institutions, elective officials,
divided jurisdiction between central and local authority, demarcation and limitation of the powers of legislators and administrators,
are not adapted to cope with the pressing tasks.
Our
institutions
have been largely inherited from the days of simpler industry and simpler society, from a stage when power in public personages was
feared and assumption of control
ous.
Political traditions
by the
state
economic
ment
is
CHAPTER
Socialism
66
Section
1.
isolated
tion;
Proposals for large-scale socialism have superseded those for communism. The essence of socialism is economic transforma-
Guild socialism; under larger-scale industry, it leaves the Sec. 3. Three conceivable prinSec. 4. problems essentially the same, 470 Sec. 5. How far ciples of distribution: need, sacrifice, efficiency, 474
changes in religion, the family, political institutions, are not essenLand Sec. 2. program. Nor is violent change essential, 464 and capital to be in public hands; not necessarily pubhc property in every The peculiar problem as to agricultural land. Wages to be instance. the only form of income. Exchange and money in the socialist state, 467
tial to its
public ownership, as adopted in present society, labor legislation and the like are so, 478 zation
is
socialistic;
Sec.
how
far
6.
Some
current objec-
huge organi-
not be accumulated.
480.
1.
To
the
socialists,
will
tion such as
seem not only uncertain, but childishly uncertain and legislais there described will seem a feeble palliative for a
deep-rooted disease.
The outstanding
fact,
they say,
is
the col-
vent
its
The
bourgeois
economist only palters with the situation when he weighs the pros
and cons of competition and combination. The bourgeois legislator, whether he tries to repress or to regulate combination, is
trifling
is irresistible.
The
evolution of indus-
try necessarily brings full-fledged monopoly. The ultimate outcome is plain: the state will expropriate the monopolists and will manage all large-scale industry for itself. Socialism is the one goal and the one gospel it is the desirable and the inevitable end.
;
464
66-
1]
SOCIALISM
away with the system
far as
465
of private propit
Socialism proposes to do
erty,
leads to great
leism-e
inequalities.
class,
above
all,
to do
interest or rent
to
allow only
scale socialism
ties,
were
rife.
They contemplated
select
communileft
the
selfish life,
strife or vic-
tories or privileges.
many
countries,
Such communities have been established in most frequently in the United States, where the
if it
spirit of
men
with communism.
sense; that
in the narrower
is not an essential feature. It is quite conceivable, and not inconsistent with the ideals of the societies, that leaders should be distinguished not only by their position of leadership, but in some degree by their income as well. Usually, too, the societies have had a religious basis. This also is not an essential characteristic; some have been frankly unreligious. It is true that those
infused with a religious spirit have lasted longest, and have been
in
As a
rule,
under leaders
fervid religious
spirit,
The
in the
little
modern
socialist
movement.
Machinery and huge industrial enterprises, the minute division of labor, the use
all society.
It proposes a
complete transformation of
these
466
[66-l
are to continue
society
is
but
all
No
corner of
to be left untouched
is
by the process
of transformation.
This transformation
may
result inevitably
from those
of
an economic
sort.
It
is
true that
many
socialists
also
in
and to some among them such changes seem as essential as changes strictly economic. Yet there is diversity of opinion on these matters; and the socialist ideal does not necessarily lead to any one policy regarding them.
It
is
itself
not
at
all
with
religion, as little as
society.
by German
states.
Prob-
among
some deeply
At the least, complete tolerance of all forms of worship and belief would seem to be beyond question in the transformed society. Again, in the family and the institution of marriage, no great outward change seems to be necesto existing churches, are frankly socialistic.
sarily implied.
Some
socialists believe in
tween the sexes than that of marriage for life; but there is no reason why their society should not maintain the present relation. The
responsibilities of parents to children,
it is
true,
be different
this
might be expected to remain very much as they now are. Nor is any particular form of political organization essential. Here, to
be
sure, there
is
ists
To most
of
Yet one
of the keenest
among
socialistic,
believed that
66-
2]
SOCIALISM
467
Most
of
with the red flag and a reign of terror; just as most of them find
no epithet
condemnation so conclusive as
"socialistic."
It is
most
modern
times,
revolutionist.
He
regime could not be abolished without violence, and his preaching, was inflammatory. Other socialist thinkers, no less ardent, look to a peaceful change; some to a rapid one, even tho peaceful; some
to a slow evolution that will lead to the transformed society
by
Marx's own
now much
love,
less truculent
than was
and brotherly rather than hatred or envy, underlies the movement look not even to any hasty dispossession of the
ists
and even
is
for their
The
indeed inconrid of
them may be a gradual and peaceful one, entailing no serious suffering for any individual. 2. The essential end which socialism tries to attain is ajcLange By way of attaining this, and primarily in order in distribution. to attain it, the machinery of production is to be made over. More
accurately stated, the machinery of production
to other
is
hands transferred
to be turned over
from
its
state.
All the
in the
way of
advantage
appear.
is
to be got, as now,
of the
disit
must
fail
because
468
[66-2
showing
itself
from the
the aged.
The
an ineradicable
instinct,
ownership
is
One may
have one's own clothes, furniture, and books and household possessions, may save one's own money, perhaps even possess a house. Only such forms of consumer's wealth as may readily give rise to an
of private hands.
The
at a rental
would not be out of the question that a person should possess a house of his own bought with savThese things might ings; as one might own a piano or a horse.
it
But
be transmitted by inheritance to children. Only ownership of investments of any kind, and dealings with things as investments no conto yield an income, would seem necessarily tabooed
also
payments of rent or interest. The details community have an attraction for many people who of a Utopian amuse themselves by specifying just how dwellings might be owned
tracts of lease allowed, or
if
the
let
So one might speculate on the extent to which sale or hire furniture of other durable consumer's goods might be permitted or pianos. The essentials in regard to the ownership of property in
it is
in private
hands at
all, it
in the
be susceptible of wide diffusion, shall not give rise to anything way of " funded " income, and shall not be cumulative.
The
in
gains from
it
guarded for
Of
extreme position.
The change
it,
is
mention adherence to
tors.
among
Each owner
clings to his
socialists are
66-
2]
SOCIALISM
is
469
any reason why he should
till it,
to.
who themselves
gives rise to no
On
the
ment
in the
difficult in pro-
Why
not
let
the
they are?
re-
gretted.
The tenure
of the farmers
might be that
state
of lease-holders
fixed rentals;
and the
if it
Urban
land, mines,
manufacturing
hands.
would
in
no case be
let
Where
proved neces-
sary, they
of cooperative plan.
presents problems of
any socialist organization. Yet it may be doubted whether it would prove possible to retain the essentials of private property and management here, after they had been swept away elsewhere. Distribution in the socialist state would be in one way very simple. Wages would be the only form of income. Rent and inThere would doubtless be pensioners and terest would disappear. paupers, but no leisure class no set of able-bodied persons living Business profits would exist onlj^ in a in prosperous idleness. strictly limited form, as wages of management. A carping critic might say that the rent of land could not really be done away with,
since
it
results necessarily
natural resources
sense a rent a would remain.
cease.
The
socialists
in this
differential return to
some sorts of labor and effort But the private appropriation of rent would
on the better
sites
The excess
of return
would
in
some form
470
[66-3
Exchange would proceed in the sociahst state very much as it Exchange is part of the machinery of production, and that is not to be disturbed. There would be warehouses and shops, constant passage of goods from factory to counter, daily purchase All middlemen and all shopkeepers (virtuof goods by consumers. might there be exceptions for some hucksters?) would be ally all "business men" in the employ of the state and receiving its wages. There would be money, too; presumably metallic money, because The devisers of Utopias have somethis is clean and durable.
does now.
labor
from
Things for
shops might
be labeled with the amounts of labor which their production had all the labor, remote and near, direct and indirect. involved
Each producer would receive tickets in proportion to the amount of the labor he had performed, and would use these tickets as money. Thus each person would buy the product of precisely as much labor
as he
had himself performed. Such an arrangement assumes an apportionment of wages on a strict labor or sacrifice basis. Of this aspect of the case, more will be said presently; certainly the determination of the prices of goods would necessarily involve a prinBut labor tickets ciple of distribution among the wage receivers.
and the like fanciful devices signify nothing. The essential things no would be to have stable prices and stable money incomes or fall in the value of money, no problems of appreciation or rise depreciation, no crises, no dislocation of the machinery of exchange. The quantity of the circulating medium would be adjusted to the quantities of things bought and sold, and to a given scale of prices
for
them;
in a
manner analogous
The
prices
would not adjust themselves, as now, to the quantity of the This medium we may suppose to be bright, circulating medium.
clean gold and silver and copper
or
any
of them.
But the
be government operations.
3.
came
into vogue
is
in
that
66-
3]
SOCIALISM
It looks to
471
of the full
some modification
com-
mand
of industry
by the
state, to
tions, to
some
elasticity in a
scheme accused
The
of
control
and management
its
hands not
the public or
coal miners the coal mines, the cotton operatives the cotton mills,
so on.
Each group
is
but the
appear.
is
clerks, superintendents,
managers.
Ownership
and property income is to disis any such thing, The term "guild" is applied to this
supposed to resemble that of the
it is
medieval guilds.
The
nology
in the
significant
than
is
union there
servative
more con-
The
conservatives think
of the unions as
in the existing
means primarily of strengthening the men's position system. They may admit socialist phrases in the preis
not in
The
have
on these.
union
the assault
on the whole
by the
reflect
more
restricted,
also; yet
more sober-
with a growing
goal.
A possi-
readily indicated
is
existing unions,
several industries
ulation, the
by the organization of workers in the management of the by the unions. The romantic and aesthetic specsocialists,
mean
little
to the
472
t66-3
capitahsts,
and developing
in the
its
own compartment
this general
The
several compart-
No
group
own way
Some
The They
the public interest, which shall curb any selfish policies of the
particular guilds or unions,
and
see to
it
that
all
the
details of such
have the same fascination and the same futility as those of Within the limits of a book like the present it is possible and profitable to consider only some outstanding aspects. In the first place, it is to be remarked that all this is quite difus; they
other Utopias.
have imagined a modest beginning, a preliminary peaceful assumpSteps of this tion of one corner of an industrial compartment. kind would be quite like the endeavors of laborers to organize workshops of their
prises,
own on a
cooperative bas's.
Cooperative enter-
must accumulate
their
own
own
savings.
They They
mu
submit to a period
of trial,
and
alas!
must
expect, in view of
trial.
No;
if
to be achieved, something
much
larger
must be
set up,
more ambitious, more proof against an unequal competition. Not an occasional single business within an industry, but each industry
as a whole
is
And
all
the existing
66-
3]
SOCIALISM
utilized
473
self-help
and supplies
as
it
stands;
no puttering
by
struggling cooperators.
Each
have a
monopoly
of its field.
No
to remain.
Tho
this
may
trials
it is
from the
and the
tests
which
in previous experience
exempt have
an
in-
no
less
The
guild
its industry'
than any
The
size of
the
No
Under the
establishment of
a^
wages system there must be, in the sense of a settled scale of remuneration for men who are working at things which they do not themselves consume. In that sense, they must be hired. Hire
is not essential; "wages" on the basis and terminable engagements are not essential. A sort of "salary" arrangement is quite conceivable. Somehow, nevertheless, men must receive at once the wherewithal for their
by
profit-seeking capitalists
of short-period
work
an
intricate
shall
it
division of labor.
The question
of the scale
on which they
be be
itself.
Some
There
be no remuneration except wages; yet the problem persists, on what principle the assignment of wages shall be made to the several
will
And
itself.
leadership there
Some
one,
must be. The huge machine will not run some group, must be in command. Discipline
474
there
[66-4
of superiors.
Who
is
No
self-
to be conceived as possible.
The
artificial
and do
his proper
task
all this is
no longer worth
is,
discussing.
rection
bureaucracy of some
must
lic,
be,
And,
to repeat,
some
principle of remuneration
of
must be
set up.
The
apportionment
income must be
settled.
How
are
we
to con-
met?
The
be fixed?
ment: need,
all
shared alike.
different,
It
is
ties for
enjoyment are
and
by nature; to such, plain fare and cheerless surroundings will always be more distressing than to the average man, and ampler means will be a greater source of pleasdifferent.
Some
are sensitive
ure.
And
who works
better surround-
and greater variety in occupation than the manual worker. But considerations like these could not seriously affect the general
consequence that distribution according to needs would lead to
tual equality.
vir-
The
and enjoyment are due chiefly to habituation. Those bred to comfort and refinement are sensitive because they have been made so. The socialist state could pay no attention to such differences.
And
tho
it
might
logically
pay attention
66-
4]
SOCIALISM
social classes
475
to
persons
made acceptable to the rank and file. There is no way of measuring how far differences in capacity for pleasure are real, how far fanciful. Virtually, distribution on the basis of need would mean that all should share
be considerable.
could they be
alike.
This
is
it
pitch of altruism.
tic societies
is
more
who
find "socialism"
But
it is
overtly,
by most
socialists.
Many
an
equalities does
and
propaganda.
Nevertheless, almost
all
socialists
have
in mind,
The second
principle, of sacrifice,
distasteful, this
men
means
fice
as
much
to one
man
as to another.
The
principle of sacriof
as
an
intrinsic
said to be so
Marx had a doctrine of this sort. Value was much embodied labor, a kind of labor-jelly; value being
Quantity of labor
such quantity as
is
ordinarily
posed to
The
;
mind the
all
again,
basis;
476
[66-4
differences in duration
remuneration.
In such a
mechanism
of
the quantity of "socially-necessary" labor involved in their production, and sold on that basis.
all
same
rate,
way
as to
make
irksomeness
those
all.
of superintendence
and government,
Read-
by the length of working time was not accurate. The proposal is no more to be taken as an essential part of socialism than any other But it brings out clearly the prindetail in the sketches of Utopia. not pay at the same rate for all, but ciple of equality of sacrifice pay at such rates as to bring the same sacrifice for all. Equality of sacrifice rests on an ideal of liberty. Sacrifice,
:
men
choice of
what they
and judgall
can
enough per-
make
it
If we assume that all men have the same inborn and that there are no obstacles to free choice of occupation from custom, expense of preparation, or social environment then precisely this kind of adjustment of wages would ensue in an individualistic society. The only differences would be those that
abilities,
Compare what
is
Chapter 47.
66-
4]
SOCIALISM
is
477
Very dissimilar
cording to efficiency.
man
shall
be rewarded
The
able,
and alert shall get more, the dull and weak less. The outcome would be in many cases quite the opposite of that from the principle of needs, under which the strong are likely to get less,
strong,
the
weak
to get more.
efficiency
Remuneration according to
just.
We
think
it
right that he
more pay, that an efficient man shall be paid at a higher an inefficient one. The principle assumes, too tho this assumption often is not consciously made by those who reason on it that efficiency is not the same for all, some having greater capacity than others. Remuneration according to sacrifice tacitly
shall get
rate than
assumes perfect liberty of choice; remuneration according to efficiency tacitly assumes that not all men can do all things, and that
not
all
reward
is
now
in fact ad-
In existing society
men
be accurate,
On
on others, most persons accept as just that to which they are habituated. The real ground on which remuneration according to efficiency
It spurs
it is
is
to be justified
is
every
man
is
The argument
for
On
is
standard, there
no reason
why
the strong
man
more
is
simply that,
so rewarded, he
the end
off
this
In
all
indeed
all
and have equal opportunities, the be the same as under the second principle all
will
be paid in proportion to
sacrifice.
Every one
will
be spurred
478
[6&-5
;
which are highly rewarded in and reward then will diminish; ultimately, only those differences will remain which correspond to
to turn his labor to the occupations
will increase
these,
differences in irksomeness.
But
all.
if
capacity,
some men
will
The
resulting inequalities
must
man
to exercise
and to exert himself in acquiring by training and assiduity those faculties which bring about high efficiency and high
faculties,
own
reward.
of socialism
on
this
apportionment
fail
to discriminate
among
is
the possibilities.
that
of equality.
all
fectibility of
men; and
in
any case the great differences which flow efficiency would not be in accord with
Tho
the diflSculties
much
Df
said
ties of socialism, it
may be
mean socialism as to distribution, that is, as to the thing essential. The state, in owning and operating railways, proceeds in much the same way as a private comPublic ownership does not
pany
does.
It
pays high
salaries to the
less
66-
5]
SOCIALISM
479
wages to mechanics and
unskilled laborers
world outside.
inequalities.
No doubt,
The
higher
officials
mechanics and unskilled laborers are often paid more than they
and
rest
As a general
leisure class.
it
When
buys
who
an ex-
change
The same
consequence ensues when the state sets out to own great works
the creditors.
The
means an endeavor to Monopoly returns are to be done away with, or (what comes to the same thing) are to be appropriated by the community. This is by no means inconsistent with the conduct of the great mass of industrial operations by private hands, with all the resulting phenomena of private property
it is
No
doubt
and accumulation, investment, a leisure class, a stratified society. There is a vast difference between the mitigation of present inequalities and the complete removal of the causes which lead to the inequality characteristic
inequalities in earnings, savings
480
qualities
[G6-5
Factory
legislation, for
fix
The
by a method
compulsory arbitration.
more
far-
conclusion,
it calls
on the
state,
by
fixing
wages once
for
all,
wages.i
It
may
be said, of
ourse, that
all
these things
public ownerrest
on the same
principles
tion,
and ideals as socialism, that they look in the same direcand that they will lead ultimately to a socialistic state. They a wider altruism, a growdo rest on the same or similar impulses So far they look in the ing impatience with great inequalities. ame direction. Their ultimate outcome is by no means neces-
That outcome may be a purified and better society, still organized on a basis of property and of free bargaining. Oddly enough, the advocates of socialism and its extreme opponents alike have a vague and all-embracing conception of the movement, the former by welcoming every step for reform as " socialistic," and the latter by stigmatizing with the same name every measure to which they object. Little is gained by such discussion
sarily the
same.
in the
scheme
Some
scheme
is
large-scale enterprises of
modern times go
objection.
The
possibilities of organization
J
6.
66-6]
SOCIALISM
481
be immense.
When we
see
how
conducted on a vast scale under unified management, we cannot say that the mere difficulties of management and operation would be insuperable under socialism. In
fact,
many
of the
tation
would be
simplified.
largely disappear.
commodity could easily be set right, by simply waiting until the exsupply was disposed of. There could be no ruinous underbidding by frantic competitors, each rushing to market in the fear
that the other would undersell.
regularity,
their
It
is
which the
socialists
may
society-,
may mean
also
stagnation
the
belonging to
cessation not
This, however, amounts to saying not that administration and management are impracticable, but that they would not be as progressive as they might be.
of distribution
among
the laborers.
as already intimated,
a crucial matter.
a price for the goods produced by different kinds of labor or different combinations of labor, is not more troublesome than it is
now
for
Often enough,
in
and price can be reached only with approximation to accuracy; and this reasonable
approximation
suffices.
of capital" be a
matter of crucial
It
different process
from
that of present
individuals, but
by the
com-
482
[66- 6
would
of a surplus,
may be
would be
all.
his present
income curfor
somewhat,
might be made
adding
community
of course,
is,
would depend,
on the possession
of a fairly high
Given a
The
serious
means
for
Yet
than
less
now
is.
fixed for
Change from one occupation to another of a similar grade would seem to be no more difficult of arrangement in the If the dreams of the socialists socialist state than in our own. come true, there would be shorter hours for ail, and more leisure.
of their
own.
But
is
society.
come
is
be
of gain
Whether persons
is
for
socialists
come
is
true.
stiff
of crass
bureaucracy
would
stifle
individu-
This
is
difficulties
6(>- 6]
SOCIALISM
483
as to their
mode
of
life.
The
That elegant freedom now enjoyed by the possessors of large funded incomes would disappear completely. We are so habituated to the ways and traditions of present society that we cannot easily imagine what those of a society essentially different would be. There is no such thing as unrestrained freedom. Men live now within limits set not only by the need of earning their living, but by law, by custom, by the environment. In the socialist state there would be necessarily restrictions, also, in some respects similar, in some respects different. A bureaucratic and semi-military socialism is conceivable which would crush individuality. A regulated and refined system of private property is
conceivable, with unfettered freedom of opportunity, in which
any
full
socialist state.
If
development
of personality,
which sort
happiness.
CHAPTER
67
Socialism, continued
Section
The of population under socialism. 484 Vigor and efficiency Sec. 2. among the rank and file. The absence of the power of discharge. The Sec. 3. Leadership and the ways of securing irksomeness of labor, 486 The love of distinction; can it be satisfied by the laurel wreath? it. Mixture of higher and lower aspects in the love of distinction. The The selection of leaders in a Sec. 4. possible growth of altruism, 488 Sec. 5. socialist state. Genius and originality likely to be deadened, 490 Material progress thru the improvement of capital likely to be checked. Is a change in distribution alone now needed; can advance in production The problem is essentially one of motive and Sec. 6. be neglected? 492 Human nature and ideals of emulation and distinction are character. Tho socialism and current movements of reform rest subject to change. Sec. 7. Is on the same force, the difference in degree is vast, 493
1.
Malthusian
outcome of social evolution? The materialThe certainty that istic interpretation of history and its prophecies. change will be gradual and the impossibility of foreseeing how far it will
1.
tic
difficulties in
the
way
of socialis-
would
we
The
bugbear
of phalansteries
and barracks, with supposed gigantic nurseries quasi-incubators, in which children would be reared without
in
its influ-
much
it
would seem
The
training
tion for a career in life could not be left to the discretion of parents. 484
67-l]
SOCIALISM
(Continued)
485
At the least, it would be subject to minute public control. And, on the other hand, the responsibility of parents for the future of
their children
would virtually
cease.
Every
child
would not
onlj^
for.
might deem worth while. And a necessary corollary would seem to be that every child should be assured employment, and as good an opportunity for earning an income as any other child of
like promise.
collectivist
scheme.
The
The
It
is
tion which appear in the highly civilized countries, are the conse-
These ten-
on the whole,
force.
rest
on
stirred social
ambition more
They
the family, to hope for the future of one's children, to the desire
to rise in the social scale.
natural man has only two primal passions to get and to beget.
It has
that the
is
now held
in
get.
That
by the
opponents.
tends
so encounters
Regulation and
social.
evils are
So funit
what would be
inevitable.
have to be resorted
1 2
no doubt, of monogamy
p. 10.
486
and
[67-2
which
now make the family a safeguard for public and private well-being. The sexual relations are made pure and sweet, and safe for society,
not only by the marriage
tie
by
and the lawfulness of monogamy, but Without that responfor the offspring.
it,
sibility
and
all
the ani-
mal
The domestic
relations
which
In
now enshrine
and it is their very individwhich cause them to work to social adualism and selfishness vantage. It is hardly conceivable that any new development of public opinion, any new regulation by public authority, any
decreeing of childless
monogamic
which the individualistic family gathers about it under conditions of free opportunity and of hope for the future.
2.
The maintenance
less
problems no
and progress presents troublesome, both as to the rank and file and as
of vigor, efficiency,
to the leaders.
For the rank and file, some among the difficulties in the existing order of things would indeed disappear. There would be no in-
ducement to "make work" or oppose improvements. The fear of unemployment, which is the main cause of the disposition to adopt such policies of restriction,^ could not have influence in the The laborers who were no longer needed in one ocsocialist state. cupation or in one locality would be transferred elsewhere; if immediate utilization proved not feasible, with no oss or suffering during the transition. There would be no inducement for making
any job
last.
On
democratic community.
They
could be im-
if
67- 2]
of the
SOCIALISM
{Continued)
487
way
painlessly.
non-employment and work-seeking are quite to be done away with. The men must
of discharge could avail; for
How No threat
The serious problems would be presented men, not hopelessly bad, not spontaneously deal with mere slackness, indifference, the lazy
of
all
and
if
work were
would
difficulties
We
we
is is
began. 1
may
be true that a
it is
life
without labor
life
is
demoraliz-
of inactivitj^
all
men.
In an ideal state,
e?
men work
of
all.
The
that
men
will
work
faithfully
The problem
is
The
services being
thru taxation
must be paid in order that government shall be able to supply the Hence the mien of the tax-gatherer is inevitably harsh. services. In a socialist state all ostensible workers would be assured once for
all
would
have to be exercised
in order to
Must not
gatherer?
And what
We may
See Chapter
1,
4-6.
68, 1.
Compare Chapter
488
[67- 3
to adjust distribution on a basis of efficiency, and thus shall attempt to apply a spur to vigor by differences in pay proportioned to zeal and to capacity as well; frankly accepting the wide range of The greatest differences which must result from that principle. variations from the average or ordinary rate would then appear,
of course, for the case of the comparatively few having great gifts,
and administrators, the men of science and the and surely, the poets and artists likewise. But differinventors ences of the same sort, tho less in degree, would appear in the rank and file also. The interest of every private employer now leads him
for the great leaders
to
make
distinctions
on
this basis.
He
and
intelligent,
or
he
discharges
officials,
them once
for
all.
Is
it
to
discriminate in such
laziness
way
as to stir zeal
and
intelligence, penalize
and incompetency? Above all, will the public officials of a democratic community do so? Whether a man shall contribute more or less to the general output of the community depends in most cases on his own spirit on
his choice
and
its
will.
that leads to
the ability,
problem
how to discover
of
how
to stimulate
it.
men,
efficiency in
work depends on
on self-imposed habits.
until they are
People do not
pelled to try.
com-
competition, of pri-
vate interest, of self-dependence, is that it leads men to try hard. No doubt it often fails. Among the very poor it stunts endeavor;
and there is lack of opportunity for developing latent faculties. At the opposite extreme, many of those born to riches waste valuMost men, being dependent on themselves and prosable powers.
perous in proportion as they exert themselves productively, are led automatically to do their best. This great and seemingly indispensable motive force no socialistic
effect.
3.
progress,
67- 3]
SOCIALISM
{Continued)
489
of their faculties.
What is the outlook for effective leadership under socialism? The possibilities seem to me greater than some critics admit.
The
essential thing, say the socialists,
is
to find
new and
better
ways
of inciting emulation
of distinction.
What
men
for,
Not
man
of
science
by an
instinct for
achievement.
Add
Give
wreath
surely
men have
of science.
ideals.
and higher
posts even
now have an
The
captains of in-
They
follow the
after
all,
but a sym-
and
success.
What
stirs
thing else
is
social ambition.
is
essential thing
some symbol
eminence that
put
its
posdo.
sessor
It
above the
common
now
Coarse
men
How
of
490
[67- 4
intellectual
mixture of motives.
command
of the
philosophers.
altruistic, so
As few men
are wholly
selfish
wreath alone
is
enough to
satisfy ambition.
this again
depends
The
feelings
may
We may
will
A simpler way of
hold on
all.
common
insti-
stronger in
It is
its
But
this
is
a matter of slow
evolution.
Another problem
for leadership,
is
that of selection.
how
The
and genius are not recognized Those who show promise must go
thru a stage of
trial.
High
dexterity, does not appear at its full until long after adolescence.
and amusement on the work of their early years. Often those whose achievements in later life prove greatest could not be Men of affairs, singled out in youth from their competitors.
osity
especially, are bred in the
The more
file.
promising are indeed readily picked out from the rank and
No community
67- 4]
SOCIALISM
{Continued)
491
Many
try,
few succeed.
field of
The
case
is
men
most
of science,
Often
the
brilliant of all, in
every
achievement,
who
find it hardest
to
make
their
of their time.
Those
who have
high ability
do that to which the general taste has already been educated, the leaders in science and industry who apply principles already established.
On the
them.
The world is full of would-be geniuses and crack-brained schemers. Persons who are now called on to take the initiative in the processes
of investment, such as bankers, hardly pass a
new projects
ful,
lu-ged
on them
a few promising.
An
exercise of
The same
officers,
in
leader; least of
leader.
.
who has
those that
make a
great path-breaking
By whom
is
is
when
there
else to
back
They must accept once for Governments now find the ways already approved by excharge.
perience,
and to
How
would
be
if
in the
hands
which management
Even those public business enterprises in now most efficient are apt to be a refuge for
find
Men
of
new
ideas
no hearing.
The
492
[67- 5
same reasons which lead to the conclusion that in existing society government can advantageously take charge only of industries that have reached the stage of maturity/ tell even more strongly against
the control
by government
will
of all industry.
It
is
conceivable that
democracy
any
men
of originating ability.
fail
A vast collectivist
all
to be deadening to genius of
Would not
its
of ability to
5.
do well what
of capital.
is
was noted in the last chapter; that is, the setThis, however, is only the ting aside and "saving" of a surplus. Tools, jBrst step in the process by which real capital is added to. implements, "capital goods," are not saved; they are made. More
perfectly feasible, as
them and better k nds can be made only if there The effective increase in the community's place only by improvement and invention. In the sketches of Utopias, there is commonly
of
arts.
is
progress in the
reference to the
vast
manual labor by ingenious machines. The schemers speak as if these things came of themselves. In fact the great mechanical advances have come in the past by slow steps, with experiments and failures; dependent on the accumulation of surplus means, but not caused by it. Tho the future is likely to see tools perfected far beyond what we now possess, all such devices will come, as they have come in the past, by trial, by selection, by evolution. There must be not only the means for getting new capital made, but organizers and inventors. The process of merely adding to the number of existing tools and machines
is
easy.
When
engine and the automatic power loom have been perfected, almost
of the
same kind.
2.
To improve
SOCIALISM
(Continued)
493
and
The betterment
progress.
of capital
is
Both are
With
may
be
advance
in production is
no
consequence.
If
Better distribution
may
have enough?
would probwere
simply
It
if it
When we
consider
what
means
we can
to see
hardly be content to
ress.
Surely
it is
may hope
beyond the present stage of productiveness is desirable. And the more "scientific" socialists, also, when they speak of the inevitable victory of large-scale production, of the disappearance of the
is still
occa-
1914-18.
494
ideals.
[67-
more
familiar language, of
What
is
on the assumption that brings the most gain to the individual. It assumes hedonism Motives other than the self-regarding ones in its simplest form.
are supposed to
side
show themselves only in matters that belong outin the family relations, in religion, the "economic" sphere
in charity,
Human
nature
is
not so
Men are
not wholly
selfish or
own advantage;
and
which gives validity to "strictly economic" docBut they do not follow their advantage ruthlessly. In trines. the future they may follow it even less ruthlessly than they do now.
it is
this fact
They may be
sense.
by the
law, but
by a higher moral
Human
his
may improve
So
it is
so
much
in the future as to
social reorganization
past they have turned usually to some form of domination, in accord with that instinct of struggle and conquest which we have inPower over others has been the herited from savage ancestors.
It
of
the struggle for wealth in modern society, whose ways of emulation are
still
much under
is
The
love of distinction
so universal
it
cannot
be eradicated.
which, while
But
it
still
spirit of service
may be
for the
common
67- 6]
istic,
SOCIALISM
(Continued)
495
betterment the
on the whole, as well as more intelligent. Of this general last hundred years have supplied many illustrations.
it
was in former times; the mere means that something will be done to
it
The abolition of cruel punishments is a phenomenon of large significance. The steady development of social legislation, and the
stop
it.
From
common interest, of the growing altruistic impulse. it may be said that all the great social
movements of modern times rest on the same basis, and that all tend away from individualism and in the direction of socialism.
Tho important
tries, it
between
for
full-fledged socialism
of selected indus-
may none
movement
public
management and
truistic spirit.
And
ment
is
spirit,
on a high
is
level of character
it is
and
Of labor
ent for
legislation, also, it
to be said that
both impelled by
community
at large,
and depend-
among
Thus the
differences in spirit, in
method,
may
human
nature and in
human
How
far changes in
men's
certain
motives and
ideals,
and so
in their public
and private
relations,
would be rash to
predict.
But
it is
will
remain
very
and
will
most
They
powers,
496
[67- 6
selfish
to self-restraint,
interests
and by the
So long as
will
It
may
be suspected that the divergence of opinion on the posideals of socialism often hinges
sibilities
and
on differences between
Persons of highly
respond to the
Those, again,
who
are
most
in useful labor,
even tho
it
be sustained and
will cheerfully
life
ponents of
So it is with the and the ultimate sources of happiness. To some opsocialism, its program is unattractive because it offers
strife
a world without
To
mon
And
flat
They
see
no
zest in
life
with-
life
be, in
some degree at
a socialist state.
if
The
they
men
ruin themselves,
;
rise to heights of
and bring ruin on those nearest and dearest to them can they happiness and perfection, of full development of
have a choice
of
Freedom means
it
To
some,
promises nothing unless it be the chance to compete, and to win and to reap the fruits of winning. To others it means escape from pain, from the need of holding one's own against superior competitors, from the subjecton of defeat. Such differences in temperament can be brought into accord by no reasoning. Hence the debate on the merits and attractions of private property and socialism may be expected to go on indefinitely.
67- 7]
7.
SOCIALISM
(Continued)
497
In the preceding pages, no far look into the future has been
essayed.
Only
some
predictions.
how
far
we
cannot be sure.
The plane
of competition will
stitutions of property and inheritance will be narrowed in scope. For the immediate future we see some reforms clearly called for,
trial.
But what
of the final
outcome?
The so-called materialistic interpretation of history, as worked out by Marx and adopted by others of more or less socialist drift, tries to give an explicit answer. The future will inevitably bring
the disappearance of private ownership in instruments of production
of the of
its
receiving class.
the prediction
is
simple enough.
will disappear;
there will remain only a few great capitalists and a propertyless proletariat; the
masses
will
become more
will
and conscious
of
their
not necessarily by bloody revolution) and the fully organized socialist state will
One
thing
is
is
not imminent.
At the time
Marx thought that the final was setting in. The first stage,
la-
long extended, had been that of the direct exploitation of the borer thru slavery and serfdom.
stage, last-
owning
class
free laborer.
The
in
third
and
last
by the revolution
fulfilled as of
of 1848.
But
been
the
by others that an
in.
era of uniuprising of
The
498
[67- 7
structure.
much
ized.
The
socialists
A curious
controversy
is
going on in Ger-
many
strict
who
hold to the
Marxian doctrine of impending revolution and early dispossession, and those who, maintaining that changes will be slow, advocate a policy of opportunism. Marx's Caintal has been a sort Tho the book contains, of bible in the German socialist camp.
with evidence of extraordinary intellectual ability,
much
obviously
is
brought,
by
socialists
no
less
The middle
The
number
moderately well-
and there
is
as
trade-
But there
sign of
an impending
principles
It
is
by organized workingmen.
more quickly
in the
The spread
of education,
facilities for
propaganda
make
The
have
Moreover, the
mechanic
may
The
cen-
The twentieth
and
in
tury before
1
Compare the
Chapter
4,
See also Bernstein's Evolutionary Socialism, English translation, p. 57. Bernstein is one of the best known among the non-orthodox German socialists, an able
1.
and high-minded
writer.
67- 7]
SOCIALISM
{Continued)
499
man
of
our
own
quickly revolutionized.
changes
the same.
now in prospect will leave the face of society very much The Australian colonies now have public ownership of
and minimum wages; they have progressive taxation and the like. But they have competition and money-making, social
tration
classes
inequalities in property
and income,
The
traveler
who
much more
tenaciously.
way
socialist goal.
The reason why the process of social evolution is slow is that men themselves change slowly. Not only human nature and human motives, but the current standards of right and wrong,
the beliefs as to what constitutes right government, right ownership of goods, right relations between
women
these foundations
disturbed.
They
are
maintained from generation to generation by the unseen but pervasive influence of example and imitation.
The
slowness with
which education works out results on any large scale illustrates the difficulty of changing habits of thought and conduct among masses
of
men.
Better education
it is
is
rightly
deemed the
greatest of social
solvents; but
lions
who
are to be affected.
The
educational leaders
tell
us that
above
all,
con-
and character. Yet even the greatest educational advances go but a little way toward attaining these elusive ends. How slow
500
is
[67- 7
slower the
influence on the character and the daily life of the individual! The question none the less persists, whether there is not a goal
for the
development
of society.
that
may
is
it
it
what the distant future will bring. Consider what was the state of civilized society some four hundred years ago, at the culmination of the Renaissance and the first stages of the Protestant Reformation who could then imagine what development would take place in the coming centuries, what political, No less imsocial, intellectual, industrial changes would occur? conceive what will be the changes in the cenpossible is it for us to The system of private property, if it turies that lie before us. maintains itself, is indeed likely to be very different from what it is now; but whether it will remain unchanged in essentials, or will be gradually stripped of many features now deemed essential, or
possible to foresee
:
like
all
The
is
admitted by
among
The
abolition
of great extremes in income, a wide guarantee of decent comfort, the disappearance of a leisure class, the assumption by the state
overshadowing great-scale industries, the control of all natthese, indeed, seem to be essential points in their ural resources Just how far gradations of income may be allowed to program.
of the
remain,
play
may
unsettled.
Each
is
entitled to
own
utopia.
With
this haziness
many
socialists
procedure.
The
revolutionary wing
less
dominant, opportunism
more widely accepted. All sorts of changes in present society are welcomed, so long as their general drift is in accord with the collegislation, lect! vist ideal; such as workmen's insurance and labor
state ownership
Cooper-
67- 7]
SOCIALISM
{Continued)
501
among workmen
means
of educating the
mem-
them
in habits of
common
action.
fortunate that
men
gether in the reforms that are called for in the visible future.
The
Little
ultimate outcome
that
may
be allowed to ake
its
own
course.
sion of socialism
we now do can have much effect in shaping it. The discusIt centers attention on is by no means barren.
on the sources from which coming growths must proceed. points to a goal that has had charm for some of the noblest of
It deserves the respect
men.
even of those to
whom
the goal
is
it
not attractive or to
affects in
whom
it
But
As
to these, there
The
two
is
course
not ob-
and
all
men,
it
can join
all
in efforts to turn
by almost
to be
that of progress.
W.
Finance and Organization (1915), gives a wealth of information on American conditions. W. M. Acworth, The Elements of Railway Economics
(1905),
;
ed.,
On the American situation as it stands in 1921, The American Railroad Problem (1921). Among foreign books, C. Colson, Transports et Tarijs (1908), technical and detailed, is of
American
l.'L.t^h.arf man,
high value.
On
combinations and trusts, A. Marshall, Industry and Trade, Book III development in England, the
United States and Germany. R. Liefmann, Kartelle und Trusts (1909), gives a compact account of the German situation as it then was; and H. W. Macrosty, The Trust Movement in British Industry (1907), a detailed survey of that in Great Britain. Books dealing especially ^\'ith American conditions are R. T. Ely, Monopolies and Trusts (1900); J. W. Jenks, The
502
[67- 7
L.
H. Haney,
Problem (1915).
On
is
an acute
critical
S. 0. Dunn, Government is in this author's Municipal Ownership (1907). Ownership of Railways (1913), gives effectively the arguments against. A convenient summary is in a series of papers, The State in Relation to
A mass of on the Municipal and Private Operation of Public Utilities, Published by the National Civic Federation (3 vols., 1907). A detailed treatment of the relation of municipalities to "pubUc utilities" is in D. F. Wilcox, Municipal Franchises
Railways, pubhshed
(1912).
in the Report
(2 vols., 1910-1911).
This seems to
me to hold
of
K. Marx, Das
Kapital (English translation, 1891), the most famous and influential of Among the innumerable discussions and refutations of socialist books.
the Marxian doctrines
may
the
Le Rossignol,
Ortho-
dox Socialism: a Criticism (1907). A concise and vigorous statement, based mainly on Marx, is in K. Kautsky, The Class Struggle and The Social
Revolution (Enghsh translations, 1910).
J.
is
G. D. H. Cole, Guild Socialism Re-stated (1920), summarizes the arguments for that
and B. Webb,
Commonwealth
program involves.
expository and critical books, A. Schaeffle, The Impossibility of Social Democracy, and The Quintessence of Socialism (English translations,
Socialism, a critical Analysis (1911).
Among
1892 and 1902), are good, especially the last named. Cp. 0. D. Skelton, An admirable historical and critical
title) is
W.
Sombart, Sozialismus und Soziale Bewegung im 19 Jahrhundert (English translation, 1909). A compact discussion of the Hterature on sociahsm thru the nineteenth century, and of the Social Democratic party in Germany, is in H. Herkner, Die Arbeiterfrage (7th ed., 1921). The most
stimulating and discriminating advocacy and discussion of sociahsm
often Wells,
is
by
writers
who do
BOOK
VIII
TAXATION
CHAPTER
68
The
no quid pro
505
Proportional This question of justice inextricably connected with the general question of social justice and the righteousness of inequal"Ability" and "equality of sacrifice" are inconclusive ities in wealth.
2.
of wider consciousness of
common
interest,
Sec.
quo.
Taxes a sign
or progressive taxation?
3. Should property incomes be taxed at higher from labor? 512 Sec. 4. Can taxes be made higher according to the source or nature of the income? 513 Sec. 5. Progressive taxation of interest from capital, on the principle of taxing saver's
principles,
507
Sec.
rent, 516.
1.
The
by government, is the absence of a direct quid pro quo between the taxpayer and the pubHc authority. It follows that a tax is necessarily a compulsory levy. The post office illustrates the payments which are different from taxes. A charge is made by
it
no one
is
its
The same
situation exists
it
I
'^
It
is
exacted
of
from
all
alike
506
TAXATION
is
is
[C.8-1
To
tell
individual
is
impossible.
The only
way
in
to cal
equitable.
an instrument for national advancement in other ways. The benefits from the maintenance of sanitary service are also unapportionable.
As regards
made among
different
owners of inflammable property on some well-defined principle of But it is obvious that the whole community insurance premium
is
by the levy
which
so were
for
them who
u;.ed
left in
be managed
like
that freedom of
movement was
were
means
of
communication
atti-
The most
is
movement
It
as a private industry, or to
manage
on a principle
of
payment
All civilized
all,
in
such
way
and advance the community at large, not on any basis of" proportional payment. No doubt, a motive even more distinctly
altruistic enters
68- 2]
507
way
in possessions
and income.
is
Under the
made
free;
but in more or
less
A great
range of
ness of
government activity
interest
growing conscious-
common
and altruism
and the growing influence of sympathy libraries, museums, parks, hospitals. It has
been aptly said that the growth of those services which are supported by taxation measures a people's consciousness of common]
interest
nay,
its
Taxation
necessaril}' involves
compulsory levy.
it is
may
for
in the
by voluntary contributions
quite
There have been occasions, in times of and of fervently aroused public spirit, when voluntary contributions have been an appreciable financial resource; but they hstve been rare and short-lived. Even in the most imminent danger, a steady and considerable revenue can be got only by compulsion. Hence the mien of the tax-gatherer is, as stern under a self-governing democracy as under the most absolute despotism. Men's willingness to support public service does not grow apace with their conviction of the need of public service.
out of the question.
great national peril
2.
The
fh'st
fore,
shall contribute
toward defraying
Shall he
pay
On
two fundamentally different answers, the one more conservative, the other more radical; the one mainthis question there are
very simple.
It proposes to call
pay
between
in the degree to
larger,
508
only.
yy>^
The
TAXATION
view
Is
[68- 2
more
some are
defensible nay,
But
un-
in
the
and since
it is
him
and
it
let all
be called on to
social
The
system
before,
was equitable
and
it
remains
so.
A
is
somewhat
different view,
result,
machinery
not be disturbed hy taxation. If it is to be disturbed, let other This view implies neither for doing so be adopted.
approval nor disapproval of the gulf between rich and poor, merely
Indifference or aloofness.
The taxg^herer,
it is
said, should
not
be distracted by having to consider such large and difficult social His task, even in its simplest form, is troublesome questions.
enough: to devise ways of securing the needed revenue without arousing discontent beyond endurance. This may be described
as the simply fiscal principle of taxation: according to which
itself solely
money
view
first
de-
and
another
''
fiscal
)'
principle of taxation
may
be noted one
;
According
way as to cause the minimum of vexation and opposition.^ Any tax is good which brings in a large net revenue without pausing much protest from the payers, or at least from those payers who
have
political
influence.
If
in
them be imposed.
68- 2]
article
509
coffee,
such as sugar or
squawking as
hardly
e.ver
advocated in so
it.
many
Every finance
demands
and
also opposition
is
from those
whom
he proposes to tax.
The
temptation
^^
sistance.
The very great part which indirect taxes on commodities all modern countries is explicable chiefly
taxation
is
on
this ground.
consciousness of
underlies the
have just
and therefore rightly to be left undisturbed by taxation, and that which simply would keep taxation disentangled from questions of social reform. Both of these opinions have the
just,
now
many
writers
on
this
much-
failed to face;
p^of
^y-
^.''cisely
social order is
not perfect,
and that taxation should be one of the instruments for amending it. Even tho it be an open question whether all inequality in wealth and income be unjust, such great degrees of inequality as the modern world shows are regarded as not consonant with
pay more than in proportion. This proposal has been called socialistic; and it is, if all measures looking to mitigation of inequality be so called. Those who hold it place progressive taxation in the same class with
justice.
canons of
Very
sion of
government management
measures
all
of
which are
510
^''
TAXATION
The
[68- 2
how
far
is
progression
to go?
of
proportion,
same
difficulty
reform.
you are at sea without rudder or compass. The might be urged against all sorts of movements for Few except the rigid and extreme socialists have clear
It suffices for the average
man
what direction he is moving. Most unsophisticated persons in the advanced countries of modern times, tho they have very hazy ideas about taxation and socialism and economics
to
know
in
it
In so saying, they show that influence of the spirit of the time from which none of us can escape. Sundry phrases have been used, embodying supposed principles of taxation,
which
fail
u- It
is
Germans use the word Leistungsfdhigkcit) or on "faculty." Yet it is by no means clear either that this principle conforms to economic justice or that it leads to any certain conclusion on the
crucial point
proportion
pay
is
or progression.
No
man's
ability to
Does
it
His ability to pay for bread and coal is also greater; yet we accept it as a matter of course, and as reasonable and just, that he should
pay
for
them
at the
same
It
may
be questioned whether
be really
just whether
the
Such
is
the
world, under
Compare Chapter
66, 3.
68- 2]
511
economic system
is
in
general unjust?
In any case, the principle of ability leads to no clear conclusion on the question of progression. Granted that the rich should pay on the basis of ability, the question remains, how is that "ability" to be measured? Does their ability increase in exact proportion to their incomes, or more than in proportion? Those
who advocate
Yet
come
They are
and that
different rule
and the same inevitable harking back to the fundamental questions of social justice, arises from
another phrase
The same
much
in taxation.
sacrifice
Take away
half the
is
imposed on him
away
In the case of the poor half the income of a millionahe. man, taxation would exact what is essential for life or for meager comfort; in that of the rich man, only the means for luxury and To bring about equality of sacrifice, you must take ostentation.
away a much
larger proportion
why
is
The fundawhen in
followed?
Problems of
and private property; and to apply in these a principle of equality of sacrifice is to admit that the working of individualism is not to
one's liking
that
is,
512
3.
TAXATION
This same insistent question presents
itself
[68-3
with regard
In the
literatiu'e
on taxation, the terms "funded" and "unfunded" incomes are much used.^ Funded incomes are those derived from incomeyielding property,
monopoly
profits,
and standing for interest or rent or established Unfunded incomes are salaries, wages, business We shall speak of them as property professional gains.
gains.
incomes and labor incomes respectively. The former last indefinitely; the latter cease at latest with the lives of their holders.
Should they be taxed at the same rate or at different rates? The difference in duration between the two gives no solid reason
for discrimination.
If it
answer
is
longer. If the income lasts forever, the tax will go on forever. There
is
in
many
instances under
a moral obligation not to use the whole of his income, but to save some considerable portion. What he puts aside for the future
use of wife or children
It will
it is
is
virtually
no part
become
it
taxed again
when
or
if,
inuring later to
the beneficiaries
then
there
is
double
taxation of the
same income. The holder of a property income may indeed do the same thing, and his savings also may become
the occasion of double taxes; but he
is
part of his present income, since this passes on, presumably undiminished, to his heirs.
On
an income tax often permit the deduction, from the amount prima sums paid out for life insurance premium.
are limited,
68- 4]
513
means
is
of evasion.
But the
principle
on labor incomes
The common
incomes at
acquies-
probably on
admission
on
common
half-unconscious
Property incontribute
for those
who
The
existing order will indeed say that these incomes are as just as the
Interest
sorts of income,
is
them by higher
rates of taxation
The contention
as
is
Nevertheless most persons, tho they do not formulate their conclusions with care or accuracy, feel that
solid justification
incomes do stand on
less defensible
ground.
may
be right
But
this
does not seem right in the same degree as "earning" your living.
any other machinery, would be condemned by the average man as "dishonest" or " socialistic, " some concession to the critical and reforming spirit is made by approving higher taxes on such incomes. Unle s there be concession of this sort and on this ground there is no logical basis for the general application of a Jower rate of taxation on labor incomes.
tion or
4.
Any
and
must
rest, to
be consistent,
on a frank admission
of
unwelcome features
in existing society
514
and on a program
whether
TAXATION
of social reform.
[68-
The only
question will be
is
this particular
mode
likely to
work
well,
whether
it
may
its train,
whether
And
here there
Some
difficulties of
way of They
appear on a consideration
it
It is obvi-
ously better to go to the root of the matter, and to deal with the
causes.
Much
way
of reform
is
other ways
by
Pro-
education,
by the
control of
monopoly
industries,
by the removal
profits.
of the conditions
income
according to
size,
than the various ways of diffusing material welfare which have been
considered in the preceding pages.
It
may seem
sive taxation
on the basis
income to make
;
is
but
in those cases
where income
is
made
large in objection-
able ways.
vThe principle seems clear enough: are the inequalities such as induce activity that is advantageous to the community as a
whole?
of
not to be
indis-
commingled with
interest.
Salaries,
professional
who
earn the
68- 4]
515
them
incomes.
are promoted
by
letting
earn
all
useful services.
size.
But to earmark the incomes thus "legitimately" large, and to distinguish them from the "illegitimate" incomes, is an extremely The law must deal with unmistakable facts; it difficult matter. cannot be based on general principles and rough approximations. On the other hand the conclusions of economic science, above all on the great social questions, are essentially in the nature of rough approximations. What, for example, are " illegithnate " profits? How define them in such manner as to make them subject to
.
special taxation?
We may
experienced.
due to chicanery, swindhng, browbeating of the weak and inHow separate them sharply from the profits secured in ways advantageous to the community and in accord with its
accepted standards of right conduct?
energy and enterprise,
:
To apply any
The
best course
is
sort of
impracticable.
to deal
with the causes to protect the weak, to elevate the plane of competition, to
guilty.
more sharply
site
fit
for taxation.
Monopoly
same
class.
Often,
it is
true,
they are as
difficult to define
profits.
How
management from when this can be done; as where a bank is given the monopoly of note issue, or a street railway or gas company the monopoly of serving a city. Then it is clearly proper to provide that profits above a
given rate of return on the investment shall be divided with the
1
Compare Chapter
44, 5, 6.
516
state.
titled
TAXATION
The amount
going to the state in such case
[68- 5
may
be en-
a "tax" or a "share." The name is immaterial; it is in essence a levy on a certain kind of income, justified by the principle
of
removing inequality which brings no offsetting social gain. In general, however, progress ve taxation is not practicable on
It is susceptible of application,
To
tax
many
persons, th's will seem no an income large in amount will seem to them the same thing as taxing an income objectionable in kind. Tho few would carry this sort of belief to its logical outcome and condemn all inequality
significant distinction.
all, there is an instinctive feeling that great inequalities bad and very large incomes peculiarly fit objects of taxation. The growth of social sympathy and all the prepossessions of
To
once for
are
undiscriminating form.
make
it
well-nigh certain
will
have wider and wider application. be how far it shall go and what difficulties
it
must encounter.
It
is
its
amount.
is
The
is
essential
is
that
the return
Savin|;
a return on
investments.
this
is
savings.
As to
The same
principle.is
falls defini-
A tax on rent
effects
From
this point o
may be ground
Compare Chapter
39, 2-4.
68- 5]
517
Those whose means are large almost always enjoy some " saver's
rent."
They may
but
the}^
secm^e say four per cent on their investments; would maintain the investments intact in almost all
cases,
The
capital
sum
rate.
this
income
The same
there
is
all
cases where
saver's rent.
in order to
make
provision for the uncertainties of the future, for old age, for wife
and
children,
would continue to do so
in large measure,
even tho
much reduced,
The appropria-
in social capital. But in these cases commonly the degree of inequality which gives rise the demand for differential or progressive taxation. Great
not
inequalities, such as
equalizing spirit of our time, arise from the very large properties,
the pride of achievement, are the motives of the creators of fortunes; social ambition, again, and the love of ease are the motives
which lead their descendants to maintain the fortunes. A lower rate of return would not cause impairment of their principal or a
diminution of the sources on which the community's apparatus of
production depends.
On
grounds
property
if
one frankly
accepts the view that great inequalities in wealth are undesirable, and should be lessened, by taxation or other means, so far as other
avoided.
consequences equally undesirable for the community can be In this case, one possible undesirable consequence is a
strict
--'
="
518
in connection
TAXATION
with the administration of taxes.
[68- 5
Some
sorts of
Others cause
and
in demoralization
Income taxes more particularly cause such and cause them in greater degree according as they
This aspect of the problem of
CHAPTER
69
expediency, 520
Sec.
3.
The
of
stoppage at the source. The system not consistent with progression; it Progressive taxation Sec. 4. has undergone steady modification, 522 Declaration necessary. Conditions for the on the entire income. Income taxes pecuharly administration of such a tax. effective
Sec. 5. adapted for readjustment from year to year to fit fiscal needs, 527 The income tax question in the United States. The system developed Sec. 6. Inheritance since the Constitutional amendment of 1913, 529 taxes are comparatively easy of enforcement and lend themselves The trend toward progression, 532 Sec. 7. A easily to progression. high rate of progression in inheritance taxation would check accumulaIf apphed new ways of ensuring the supply of capital must be tion.
found, 535.
1.
as
if all
And
this in the
end
is
Tho
many
taxes
if
not on that
True, there first charged with their payment. some taxes which may conceivably cause a diminution not of an individual's income, but of his capital or his accumulated Such may be the working of taxes on inheritances. possessions. however, are effects not common in modern communities. These, There is no serious deviation from the truth in sajang that taxes are derived from income. But tho taxes are paid out of income, a comparatively small
of the person
are
is
secured
519
by
direct levy
on income.
520
TAXATION
countries have no income taxes at
fully
all.
[69- 2
Some
have
way
all
incomes.
members
of society.
Most
of
those
Their
which as
by the name
of
with reference to
all
levies of
whatever kind.
to
The
It
questions
the charges.
is
entirely
As
many
sorts of taxes in
is,
Under
such conditions,
it
taxes levied directly on the incomes of the latter should be progressive in order to secure simple proportionality for the tax system
as a whole.
Whether
is
this
is
system
of a given country
is
extremely
many
of the taxes
make commonly
out; so uncertain
resorted to.
and the uncertainty of the show that progression as to taxes levied directly on income answer,
But the
is
only part of a
much
larger problem.
is
None
active
the
less,
specially
and often acrid concerning direct income taxes alone. It is so because here the question must be faced; whereas in the case of other taxes it is concealed and evaded. 2. The limitation of income taxes to the comparatively wellto-do arises in practise from the fact that the trouble and cost of
direct levy
costs at
make it impracticable to reach small incomes. least as much to collect an income tax of, say, 2 or 5
It
per
69- 2]
521
man having an income of S500 as from one having an income of $5000; it may very possibly cost more. The revenue To collect in the one case is ten times as great as in the other.
cent from a
from millions
of
workingmen a few
all
by
taxation,
be found.
countries a
Hence there
is
minimum which
and above the average income of the whole people. Such was the effect in Great Britain, with the level of wages and prices that
obtained before the Mar of 1914-18, of the exemption of incomes
under 160.
In 1917 the exempt amount for the head of a family was $2000.
This limitation has often been explained and defended on social
grounds.
The
poor,
it is
said,
to live on,
minimum
of
attempt to tax
that
it
it
When
taxing the
minimum
of subsistence, they
tier of
mind
dissatisfaction
Unfortuconcerned,
is
to
any consistent
income are
mum"
their
Those who possess only the "minior the "living wage," tho exempted from direct levies on
results.
and often taxed heavily, in other ways. It is onlj^ when a proposal is made to reach them overtl}^ that people balk, and insist on exemption. In the actual arrangement of the tax system, benevolent phrases of the kind cited are used to explain and justify exemptions which in fact are due
in fact taxed,
difficulties of
522
masses
in unobtrusive
TAXATION
ways are
levied
[69- 3
on a large
it is
apolog}^
by no means
desirable
if
you
please, degressive;
There
is
no ground
for the
men
in
It is desirable, moreover, contribute toward the public charges. should be conscious of paying. that they should not only pay but
Much would
be gained
if
indirect taxes.
affairs
would be
altered.
Too commonly,
ness
is
contributing anything at
They
And
yet
extremely
difficult to
mend.
Taxes
but are
levied in small
collect,
The
legislator
who
gets rid of
them not
only promotes administrative economy; he also gains popularity. Even so slight a levy as the poll tax (a fixed small sum, say $1
or $2 a year, on each male adult)
3.
is
only on the comparatively small number of the well-to-do and one of direct levy on rich, let us consider the two great types
each individual's total income, the other of levy on the several sources from which the income is derived. The direct method
is
best exemplified
by the
practi e of the
German
states,
among
most instructive, as well which Prussia is as the largest. The other method, of which the salient characteristic is stoppage at the source, is exemplified by the practise of England. It will be convenient to examine first the British system.
for this purpose the
The
69- 3]
523
adopted to
is
series of taxes, in
attain the
same end.
Wherever
feasible, the
method
it,
to reach
but before.
Thus, to take the simplest case, the government deducts from the
interest
which
tax.
it
pays on
its
own debt
the
amount chargeable
as
income
The holder
income
Every
required to act,
same
ment
in collecting the
full
Every debtor
by debt and by an
(say 10 per cent able as tax.
interest charge.
is
whatever the income tax rate may be) chargecreditor receives 90 per cent of
The
otherwise have been his due, and thus his income has been reached.
failure of the
is
"contracting out"
made
void;
provided that no
latter is
The
is
thus brought
In this
manner the income tax is secured in regard to all bonds or debentures issued by British corporations; the corporations pay the full
tax on their net receipts, but deduct the proper quota from each
bondholder's income.
of
the
income often
principle
difficult to
is
reach
same
is
follow'ed,
and, as
The
cor-
porations are simply taxed on the whole of their income, and the
way
in
is
from which
by
so
much.
The
a strong preventive
and
524
TAXATION
[69- 3
also
Such income
is
a large item in
When
the}" so act,
what
is it
is
payable to their
clients.
reached.
Evasion or concealment
would require collusion between the agent and the scattered clients. Obviously, the method is inapplicable where remittances are made, not thru a British banker or agent, but from foreign
In such case the only
to reach the income to levy on the investor himself, calling
way
is
upon him to make a declaration of this income. Income from land and real property is always reached with comparative ease in any tax system; for land and houses cannot be concealed, and the income they yield is not difficult to ascertain.
In the English system the occupier of real property
is
liable for
for all
by him. If he is owner, this ends the matter; he has paid income tax on what as owner and occupier he enjoys. If he is tenant, he
is
entitled to deduct
and
of
creditor, "contracting
out"
is
made
void.
show how far-reaching is the method stoppage at the source. There are, indeed, some incomes
said to
The
and the
like;
hands
69- 3]
525
Here some other method must be resorted to. Declaration of income is required from the taxpayer or inquiry instituted by the
tax collector.
with tax
inquiry.
is
The
collected without
itself
There
is
indeed
is,
for lowering it
entirely.
is
on
It
for
may
easily
income
below the
may
income has
He
in cash
income.
The
if
and
is
entitled to
reimbursement to such
by
is
not
number
of
ways
or dividends. He is never called on to declare his total income. Only that income which has not been taxed before it reaches him, must be directly ascertained by the tax authorities. Doubtless,
must be
directly ascertained,
make declaration of only part of it all. The smoothness, ease, and certainty
method
526
TAXATION
[69- 3
and without
this there
by
There can be no stronger evidence of the strength of the general In 1910, the drift toward legislation that is hostile to inequality. same budget which made the unsuccessful attempt to tax the
rising value of
is,
an addi ional tax on very large incomes, exceeding 5000 a During the war of 1914-18 the super-tax was applied to year. incomes over 2000, and was made progressively higher as incomes exceeded that amount; so that on the very largest incomes the Such an additotal tax became something like fifty per cent.
tional tax, of course, cannot be collected without ascertaining the
total
incomes of
all
of this
amount, or are
are compelled
supposed to have.
to face a
oflBcials
new and
this
They must
secure declara-
fraud, which
Not only
in this direction
was modified also by the introduction of a differentiation between labor and property incomes ("earned" and "unearned" incomes,
in the British terminology)
.
was moderate (3000 or less) whose and not extended to those having high incomes. The method of abatement was again followed in carrying out the new policy; it necessarily entailed a further enforcement of declaration by the taxpayer of his entire income and therein a further departure from
income from
all
sources
The
ways, became a
and troublesome
in administration.
Yet
it
in fact it
serious friction;
and
remained ex-
69- 4]
527
differ-
entiation in favor of the moderate labor incomes, like the application of progression to all incomes of large size,
was testimony to
government
an income tax which has regard solely Such was the Prussian income tax before the Great War; the model which the countries of the
4.
Quite different
is
It has
German Commonwealth
advanced and progression sharply accentuated. Necessarily the whole of each taxpayer's income must be ascertained; and the
principle of
thruout the
The ascertainment
of
income can be
of the authori-
or
by
Assessment
discrepancies.
ment no tax of this kind works as it is designed to work. Declarations must be required required not only nominally, but in the
Declaration,
however,
brings
difficulties
of
its
own.
amount
of the levy is
made
The own
statement.
Penalties
and deceit
is
patent.
There
among the
and so
taxpayers, of easy-going
connivance
among
the
officials,
the
In their working, income taxes have too often been a byword and
a reproach.
The difficulties do not arise merely from evasion and dishonesty. They rest in large part on a resentment against intrusion on what are supposed to be private affairs. Many a man who will cheer-
528
fully
TAXATION
pay a substantial tax on
his
[69- 4
is
income
unwilling to submit
The
social
philosopher
may
is
is
an
irrational
frame of
justi-
mind, nay,
income,
something
conceal at
like a confession of
If it is right
all its
doubt as to the
why
amount
But men's
present,
of full
it is
violated
of
by a requirement
by the chance
are
wide publicity.
These various
system,
difficulties
not insuperable.
An
honest,
sufficient success.
Some
sort of publicity
is
probably necessary
it
and cooperate with the permanent administraThese advisers must be persons who are likely to know tors. something of the probable incomes of the several taxpayers, and before whom they would not wish nor dare to make statements grossly false. A device of this sort was used in the Prussian system, and
is
declaration
several
Suffice
must be resorted to. To go into the details of the methods would pass the bounds of a book like the present. it to say that with a proper permanent staff of capable
and
successfully.
the tax.
to be sure, on the
amount
of
the greater
is
the danger of
for
69- 5]
year.
529
in
one year,
all
all
In
Great Britain the income tax was long used as a means of keeping
the public receipts adjusted to the expenditures
of financial stress
is
raised
in times
it
and lowered
in ordinary times.
Obviously,
must be left for emergencies. The British rate in peace had been not far from eight pence (3^ per cent) during the nineteenth century; it went to something like one shilling on the pound
(5 per cent)
A margin
during the
first
War
was was
The ordinary
or normal rate
pound or 30 per
on large incomes was put as high as four pound or 22^ per cent.
Like
all
shillings six
pence in the
proved
difficult to
lower
when once
anticiin-
forced to the top notch; and the use of the tax as a flexible instru-
moment
happened
Something
of the
same
sort
to
in the
United States.
The
come tax was sharply raised on the entrance of this country in the European conflict and thereafter was retained at higher rates than would have been considered at all had it not been for the acceptance during the war of measures ordinarily deemed quite impracticable.
5.
time in the
levied
way
of a federal
is
income
tax.
and
collected, it
was held not to be valid. This by the income tax amendment to the
In the
In this regard, as
530
TAXATION
[69- 5
Reserve
As we have
seen/ the Federal Reserve system, set going in the nick of time,
became extraordinarily serviceable during the ensuing years of the European war. In the same way, the income tax, enacted at a time of profound peace, was brought into reasonably effective operation during the next two years; when the war needs came, it was available for an immediate great yield of revenue tliru the
simple device of sharply raising the rate of a tax already established
and
in
working order.2
In the act of 1913, some attempt was made to apply the principle
But the method was not fully nor and as amendatory provisions were added by subsequent legislation, this method was thrust more and more into the background, and finally was left in operation at only one
of stoppage at the source.
consistently applied;
the
Conditions in the
many
some intricate problems of administration As regards the taxation of incomes from real property, there is a real or apparent conflict with the states and local bodies. Most important of all among the obstacles to its full application, however, is the inherent and inevitable conflict
true that
are involved.
And
so strong
is
the drift
it
must sooner or later give way. The American income tax, as developed
1
in 1913-1919,
was levied
Compare Chapter
27, 6.
In the edition of this book which was published in 1914, shortly after the passage of the revenue act of 1913, I wrote of the income tax then established: "Taxation of incomes by the federal government has come to stay. It is probable not only that such a levy will be a permanent part of the revenue system of the United States, but that the rate will become higher and that the progression will be accentuated. Fiscal exigencies will not fail sooner or later to lead to a rise in the rate; and the growing spirit of social readjustment will cause the progression to be
2
what
ing
fied in
more marked.
is
That same
spirit, as well as
much
to be desired
eventual fiscal need, may bring about a reduction of the exempt minimum and a reach-
down
of the tax to a somewhat deeper social stratum." a surprisingly brief space of time.
69- 5]
in
531
and an "additional"
The
As has
mated,
it
incomes.
Incomes
by
if
treated as
was
In
made
toward a wide
Barring the
taxpayer's declaration.
As in all income tax legislation, a minimum was set which was exempt from taxation; with the further provision that this minimum was in no event to be reckoned as part of any one's taxable
income.
Even
whole was to be taxed, but only the excess above the stated exemption.
was S^,000
for not
for the
and $3,000
These exemptions were unduly liberal. On the monetary scale of pre-war days an income of $4,000 meant a considerable degree of prosperity and gave no valid claim to complete exemption
from income
tax.
When
and $1,000
brought
it
respectively.
too low.
The
inflation of prices
and wages
in
power
less
532
after
TAXATION
amendatory steps were taken.
[69- 6
of the unexpected
There is no better illustration and complete disruption which the war brought
The
all;
since
by
this process
be ascertained
he was
of the
total of his
liable to surtax.
normal
raised to figures
first stage.
But during the war they were that would not have been dreamed of during the
were low.
surtax in 1913 had been 7 per cent on that
The highest
In
1919 the highest rate was 65 per cent on that part of income exceeding $1,000,000.
Ten
progression would have been thought beyond the bounds of possibility or of reason.
stress of military
and
patriotic
excitement
it
deemed normal, it left as an aftermath of the war the permanent embodiment in the federal tax system of radically progressive taxes on large incomes. No attempt was made to differentiate between property incomes such it must be deemed, in and labor incomes. This defect view of the general acceptance of the equity of some differentiation was doubtless due to the initial endeavor to apply on a wide scale the method of stoppage at the source. As regards
it
does to a
flat
start.
what
from those
of
income taxes.
itself
Progression
is
easier
of application.
At the same
progression right?
more sharply. The transfer of property at death must be subject to supervision by a court or by an administrative bureau resembling a court, to
presents
is
69- 6]
533
who may
lay claim to
of wills
Hence
making
carefully regulated,
and probate
officials
up
of decedents' estates.
Their powers
the
estates
the
executors or administrators.
The
not released from their obligations until they have given proof of
the payment.
Evasion
of such taxes,
if
is
not easy.
is
The
way
tight.
Change of residence may indeed be tried, to another jurisdiction where no such taxes are in force. This mode of evasion is obviously possible as regards the several states of our Union, since
it is
among them
is
will
them only
at low rates.
of residence.
by
transfer
lower ones.
Gifts
mode
same
of evasion.
made during life, especially to children, constitute another They are commonly made subject to tax on the
but a more effective obstacle than
is
scale as inheritances;
The
high,
most
Here, as with
many
rate
is
more productive
all
the taxpayers
unless
that
is,
do
estates
gauntlet.
But
if
534
short intervals,
of precisely the
TAXATION
[69- 6
some successions will pay at one rate, while others same amount and kind will pay at a dilTerent rate.
of incomes,
Hence
this
In 1898, during the war with Spain, the United States levied
inheritance taxes ranging (according to the size of the estate and
Shortly after the war, the revenue being redundant, these taxes
The
estates of those
who happened
to die
within these three years were subjected to the tax; but a vastly
that
Such
and
of equality in levy
on
all
persons
with
new
policies
must come
fiscal
into effect
the
rate should be
political
overturns or of current
needs.
Great
was 8 per
cent, levied
on estates exceeding 1,000,000; on large properties going to nojiThese figures were relatives, the highest rate was 18 per cent. still further raised after the close of the Great War, when a deliberate On moderate estates no changes revision was undertaken (1920).
of
sharp, the
importance were made; but on larger ones the advances were maximum (on properties over 2,000,000) being fifty
In
the United States the pressure for revenue during the war of 191718 led once more to the enactment of a federal inheritance tax. The rates, like those of the income taxes of the same period, were made sharply progressive on the larger properties. Moderate Above inheritances, up to $50,000, were left entirely exempt.
this
exempt
limit,
69- 7]
535
000 and $100,000, subject to a rate of 1%, while the maximum was reached with 25% on the amount in excess of $10,000,000. No differentiation was attempted between direct descendants and collaterals, or between relatives and non-relatives.
In the early years of the twentieth century the states of the Union had also established inheritance taxes. Sometimes these were on collateral successions only; but the tendency was to reach Between the several direct successions also, tho at lower rates. not all, but a steadily states (such of them as enacted the taxes growing majority) the rates were unequal, and the scope and the
effective
burdens were
different.
The ubiquity
of
corporate
organization,
an
inheri-
and duplications.
(when the
first
With the
by
its
would seem to be
system by
by the
Such a
states.
and the
differentiation
between
Unfortunately
the local jealousies of the several states, and the obstacles which
way
it
of consistent
and well-planned
legislation
by Congress, make
any
be put into
7.
The
its
relation to in-
536
TAXATION
[69- 7
sumfiscal
and administrative problems. The argument and the sentiment stronger than in the case of income
fortunes, the perpetuation thru
all
taxes.
The
inheritance of
by the accident of birth, the grave doubt whether effortless acquisition and enjoyment of fortunes promote the best happiness of the
beneficiaries themselves, the
among many
of those
born rich
So
all
can
be levied without serious administrative difficulties, there can be no consistent argument against progression in communities
which try
its
in
consequences.
inheritances
the same rate on can be defended only on the ground that any and
Simple proportion
flat
all
many
to be opposed
and condemned.
It
is
On
maintenance of
of the
capital.
which individuals
its
roots
But
mean
that there
is
no room
for
lopped from
all
capital at all;
up
accrued income.
leading to harmful
amounts can be taken without is the savable fund in modern communities, so increasingly strong are the motives which lead to saving, that something can be diverted from the swelling stream
larger
loss.
So vast
without lessening
of degree.
Its
volume.
Is
one
The
no doubt remain
6.
69- 7]
537
made from ordinary estates and large amounts withdrawn from the small number of great estates. Changes of this character, however, leave the situation
great even tho moderate deductions be
essentiall}'
unchanged.
Inheritance
still
apply progression so sharply or limit inheritance so narrowly that accumulation seriously affected
Pass beyond this limit
is
The
process.
not at
all
The
notion that capital cannot be got together except by the process of saving on the part of individuals in the familiar way is untenable.
It
is
industrial structure
we
are habituated.
What
true,
and
is
that something
more than mere restriction is involved in their program. New institutions and new organs must be found. The state might conceivably set up its own bureau for handling estates subject to
devolution, keeping the principal intact and separating the funds
In another direction too the state might deliberately provide for the increase of capital. It might own and manage great industries, operate them at a
strictly
profit,
cisely in this
and build up new or larger plants out of the profits. Preway, by the process of putting the profits back into
to the
community's
such course of action has yet been deliberately followed by governments and no such results have yet been achieved on any
considerable scale.
No
True, also, occasional instances can be found of industries run by governments which have enlarged their plant out of profits But
in
is
slight.
It
is
no
Compare Chapter
51,
on Great Fortunes.
538
TAXATION
[69- 7
when
also
not only
fiscal
We
by the fundamental questions that underlie the debate between public and private management of industry, and between socialism and private property. They are questions of the character and intelligence of the individuals whom we vaguely call the public. Whether conservation of capital shall be deliberately and successfully managed by government depends on the quality of the persons to whom the governmental functions are intrusted, and thus on the quality of the electorate by whom those are chosen. We have to hark back once more
to the underlying problems of
human
character,
human
motives,
man's
future,
institutions.
On many
we
are
of
in
the dark.
And
therefore
we can
into the
must proceed
kind of social
must remain uncertain of the structure which the coming generations will establish.
tentatively,
CHAPTER
70
on the owner, and 2. Taxes on buildings tend to be shifted to the occupier. Qualifications and limitations of this proposition, 542 Sec. 3. Effects of taxes on real property land and buildings combined, 544 Sec. 4. In the long run, it makes no difference in the incidence of such taxes whether they are first imposed on owner or tenant; but for short periods it does. Similarly, it is in the main of no concern whether the assessment be on rental or on capital value; tho in some respects the two methods bring different results, 546 Sec. 5. Concealed taxation of workingmen thru taxes on their dweUings, 548 Sec. 6. Taxes on real property should be primarily local
1.
Taxes on land
{e.g.
an urban
by
so
much, 539
Sec.
taxes, 549.
land and buildings play a modern tax systems. For long periods in the history of European countries they were almost the only taxes; since real propertj^ was the only sort of wealth which could be effectively reached. The taxes which now exist in the older countries of
large part in all
Western
They even descend, in a sense, from the dues of the feudal system. But they have been transformed and reshaped, and they now retain their important place in financial
taxes of older days.
legislation for the simple reason that land
the spot, cannot be moved, and their owners must submit to what-
ever tax
is
imposed on them.
first
Let us consider
by
itself
For the purpose of considering this case let us suppose an urban site of great value, not improved by man, or improved
and
effective
element in
its
value
sr.
Not
is
infrequently, in our
American
cities,
540
for retail trade
TAXATION
[70- 1
and commanding a considerable rental ^ one very compared with the cost of erecting the building. This sort high of utilization of the site is but temporary, due to hesitation on the owner's part as to when and how the full economic rent of the site
can be secured or due possibly to uncertainty in the legal title and consequent unwillingness on the part of any one to make improve;
ments. Not uncommonly under these circumstances a cheap dramshop is erected, because such an establishment is most sure
to yield a good rental, irrespective of the neatness or attractiveness of the building
itself.
Assume now
that, for
whatever reason,
a valuable site
tise, it will
is
in this state.
According to
oiu"
it
American pracstands
be taxed on
value as
for a
large
sum
The
common
cent on the capital value), will very possibly be greater than the
whole rental secured from the shop. Who would bear such a tax? The owner would gladly shift it to the tenant, by charging him
a higher rental.
the tenant
is
so.
Presumably
stands.
The owner
will
can be got.
The tax
enable
him
to get no more.
Nor would
;
him
that
would
demand and
secure
all
The tax
falls definitively
on the owner.
Such is the general proposition to be laid down with regard to taxes on land. They fall on the owner once for all. They operate
as so
much diminution
of rent.
than that
of depriving the
owner
of his
income.
If
a greater
amount
is
abandon
it.
is
"rack-
much
as he can pos-
Thru ignorance
to
1 I use in this Chapter "rental" to signify what is paid a parcel of realty; "rent" in the sense of economic rent.
by tenant
owner
for
70- 1]
541
or carelessness he
a tenant have
it
for less
like
In a country
was long owned and managed for the satisfaction of ambition as well as for immediate pecuniary return and was
let to
not infrequently
Under such
will
all
cir-
probthe
There
is
much
discussion in
England as well as
in other
is,
of
making a
direct levy
it
on the owners
of sites.
down with
the owners only, and will neither affect tenants nor raise the price
of the articles
produced
(or sold)
is
on the premises.
They
it
are right
already rack-rented.
if
now
pay a
on
its
paid.
will feel
speak of
owner
In
effect,
a special permanent
much
of
amounts to the appropriation by the state of so the value of the site. Such appropriation may or may
not be wise
whole question
of the
ground for
pri-
title to
economic
rent.
The tax
is
burdenless only
if it
economic rent from ever getting into any individual's hands. These principles hold good of agricultural land as well as of lu-ban
sites.
falls
on the
it is
owner.
We
peculiarly difficult to
draw the
proper and the return on capital invested in the land;i and for that
reason the effect of a tax on agricultural land
is
not so a vast
easy to follow.
5.
542
TAXATION
of land in old countries,
[70- 2
amount
rent;
and
new
countries,
which
all
is
of cultivation
and to
may
it is
Taxes on buildings present a different case. Buildings be taken as typical of improvements on land, or capital em-
The
case of buildings
is
instructive, because
itself
far as possible
is
negligible.
open country.
New England
men,
is
The
familiar "three-decker" of
and outlying
is
districts.
cupier.
the owner
is
simple
is
as
com-
monly the
is let
and
is
of letting, the
burden
is
likely to
The
up unless the owner has reason to believe that the rental will yield him the current return on investment, and will yield that return Taxes are reckoned net; that is, after payment of all expenses. by him among the expenses. If a net return of five or six per cent
is
looked
for,
expenses of management,
taxes.
If all
secured in
and not the public revenue were taxes were remitted entirely different ways competition between house
repairs, insurance,
if
The
owners and house builders would bring rentals down. And, conversely, if taxes were to be greatly increased, house owners and
house builders would sooner or later recoup themselves for this
higher expense
by charging higher
rentals.
70- 2]
543
This would be the result in the long run. It would not neceseven probably appear over short periods. The proximate cause determining rentals is the supply of house accommodations
sarily or
demand.
would ensue only after the greater return to the owners had stimulated an increase in the supply of houses. Minor changes in the tax rate a bit of an increase one year, a decline in another would not change them at
them
all. The owners alone would be affected, grumbling loudly in the one case, in the other enjoying the remission in quiet. There are circumstances under which the shifting of such taxes
all. In a city whose population is declinhouse rentals are governed solely by the principle of quasirent. The houses are there, and cannot be removed. The cost
ing,
them and the ordinary rate of interest on investments have no influence on their return. The question is simply one of an existing supply in relation to a declining demand. An increase
of erecting
would not cause rentals to go up; the owners would have to pay the taxes out of their owm pockets once for all.
After a very long time, a readjustment would doubtless take place. Houses do not last forever. As some wear out and disappear, new ones will not be built in a decaying town to replace them. Given
out.
time enough, the process of shifting taxes But the time required may be long
will
indeed work
itself
ations.
The same
city.
of a
growing
fashion or
may develop in a particular part even Some sections may come to be out of favor; convenience may cause people to move elsewhere; and
situation
then the houses in the half-abandoned sections will be in the same position as are all the houses in a declining town. In a rapidly growing city the process of shifting takes place, not indeed with mathematical exactness, but with considerable certainty. Houses will not be built for letting unless this is worth
while; and it will not be worth while unless the owners get the current rate of return over and above taxes. The increasing demand
for
will not be met unless enough to make good the owner's outlay for taxes.
544
Such
is
TAXATION
the
[70- 3
cities.
common
Indeed,
it is
the
of
phenomenon
itself in
almost
all countries.
Taxes on
by the
also,
occupiers.
What
Here
if
we
and must be rehim to erect the Here, also, the principle of quasi-rent must be borne building. in mind. A business structure once put up is there for good, and its rental depends not on the expectations and calculations of the owner but on the supply of this particular sort of accommodation
to running expenses,
much
in order to induce
in relation to the
demand
on the adaptability
of the city.
will find
of the premises
In a decaying town,
no
taxes to a tenant.
still
probable.
penses,
them
This
is
most obviously
may
be a
High charges
will
for buildings
mean
sold,
effect of higher
Taxes
will
somewhat higher charges on the community be very widely shifted and diffused; that is,
if
competition
is
and
if
range.
3.
The common
or buildings alone stand for the greater part of the capital value,
of the total.
In the heart
70- 3]
545
the
buildings will represent the larger part of the selling value; yet the
land
still
counts.
Now, according
which
is
That portion
owner
tion,
of the tax
levied
on the
is
mind the long-run operation of the taxes. The immediate effect is commonly that the owner bears the burden. Every parcel of real property yields proximately a rental fixed by its serviceableness, and not directly affected by taxes. It is only by affecting the supply of buildings that taxes on them tend to be
shifted to tenants.
we must have
brings about, as
The long-continued levy of taxes on a site, at the same rate, we have seen, a decline in the selling value of the So much of the economic rent has been appropriated by the site. The effect of taxes has not been to raise ground rents, but state.
to lessen the net return to the o^Tier. "\^^lere the site
able, a tax at the rates
is
common
in
American
cities
say 2 per
highly valu-
munity
of a
would be so
The
body
its
(that
is,
same time
is
by any one.
It
by every
Evi-
The
large
this source,
even
The
business districts
546
of
TAXATION
[70- 4
New York City, for example, are a vast treasure house for the tax
they are also in even greater degree for their owners.
collected
collector, as
from them
in taxes
makes
possible
The same
on
is
true,
cities, in
and
rising,
and
in
which
also taxes
Whether a tax on
real property
is,
be collected in the
first in-
The practise in the United States is to levy on the owners; and in the
preceding section the incidence of taxes has been discussed as
this
if
were always done. In England, and in European countries generally, however, the practise is to levy on the occupier.
If
the occupier
is
called
real prop-
erty,
payment
in calcu-
lations
So
site value,
the tenant
is
diminished by the amount of the tax, and the rent he will pay in
order to secure the site will be so
much less.
If,
lected not from the owner but from the occupier, the owner obviously will be able to offer the facilities at a lower rate, and will be
The nominal
on
rental
be
less if
the occupier
is
called
The
difference
is
in the
mode
the tax.
All this, however, holds
good only
if
amount
and thus
is
calculable.
for all
remain once
directly
whom payment
demanded.
on
rentals,
owner and tenant come to an agreement a new tax or an increase of tax falls, during the term
of the
who
is
is
directly chargeable.
it is
who
feels
all
new
He
can a
shift
them
to his tenant
(if
at
all)
only
when
for
70- 4]
547
new
pier,
lease.
he in
fect a readjustment in
comes.
assume
taxes,
be chargeable with them by the law. tenant will consider this assumption
bargain
on the stipulated rental. Such agreements concerning tax payment are often simply a way of chaffering about the rental, especially
where
site
If
and
in
ally as a
mode
Another difference between American and European practise is real propin the basis of assessment. In the United States taxes on on capital value, that is, on selling erty are commonly assessed
In Europe they are usually assessed on annual rental value. Thus in the United States the usual tax on real property is some such rate as $1.50 per $100 of selling pr ce, or 1^ per cent on the
value.
capital,
In England a
common
tax
is
the rental, shillings in the pound of rental value, or 25 per cent of charged on the occupier.i These rates are roughly the same in
their proportion to rentals.
And
is
above) in the end the same, differing (in the manner described to site or according as the realty owes its value predominantly the to improvements. There is, indeed, one case in which different results; namely, where rental value methods reach
two
does not correspond with capital value. This is most striking where urban land is vacant, and yet has a selling value because of the rent which it would yield if occupied, or which it is expected
no rental value, or an
The monetary upleast were representative tax rates before 1914. matters; higher heavals of the European war led to chaos in tax rates, as in other established were likely to persist for an indefinite figures became common, and once
These at
period.
548
England
it is
TAXATION
taxed lightly or not at
it
all.
[70- 5
Because
it
has a consider-
may
The
ings.
case
is
similar
on and used,
is
not
of its
States,
would then be taxed lightly in England, on the basis It would be taxed heavily in the United actual rental.
It
on a
potential rent.
The American
is
potential rent,
prove
wait.
it
rapidly.
The English
owner to
site
He
will often
wish to bide his time until the most profitable use of the
becomes quite
clear.
The American
The
gen-
and profit-gathering trend of American life would doubtless lead in any event to some such haste; but it is made Hence the sprawling aspect greater by our method of taxation.
of those
American
cities
Lots in the
outlying districts are built on, perhaps prematurely, with the design
of getting a return
owners holding on
alone
is
for a while.
The American
advantage
unearned increment.
Workingmen, like all occupiers of dwellings, are reached by the taxes on dwellings. They are indeed reached also by the taxes on shops and factories, which enter into the expenses of merchants and manufacturers and tend with more or less irregularity to be But this second sort of shifting is so conshifted to consumers. cealed as to be difficult to follow in any concrete way. Taxes on
dwellings, however, in so far as they are levied with respect to the
structures, increase house rentals
70-6l
549
their occupiers,
This indirect
collected
from the
the occupiers.
in the case of
of levy
is
subject to exception
lected
workingmen 's tenements. Here the taxes are colnot from the occupier, but from the owner; or, if not from
site,
from a
lessee
way
of the collection of
real property
The expense of administration is larger, and there is irritation to the It is much simpler to charge the landlord a lump-sum tax on the whole, and let him recoup himself by larger rentals from the several tenants or subtenants. This is commonly done in Lontaxpayer.
large English cities, the landlord being allowed to as the phrase goes,
of
"compound"
taxgatherer.
The final result is that the workingman is taxed, but rarely knows
that he
is
taxed.
He pays
in this rental
unfortunate.
It
All that he
conscious of
is is
an employer
of labor.
The
He
is
commonly
cern.
wisdom
seem to be none
affairs;
of his con-
Some
mote watchfulness and discrimination in public hopeless to retain any taxes of the sort.
6.
seems
Great
in the
is,
in
That
550
chiefly
TAXATION
by the
local bodies
[70- 6
by the towns,
is
cities,
and counties
in
The
revenue from them then goes to defraying the expenses of the local
by no means univerA land tax levied by Parliament sally or completely the case. still exists in England, tho it has come to be small in amount and is The English income tax reaches income in process of extinction. from real property, and the revenue so obtained goes to the central
be dies.
Yet
government.
states
was
originally derived,
and
is still
largely derived,
real property
from the
have been most important constituent. Nevertheless, it may be said that in English-speaking communities the tendency is toward using taxes on real property as strictly local taxes, leaving the by income central government to get its revenue in other ways taxes, inheritance taxes, taxes on trade and communication, not
general property tax in
far the
by
least, taxes
on commodities.
is
on the Continent. There taxes on land and buildings, thru long use and contnued tradition, have been assessed and levied by the central government.
beginning to show
itself
The
communes, have simply followed in the track of the central government, using its machinery and assessments and imposing for their own purposes supplements or percentual Such is still the situation in most additions to the state taxes.
local bodies, the
where taxes on land and buildings, and some other sohave been turned over once
income
states have followed the Prussian example,
for all to the local bodies, the state retaining for itself the
tax.
Other German
it is
and
Continent
do
likewise.
is
wise.
Local bodies are most likely to administer such taxes equably, and
them
commonly
Income
ample, tend to drive people away from the places where they are
70-6]
551
cities
imposed;
local
and towns to attract residents by low rates or lax assessment. Taxes on securities are open to the same objection, as will appear more clearly in the next chapter. Most taxes on the production
or sale of commodities are subject to similar competitive evasion.
The
list
is
limited, while
at the
same time
it is
and growing.
Hence
them
solely.
CHAPTER
71
Taxes on Commodities
Section
1.
In the simplest case, of a competitive commodity produced under constant returns, a tax tends Explanation and qualification of this printo be shifted to consumers. Complexities where the commodity is produced Sec. 3. ciple, 553 under increasing or diminishing returns; where there is monopoly. Cau2.
Sec.
"indirect"
on these Taxes on imports present no peculiarities, except as they bring a rival untaxed supply and thus raise the questions concernTaxes on commodities are little noticed by Sec. 5. ing protection, 558 They are commonly on articles of large consumption, and consumers. A large and varied list of articles is most regressive in their effects. easily reached by customs duties, 559.
tions to be observed in the apphcation of theoretic reasoning
topics,
555
Sec.
4.
1.
in the
preceding chapters
on
taxes.
them,
has no expectation or intention that they shall be shifted to any other persons than those first called on to pay them. Taxes which,
indirect taxes.
on the other hand, are expected to be shifted to others are called As we have seen, the so-called direct taxes are
shifted not infrequently but they are not levied with this in view,
;
and
is
often uncertain.
"Indirect" taxes,
on the other hand, are levied on the supposition that the persons first called on will transfer the burden to others and will transfer it with tolerable ease and certainty. The simplest and most familiar of indirect taxes are taxes on
commodities.
The
phraseology,
it
is
loose.
Just as there are not, in strictness, any taxes on property, but only
taxes which persons owning property are compelled to pay, so there
are no taxes on commodities, but only taxes levied on persons tax " on when they deal with commodities in a particular way.
652
71- 2]
TAXES ON COMMODITIES
may
be, for example, a tax
553
tobacco'
may
be as
it
much
per hundredweight of
the beets used in making the sugar, collected from the manufacturer
A tax " on
imports "
The
precise stage
in
much
by the
up,
for reasons
difficult,
because
them
to the fac-
in our
Amer-
affix
all
the world
by railway
and
In
make worth
while.
was a
factor
much
port duties.
All these, however, are matters of detail, often very important
detail, to
Our concern
nomic
2.
with some general questions concerning the ecothe simplest case: an internal tax, or excise,
Consider
first
A stage
manuof sup)er-
manufacturing operations
is
facture
means concentration
of operations
554
vision.
TAXATION
[71- 2
the
amount
Then the effect The price oi the commodity will be raised by tax. The producer will shift this amount on the
11
thus
fall
on the
latter.
This result
of production.
will
The
first
He
make good
In
strict theory,
he cannot do
is
Price
deter-
mined directly by the equilibrium of demand and supply (or, in more technical language, by marginal vendibility), and it will not
demand remaining the same, unless supply be But the higher expenses of production and diminished profits will tend to lessen supply; and normal equilibrium will be restored when the manufacturers are again getting their usual returns, with lessened output and higher prices. Evidently the extent of the eventual change in the volume of output depends on the elasticity of the demand for the article. The result may even be reached, under some not improbable circumstances, without any change in supply at all. In a growing country, or for a commodity for which demand is growing, there may be no actual derise,
the conditions of
lessened.
Demand is simply
normal
:
new
situation.
i>
time when
it
the tax
imposed
that the
in a
tate at the
capitalists
engaged in
making normal profits, and will be led to lessen their output, some of them perhaps even to withdraw enti ely if their profits
are
It is perfectly possible that
is
a tax
may be imposed
Then
its
when an industry
still
unusually profitable.
incidence
may
may
be
higher price, but that they are prevented from getting the lower
price which competition
This process
is
of
would eventually have brought about. course much more convenient to the producers
71-3]
TAXES ON COMMODITIES
is
555
normal state
in its
eventually
falls
on the consume r.
Some
tain.
eries,
industries are so
much
of
an aleatory
is
work-
irregular
and uncer-
which depend
much on
reputation, trade
ma
as
of
dramshops.
brew-
ery
is
losing one;
much
is
or a city newspaper.
on the
an existing tax may simply lessen the brewer's expenses by so much, and not affect the retail Evidently this would be true only of moderate charges. A price.
Similarly, a reduction in
large increase or decrease of tax
would be
felt
out question.
much
in altered retail
may
tomary contents
contents.
Here, as in almost
and
in
It is to
be
said,
work out
of all
p oducers and
dealers
is
at once fastened
Consider
now some
The taxed
commodities
may
bu
stant returns,
returns; or they
may
The strict theory of these cases, again, is comparatively easy to work out, being only an application of the general theory of value.^
1
See the statement of this theory in Chapters 12, 13, 14, 15.
556
TAXATION
[71- 3
may
not raise
by the
full
amount
of the tax.
A rise
in price
and a lowering
of marginal
is
The
partly offset
of supply.
by the lower
on the sources
raise it
increasing returns
may
its price,
but
by
more than the amount of the tax. In this case the rise in price, by checking consumption and lessening the amount produced, causes the cost per unit to advance, and so the price to rise still The same sort of reasoning may be applied to the refurther. mission of an existing tax. Where the remission is on a commodity produced under diminishing returns,
it
is
likely to in-
crease consumption, to bring pressure to bear on the sources of supply, to raise marginal cost, and so to lower price by less than the
amount
is
On
and so a
fall in
price
greater than the mere remission alone would have brought about.
to pursue the theory of these on a monopolized article not shifted under the same influences and probably not is to the same degree as a tax on an article produced under free comA tax directly on monopoly profits cannot be shifted petition.
cases
A tax
on economic rent cannot be shifted at all. The monopolist presumably will have adjusted his output in such a way as to secure the maximum profit, just as the owner of an adat
all,
just as a tax
will
maximum
on rent does
way.
The monopolist
or landowner
It
is
The tax on
the commodity
is
much
easier
71- 3]
to levy, since
it is
TAXES ON COMMODITIES
557
put
is.
It
is
very
a tax simply
on the monopoly
come,
gains.
outIt
much more
all
uncertain in
its
affects at once
His expenses
correspond-
he
he
will
demand
is elastic, is
consumption
may
be considernot raise
able,
and he
good part
the
{i.e.
his price
by the
a
amount
cline in profit
from a lessening
demand
he
is
inelastic,
that
is, if
rise in price
little,
more
likely
on the consumers.
his business
may
under conHis
he
is
producing under
sumption
he
will
be
less
unwelcome to him;
rise in price
and a con-
sequent decline in consumption and output will be very unwelcome to him; since it will bring an increase in his cost per unit. If we suppose him to be quite unfettered in his monopoly, rigorously determined on the extraction of the utmost profit possible, and thoroly informed both as to the conditions of demand and his own
increasing or diminishing costs
then he has a very pretty probsupply and his price after the imcall
in readjusting his
He may
be supposed to
mathematical
far it will
far to
how
to consumers.
of this last case points to
all
an important
is
<
nger of
558 making an
TAXATION
intellectual plaything out of intricate reasoning
like.
[71- 4
on the
Some econo-
there
All
is little
that corresponds to
Semi-math-
ematical reasoning, even pure mathematical reasoning, not infrequently aids in bringing out with clearness the underlying principles;
but
it
details.
taxes
It
nopolized
articles.
Increasing
or
diminishing
returns
moshow
themselves
slowly
and
irregularly,
and
over
long
periods.
Taxes on commodities affected by these varying conditions are maintained only in very few cases, if in any, at a uniform
high rate for so long a time as to influence sensibly marginal cost.
For most practical purposes, we may content ourselves with the simple result reached at the outset, under the supposition of constant returns
consumer by
its full
And
in the
dis-
on those commodities which are commonly spoken of as monopoIt has been noted elsewhere ^ that complete monopoly is lized. Those cases in which monopoly is supposed to exist are rare.
almost invariably
much
limited
tential competition,
by public opinion, by force of law. A tax on commodities produced by a quasi-monopoly is not shifted with the same certainty as one upon a competitive article; but there is a strong probability that most of the tax will be shifted in the same way. This sort of rough and general conclusion is alone in accordance with the usual state of the facts; and it suffices for the guidance
of the legislator.
4.
tion proper
concerned.
1
They
on
See Chapter
71- 5]
TAXES ON COMMODITIES
commonly
559
They
are
to be so shifted.
maintain that taxes on imports are borne, not by the domestic consumer, but by the foreign producer.
case, just as
it is
This
may
sometimes be the
is
borne
sumer.
a monopoly, he
may
fact.
conceivably may
it,
tho he
He
nomMost often
of
all,
internal taxes
the commodity
is
rises in price
by the The
full
amount
may
Levied strictly
may
spring up,
article to
market
could be imported
of
for, in
domestic production
wise or not, raises the whole question, sufficiently discussed elsewhere, of the effects of protective duties.^
5.
ities,
he
Tho the consumer almost always pays taxes on commodis commonly little aware of it. The tax is paid by him in
Wlien a given price level is established any commodity, people get used to it as the going rate and pay without grumbling. If every purchaser had to hand out directlj' two cents each time he bought a pound of sugar, or was called on to pay a tax of two dollars each time he bought a suit of woolen
clothes (such were roughly the rates at which
of these articles
American consumers
we may be sure
560
TAXATION
The
[71- 5
concealed and only half understood, makes them tempting for the
legislator.
He
is
constantly confronted by
outlay,
and yet
lagging behind
its
demand
He
is
likely
by the
rich.
A poor man
not purchase as
much
income on sugar; and a tax on such a commodity bears more heavily on him. It is doubtless not impossible to select for taxation commodities used chiefly by the well-to-do and
larger share of his
person
over
is
rich brings
it
much
revenue.
of this kind
many
things,
of
any one
tion.
thing.
Taxes on luxurious
and to be expensive
The
in great
to mention articles
tea, coffee,
On
Two sets of
rate
alcoholic
may
It
is
in their
consumption
and
This
that taxes
be imposed on
hem
without compunction.
bacco, nor that of wine and beer on the Continent of Europe, where
these beverages are universal^ used
ple fiscal convenience
is
71- 5]
TAXES ON COMMODITIES
561
from
such taxes.
They
are
made
revenue by creating
fiscal
monopolies.
That
is,
governments
and prohibit
all
thus appropriated.
high as to bring 'arge profits; the result for consumers being the
commodities
a
in the ordinary
ways.
Tobacco
is
fiscal
monopoly
Spirits are
fiscal
and other
countries.
monopoly
is
in
Salt
is
mo-
On
the othe
'
open to
the objections
is
to bureaucratic administration,
and
is
ill
in particular
the more
unsuitable as the
civil service
is lax.
and
of articles
it can be limited to the ports of entry This circumstance goes far to explain the wide
They
for
are a convenient
way
of
revenue.
Once adopted
revenue,
their
incidental
on the course
and then, when they have established themselves, are welcomed. The list of articles on which customs duties are levied in the United States is an extraordinarily wide one, covering some 1500 different
things.
It
excise taxes
on any
such
list.
In fairness,
was not
so c early
bad as
commonly the
was
of duty.
tion
562
TAXATION
[71- 5
was perhaps the most objecAs regards manufactured tionable of all the protective duties. commodities, many were not affected by the duties, directly or The commoner grades of cotton goods, for example, indirectly. produced as cheaply within the country as abroad; they would are not be imported in any case; duties on them, tho they stand on
true also of wool, the duty on which
The
finer
grades of cotton
made
The prices
and a
if
real tax is
imposed on consumers.
by duties, But the consumers are, the well-to-do and rich, and
special
is
the tax
in so far not
The same
and
probably true of
tho as to these
silks;
nominal.
tion
was not
The main objection against our regime of high protecso much that it caused disproportionate burdens on
it
community.
and
books, K. T. Eheberg, Finanzwissenschaft (new ed., 1912), is a good book of the German type; and P. Leroy-Beaulieu, Science des Finances (new ed.,
1912),
is
full of
An
main problems,
(1920).
On
similar to
and from that in E. R. A. Seligman's Progressive Taxation in Theory and Practice (new ed., 1908). The last-named writer's Income Tax (1914) is a valuable survey of legislation and experience.
158
seq. (ed. of 1890),
different
INDEX
INDEX
(Reference should also be
made
to the analytical
Table of Contents.)
differences of, ii, 138, 169, 265, 477. "Ability" principle of taxation, ii, 510. Abstinence in relation to interest, ii, 48 under socialism, ii, 482. Accident, insurance against, ii, 353 bad legal situation in United States,
Ability,
;
ii,
362.
Acworth, W. M.,
ii, 501. to laborers, in relation to capital, i, 75. Advertising, and large-scale produchow far serves a tion, i, 53, 65 good purpose, i, 20, ii, 450. Aftalion, A., i, 443. Agrarstaat, argument for in Germany, i, 533.
Australia, gold discoveries in, i, 255, effects on foreign ex272, 432 labor legislation in, changes, i, 473 ii, 334, 348 old-age pensions, ii, 360 railways, ii, 434. Austria, resumption of specie payments, i, 314, 317. Axes, conventional, used as monej', i, 226.
;
; ;
Advances
cost,
405.
i,
Bagehot, W.,
Bailey,
ii,
442.
232.
manufacture,
Agricultural on, ii, 541. Agriculture, no tendency to large-scale production, i, 55 subject to diminishing returns, i, 183 cooperation in, ii, 380, 381 position under socialism, ii, 468. American specie, in sixteenth century, i, 244, 253. American Sugar Refining Company, see Sugar.
;
;
of 1844 (England), i, 359, 406. Bank notes, see Contents, chs. 24 to 27 effect of small denominations, i, 329, 424. Bank of England, description of, i, 359 policj- of, during crises, i, 362, 404, 410, 422 how gold bullion provided, i, policy during Great War, 451 i, 368. Bank of France, notes inconvertible yet not depreciated, i, 315, 356; description of, i, 355.
;
;
;
Bank Act
Bank
of
Germany,
i,
see
Reichsbank.
i,
62,
410, 450.
Anderson, B. M., Jr., i, 442. Andrews, J. B., ii, 385. Anthracite coal, tendencj^ to overproduction, ii, 59 diminishing re;
442. Barings, i, 89, 326, 404. Barnett, G. E., ii, 385. Barter, i, 110. Bastable, C. F., i, 544, ii, 562. Batchelder, ii, 172. Bedford, Duke of, ii, 94, 105.
Barbour, D.,
turns in mines, ii, 101. Apprenticeship, obsolete, i, 98. Arbitration, see Contents, ch. 59. Arkwright, i, 34. Army and Na\'y' Stores, ii, 373. Ashley, W. J., i. 545. Assignats, i. 307, 320. Astor. J. J., ii, 105. Atkinson, F. J., i, 244.
498. 232, 243. Bessemer, i, 194. ii, 114. Beveridge, W. H., ii, 385. Bigelow, ii, 172. Bernstein,
Bertillon,
ii, ii,
565
; ; ;
566
Bill
INDEX
tal" to the individual, ii, 5 producti\dty of, ii, 11; marginal productivity of, ii, 12 intention of the
; ;
Bill of
"Billon" coins, i, 268. Bimetallism, see Contents, chs. 20, 21. Birthrates, general statement, ii, 226 figures for various countries, ii, 231
for United States,
ii,
of capital, ii, 21, definition of, ii, 43 sometimes classified as artificial and natural,
22
ii,
234
for
Massa-
125
general decline in nineteenth century, ii, 239, 245 differences between rich and poor, ii, between native born and 241 foreign born, ii, 243, 247. Bland-Allison Act, i, 277. Bohm-Bawerk, ii, 9, 14, 44, 277, 502. Bonanza farming, i, 55.
chusetts,
ii,
; ;
235
481. Capital goods, ii, 6 how influenced in value by marginal vendibility, i, 148. "Capitalistic" production, ii, 10. Carlton, F. T., ii, 385. Carnegie, i, 58. Carter, G. R., i, 105. Carver, T. N., ii, 14, 277.
socialism,
Bonanza mines of Nevada, ii, 99. Bonar, J., ii, 278. Booth, Charles, ii, 256. Boots and shoes, exported from United.
States, i, 541. Boston, birthrates in different quarters, ii, 243. Boulton, ii, 172, 424. Bowley, A. L., ii, 255, 258. Branch banking, i, 367, 376.
Cassel, G., ii, 277. Cattle, a medium of exchange, i, 110. Central bank, able to mitigate crises, i, how far protects specie 403 holdings, i, 458. Central reserve cities, i, 379.
;
Brassey,
ii,
425.
i, 545. Breweries, in relation to taxation, ii 555. Briggs collieries, ii, 336. Brokers, productive or unproductive,
Brentano,
L.,
i,
26.
i,
Brown, H. G.,
Biicher,
i,
544.
51, 105.
100.
Business profits, see Contents, chs. 49, 50 how affected by rising prices, i,
;
297.
42.
"By-products,"
establishments, 215.
utilization
i,
54
in large explained, i,
Cairnes, ii, 141. California, gold discoveries in, i, 255, 272, 432 paper money fails to circulate in, i, 306 effects of gold production on foreign exchanges, i, 473. Call loans, fluctuations in rates, i, 347. Caloric engine, ii, 172. Canada, banking system, i, 384 trade with United States, i, 477, 509. Capital, see Contents, chs. 5, 38-40, moral and intellectual, i, 103 46 not created by banks, i, 351 "capi;
;
traffic will bear," 396, 418. Check, legal position of payee, i, 384. Chevalier, i, 302. Chicago Board of Trade, clearing system, i, 418. Children, high death rate, ii, 232. China, silver bullion as money in, i, 227 jnerchants' notes as money, i, 417. Chinese, exclusion from United States, how justified, ii, 146. Church, ii, 172. Civil Service Supply Association, ii, 373. Clare, G., i, 544. Clark, J. B., ii, 13, 14, 126, 278. Clark, V. S., ii, 348, 385. Clearing-house certificates, i, 409. connection Clearing houses, i, 335 with theorj' of prices, i, 418. Closed shop, ii, 304, 310. Coffee, see Tea. Coinage, explained, i, 113, 226. Cold storage, effect on conditions of supply, i, 142, 158. Cole, G. D. H., ii, 502. Collective bargaining, ii, 312. Colson, C, ii, 501. Combination, horizontal and vertical
ii,
; ;
i,
59, 60.
i,
325, 327, 398. ii, 385. Communistic societies, ii, 465. Comparative cost, doctrine of, i, 481. Competition, its efficacy important for the classification of capital, ii, 127.
Commercial banks,
Commons,
J. R.,
i,
42,
, ;; ;
INDEX
Competitive margin for capital, ii, 26. Comte, A., ii, 466. Comptoir d'Escompte, i, 390, 404. Compulsory arbitration, ii, 348. Constant cost, i, 170 effect of taxes on commodities under, ii, 554. Constitutional limitations, on labor legislation, ii, 325 on income taxes,
; ;
667
i,
395,
i,
Cuban sugar
tion
of,
ii,
ii,
529.
capital
Custom,
Consumer's
(consumer's wealth) not commonly regarded as capital, ii, 5 how it yields interest, ii, 40-43.
;
Dalton, H.,
ii,
270, 278.
Consumer's surplus, i, 124. "Continental" paper money, i, 307. Continuous demand, i, 137. Convertible government paper, i, 317. Cooke (Jay) and Company, i, 391, 400
see Contents, ch. 61 297, 472. Copper, corner of 1888, i, 213 successive discovery of mines, ii, 101.
Darwin, C, ii, 138, 226. Darwin, L., i, 442, ii, 502. Dawson, M., ii, 385.
ii,
Cooperation,
also
ii,
figures for various countries, 231; for United States, ii, 235;
ii,
i,
for Massachusetts,
Copyright books, illustrate value under decreasing cost, a qualified monopoly, 205
;
De Beers Company, 201. Demand loans by banks, i, 137. monopoly Demand curve,
;
i,
i, i,
203,
209
ii,
justification of,
ii,
115.
Corner, operations analyzed, i, 210. Corporations, sec Contents, ch. 6 honesty of management, i, 88 connection with crises, i, 397 see also "Public service" industries. Corporation taxes. Federal, ii, 530. Cost of production, in what sense used,
;
;
Depositors, relation to banks, i, 384, 387. Deposits, see Contents, chs. 24, 27, 30 relation to circulating medium and to checks, i, 334, 420.
ii,
153.
illustrate joint
and seed
Dewey,
ii,
276.
why exported 214, 216; from United States, i, 484. Cotton goods, statistics on manufacture, i, 49 effect of United States duties, ii, 562. Cotton market and prices, i, 145, 148.
cost,
i,
;
Craft
gilds,
i,
39.
Credit, use of, effect on prices, i, 41f 417. Credit Lyonnais, i, 345. Crises, see Contents, chs. 28, 29 policy of Bank of England during, i, 363, 403 periodicity of, i, 388 sun spot theorjr of, i, 389 advantage of a central bank for mitigating, i, 403 possibly mitigated by combinations, ii, 455. Crises of 1857, i, 390, 396, 402. Crisis of 1873, i, 390, 396, 408, 412; connected with railway building, i, connected with international 395 borrowing, i, 470. Crisis of 1893, i, 389, 396, 408.
; ;
;
how far cause, how far result of division of labor, i, 31, 33. Diamonds, in relation to consumer's surplus, i, 126 illustrate monopoly value, i, 201, 204. Dickinson, G. L., ii, 502. Dietzel, H., i, 545. Differences of wages, see Contents, ch.
Dexterity,
;
47.
182
in agriculture,
i,
183
;
how
on urban sites, ii, 68 taxes on commodities produced 87 under, ii, 556. Diminishing utility, principle of, i, 117. Direct taxes, relegated to local bodies economic sense in Prussia, ii, 550
land,
;
ii,
66,
552. Discharge, right of, essential, ii, 289, disappears under social294, 309 ism, ii, 486.
of,
ii,
;
; ;
568
INDEX
Equalizing cost of production,
i,
3.
"Dry
farming,"
ii,
ii,
76.
278. i, 207. Dunbar, C. F., i, 442. Dunn, S. O., ii, 502. Durand, E. D., ii, 502.
tion of crop by,
i,
as a principle of protection, i, 517. Equalizing differences of wages, ii, 132. Equation of supply and demand, i, 141. Equilibrium price, i, 144, 146. Ericsson, i, 41, ii, 172. Erie canal, free of tolls, ii, 391. Eugenics, i, 103, ii, 250. Excess of exports from United States since 1873, i, 474 of imports till 1873, i, 474. Exchange and division of labor, i, 38, 110, 111.
;
Exchanges,
Excise,
ii,
how
on
developed,
luxuries,
i,
159.
effect
553.
Expenditure
wages,
used,
i,
on
ii,
209.
558,
of production, in what sense 169, ii, 153. Extensive cultivation, ii, 75. External economies, i, 189.
Dwellings, rental
ii,
40
demand
155
;
ous,
i,
ii,
510.
542.
Dyer,
ii,
172.
state,
i,
Dynamic
172.
"Fair price," i, 153. "Fair wages," ii, .345. "Favorable balance of trade,"
i,
475.
Fawcett, H., i, 544. Fay, C. R., ii, 385. Federal incorporation, ii, 459. Federal Reserve Banks, i, 376, 381,
426.
442, 544.
Edison, ii, 172. Education, effect on efficiency, i, 96 expense of, doubly affects wages, ii,
136.
Egypt, usury in, ii, 36. Eheberg, K. T., ii, 562. Eight-hour day, ii, 326.
Einaudi, L.,
ii,
Federal Reserve system, see Contents, ch. 27 administration, i, 376, 377 note issue, i, 377, 378 reserve requirements, i, 379, 380 policy during Great War, i, 381 as preventive of
; ;
panics,
Fetter,
;
i,
410.
ii,
462
102.
278.
Elastic demand, i, 137 when said to be unity, i, 138, 139. Elasticity of bank issues, i, 358, 366 375, 426. Emergency currency, i, 366 (under Federal Reserve system), i, 410. Emery, H. C, i, 220. Employee Representation, ii, 295, 297. Employment not created by protection, i, 510. England, rate of interest in eighteenth century, ii, 31 see also Great Brit; ;
ain.
Entrepreneur,
ii,
164.
"Equal pay
316.
for equal
work,"
ii,
151,
"Fiscal" principle of taxation, ii, 508. Fiscal monopoly, i, 208. Fisher, I., i, 442, ii, 126, 277. Fitch, ii, 309. Fixed prices (retail), advantages of, i, 152. Flour milling, how affected by dealings in futures, i, 159. Foreign exchanges, see Contents, ch. 32. Forests, varjdng conditions of supply, i, 184. Fortunes, great, see Contents, ch. 51 easily maintained in modern times,
i, 90 causes of, ii, 200. France, cooperative production in, 382 preventive check in, ii, 234.
;
Equality of
taxation,
sacrifice, as
ii,
a principle of
ii,
511.
;; ; ;
;; ;
INDEX
569
Graebe, i, 101. "Franchise," ii, 408. Great Britain, and geographical di\'iFrankel, L. F., ii, 385. sion of labor, i, 43, 44 system of Free goods, i, 3, 5. customs duties, i, 519 contempoFree trade, see Contents, chs. 36, 37 rary tariff controversy in, i, 536 summary statement of main arguinvestments in foreign countries, i, ment, i, 507. 470 international trade illustrated, Freight charges, effects on imports and i, distribution of incomes, ii, 494 exports, i, 472. 255 of property, ii, 257 causes of Freight classification on railways, ii, success in cooperation, ii, 373, 382 397. income tax system, ii, 522 inheritFrench peasantry, hoarding by, i, 74. ance taxes, ii, 534 local taxes, Friendly societies, ii, 357. how levied, ii, 546. Fulton, i, 35. Funded incomes, to be taxed at higher "Great War," 191418, effect on prices in United States, i, 287 in Eurorates, ii, 512. pean countries, i, 320, 321 silver Futures, speculation in, i, 159, 163. certificates in United States, i, 278 paper money issues, i, 320, 369 part Gary, town of, ii, 96. played by European banks, i, 367 General property tax, ii, 550. Federal Reserve system, i, 381 effect Geographical division of labor, i, 493 inon foreign exchanges, i, 463 how affected by railways, ii, 389, terest rates, ii, 38 governmental 399. control of railroads in United States, Germany, workmen's insurance in, see ii, 438 British income tax, ii, 526, Contents, ch. 60 growth of largetaxation in United States, ii, scale production, i, 51. 529
;
Ghent system
ii,
of
unemployed
i,
benefit,
531, 534.
367.
failure,
Glasgow bank
84.
;
i,
i,
318. 265.
leases,
ii,
Glass blowers' union, i, 521 in relation to marginal utility, ii, 156 former monopoly position, ii, 302. Godin metal-working establishment, ii,
337.
Ground
Griinzel,
rents
J.,
i,
and
93.
Hamburg,
Gold, articles
made
and
of,
how
affected
i,
ters,
ii,
by
240.
rising
falling
prices,
Haney,
Gold and
silver,
how
i,
fitted for
medium
;
cf exchange,
111, 224;
i,
industrial
how 239, 240 durability affects value, i, 250 production aleatory, i, 250 yet less so in modern times, 251 how far subject to diminishing returns, i, 259 mining countries export specie, i, 460, 473. Gold redemption fund. Act of 1900, i, 318.
consumption
of,
; ;
Hawtrey, R. G., i, 442. Hedging, i, 159. Hedonism, i, 132, 155, ii, 273. Heilman, R. E., ii, 385.
Helfferich,
i,
250, 442.
Heredity, i, 103. Herkner, H., ii, 385, 502. Hill, R., ii, 423.
Goldsmiths, the
i,
Hindustan, usury in, ii, 36. Hoarding, i, 73. Hobson, J. A., ii, 277. Holding company, ii, 443, 459. Holland, rate of interest in eighteenth
century, Hollander,
ii,
in Germany, i, 274 stability 321, 440, ii, 112. Good will, effect on value, i, 175. Goschen, G. J., i, 544. Gould, J., ii, 414, 416.
270
of,
i,
Home
i,
509.
i, 59, 191. of labor, regulation of, ii, 324
Horizontal combination,
of,
Hours
1.33,
430.
stroke,"
ii,
"Government
430.
; :
570
Hoxie, R.
F.,
ii,
INDEX
385.
ii, ii,
i,
Hue,
385.
149.
Instinct of acquisition, i, 118. Instinct of contrivance, i, 72. Insurance, workmen's, see Contents,
ch. 60.
Hutchinson, W.,
Insurance of deposits,
"Illegitimate" profits, ii, 195, 515. "Illegitimate" speculation, i, 163. Immigrants, how remittances affect
i,
386
Integration of industry, i, 60. Intensive cultivation, ii, 75. Interest, general statement, see Con-
low
145,
Immobility of labor, how affects international trade, i, 489 influence on bargaining power of laborers, ii,
;
300.
Income, money income and real income, i, 130, 131 income of a community, how measured, i, 129 how measure a farmer's income, ii, "earned" and "unearned" 261;
;
38-40 how affected by changing prices, i, 301 not affected by quantity of money, i, 346, ii, 8 how affected by bank reserves, i, 347 possibly negative, ii, 23 steadiness of rate in modern times, ii, 30 why prohibited in medieval times, ii, 36; on durable goods such as dwellings, ii, 40 variations between different regions, ii, 45 justification of, ii, how rate determines selling 48 price of land and securities, ii, 103
tents, chs.
; ; ;
incomes,
ii,
512, 526.
Income
taxes, see Contents, oh. 69. Inconvertible paper money, see Contents, ch. foreign exchange 23 under, i, 463. Increasing returns, see Contents, ch. 14; on railways, ii, 393; effect of taxes on commodities produced under, ii, 555. Increment taxes, ii, 108 in Germany and Great Britain, ii, 112; modes
;
how
ii,
Internal tax, on commodities, ii, 553. bimetallism, International probable effects, i, 282. International borrowing, effects on imports and exports, i, 467, ii, 46. International Harvester Company, i,
52.
soil,
ii,
IV
i,
prices,
Index
numbers, explained, i, 286 geometric arithmetic mean, i, 286 mean, i, 288 median, i, 288 proposed weighted mean, i, 289
; ; ; ;
502
regulation of money by, i, 437. India, English rule in, i, 25 hoarding in, i, 73 drain of specie to, i, 242 silver coinage stopped in 1893, i, 279 foreign exchanges under rupee standard, i, 461. Indirect taxes, ii, 552. Industrial Councils, ii, 295. Industrial democracy, ii, 297. Industrial Revolution, i, 35. Industriestaat, argument against in Germany, i, 533.
; ;
groups, ii, 161. Interstate Commerce Act of 1887, ii, 400, 437. Investment, promoted by corporations, in relation to saving, i, 174; i, 90; maladjustment in, i, 399. Iron, how far supply elastic, i, 147.
i,
58
i,
Inelastic
demand,
;
i,
137.
;
Inequality, see Contents, ii, inequality of 207 maximum well-being, i, Inheritance, importance
tion,
ii,
501.
266
Jevons, W. S., i, 389, 442, ii, 13, 427. Jews, why money-lenders in medieval
times,
ii,
36.
535.
Inheritance taxes,
532.
INDEX
Joint cost, theory ol, i, 214; tion to railways, ii, 395. Joint demand, i, 218. Juglar, C, i, 442.
Kartell,
ii,
571
in France, 276.
i,
applica-
Limping standard,
in
275;
United States,
i,
i,
List, F.,
527.
ii,
331;
522.
445.
ii,
Kautsky, K.,
502.
i,
Kemmerer, E. W.,
London, birthrates in different quarters, ii, 242, 243; distribution of incomes, ii, 256, 257. Lowell, A. L., ii, 432.
i,
391.
Krupp,
i,
58.
ii,
Kuczynski,
247.
Labor, what is meant by, i, 8 productive and unproductive, i, 16 predatory, i, 20. Labor legislation, see Contents, ch. 58
;
Machinery, and identical movements, i, 36; connection with tariff problems in United States, i, 541. Macrosty, ii, 501. McCulIoch, ii, 510.
effect
479. Labor supply, a cause of external economies, i, 190; in buUding operations, illustrates joint demand, i, 218. Labor theory of value, ii, 154. Labor unions, see Contents, ch. 57. Laborers, unskilled, why wages low
ii, ii,
how
no inducement
to,
on wages, under
ii,
so-
far socialistic,
486. Malthus, ii, 225, 228, 229, 240, 245. Malthusianism, ii, 333, 485. Mantoux, i, 105. Margin of cultivation defined, ii, 66. Marginal producers, i, 179.
Marginal
;
146;
would be high
ii,
if
scarce,
ii.
utility, i, 121 of money, i, 124 ultimate determinant of value, ii, 157 see also Marginal vendibility.
; ;
177.
Marginal vendibility,
278.
148, 171,
i,
Landry, A.,
Land Land
179;
see
taxes, see Contents, ch. 70. tenure, see Contents, ch. 42.
utility.
Large-scale production, see Contents, ch. 4 connection with combination, ii, 452.
;
Marriage, slight variation of rates, ii, 240 average age at, ii, 241. Marshall, A., i, 124, 179, 189, ii, 102,
;
Latin Union, i, 274. Laughlin, J. L., i, 442. Law, in relation to productive labor,
i,
Martin,
502.
Marx, K.,
28.
i,
Law's notes,
Leclaire,
ii,
314.
i,
23.
Massachusetts, birthrates of foreign born and natives, ii, 247 Ten Hour Act, ii, 320 mill conditions in earlier times, ii, 321 railway com;
; ;
"Legitimate"
Leisure class,
profits,
ii,
29. 195.
ii,
how
it
emerges,
274
275. Le Rossignol, J. E., ii, 502. Leroy-Beaulieu, P., ii, 562. Levasseur, E., ii, 278. Lewis and Clark's expedition, i, 127. Liberty, restriction of, ii, 283; under socialism, ii, 482. Liebermann, i, 101. Liefmann, ii, 501. Limitation of output, ii, 308.
ii,
justification of,
435. Maximum happiness, i, 132. Mayr, G., ii, 239, 278. Meade, E. S., ii, 502.
ii,
mission,
ii,
114, 115.
253.
i,
Meyer, R., ii, 255, 265. Michigan, birthrates of native bom and foreign born, ii, 243. Milk, wasteful competition in supply " postage stamp rate " on,U, 67 i, 64
;
;;
;; ;
572
Mill, J. S.,
INDEX
Ogle,
ii,
1, 105, 237, 544, ii, 108, 154, 252, 268, 328, 422. Mines, subject to diminishing returns, i, 184 rent of, ii, 98.
;
241.
i,
390.
Old-age pensions,
ii,
Minimum Minimum
Mint
for efficiency,
i,
;
wages,
ii,
331
95. in relation to
Open Open
taxation, ii, 521. price of gold, i, 229. Mitchell, W. C, i, 285, 291, 313, 443. Mombert, ii, 243. Money, Cliiozza, ii, 255, 258.
Money, see Contents, Bk. Ill what is meant by the term, i, 110, 432, 433
;
under socialism,
ii,
470.
Money
incomes, wherein high range advantageous, i, 497, 503, ii, 162. Monopoly, see Contents, chs. 15, 45, how connected with internal 65 economies, i, 191 profit defined, i, industrial, 198; ii, gains 113; sometimes defined as a kind of rent, ii, 123; of labor, ii, 135, 305; the essential characteristic of public
;
shop, ii, 304. union, ii, 303. Oregon question, in reference to free trade, i, 509. Osier, ii, 485. "Outside paper," when bought by banks, i, 344. Overcapitalization of railways, ii, 409. Overend, Gurney and Company, i, 391. Overinvestment, see Contents, ch. 41 also i, 397. Overproduction, see Contents, ch. 41
easily
ii,
481.
Owen,
Pain economy,
ii,
ii,
420, 429
what Panama
461
effect of
tax on monopolized commodities, ii, 556 fiscal, ii, 560. Morgan, J. P., 89, 326, ii. 416. Mortgage banks, i, 326. Moses, i, 307. Motives of business men, ii, 175, 205, 267, 536. Multiple standard discussed, i, 434. Munro, ii, 432.
;
i, 127. canal, illustrates uncertainty of labor's product, ii, 216. Pantaleoni, M., i, 220. Paper money, see Contents, ch. 23;
based on index numbers, i, 436 efTect on foreign exchanges, i, 462. "Parasitic" industries, i, 485, ii, 162.
Pareto, ii, 265. Paris, birthrates in different quarters, ii, 242. Partnership, legal position of, i, 80. Patents, articles illustrate monopoly
prices,
i,
206
system in
United
i,
371.
442.
ii,
ii,
ii,
Pawnbroker's loans,
ii,
ii,
35, 47.
New York
banking system,
banks, position in American i, 374, 407. York Central Railway, ii, 407. York City, value of land in, ii, 86. Zealand, death rate in, ii, 228
ii,
101. 232.
ii,
47.
ii, 348, 360. Newsholme, ii, 228, 232, 239, 244. Non-competing groups, described, ii, 141 connection with theory of international trade, ii, 161. Non-material wealth, i, 19. Northrop loom, ii, 114, 115. Note brokers in United States, i, 344.
Piecework, ii, 307. Pigou, A. C, i, 545, ii, 265, 277. Pioneer cultivation, ii, 68. Pleasure economy, i, 127.
Pohle, L., i, 545. Pools among railways, ii, 403. Poor laws, ii, 369. Population, see Contents, chs. 53, 54 movement of, within a group, ii. 158. Positive checks, ii, 230. " Postage stamp rate," on railways, for milk, ii, 67. Postal rate, uniform because of monopoly, i, 207; relation to expenses, ii, 422.
Officii
buildings in American
cities,
ii,
,;
; ;
INDEX
ii, 154. Potosi, silver mines of, i, 253. Predatorj' cultivation, i, 534, ii, 73. Predatory labor, i, 20. "Premium on currency" in 1903 and 1907, i, 409. Prestige value, i, 126. Preventive checks, ii, 230. Price, defined, i, 113. Prices in United States, 1890-1906, i, 291 1860-80, i, 313. Printers, how affected by inventions; ii, 212. "Private banks" in Germany, i, 365.
573
Potential competition,
Railways, see Contents, chs. 62, 63 difficulty of supervising \ahoT, i, 56 construction connected with crises,
i,
392, 395.
;
Rapidity of circulation, as to money, i, 236 as to goods, i, 237. Rappard, ii, 31. Ratio (coinage; between gold and silver, i, 262 in United States, i, 264
;
in France,
i,
262, 270.
Ratio (market) between gold and silcourse ver, change after 1873, i, 274 since 1893, i, 280; steadiness of,
;
ii,
134,
Producer's capital, i, 70. Producer's surplus, i, 187, ii, 63. Productive and unproductive labor,
16.
i,
Producti\aty of capital,
ii,
11.
Professors' salaries, why low, ii, 132. Profit sharing, see Contents, eh. 59. Progressive taxation, ii, 509, 513, 525 as to inheritance, ii, 532.
i, 272, affected by international bimetallism, i, 281. "Raub-bau," ii, 73. Raw materials, give no occasion for protection to young industries, i, 527, 543. Real estate agents, ii, 90, 94. Rebates, ii, 402, 448. Reciprocal demand, theory of, i, 495,
promoted by bimetallism,
281
;
how probably
Property,
grounds
of,
see
Contents,
509
how
i,
Great
chs. 55, 66, 67; in land, ii, 81, 82. Protection, see Contents, chs. 36, 37.
Prussia,
distribution
of property,
ii,
of
254
257
;
427
Rent, see Contents, chs. 42, 43, 44 not a monopoly return, ii, 113, 123; theory uses of the term, ii, 124
;
Psychic income, i, 131. Psychology, relation industrial to crises, i, 391 to business ambition, i, 103, ii, 175, 207 to wages system, ii, 284 to problems of socialism, ii,
; ; ;
far applicable to business as distinguished from profits, ii, 180 rental, ii, 540. Representative firm, ii, 184.
of,
;
how
Reserve
489, 493. Public debts, how affected by price changes, i, 294 ; see also War debts. Public goods, i, 5. Publicity, for control of corporations, ii, 435, 460.
Resumption
373. specie paj-ments, in United States in 1879, i, 318; what method desirable, i, 315. Retail prices, how affected by marginal how related to vendibility, i, 150 wholesale prices, i, 150 how affected
cities,
i,
of
by custom,
fixed,
i,
i,
150
advantages of
how
far socialistic,
ii,
478
how
re-
152.
lated to taxation, ii, 506. "Public service" industries and corporations, i, 83, ii, 116, 420. "Public utilities," right to strike in, ii, 291, 292. Pullman, town of, ii, 96.
i,
233, 415.
Race
Rae,
.uicide,
ii,
.J.,
Retail trading on large scale, i, 56. Rhodes, C, i, 201. Ricardo, D., ii, 73, 102, 154, 159. Rignano, E., ii, 270. Ripley, W. Z.. ii, 501. Rising prices, how connected with effect on wages, i, prosperity, i, 297 298 effect on business profits, i, 299. Rochdale Pioneers, ii. 374. Rodbertus, explanation of crises by, ii. 57; on unemployment, ii, 364. Roscher, W., i, 105.
;
;;
574
Rothschild,
i,
INDEX
89, 326,
ii,
48.
ii,
Roundabout production,
9, 12,
17.
Single tax, ii, 80 with reference to urban land, ii, 104 with reference to mines, ii, 106.
; ;
Site rent,
ii,
67.
Rupee
Saver's rent, ii, 28 in relation to taxation, ii, 517. Saving, stimulated by corporations, i, 83 how far dependent on a reward, marginal, ii, 26. ii, 21
;
; ;
Skates, American imitated in Germany, i, 541. Skelton, O. D., ii, 602. Slag, illustrates joint cost, i, 216. Slatin, i, 227. Sliding scale, ii, 343. Smith, Adam, i, 41, 105, 244, ii, 52,
137, 191. Socialism, see Contents, chs. 64, 65 classification of attitude toward incomes, ii, 126. Social stratification, ii, 137. Soetbeer, i, 256. Soldiers and sailors, productive laborers, i, 24. Sombart, ii, 265. South African gold supply, i, 258, ii, 100. Spargo, J., ii, 502. Specie premium, general discussion, i, 310; in United States during Civil War, i, 3x2 connection with foreign exchange x, 462. Speculatioi see Contents, ch. 11; in relation vi "corners," i, 210; in real
;
.
313.
A.,
ii, ii,
Schffiffle,
SchmoUer, G.,
502. 276, 277. SchiiUer, R., i, 544. Schulze-Delitzsch, ii, 378. Scissors, simile of, to illustrate theory of value, i, 180, 188. Scotch banking system, i, 355. Seager, H. R., ii, 385. Seasonal price, relation to market
price, i, 145. Securities not capital, ii, 5. Seigniorage, i, 228, 268. Seligman, E. R. A., ii, 562.
estate,
ii,
ii,
94
in railway securities,
414.
ii,
Senior,
i, 307. Servants, high wages in United States, 505, ii, 132, 299; per family in i, London, ii, 255. Share farming, ii, 79. Sharfman, I. L., ii, 501. Sherman Act, ii, 403, 444, 461. Shipbuilding in the United States and Great Britain contrasted, i, 189. Shipping, effects of charges, on imports and exports, i, 472; political arguments for subsidies, i, 529. Shirtwaist workers, ii, 149. Shop Committees, ii, 295. Sickness, insurance against, ii, 357. Siemens, W., ii, 172, 424. Silk duties in United States, possible effects of, i, 528, 542. posiSilver, drain to the East, i, 242 tion in sixteenth century, i, 253 production after discovery of Amer;
34.
Sprague, O.
i, 442. Stabilized dollar, i, 437. Stadtwirthschaft, i, 39. Stahlwerksverband, i, 62. Standardizing, i, 161.
M. W.,
Standard
tariff,
ii,
i,
of
living,
and
protective
512;
how
it affects
wages,
237, 238.
Standard
Oil Company, i, 217, ii, 402, 410, 443, -146, 449. Standard rate, of union wages, ii, 307 as to prices, ii, 457. Stanwood, E., i, 545. State banks in United States, i, 423. Static state, i, 172, ii, 252. Statistics of capital often misleading,
ii,
7.
ica,
i,
i,
;
253;
production 1871-1905
rising prices,
i,
299
ii,
456.
279
ish
1,
War
2'78.
307.
i,
Silver certificates, i, 278. Silver dollar, i, 261, 264; free coinage dropped in 1873, i, 276,
26,
87
;;
;;
INDEX
Street railways, uniform fare the result of monopoly, i, 207. "Strike-breakers," ii, 289. violence in, Strikes, defined, ii, 288 ii, 289, 314 the right to strike, ii, 287, 290. Subsidiary coin, i, 267. Subsistence and labor eflBciency, i, 93. Subsoil draining, ii, 77. Suffolk Bank system, i, 340. Sugar refining, i, 59, 62 bounties of 1890 in United States, i, 531 Refining Co., ii, 443, 446 taxation in Germany, ii, 553 taxation in United States, ii, 559, 561. Super-tax, British, ii, 526. Supply curve, i, 143. Surnames, illustrating simpler division of labor, i, 31. Surplus, essential for making capital, i, 71 its accumulation irksome, ii,
;
; ; ;
575
ii,
439.
i,
Trust companies, i, 345. "Trusts," see Contents, ch. 65; horizontal combination, i, 60
;
and
how
621
far of
promoted
ii,
bj'
protection,
ii,
i,
how
Tufts,
far monopolies,
118;
origin
name,
ii,
443.
276.
double
263.
Unearned gains, ii, 203. Unearned increment, ii, 80, 82; on urban sites, ii, 104 on railways, ii,
;
407.
20.
Unemployment,
ii,
not
remediable
by
531, 532.
"Sweating" of
coins,
i,
227.
308
against,
364.
"Tantiemes," ii, 194. "Tariff the mother of trusts," i, 521. Taussig, F. W., i, 545, ii, 115. Tea and coffee, British taxes on, i, 519 how possibly cheaper in United States because of protection, i, 524
;
United States, and geographical division of labor, i, 43, 44 protection in, i, distribution of income in, 538 ii, 258 income taxes in, ii, 529. "United States notes," i, 318. United States Steel Corporation, see
; ;
;
Steel Corporation.
Urban
;
Telephone,
ii,
monopoly
value, i, 206 should be monopoly, 422. Tenancy in United States, ii, 79. Textile inventions, i, 34. Thomas process, i, 216. Three-cornered trade, i, 454,
sites, causes of advantages, ii, relation to prices, ii, 84 84 incidence of taxes on, ii, 541. Utility, in relation to value, i, 116; diminishing, i, 118; total, i, 120; marginal, i, 121 marginal, of money, i, 124 to sellers, why usually of no
;
; ;
effect
on
price,
i,
153.
Thiinen,
ii,
67.
"Tie-up," ii, 315. Tin mines of Cornwall, ii, 101. Tobacco, a medium of exchange, i. 111 how taxed in Great Britain, i, 519; fiscal monopoly of, ii, 561 Trust,
;
Value in exchange, defined, i. 111; different meanings of, i, 112; of money, i, 232.
Vanderbilt, ii, 48, 414. Veblen, T., i, 105. Vertical combination, i, 60. Vested interests, as to agricultural land, ii, 82 as to urban sites, ii, 107 as to corporate securities, ii, 120, 425. Vienna, birthrates in different quarters, ii, 242. Violence in strikes, ii, 289, 314.
;
see
Total
120.
Toynbee, A., i, 105. Trade agreements, ii, 346. Trademark, effect on value and profits, i, 175 relation to dumping, i, 208. Trade unions, see Contents, ch. 57;
;
Transferability
shares,
Wages,
countries,
576
"INDEX
Welsbach mantles,
Westminster,
i,
international trade, i, 502; what determines general rate, sec Contents, ch. 52; relation to standard
of living,
ii,
203.
ii,
Duke
i,
of,
;
105.
Wheat, cvUturo,
237
ii,
effect of
workmen's
i,
insurance on,
512.
of,
284
ii,
necessity of,
473.
A,,
i,
55 seasonal supply virtually fixed, i, 147 how price may be affected by corners, i, 212 why exported from United States, i, 482 different positions of United States and Russia as exporters of, i, 502 predatory cultivation, ii, 74; yield
; ;
Wagner,
545,
265, 562.
per acre,
ii,
74.
WaiHpum.
illustrates influence of convention on money, i, 225. War debts, a kind of spendthrift borrowing, ii, 5, 37 effects on rate of interest, ii, 31, 37; effects on supply incidence of of real capital, ii, 38 sec also Pubthe burden, ii, 39, 40
;
; ;
lic
debts.
Board,
166.
i,
285.
United
;
States,
i,
487
varying
i,
natural conditions in United States, i, 491 clothing, amount of customs tax on, ii, 559.
54, 216.
of, ii, 149. insurance, see
for
public management,
ii,
Women, wages
Workmen's
ch. 60.
Contents,
Watt, J., i, 35, ii. 172, 424. Wealth, see Contents, ch. 1.
Works
Councils,
ii.
295.
Webb, Webb,
B.,
S.,
ii.
ii,
Young, A.
342.
Welfare arrangements,
Young
Yule,
i,
526.
WeUs, H. G.,
ii,
502.
ii,
239.
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