PROBLEMS OF RECONSTRUCTION--(_continued_)
Any proposal to alter the responsibilities and powers now enjoyed by the
central and the state governments in respect to the control of
corporations and the distribution of wealth involves, of course, the
Federal rather than the state constitutions; and the amendment of the
former is both a more difficult and a more dangerous task than is the
amendment of the latter. A nation cannot afford to experiment with its
fundamental law as it may and must experiment with its local
institutions. As a matter of fact the Federal Constitution is very much
less in need of amendment than are those of the several states. It is on
the whole an admirable system of law and an efficient organ of
government; and in most respects it should be left to the ordinary
process of gradual amendment by legal construction until the American
people have advanced much farther towards the realization of a national
democratic policy. Eventually certain radical amendments will be
indispensable to the fulfillment of the American national purpose; but
except in one respect nothing of any essential importance is to be
gained at present by a modification of the Federal Constitution. This
exception is, however, of the utmost importance. For another generation
or two any solution of the problem of corporation control, and of all
the other critical problems connected therewith, will be complicated,
confused, and delayed by the inter-state commerce clause, and by the
impossibility, under that clause, of the exercise of any really
effective responsibility and power by the central government. The
distinction between domestic and inter-state commerce which is implied
by the Constitutional distribution of powers is a distinction of
insignificant economic or industrial importance; and its necessary legal
enforcement makes the carrying out of an efficient national industrial
policy almost impossible.
Under the inter-state commerce clause, a corporation conducting, as all
large companies do, both a state and an inter-state business, is
subject to several supplementary jurisdictions. It is subject, of
course, primarily to the laws of the state under which it is organized,
and to the laws of the same state regulating its own particular form of
industrial operation. It is subject, also, to any conditions which the
legislatures of other states may wish to impose upon its business,--in
so far as that business is transacted within their jurisdictions.
Finally, it is subject to any regulation which the central government
may impose upon its inter-state transactions. From the standpoint of
legal supervision, consequently, the affairs of such a corporation are
divided into a series of compartments, each compartment being determined
by certain arbitrary geographical lines--lines which do not, like the
boundaries of a municipality, correspond to any significant economic
division. As long as such a method of supervision endures, no effective
regulation of commerce or industry is possible. A corporation is not a
commercial Pooh-Bah, divided into unrelated sections. It is an
industrial and commercial individual. The business which it transacts in
one state is vitally related to the business which it transacts in other
states; and even in those rare cases of the restriction of a business to
the limits of a single state, the purchasing and selling made in its
interest necessarily compete with inter-state transactions in the same
products. Thus the Constitutional distinction between state and
inter-state commerce is irrelevant to the real facts of American
industry and trade.
In the past the large corporations have, on the whole, rather preferred
state to centralized regulation, because of the necessary inefficiency
of the former. Inter-state railroad companies usually exercised a
dominant influence in those states under the laws of which they had
incorporated; and this influence was so beneficial to them that they
were quite willing for the sake of preserving it to subsidize the
political machine and pay a certain amount of blackmail. In this way the
Pennsylvania Railroad Company exercised a dominant influence in the
politics of Pennsylvania and New Jersey; the New York Central was not
afraid of anything that could happen at Albany; the Boston and Maine
pretty well controlled the legislation of the state of New Hampshire;
and the Southern Pacific had its own will in California. Probably in
these and other instances the railroads acquired their political
influence primarily for purposes of protection. It was the cheapest form
of blackmail they could pay to the professional politicians; and in this
respect they differed from the public service corporations, which have
frequently been active agents of corruption in order to obtain public
franchises for less than their value. But once the railroads had
acquired their political influence, they naturally used it for their own
purposes. They arranged that the state railroad commissioners should be
their clerks, and that taxation should not press too heavily upon them.
They were big enough to control the public officials whose duty it was
to supervise them; and they were content with a situation which left
them free from embarrassing interference without being over-expensive.
The situation thereby created, however, was not only extremely
undesirable in the public interest, but it was at bottom extremely
dangerous to the railroads. These companies were constantly extending
their mileage, increasing their equipment, improving their terminals,
and enlarging their capital stock. Their operations covered many
different states, and their total investments ran far into the hundreds
of millions of dollars. In the meantime they remained subject to one or
several different political authorities whose jurisdiction extended over
only a portion of their line and a fraction of their business, but who
could none the less by unwise interference throw the whole system out of
gear, and compromise the earning power of many millions of dollars
invested in other states. Moreover, they could, if they chose, make all
this trouble with a comparative lack of responsibility, because only a
fraction of the ill effects of this foolish regulation would be felt
within the guilty state. As a matter of fact many railroads had
experiences of this kind with the Western states, and were obliged to
defend themselves against legislative and administrative dictation,
which if it did not amount to confiscation, always applied narrow and
rigid restrictive methods to a delicate and complicated economic
situation. Most of the large Eastern and some of the large Western
companies purchased immunity from such "supervision," and were well
content; but it was mere blindness on their part not to understand that
such a condition, with the ugly corruption it involved, could not
continue. The time was bound to come when an aroused public opinion
would undermine their "influence," and would retaliate by imposing upon
them restrictions of a most embarrassing and expensive character. In so
doing the leaders of a reformed and aroused public opinion might be
honestly seeking only legitimate regulation; but the more the state
authorities sought conscientiously to regulate the railroads the worse
the confusion they would create. The railroad could not escape some
restrictive supervision; neither were they obliged wholly to submit to
it on the part of any one state. The situation of a railroad running
through half a dozen states, and subject to the contradictory and
irresponsible orders of half a dozen legislatures or commissions might
well become intolerable.
Just this sort of thing has been recently happening. The state
authorities began to realize that their lax methods of railway
supervision were being used as an argument for increased Federal
interference. So the state governments arose in their might and began
furiously to "regulate" the railroads. Commissions were constituted or
re-constituted, and extremely drastic powers were granted to these
officials in respect to the operation of the railroads, the rates and
the fares charged, and their financial policies. Bills were passed
severely restricting the rights which companies had enjoyed of owning
the stock of connecting railroads. Many of the states sought to forbid
the companies from charging more than two cents a mile for passenger
fares. The issuing of passes except under severe restrictions was made
illegal. The railroad companies were suddenly confronted by a mass of
hostile and conflicting legislation which represented for the most part
an honest attempt to fulfill a neglected responsibility, but whose
effort on the whole merely embarrassed the operations of the roads, and
which in many instances failed to protect the real public interests
involved. Even when this legislation was not ignorantly and unwisely
conceived, and even when it was prepared by well-informed and
well-intentioned men, it was informed by contradictory ideas and a false
conception of the genuine abuses and their necessary remedies.
Consequently, a certain fraction of intelligent and disinterested public
opinion began soon to realize that the results of a vigorous attempt on
the part of the state governments to use their powers and to fulfill
their responsibilities in respect to the railroads were actually worse
and more dangerous to the public interest than was the previous neglect.
The neglect of the responsibility implied corruption, because it
provoked blackmail. The vigorous fulfillment of the responsibility
implied confusion, cross-purposes, and excessive severity, because the
powers of a single state were too great within its specific jurisdiction
and absolutely negligible beyond.
The railroad companies suffer more from this piecemeal and conflicting
regulation than do corporations engaged in manufacturing operations, not
only because they discharge a peculiarly public function, but because
their business, particularly in its rate-making aspect, suffers severely
from any division by arbitrary geographical lines. But all large
inter-state corporations are more or less in the same situation.
Corporations such as the Standard Oil Company and some of the large New
York life insurance companies are confronted by the alternative either
of going out of business in certain states, or of submitting to
restrictions which would compromise the efficiency of their whole
business policy. Doubtless they have not exhausted the evasive and
dilatory methods which have served them so well in the past; but little
by little the managers of these corporations are coming to realize that
they are losing more than they gain from subjection to so many
conflicting and supplementary jurisdictions. Little by little they are
coming to realize that the only way in which their businesses can obtain
a firm legal standing is by means of Federal recognition and exclusive
Federal regulation. They would like doubtless to continue to escape any
effective regulation at all; but without it they cannot obtain effective
recognition, and in the existing ferment of public opinion recognition
has become more important to them than regulation is dangerous.
Many important financiers and corporation lawyers are still bitterly
opposed to any effective centralized regulation, even if accompanied by
recognition; but such opposition is not merely inaccessible to the
lessons of experience, but is blinded by theoretical prejudice.
Doubtless the position of being, on the one hand, inefficiently
regulated by the state governments, and, on the other hand, of being
efficiently protected in all their essential rights by the Federal
courts--doubtless such a situation seems very attractive to men who
need a very free hand for the accomplishment of their business purposes;
but they should be able to understand that it would necessarily produce
endless friction. The states may well submit to the constant extension
of a protecting arm to corporations by the Federal courts, provided the
central government is accomplishing more efficiently than can any
combination of state governments the amount of supervision demanded by
the public interest. But if the Federal courts are to be constantly
invoked, in order to thwart the will of state legislatures and
commissions, and if at the same time the authority which protects either
neglects or is unable effectively to supervise, there is bound to be a
revival of anti-Federal feeling in its most dangerous form. Whatever the
corporations may suffer from the efficient exercise of Federal
regulative powers, they have far more to fear from the action of the
state governments--provided such action proceeds from an irresponsible
local radicalism embittered by being thwarted. The public opinion on
which the corporations must depend for fair treatment is national rather
than local; and just in as far as they can be made subject to exclusive
centralized jurisdiction, just to that extent is there a good chance of
their gradual incorporation into a nationalized economic and legal
system.
The control of the central government over commerce and the corporations
should consequently be substituted for the control of the states rather
than added thereto; and this action should be taken not in order to
enfeeble American local governments, but to invigorate them. The
enjoyment by any public authority of a function which it cannot
efficiently perform is always a source of weakness rather than of
strength; and in this particular case it is a necessary source, not
merely of weakness, but of corruption. The less the state governments
have to do with private corporations whose income is greater than their
own, the better it will be for their morals, and the more effectively
are they likely to perform their own proper and legitimate functions.
Several generations may well elapse before the American public opinion
will learn this lesson; and even after it is well learned there will be
enormous and peculiar obstacles to be removed before they can turn their
instruction to good account. But in the end the American Federal
Constitution, like all the Federal Constitutions framed during the past
century, will have to dispense with the distinction between state and
inter-state commerce; and the national authority will prevail, not
because there is any peculiar virtue in the action of the central
government, but because there is a peculiar vice in asking the state
governments to regulate matters beyond their effective jurisdiction.
II
THE RECOGNITION OF INDUSTRIAL ORGANIZATION
The central government in its policy toward the large corporations must
adopt one of two courses. Either it must discriminate in their favor or
it must discriminate against them. The third alternative--that of being
what is called "impartial"--has no real existence; and it is essential
that the illusory nature of a policy of impartiality should in the
beginning be clearly understood.
A policy of impartiality is supposed to consist in recognizing the
existence of the huge industrial and railroad organizations, while at
the same time forbidding them the enjoyment of any of those little
devices whereby they have obtained an unfair advantage over competitors.
It would consist, that is, of a policy of recognition tempered by
regulation; and a policy of this kind is the one favored by the majority
of conservative and fair-minded reformers. Such a policy has
unquestionably a great deal to recommend it as a transitional means of
dealing with the problem of corporate aggrandizement, but let there be
no mistake: it is not really a policy of strict neutrality between the
small and the large industrial agent. Any recognition of the large
corporations, any successful attempt to give them a legal standing as
authentic as their economic efficiency, amounts substantially to a
discrimination in their favor.
The whole official programme of regulation does not in any effective way
protect their competitors. Unquestionably these large corporations have
in the past thrived partly on illegal favors, such as rebates, which
would be prevented by the official programme of regulation; but at the
present time the advantage which they enjoy over their competitors is
independent of such practices. It depends upon their capture and
occupation of certain essential strategic positions in the economic
battle-field. It depends upon abundant capital, which enables it to take
advantage of every opportunity, and to buy and sell to the best
advantage. It depends upon the permanent appropriation of essential
supplies of raw materials, such as iron ore and coal, or of terminals in
large cities, which cannot now be duplicated. It depends upon
possibilities of economic industrial management and of the systematic
development of individual industrial ability and experience which exist
to a peculiar degree in large industrial enterprises. None of these
sources of economic efficiency will be in any way diminished by the
official programme of regulation. The corporations will still possess
substantially all of their existing advantages over their competitors,
while to these will be added the additional one of an unimpeachable
legal standing. Like the life insurance companies after the process of
purgation, they will be able largely to reduce expenses by abolishing
their departments of doubtful law.
Thus the recognition of the large corporation is equivalent to the
perpetuation of its existing advantages. It is not an explicit
discrimination against their smaller competitors, but it amounts to such
discrimination. If the small competitor is to be allowed a chance of
regaining his former economic importance, he must receive the active
assistance of the government. Its policy must become, not one of
recognition, but one of recognition under conditions which would impair
the efficiency of the large industrial organizations. Mr. William J.
Bryan's policy of a Federal license granted only under certain rigid
conditions as to size, is aimed precisely at the impairment of the
efficiency of the "trusts," and the consequent active discrimination in
favor of the small competitor; but the Roosevelt-Taft programme allows
the small competitor only such advantages as he is capable of earning
for himself; and it must be admitted that these advantages are,
particularly in certain dominant industries, not of a very encouraging
nature.
Nevertheless, at the last general election the American people cast a
decisively preponderant vote in favor of the Roosevelt-Taft programme;
and in so doing they showed their customary common sense. The huge
corporations have contributed to American economic efficiency. They
constitute an important step in the direction of the better
organization of industry and commerce. They have not, except in certain
exceptional cases, suppressed competition; but they have regulated it;
and it should be the effort of all civilized societies to substitute
coöperative for competitive methods, wherever coöperation can prove its
efficiency. Deliberately to undo this work of industrial and commercial
organization would constitute a logical application of the principle of
equal rights, but it would also constitute a step backward in the
process of economic and social advance. The process of industrial
organization should be allowed to work itself out. Whenever the smaller
competitor of the large corporation is unable to keep his head above
water with his own exertions, he should be allowed to drown. That the
smaller business man will entirely be displaced by the large corporation
is wholly improbable. There are certain industries and lines of trade in
which he will be able to hold his own; but where he is not able to hold
his own, there is no public interest promoted by any expensive attempt
to save his life.
The Sherman Anti-Trust Law constitutes precisely such an attempt to save
the life of the small competitor; and in case the Roosevelt-Taft policy
of recognition tempered by regulation is to prevail, the first step to
be taken is the repeal or the revision of that law. As long as it
remains on the statute books in its existing form, it constitutes an
announcement that the national interest of the American people demands
active discrimination in favor of the small industrial and commercial
agent. It denies the desirability of recognizing what has already been
accomplished in the way of industrial and commercial organization; and
according to prevalent interpretations, it makes the legal standing of
all large industrial combinations insecure--no matter how conducive to
economic efficiency their business policy may be.
Assuming, however, that the Sherman Anti-Trust Law can be repealed, and
that the Roosevelt-Taft policy of recognition tempered by regulation be
adopted, the question remains as to the manner in which such a policy
can best be carried out. Certain essential aspects of this question will
not be discussed in the present connection. The thorough carrying out of
a policy of recognition would demand a Federal incorporation act, under
which all corporations engaged in anything but an exclusively local
business would be obliged to organize; but, as we have already seen,
such an act would be unconstitutional as applied to many technically
domestic corporations, and it would probably be altogether
unconstitutional, except, perhaps, under limitations which would make it
valueless. It may be that some means will be found to evade these
Constitutional difficulties, or it may not be. These are matters on
which none but the best of Constitutional lawyers have any right to an
opinion. But in any event, I shall assume that the Federal government
can eventually find the legal means to make its policy of recognition
effective and to give the "trust" a definite legal standing. What sort
of regulation should supplement such emphatic recognition?
The purpose of such supervision is, of course, to prevent those abuses
which have in the past given the larger corporation an illegal or an
"unfair" advantage over its competitors; and the engine which American
legislatures, both Federal and state, are using for the purpose is the
commission. The attempt to define in a comprehensive statute just what
corporations may do, or must in the public interest be forbidden from
doing, is not being tried, because of the apparent impossibility of
providing in advance against every possible perversion of the public
interest in the interest of the private corporation. The responsibility
of the legislature for the protection of the public interest is
consequently delegated to a commission whose duties are partly
administrative and partly either legislative or judicial. The most
complete existing type of such a delegated power is not the Federal
Inter-state Commerce Commission, but the Public Service Commissions of
New York State; and in considering the meaning and probable effects of
this kind of supervision I shall consider only the completed type. A
Federal Inter-state Commerce Commission which was fully competent to
supervise all inter-state commerce and all commerce competing therewith
would necessarily possess powers analogous to those bestowed upon the
New York Public Service Commissions.
The powers bestowed upon those commissions are based upon the assumption
that the corporations under their jurisdiction cannot be trusted to take
any important decision in respect to their business without official
approval. All such acts must be known to the commission, and be either
expressly or tacitly approved, and the official body has the power of
ordering their wards to make any changes in their service or rates which
in the opinion of the commission are desirable in the public interest.
Thus the commission is required not only to approve all agreements among
corporations, all mergers, all issues of securities, but they are in
general responsible for the manner in which the corporations are
operated. The grant of such huge powers can be explained only on the
ground that the private interest of these corporations is radically
opposed to the interest of their patrons. Public opinion must have
decided that if left to themselves, the corporations will behave, on the
whole, in a manner inimical to the public welfare; and their business
must consequently be actually or tacitly "regulated" in every important
detail.
One may well hesitate wholly to condemn this government by commission,
because it is the first emphatic recognition in American political and
economic organization of a manifest public responsibility. In the past
the public interests involved in the growth of an extensive and highly
organized industrial system have been neither recognized nor promoted.
They have not been promoted by the states, partly because the states
neither wanted to do so, nor when they had the will, did they have the
power. They have not been promoted by the central government because
irresponsibility in relation to national economic interest was, the
tariff apart, supposed to be an attribute of the central authority. Any
legislation which seeks to promote this neglected public interest is
consequently to be welcomed; but the welcome accorded to these
commissions should not be very enthusiastic. It should not be any more
enthusiastic than the welcome accorded by the citizens of a kingdom to
the birth of a first child to the reigning monarchs,--a child who turns
out to be a girl, incapable under the law of inheriting the crown. A
female heir is under such circumstances merely the promise of better
things; and so these commissions are merely an evidence of good will and
the promise of something better. As initial experiments in the attempt
to redeem a neglected responsibility, they may be tolerated; but if they
are tolerated for too long, they may well work more harm than good.
The constructive idea behind a policy of the recognition of
semi-monopolistic corporations, is, of course, the idea that they can be
converted into economic agents which will make unequivocally for the
national economic interest; and it is natural that in the beginning
legislators should propose to accomplish this result by rigid and
comprehensive official supervision. But such supervision, while it would
eradicate many actual and possible abuses, would be just as likely to
damage the efficiency which has been no less characteristic of these
corporate operations. The only reason for recognizing the large
corporations as desirable economic institutions is just their supposed
economic efficiency; and if the means taken to regulate them impair that
efficiency, the government is merely adopting in a roundabout way a
policy of destruction. Now, hitherto, their efficiency has been partly
the product of the unusual freedom they have enjoyed. Unquestionably
they cannot continue to enjoy any similar freedom hereafter; but in
restricting it care should be taken not to destroy with the freedom the
essential condition of the efficiency. The essential condition of
efficiency is always concentration of responsibility; and the decisive
objection to government by commission as any sufficient solution of the
corporation problem is the implied substitution of a system of divided
for a system of concentrated responsibility.
This objection will seem fanciful and far-fetched to the enthusiastic
advocates of reform by commission. They like to believe that under a
system of administrative regulation abuses can be extirpated without any
diminution of the advantages hitherto enjoyed under private management;
but if such proves to be the case, American regulative commissions will
establish a wholly new record of official good management. Such
commissions, responsible as they are to an insistent and uninformed
public opinion, and possessed as they inevitably become of the peculiar
official point of view, inevitably drift or are driven to incessant,
vexatious, and finally harmful interference. The efficient conduct of
any complicated business, be it manufacturing, transportation, or
political, always involves the constant sacrifice of an occasional or a
local interest for the benefit of the economic operation of the whole
organization. But it is just such sacrifices of local and occasional to
a comprehensive interest which official commissions are not allowed by
public opinion to approve. Under their control rates will be made
chiefly for the benefit of clamorous local interests; and little by
little the economic organization of the country, so far as affected by
the action of commission government, would become the increasing rigid
victim of routine management. The flexibility and enterprise,
characteristic of our existing national economic organization, would
slowly disappear; and American industrial leaders would lose the
initiative and energy which has contributed so much to the efficiency of
the national economic system. Such a result would, of course, only take
place gradually; but it would none the less be the eventual result of
any complete adoption of such a method of supervision. The friends of
commission government who expect to discipline the big corporations
severely without injuring their efficiency are merely the victims of an
error as old as the human will. They "want it both ways." They want to
eat their cake and to have it. They want to obtain from a system of
minute official regulation and divided responsibility the same economic
results as have been obtained from a system of almost complete freedom
and absolutely concentrated responsibility.
The reader must not, however, misinterpret the real meaning of the
objection just made to corporation reform by means of commissions. I can
see no ground for necessarily opposing the granting of increased power
and responsibility to an official or a commission of officials, merely
because such officials are paid by the government rather than by a
private employer. But when such a grant is considered necessary, the
attempt should be to make the opportunity for good work comprehensive
and commensurate with the responsibility. The sort of officialism of
which the excavations at Panama or the reclamation service is a sample
has as much chance of being efficient under suitable conditions as has
the work of a private corporation. The government assumes complete
charge of a job, and pushes it to a successful or unsuccessful
conclusion, according to the extent with which its tradition or
organization enables it to perform efficient work. Moreover, there is a
certain kind of official supervision of a private business which does
not bring with it any divided responsibility. Perhaps the best
illustration thereof is the regulation to which the national banks are
obliged to submit. In this case the bank examiners and the Controller do
not interfere in the management of the bank, except when the management
is violating certain conditions of safe banking--which have been
carefully defined in the statute. So long as the banks obey the law,
they need have no fear of the Treasury Department. But in commission
government the official authority, in a sense, both makes and
administers the law. The commission is empowered to use its own
discretion about many matters, such as rates, service, equipment, and
the like, in relation to which the law places the corporation absolutely
in its hands. Such official interference is of a kind which can hardly
fail in the long run to go wrong. It is based on a false principle, and
interferes with individual liberty, not necessarily in an unjustifiable
way, but in a way that can hardly be liberating in spirit or
constructive in result.
The need for regulation should not be made the excuse for bestowing upon
officials a responsibility which they cannot in the long run properly
redeem. In so far as the functions of such commissions are really
regulative, like the functions of the bank examiners, they may for the
present perform a useful public service. These commissions should be
constituted partly as bureaus of information and publicity, and partly
as an administrative agency to secure the effective enforcement of the
law. In case the Sherman Anti-Trust Law were repealed, the law
substituted therefor should define the kind of combination among
corporations and the kind of agreements among railroads which were
permissible, and the commission should be empowered to apply the law to
any particular consolidation or contract. Similar provision should be
made in respect to railroad mergers, and the purchases by one railroad
of the stock of another. The purposes for which new securities might be
legitimately issued should also be defined in the statute, and the
commission allowed merely to enforce the definitions. Common carriers
should be obliged, as at present, to place on record their schedules of
rates, and when a special or a new rate was made, notification should be
required to the commission, together with a statement of reasons.
Finally the commission should have the completest possible power of
investigating any aspect of railway and corporation management or
finance the knowledge of which might be useful to Congress. The
unflinching use of powers, vaguely sketched above, would be sufficient
to prevent mere abuses, and they could be granted without making any
body of officials personally responsible for any of the essential
details of corporation management.
If the commission is granted the power to promulgate rates, to control
the service granted to the public, or to order the purchase of new
equipment, it has become more than a regulative official body. It has
become responsible for the business management of the corporation
committed to its charge; and again it must be asserted that mixed
control of this kind is bound to take the energy and initiative out of
such business organizations. Neither has any necessity for reducing
public service corporations to the level of industrial minors been
sufficiently demonstrated. In the matter of service and rates the
interest of a common carrier is not at bottom and in the long run
antagonistic to the interest of its patrons. The fundamental interest of
a common carrier is to develop traffic, and this interest coincides with
the interest in general of the communities it serves. This interest can
best be satisfied by allowing the carrier freedom in the making of its
schedules--subject only to review in particular cases. Special instances
may always exist of unnecessarily high or excessively discriminatory
rates; and provisions should be made for the consideration of such
cases, perhaps, by some court specially organized for the purpose; but
the assumption should be, on the whole, that the matter of rates and
service can be left to the interest of the corporation itself. In no
other way can the American economic system retain that flexibility with
which its past efficiency has been associated. In no other way can the
policy of these corporations continue to be, as it has so often been in
the past, in an economic sense genuinely constructive. This flexibility
frequently requires readjustments in the conditions of local industry
which cause grave losses to individuals or even communities; but it is
just such readjustments which are necessary to continued economic
efficiency; and it is just such readjustments which would tend to be
prevented by an official rate-making authority. An official rate-making
power would necessarily prefer certain rigid rules, favorable to the
existing distribution of population and business. Every tendency to a
new and more efficient distribution of trade would be checked, because
of its unfairness to those who suffer from it. Thus the American
industrial system would gradually become petrified, and the national
organization of American industry would be sacrificed for the benefit of
an indiscriminate collection of local interests.
If the interest of a corporation is so essentially hostile to the public
interest as to require the sort of official supervision provided by the
New York Public Service Commission Law, the logical inference therefrom
is not a system of semi-official and semi-private management, but a
system of exclusively public management. The logical inference therefrom
is public ownership, if not actual public operation. Public ownership is
not open to the same theoretical objections as is government by
commission. It is not a system of divided responsibility. Political
conditions and the organization of the American civil service being what
they are, the attempt of the authorities to assume such a responsibility
might not be very successful; but the fault would in that case reside in
the general political and administrative organization. The community
could not redeem the particular responsibility of owning and operating a
railroad, because it was not organized for the really efficient conduct
of any practical business. The rejection of a system of divided personal
responsibility between public and private officials does not
consequently bring with it necessarily the rejection of a system of
public ownership, if not public operation; and if it can be demonstrated
in the case of any particular class of corporations that its interest
has become in any essential respect hostile to the public interest, a
constructive industrial policy demands, not a partial, but a much more
complete, shifting of the responsibility.
That cases exist in which public ownership can be justified on the
foregoing grounds, I do not doubt; but before coming to the
consideration of such cases it must be remarked that this new phase of
the discussion postulates the existence of hitherto neglected conditions
and objects of a constructive industrial policy. Such a policy started
with the decision, which may be called the official decision, of the
American electorate, to recognize the existing corporate economic
organization; and we have been inquiring into the implications of this
decision. Those implications include, according to the results of the
foregoing discussion, not only a repeal of the Sherman Anti-Trust Law,
but the tempering of the recognition with certain statutory regulations.
It by no means follows that such regulation satisfies all the objects of
a constructive national economic policy. In fact it does not satisfy the
needs of a national economic policy at all, just in so far as such a
policy is concerned not merely with the organization of industry, but
with the distribution of wealth. But inasmuch as the decision has
already been reached in preceding chapters that the national interest of
a democratic state is essentially concerned with the distribution of
wealth, the corporation problem must be considered quite as much in its
relation to the social problem as to the problem of economic efficiency.
The American corporation problem will never be understood in its proper
relations and full consequences until it is conceived as a sort of an
advanced attack on the breastworks of our national economic system by
this essential problem of the distribution of wealth. The current
experiments in the direction of corporate "regulation" are prompted by a
curious mixture of divergent motives. They endeavor to evade a
fundamental responsibility by meeting a superficial one. They endeavor
to solve the corporation problem merely by eradicating abuses, the
implication being that as soon as the abuses are supervised out of
existence, the old harmony between public and private interest in the
American economic system will be restored, and no more "socialistic"
legislation will be required. But the extent to which this very
regulation is being carried betrays the futility of the expectation. And
as we have seen, the intention of the industrial reformers is to
introduce public management into the heart of the American industrial
system; that is, into the operation of railroads and public service
corporations, and in this way to bring about by incessant official
interference that harmony between public and private interest which must
be the object of a national economic system. But this proposed remedy is
simply one more way of shirking the ultimate problem; and it is the
logical consequence of the persistent misinterpretation of our
unwholesome economic inequalities as the result merely of the abuse,
instead of the legal use, of the opportunities provided by the existing
economic system.
An economic organization framed in the national interest would conform
to the same principles as a political organization framed in the
national interest. It would stimulate the peculiarly efficient
individual by offering him opportunities for work commensurate with his
abilities and training. It would grant him these opportunities under
conditions which would tend to bring about their responsible use. And it
would seek to make the results promote the general economic welfare. The
peculiar advantage of the organization of American industry which has
gradually been wrought during the past fifty years is precisely the
opportunity which it has offered to men of exceptional ability to
perform really constructive economic work. The public interest has
nothing to gain from the mutilation or the destruction of these
nationalized economic institutions. It should seek, on the contrary, to
preserve them, just in so far as they continue to remain efficient; but
it should at the same time seek the better distribution of the fruits of
this efficiency. The great objection to the type of regulation
constituted by the New York Public Service Commission Law is that it
tends to deprive the peculiarly capable industrial manager of any
sufficient opportunity to turn his abilities and experience to good
account. It places him under the tutelage of public officials,
responsible to a public opinion which has not yet been sufficiently
nationalized in spirit or in purpose, and in case this tutelage fails of
its object (as it assuredly will) the responsibility for the failure
will be divided. The corporation manager will blame the commissions for
vexatious, blundering, and disheartening interference. The commissions
will blame the corporation manager for lack of cordial coöperation. The
result will be either the abandonment of the experiment or the
substitution of some degree of public ownership. But in either event the
constructive economic work of the past two generations will be in some
measure undone; and the American economic advance will be to that extent
retarded. Such obnoxious regulation has been not unjustly compared to
the attempt to discipline a somewhat too vivacious bull by the simple
process of castration. For it must be substituted an economic policy
which will secure to the nation, and the individual the opportunities
and the benefits of the existing organization, while at the same time
seeking the diffusion of those benefits over a larger social area.
III
THE FRUITS OF INDUSTRIAL ORGANIZATION
The only sound point of departure for a national economic policy is, as
we have seen, the acceptance by the state of certain of the results of
corporate industrial organization. Such state recognition is equivalent
to discrimination in their favor, because it leaves them in possession
of those fundamental economic advantages, dependent on terminals, large
capital, and natural resources, which place them beyond effective
competition; and the state has good reason to suffer this
discrimination, because a wise government can always make more social
capital out of a coöperative industrial organization than it can out of
an extremely competitive one.
It is extremely improbable that, even when officially recognized in this
way, the process of corporate combination would go beyond a certain
point. It might result in a condition similar to that which now prevails
in the steel industry or that of sugar refining; but it should be added
that in industries organized to that extent there is not very much
competition in prices. Prices are usually regulated by agreement among
the leading producers; and competition among the several producers turns
upon quickness of delivery and the quality of the service or product.
Whether or not this restriction of competition works badly depends
usually upon the enlightened shrewdness with which the schedule of rates
and prices is fixed. A corporation management which was thoroughly alive
to its own interest would endeavor to arrange a scale of prices, which,
while affording a sufficient profit, would encourage the increased use
of the product, and that is precisely the policy which has been adopted
by the best managed American railroad and industrial corporations. But
it must always be kept in mind that, in the absence of a certain amount
of competition, such a policy cannot be taken wholly for granted. A
short-sighted management may prefer to reap large profits for a short
time and at the expense of the increased use of its product or service.
Moreover, the margin between the cost of production and the particular
price at which the product or service can be sold consistent with its
largely increasing use may enable the producer to gather enormous
profits; and such profits may not stimulate competition to any
effective extent, precisely because they depend upon advantages in
production which cannot be duplicated. No state desirous of promoting
the economic welfare of its citizens can remain indifferent to the
chance thus afforded of earnings disproportionately large to the
economic service actually rendered.
In dealing with this question of possibly excessive profits under such a
method of economic organization, the state has many resources at its
disposal besides the most obvious one of incessant official interference
with the essentials of corporation management. Of these the most useful
consists unquestionably in its power of taxation. It can constitute a
system of taxation, in respect to the semi-monopolistic corporations,
which would deprive them of the fruits of an excessively large margin
between the cost of production and the price at which the product or
service could be increasingly sold. Net profits could be taxed at a rate
which was graduated to the percentage paid; and beyond a certain point
the tax should amount to much the larger fraction of the profits. In
this way a semi-monopolistic corporation would not have any interest in
seeking profits beyond a certain percentage. A condition would be
established which, while it would not deprive the managers of a
corporation of full responsibility for the conduct of its business,
would give them an additional inducement always to work for the
permanent improvement of the economic relation of the corporation to the
community. They would have no interest in preferring large but insecure
net earnings to smaller ones, founded on a thoroughly satisfactory
service, a low schedule of prices, and the constantly increasing
efficiency of the plant and organization of the company.
The objection will, no doubt, be immediately urged that a system of this
kind would prevent any improvement of service from going beyond a
certain point, just because it would cease to be profitable beyond a
certain point. But such an objection would not be valid, provided the
scale of taxation were properly graduated. I shall not attempt to define
any precise scale which would serve the purpose because the possible
adoption of such a plan is still too remote; but the state should, in
return for the protection it extends to these semi-monopolistic
corporations, take a certain percentage of all profits, and, while this
percentage should increase until it might at a certain level reach as
much as one half or three quarters, it should not become larger than
three quarters--except in the case of a corporation earning, say, more
than 20 per cent on its capital. To be sure the establishment even of
such a level would conceivably destroy the interested motive for
increased efficiency at a certain point, but such a point could hardly
be reached except in the case of companies whose monopoly was almost
complete.
The foregoing plan, however, is not suggested as a final and entirely
satisfactory method of incorporating semi-monopolistic business
organizations into the economic system of a nationalizing democracy. I
do not believe that any formula can be framed which will by the magic of
some chemical process convert a purely selfish economic motive into an
unqualified public economic benefit. But some such plan as that proposed
above may enable an industrial democracy to get over the period of
transition between the partial and the complete adaptation of these
companies to their place in a system of national economy. They can never
be completely incorporated so long as the interest of their owners is
different from that of the community as a whole, but in the meantime
they can be encouraged to grow and perhaps to become more efficient,
while at the same time they can be prevented from becoming a source of
undesirable or dangerous individual economic inequalities; and I do not
believe that such a transitional system of automatically regulated
recognition would be open to the same objections as would a system of
incessant official interference. In so far, indeed, as the constructive
industrial leader is actuated merely by the motive of amassing more
millions than can be of any possible use to himself or his children--in
so far as such is the case, the inducement to American industrial
organization on a national scale would be impaired. But if an economic
democracy can purchase efficient industrial organization on a huge scale
only at the price of this class of fortunes, then it must be content
with a lower order of efficiency, and American economic statesmanship
has every reason to reject such an alternative until there is no help
for it. The best type of American millionaire seems always to have had
as much interest in the work and in the game as in its prodigious
rewards; and much of his work has always been done for him by employees
who, while they were paid liberally, did not need the inducement of more
money than they could wholesomely spend in return, for service of the
highest efficiency.
In any event the plan of an automatically regulated recognition of
semi-monopolistic corporations would be intended only as a transitional
measure. Its object would be to give these somewhat novel industrial
agents a more prolonged and thorough test than any they have yet
received. If they survived for some generations and increased in
efficiency and strength, it could only be because the advantages they
enjoyed in the way of natural resources, abundant capital, organization,
terminals, and responsible management were decisive and permanent; and
in that case the responsibility of the state could not be limited to
their automatic regulation and partial assimilation. A policy must be
adopted of converting them into express economic agents of the whole
community, and of gradually appropriating for the benefit of the
community the substantial economic advantages which these corporations
had succeeded in acquiring. Just in so far, that is, as a monopoly or a
semi-monopoly succeeded in surviving and growing, it would partake of
the character of a natural monopoly, and would be in a position to
profit beyond its deserts from the growth of the community. In that
event a community which had any idea of making economic responsibility
commensurate with power would be obliged to adopt a policy of gradual
appropriation.
The public service corporations in the large cities have already reached
the stage of being recognized natural monopolies. In the case of these
corporations public opinion is pretty well agreed that a monopoly
controlling the whole service is more likely to be an efficient servant
of the city than a number of separate corporations, among whom
competition in order to be effective must be destructive and wasteful.
American municipal policy is consequently being adapted to the idea of
monopolized control of these public services. The best manner of dealing
with these monopolies, after they have been created and recognized, is
not settled by any means to the same extent; but the principle of
restricting the franchises under which they operate to a limited term of
years is well established, and the tendency is towards a constant
reduction of the length of such leases and towards the retention of a
right of purchase, exercisable at all or at certain stated times. The
American city has come to realize that such privileges possess a value
which increases automatically with the growth of the city and with the
guarantee against competition; and this source of value should never be
alienated except for a short period and on the most stringent terms.
Wherever, consequently, a city has retained any control over such
franchises, it is converting the public service corporations merely into
temporary tenants of what are essentially exclusive economic privileges.
During the period of its tenancy the management of a corporation has
full opportunity to display any ability and energy whereof it may be
possessed; and such peculiarly efficient management should be capable of
earning sufficient if not excessive rewards. In the meantime, any
increase in value which would result inevitably from the possession of a
monopoly in a growing community would accrue, as it should, to the
community itself.
The only alternative to such a general scheme of municipal policy in
relation to public service corporations would be one of municipal
operation as well as municipal ownership; and municipal operation
unquestionably has certain theoretical advantages. When a corporation
enjoys a tenancy for a stated term only, there is always a danger that
it will seek temporarily larger profits by economizing on the quality of
its service. It has not the same interest in building up a permanently
profitable business that it would in case it were owner as well as
operator. This divergence of interest may lead to a good deal of
friction; but for the present at least the mixed system of public
ownership and private operation offers the better chance of satisfactory
results. As long as the municipal civil service remains in its existing
disorganized and inefficient condition, the public administration should
not be granted any direct responsibility which can be withheld without
endangering an essential public interest. A system of public operation
would be preferable to one of divided personal responsibility between
public and private officials; but when a mixed system can be created
which sharply distinguishes the two responsibilities one from another
without in any way confusing them, it combines for the time being a
maximum of merit with a minimum of friction.
Such a system carries with it, however, two results, not always
appreciated. A municipality which embarks upon a policy of guaranteeing
monopolies and leasing the enjoyment thereof should make all permanent
improvements to the system at its own expense, and its financial
organization and methods must be adapted to the necessity of raising a
liberal supply of funds for such essential purposes. Its borrowing
capacity must not be arbitrarily restricted as in the case of so many
American cities at the present time; and, of course, any particular
lease must be arranged so as to provide not only the interest on the
money raised for all work of construction, but for the extinction of the
debt thereby incurred. Furthermore a city adopting such a policy should
push it to the limit. Wherever, as is so often the case, private
companies now enjoy a complete or a substantial monopoly of any service,
and do so by virtue of permanent franchises, every legal means should be
taken to nullify such an intolerable appropriation of the resources of
the community. Persistent and ruthless war should be declared upon these
unnatural monopolies, because as long as they exist they are an absolute
bar to any thoroughly democratic and constructive system of municipal
economy. Measures should be taken which under other circumstances would
be both unfair and unwise for the deliberate purpose of bringing them to
terms, and getting them to exchange their permanent possession of these
franchises for a limited tenancy. Permanent commissions should be placed
over them with the right and duty of interfering officiously in their
business. Taxation should be made to bear heavily upon them. Competitive
services should be established wherever this could be done without any
excessive loss. They should be annoyed and worried in every legal way;
and all those burdens should be imposed upon them with the explicit
understanding that they were measures of war. In adopting such a policy
a community would be fighting for an essential condition of future
economic integrity and well-being, and it need not be any more
scrupulous about the means employed (always "under the law") than would
an animal in his endeavor to kill some blood-sucking parasite. The
corporation should plainly be told that the fight would be abandoned
wherever it was ready to surrender its unlimited franchises for a
limited but exclusive monopoly, which in these cases should in all
fairness run for a longer term than would be ordinarily permissible.
I have lingered over the case of corporations enjoying municipal
franchises, because they offer the only existing illustration of a
specific economic situation--a situation in which a monopolized service
is based upon exclusive and permanent economic advantages. Precisely the
same situation does not exist in any other part of the economic area;
but the idea is that under a policy of properly regulated recognition
such a situation may come to exist in respect to those corporations
which should be subject to the jurisdiction of the central government;
and just in so far as it does come to exist, the policy of the central
government should resemble the one suggested for the municipal
governments and already occasionally adopted by them. That any
corporations properly subject to the jurisdiction of the Federal
government will attain to the condition of being a "natural" monopoly
may be disputed; but according to the present outlook, if such is not
the case, the only reason will be that the government by means of
official and officious interference "regulates" them into inefficiency,
and consequent inability to hold their own against smaller and less
"regulated" competitors. If these corporations are left in the enjoyment
of the natural advantages which wisely or unwisely they have been
allowed to appropriate, some of them at any rate will gradually attain
to the economic standing of "natural" monopolies.
The railroad system of the country is gradually approximating to such a
condition. The process of combination which has been characteristic of
American railroad development from the start has been checked recently
both by government action and by anti-railroad agitation; but if the
railroads were exempted from the provisions of the Anti-Trust Law and
were permitted, subject to official approval, either to make agreements
or to merge, according as they were competing or non-competing lines,
there can be no doubt that the whole country would be gradually divided
up among certain large and essentially non-competitive systems. A
measure of competition would always remain, even if one corporation
controlled the entire railway system, because the varying and
conflicting demands of different localities and businesses for changes
in rates would act as a competitive force; and in the probable system
of a division of territory, this competitive force would have still more
influence. But at the same time by far the larger part of the freight
and passenger traffic of the country would under such a system be shared
by arrangement among the several corporations. The ultimate share of
each of the big corporations would not be determined until the period of
building new through routes had passed. But this period is not likely to
endure for more than another generation. Thereafter additional railroad
construction will be almost exclusively a matter of branch extensions
and connections, or of duplicating tracks already in existence; and when
such a situation is reached, the gross traffic will be just as much
divided among the coöperative companies as if it were distributed among
different lines by a central management. Certain lines would be managed
more efficiently than others and might make more money, just as certain
departments of a big business might, because of peculiarly able
management, earn an unusually large contribution to the total profits;
but such variations could not be of any essential importance. From the
point of view of the community as a whole the railroad system of the
country would be a monopoly.
The monopoly, like that of a municipal street railroad, would depend
upon the possession of exclusive advantages. It would depend upon the
ownership of terminals in large and small cities which could no longer
be duplicated save at an excessive expense. It would depend upon the
possession of a right of way in relation to which the business
arrangements of a particular territory had been adjusted. It would have
become essentially a special franchise, even if it had not been granted
as a special franchise by any competent legal authority; and, like every
similar franchise, it would increase automatically in value with the
growth of the community in population and business. This automatic
increase in value, like that of a municipal franchise, should be secured
to the community which creates it; and it can be secured only by some
such means as those suggested in the case of municipal franchises. The
Federal government must, that is, take possession of that share of
railroad property represented by the terminals, the permanent right of
way, the tracks, and the stations. It is property of this kind which
enables the railroads to become a monopoly, and which, if left in
private hands, would absolutely prevent the gradual construction of a
national economic system.
In the existing condition of economic development and of public opinion,
the man who believes in the ultimate necessity of government ownership
of railroad road-beds and terminals must be content to wait and to
watch. The most that he can do for the present is to use any opening,
which the course of railroad development affords, for the assertion of
his ideas; and if he is right, he will gradually be able to work out, in
relation to the economic situation of the railroads, some practical
method of realizing the ultimate purpose. Even if public opinion
eventually decided that the appropriation of the railroads was necessary
in the national economic interest, the end could in all probability be
very slowly realized. In return, for instance, for the benefit of
government credit, granted under properly regulated conditions, the
railroads might submit to the operation of some gradual system of
appropriation, which would operate only in the course of several
generations, and the money for which would be obtained by the taxation
of railroad earnings. It might, however, be possible to arrange a scheme
of immediate purchase and the conversion of all railway securities,
except those representing equipment and working capital, into one
special class of government security. In that case the whole railroad
system of the country could be organized into a certain limited number
of special systems, which could be leased for a definite term of years
to private corporations. These independent systems would in their mutual
relations stimulate that economic rivalry among localities which is the
wholesome aspect of railroad competition. Each of these companies
should, of course, be free to fix such rates as were considered
necessary for the proper development and distribution of traffic within
its own district.
Any such specific suggestions cannot at the present time be other than
fanciful; and they are offered, not because of their immediate or
proximate practical value, but because of the indication they afford of
the purposes which must be kept in mind in drawing up a radical plan of
railroad reorganization in the ultimate national interest. All such
plans of reorganization should carefully respect existing railroad
property values, unless the management of those railroads obstinately
and uncompromisingly opposed all concessions necessary to the
realization of the national interest. In that event the nation would be
as much justified in fighting for its essential interests as would under
analogous circumstances a municipality. Furthermore, any such
reorganization should aim at keeping the benefits of the then existing
private organization--whatever they might be. It should remain true to
the principle that, so far as economic authority and power is delegated
in the form of terminable leases to private corporations, such power
should be complete within certain defined limits. If agents of the
national economic interest cannot be trusted to fulfill their
responsibilities without some system of detailed censure and supervision
they should be entirely dispensed with. It may be added that if the
proposed or any kindred method of reorganization becomes politically and
economically possible, the circumstances which account for its
possibility will in all probability carry with them some practicable
method of realizing the proposed object.
Wherever the conditions, obtaining in the case of railroad and public
service corporations, are duplicated in that of an industrial
corporation, a genuinely national economic system would demand the
adoption of similar measures. How far or how often these measures would
be necessarily applied to industrial corporations could be learned only
after a long period of experimentation, and during this period the
policy of recognition, tempered by regulation under definite conditions
and graduated taxation of net profits would have to be applied. But when
such a policy had been applied for a period sufficiently prolonged to
test their value as national economic agents, further action might
become desirable in their case as in that of the railroads. The
industrial, unlike the service corporations, cannot, however, be
considered as belonging to a class which must be all treated in the same
way. Conditions would vary radically in different industries; and the
case of each industry should be considered in relation to its special
conditions. Wherever the tendency in any particular industry continued
to run in the direction of combination, and wherever the increasingly
centralized control of that industry was associated with a practical
monopoly of some mineral, land, or water rights, the government might be
confronted by another instance of a natural monopoly, which it would be
impolitic and dangerous to leave in private hands. In all such cases
some system of public ownership and private operation should, if
possible, be introduced. On the other hand, in case the tendency to
combination was strengthened in an industry, such, for instance, as that
of the manufacture of tobacco, which does not depend upon the actual
ownership of any American natural resources, the manner of dealing with
it would be a matter of expediency, which would vary in different cases.
In the case of a luxury like tobacco, either a government monopoly might
be created, as has been already done so frequently abroad, or the state
might be satisfied with a sufficient share of the resulting profits. No
general rule can be laid down for such cases; and they will not come up
for serious consideration until the more fundamental question of the
railroads has been agitated to the point of compelling some kind of a
definite settlement.
This sketch of a constructive national policy in relation to
corporations need not be carried any further. Its purpose has been to
convert to the service of a national democratic economic system the
industrial organization which has gradually been built up in this
country; and to make this conversion, if possible, without impairing the
efficiency of the system, and without injuring individuals in any
unnecessary way. The attempt will be criticised, of course, as
absolutely destructive of American economic efficiency and as wickedly
unjust to individuals; and there will be, from the point of view of the
critics, some truth in the criticism. No such reorganization of our
industrial methods could be effected without a prolonged period of
agitation, which would undoubtedly injure the prosperity and unsettle
the standing of the victims of the agitation; and no matter what the
results of the agitation, there must be individual loss and suffering.
But there is a distinction to be made between industrial efficiency and
business prosperity. Americans have hitherto identified prosperity with
a furious economic activity, and an ever-increasing economic
product--regardless of genuine economy of production and any proper
distribution of the fruits. Unquestionably, the proposed reorganization
of American industrial methods would for a while make many individual
Americans less prosperous. But it does not follow that the efficiency of
the national economic organization need be compromised, because its
fruits are differently distributed and are temporarily less abundant.
It is impossible to judge at present how far that efficiency depends
upon the chance, which Americans have enjoyed, of appropriating far more
money than they have earned, and far more than they can spend except
either by squandering it or giving it away. But in any event the
dangerous lack of national economic balance involved by the existing
distribution of wealth must be redressed. This object is so essential
that its attainment is worth the inevitable attendant risks. In seeking
to bring it about, no clear-sighted democratic economist would expect to
"have it both ways." Even a very gradual displacement of the existing
method of distributing economic fruits will bring with it regrettable
wounds and losses. But provided they are incurred for the benefit of the
American people as an economic whole, they are worth the penalty. The
national economic interest demands, on the one hand, the combination of
abundant individual opportunity with efficient organization, and on the
other, a wholesome distribution, of the fruits; and these joint
essentials will be more certainly attained under some such system as the
one suggested than they are under the present system.
The genuine economic interest of the individual, like the genuine
political interest, demands a distribution of economic power and
responsibility, which will enable men of exceptional ability an
exceptional opportunity of exercising it. Industrial leaders, like
political leaders, should be content with the opportunity of doing
efficient work, and with a scale of reward which permits them to live a
complete human life. At present the opportunity of doing efficient
industrial work is in the case of the millionaires (not in that of their
equally or more efficient employees) accompanied by an excessive measure
of reward, which is, in the moral interest of the individual, either
meaningless or corrupting. The point at which these rewards cease to be
earned is a difficult one to define; but there certainly can be no
injustice in appropriating for the community those increases in value
which are due merely to a general increase in population and business;
and this increase in value should be taken over by the community, no
matter whether it is divided among one hundred or one hundred thousand
stockholders in a corporation. The essential purpose is to secure for
the whole community those elements in value which are made by the
community. The semi-monopolistic organization of certain American
industries is little by little enabling the government to separate from
the total economic product a part at least of that fraction which is
created by social rather than individual activity; and a democracy which
failed to take advantage of the opportunity would be blind to its
fundamental interest. To be sure, the opportunity cannot be turned to
the utmost public benefit until industrial leaders, like political
leaders, are willing to do efficient work partly from disinterested
motives; but that statement is merely a translation into economic terms
of the fundamental truth that democracy, as a political and social
ideal, is founded essentially upon disinterested human action. A
democracy can disregard or defy that truth at its peril.
IV
TAXATION AND INEQUALITIES IN WEALTH
Before dismissing this subject of a national industrial organization and
a better distribution of the fruits thereof brief references must be
made to certain other aspects of the matter. The measures which the
central and local governments could take for the purpose of adapting our
economic and social institutions to the national economic and social
interest would not be exhausted by the adoption of the proposed policy
of reconstruction; and several of these supplementary means, which have
been proposed to accomplish the same object, deserve consideration. Some
of these proposals look towards a further use of the power of taxation,
possessed by both the state and the Federal governments; but it must not
be supposed that in their entirety they constitute a complete system of
taxation. They are merely examples, like the protective tariff, of the
use of the power of taxation to combine a desirable national object with
the raising of money for the expenses of government.
It may be assumed that the adoption of the policy outlined in the last
section would gradually do away with certain undesirable inequalities in
the distribution of wealth: but this process, it is scarcely necessary
to add, would do nothing to mitigate existing inequalities. Existing
inequalities ought to be mitigated; and they can be mitigated without
doing the slightest injustice to their owners. The means to such
mitigation are, of course, to be found in a graduated inheritance tax--a
tax which has already been accepted in principle by several American
states and by the English government, which certainly cannot be
considered indifferent to the rights of individual property owners.
At the present stage of the argument, no very elaborate justification
can be necessary, either for the object proposed by a graduated
inheritance tax, or for the use of precisely these means to attain it.
The preservation intact of a fortune over a certain amount is not
desirable either in the public or individual interest. No doubt there
are certain people who have the gift of spending money well, and whose
personal value as well as the general social interest is heightened by
the opportunity of being liberal. But to whatever extent such
considerations afford a moral justification for private property, they
have no relevancy to the case of existing American fortunes. The
multi-millionaire cannot possibly spend his income save by a recourse to
wild and demoralizing extravagance, and in some instances not even
extravagance is sufficient for the purpose. Fortunes of a certain size
either remorselessly accumulate or else are given away. There is a
general disposition to justify the possession of many millions by the
frequent instances among their owners of intelligent public benefaction,
but such an argument is a confession that a justification is needed
without constituting in itself a sufficient excuse. If wealth,
particularly when accumulated in large amounts, has a public function,
and if its possession imposes a public duty, a society is foolish to
leave such a duty to the accidental good intentions of individuals. It
should be assumed and should be efficiently performed by the state; and
the necessity of that assumption is all the plainer when it is
remembered that the greatest public gifts usually come from the first
generation of millionaires. Men who inherit great wealth and are brought
up in extravagant habits nearly always spend their money on themselves.
That is one reason why the rich Englishman is so much less generous in
his public gifts than the rich American. In the long run men inevitably
become the victims of their wealth. They adapt their lives and habits to
their money, not their money to their lives. It pre-occupies their
thoughts, creates artificial needs, and draws a curtain between them and
the world. If the American people believe that large wealth really
requires to be justified by proportionately large public benefactions,
they should assuredly adopt measures which will guarantee public service
for a larger proportion of such wealth.
Whether or not the state shall permit the inheritance of large fortunes
is a question which stands on a totally different footing from the
question of their permissible accumulation. Many millions may, at least
in part, be earned by the men who accumulate them; but they cannot in
the least be earned by the people who inherit them. They could not be
inherited at all save by the intervention of the state; and the state
has every right to impose conditions in its own interest upon the whole
business of inheritance. The public interests involved go very much
beyond the matter of mitigating flagrant inequalities of wealth. They
concern at bottom the effect of the present system of inheritance upon
the inheritors and upon society; and in so far as the system brings with
it the creation of a class of economic parasites, it can scarcely be
defended. But such is precisely its general tendency. The improbability
that the children will inherit with the wealth of the parent his
possibly able and responsible use of it is usually apparent to the
father himself; and not infrequently he ties up his millions in trust,
so that they are sure to have the worst possible moral effect upon his
heirs. Children so circumstanced are deprived of any economic
responsibility save that of spending an excessive income; and, of
course, they are bound to become more or less respectable parasites. The
manifest dissociation thereby implied between the enjoyment of wealth
and the personal responsibility attending its ownership, has resulted in
the proposal that fathers should be forbidden by the state to arrange so
carefully for the demoralization of their children and grandchildren.
Even if we are not prepared to acquiesce in so radical an impairment of
the rights of testators, there can be no doubt that, under a properly
framed system of inheritance taxation, all property placed in trust for
the benefit of male heirs above a certain amount should be subject to an
exceptionally severe deduction. Whatever justification such methods of
guaranteeing personal financial irresponsibility may have in
aristocratic countries, in which an upper class may need a peculiar
economic freedom, they are hostile both to the individual and public
interest of a democratic community.
Public opinion is not, however, even remotely prepared for any radical
treatment of the whole matter of inheritance; and it will not be
prepared, until it has learned from experience that the existing freedom
enjoyed by rich testators means the sacrifice of the quick to the
dead--the mutilation of living individuals in the name of individual
freedom and in order that a dead will may have its way. Until this
lesson is learned the most that can be done is to work for some kind of
a graduated inheritance tax, the severity of which should be dictated
chiefly by conditions of practical efficiency. Considerations of
practical efficiency make it necessary that the tax should be imposed
exclusively by the Federal government. State inheritance taxes,
sufficiently large to accomplish the desirable result, will be evaded by
change of residence to another state. A Federal tax could be raised to a
much higher level without prompting the two possible methods of
evasion--one of which would be the legal transfer of the property during
lifetime, and the other a complete change of residence to some foreign
country. This second method of evasion would not constitute a serious
danger, because of the equally severe inheritance laws of foreign
countries. The tax at its highest level could be placed without danger
of evasion at as much as twenty per cent. The United Kingdom now raises
almost $100,000,000 of revenue from the source; and a slightly increased
scale of taxation might yield double that amount to the American
Treasury, a part of which could be turned into the state Treasuries.
There has been associated with the graduated inheritance tax the plan of
a graduated income tax; but the graduated income tax would serve the
proposed object both less efficiently and less equitably. It taxes the
man who earns the money as well as him who inherits it. It taxes earned
income as well as income derived from investments; and in taxing the
income derived from investments, it cannot make any edifying
discrimination as to its source. Finally, it would interfere with a much
more serviceable plan of taxing the net profits of corporations subject
to the jurisdiction of the Federal government--a plan which is an
indispensable part of any constructive treatment of the corporation
problem in the near future.
The suggestion that the inheritance tax should constitute a pillar of
central rather than local taxation implicitly raises a whole series of
difficult Constitutional and fiscal questions concerning the relation
between central and local taxation. The discussion of these questions
would carry me very much further than my present limits permit; and
there is room in this connection for only one additional remark. The
real estate tax and saloon licenses should, I believe, constitute the
foundation of the state revenues; but inasmuch as certain states have
derived a considerable part of their income from corporation and
inheritance taxes, allowance would have to be made for this fact in
revising the methods of Federal taxation. It is essential to any
effective control over corporations and over the "money power" that
corporation and inheritance taxes should be uniform throughout the
country, and should be laid by the central government; but no equally
good reason can be urged on behalf of the exclusive appropriation by the
Federal Treasury of the proceeds of these taxes. If the states need
revenues derived from these sources, a certain proportion of the net
receipts could be distributed among the states. The proportion should be
the same in the case of all the states; but it should be estimated in
the case of any particular state upon the net yield which the Federal
Treasury had derived from its residents.
V
THE ORGANIZATION OF LABOR
Only one essential phase of a constructive national policy remains to be
considered--and that is the organization of labor. The necessity for the
formulation of some constructive policy in respect to labor is as patent
as is that for the formulation of a similar policy in respect to
corporate wealth. Any progress in the solution of the problem of the
better distribution of wealth will, of course, have a profound indirect
effect on the amelioration of the condition of labor; but such progress
will be at best extremely slow, and in the meantime the labor problem
presses for some immediate and direct action. As we have seen, American
labor has not been content with the traditional politico-economic
optimism. Like all aggressive men alive to their own interest, the
laborer soon decided that what he really needed was not equal rights,
but special opportunities. He also soon learned that in order to get
these special opportunities he must conquer them by main force--which he
proceeded to do with, on the whole, about as much respect for the law as
was exhibited by the big capitalists. In spite of many setbacks the
unionizing of industrial labor has been attended with almost as much
success as the consolidating of industrial power and wealth; and now
that the labor unions have earned the allegiance of their members by
certain considerable and indispensable services, they find themselves
placed, in the eyes of the law, in precisely the same situation as
combinations of corporate wealth. Both of these attempts at industrial
organization are condemned by the Sherman Anti-Trust Law and by certain
similar state legislation as conspiracies against the freedom of trade
and industry.
The labor unions, consequently, like the big corporations, need legal
recognition; and this legal recognition means in their case, also,
substantial discrimination by the state in their favor. Of course, the
unionist leaders appeal to public opinion with the usual American cant.
According to their manifestoes they demand nothing but "fair play"; but
the demand for fair play is as usual merely the hypocritical exterior of
a demand for substantial favoritism. Just as there can be no effective
competition between the huge corporation controlling machinery of
production which cannot be duplicated and the small manufacturer in the
same line, so there can be no effective competition between the
individual laborer and the really efficient labor union. To recognize
the labor union, and to incorporate it into the American legal system,
is equivalent to the desertion by the state of the non-union laborer. It
means that in the American political and economic system the
organization of labor into unions should be preferred to its
disorganized separation into competing individuals. Complete freedom of
competition among laborers, which is often supposed to be for the
interest of the individual laborer, can only be preserved as an
effective public policy by active discrimination against the unions.
An admission that the recognition of labor unions amounts to a
substantial discrimination in their favor would do much to clear up the
whole labor question. So far as we declare that the labor unions ought
to be recognized, we declare that they ought to be favored; and so far
as we declare that the labor union ought to be favored, we have made a
great advance towards the organization of labor in the national
interest. The labor unions deserve to be favored, because they are the
most effective machinery which has as yet been forged for the economic
and social amelioration of the laboring class. They have helped to raise
the standard of living, to mitigate the rigors of competition among
individual laborers, and in this way to secure for labor a larger share
of the total industrial product. A democratic government has little or
less reason to interfere on behalf of the non-union laborer than it has
to interfere in favor of the small producer. As a type the non-union
laborer is a species of industrial derelict. He is the laborer who has
gone astray and who either from apathy, unintelligence, incompetence, or
some immediately pressing need prefers his own individual interest to
the joint interests of himself and his fellow-laborers. From the point
of view of a constructive national policy he does not deserve any
special protection. In fact, I am willing to go farther and assert that
the non-union industrial laborer should, in the interest of a genuinely
democratic organization of labor, be rejected; and he should be rejected
as emphatically, if not as ruthlessly, as the gardener rejects the weeds
in his garden for the benefit of fruit-and flower-bearing plants.
The statement just made unquestionably has the appearance of proposing a
harsh and unjust policy in respect to non-union laborers; but before the
policy is stigmatized as really harsh or unjust, the reader should wait
until he has pursued the argument to its end. Our attitude towards the
non-union laborer must be determined by our opinion of the results of
his economic action. In the majority of discussions of the labor
question the non-union laborer is figured as the independent working man
who is asserting his right to labor when and how he prefers against the
tyranny of the labor union. One of the most intelligent political and
social thinkers in our country has gone so far as to describe them as
industrial heroes, who are fighting the battle of individual
independence against the army of class oppression. Neither is this
estimate of the non-union laborer wholly without foundation. The
organization and policy of the contemporary labor union being what they
are, cases will occasionally and even frequently occur in which the
non-union laborer will represent the protest of an individual against
injurious restrictions imposed by the union upon his opportunities and
his work. But such cases are rare compared to the much larger number of
instances in which the non-union laborer is to be considered as
essentially the individual industrial derelict. In the competition among
laboring men for work there will always be a certain considerable
proportion who, in order to get some kind of work for a while, will
accept almost any conditions of labor or scale of reward offered to
them. Men of this kind, either because of irresponsibility,
unintelligence, or a total lack of social standards and training, are
continually converting the competition of the labor market into a force
which degrades the standard of living and prevents masses of their
fellow-workmen from obtaining any real industrial independence. They it
is who bring about the result that the most disagreeable and dangerous
classes of labor remain the poorest paid; and as long as they are
permitted to have their full effects upon the labor situation, progress
to a higher standard of living is miserably slow and always suffers a
severe setback during a period of hard times. From any comprehensive
point of view union and not non-union labor represents the independence
of the laborer, because under existing conditions such independence must
be bought by association. Worthy individuals will sometimes be
sacrificed by this process of association; but every process of
industrial organization or change, even one in a constructive direction,
necessarily involves individual cases of injustice.
Hence it is that the policy of so-called impartiality is both
impracticable and inexpedient. The politician who solemnly declares that
he believes in the right of the laboring man to organize, and that labor
unions are deserving of approval, but that he also believes in the right
of the individual laborer to eschew unionism whenever it suits his
individual purpose or lack of purpose,--such familiar declarations
constitute merely one more illustration of our traditional habit of
"having it both ways." It is always possible to have it both ways, in
case the two ways do not come into conflict; but where they do conflict
in fact and in theory, the sensible man must make his choice. The labor
question will never be advanced towards solution by proclaiming it to be
a matter of antagonistic individual rights. It involves a fundamental
public interest--the interest which a democracy must necessarily take in
the economic welfare of its own citizens; and this interest demands that
a decisive preference be shown for labor organization. The labor unions
are perfectly right in believing that all who are not for them are
against them, and that a state which was really "impartial" would be
adopting a hypocritical method of retarding the laborer from improving
his condition. The unions deserve frank and loyal support; and until
they obtain it, they will remain, as they are at present, merely a class
organization for the purpose of extorting from the political and
economic authorities the maximum of their special interests.
The labor unions should be granted their justifiable demand for
recognition, partly because only by means of recognition can an
effective fight be made against their unjustifiable demands. The large
American employer of labor, and the whole official politico-economic
system, is placed upon the defensive by a refusal frankly to prefer
unionism. Union labor is allowed to conquer at the sword's point a
preferential treatment which should never have been refused; and the
consequence is that its victory, so far as it is victorious, is that of
an industrial faction. The large employer and the state are disqualified
from insisting on their essential and justifiable interests in respect
to the organization of labor, because they have rejected a demand
essential to the interest of the laborer. They have remained
consistently on the defensive; and a merely defensive policy in warfare
is a losing policy. Every battle the unions win is a clear gain. Every
fight which they lose means merely a temporary suspension of their
aggressive tactics. They lose nothing by it but a part of their
equipment and prestige, which can be restored by a short period of
inaction and accumulation. A few generations more of this sort of
warfare will leave the unions in substantial possession of the whole
area of conflict; and their victory may well turn their heads so
completely that its effects will be intolerable and disastrous.
The alternative policy would consist in a combination of conciliation
and aggressive warfare. The spokesman of a constructive national policy
in respect to the organization of labor would address the unions in some
such words as these: "Yes! You are perfectly right in demanding
recognition, and in demanding that none but union labor be employed in
industrial work. That demand will be granted, but only on definite
terms. You should not expect an employer to recognize a union which
establishes conditions and rules of labor inimical to a desirable
measure of individual economic distinction and independence. Your
recognition, that is, must depend upon conformity to another set of
conditions, imposed in the interest of efficiency and individual
economic independence. In this respect you will be treated precisely as
large corporations are treated. The state will recognize the kind of
union which in contributing to the interest of its members contributes
also to the general economic interest. On the other hand, it will not
only refuse to recognize a union whose rules and methods are inimical to
the public economic interest, but it will aggressively and relentlessly
fight such unions. Employment will be denied to laborers who belong to
unions of that character. In trades where such unions are dominant,
counter-unions will be organized, and the members of these
counter-unions alone will have any chance of obtaining work. In this way
the organization of labor like the organization of capital may gradually
be fitted into a nationalized economic system."
The conditions to which a "good" labor union ought to conform are more
easily definable than the conditions to which a "good" trust ought to
conform. In the first place the union should have the right to demand a
minimum wage and a minimum working day. This minimum would vary, of
course, in different trades, in different branches of the same trade,
and in different parts of the country; and it might vary, also, at
different industrial seasons. It would be reached by collective
bargaining between the organizations of the employer and those of the
employee. The unions would be expected to make the best terms that they
could; and under the circumstances they ought to be able to make terms
as good as trade conditions would allow. These agreements would be
absolute within the limits contained in the bond. The employer should
not have to keep on his pay-roll any man who in his opinion was not
worth the money; but if any man was employed, he could not be obliged to
work for less than for a certain sum. On the other hand, in return for
such a privileged position the unions would have to abandon a number of
rules upon which they now insist. Collective bargaining should establish
the minimum amount of work and pay; but the maximum of work and pay
should be left to individual arrangement. An employer should be able to
give a peculiarly able or energetic laborer as much more than the
minimum wage as in his opinion the man was worth; and men might be
permitted to work over-time, provided they were paid for the over-time
one and one half or two times as much as they were paid for an ordinary
working hour. The agreement between the employers and the union should
also provide for the terms upon which men would be admitted into the
union. The employer, if he employed only union men, should have a right
to demand that the supply of labor should not be artificially
restricted, and that he could depend upon procuring as much labor as the
growth of his business might require. Finally in all skilled trades
there should obviously be some connection between the unions and the
trade schools; and it might be in this respect that the union would
enter into closest relations with the state. The state would have a
manifest interest in making the instruction in these schools of the very
best, and in furnishing it free to as many apprentices as the trade
agreement permitted.
In all probability the general policy roughly sketched above will please
one side to the labor controversy as little as it does another. Union
leaders might compare the recognition received by the unions under the
proposed conditions to the recognition which the bear accords to the man
whom he hugs to death. They would probably prefer for the time being
their existing situation--that of being on the high road to the conquest
of almost unconditional submission. On the other hand, the large
employers believe with such fine heroism of conviction in the principle
of competition among their employees that they dislike to surrender the
advantages of industrial freedom to the oppressive exigencies of
collective bargaining. In assuming such an attitude both sides would be
right from their own class points of view. The plan is not intended to
further the selfish interest of either the employer or the union.
Whatever merits it has consist in its possible ability to promote the
national economic interest in a progressively improving general standard
of living, in a higher standard of individual work, and in a general
efficiency of labor. The existing system has succeeded hitherto in
effecting a progressive improvement in the standard of living, but the
less said the better about its effects upon labor-quality and
labor-efficiency. In the long run it looks as if the improvement in the
standard of living would be brought to an end by the accompanying
inefficiency of labor. At any rate the employers are now fighting for an
illusory benefit; and because they are fighting for an illusory benefit
they are enabling the unions to associate all sorts of dangerous
conditions with their probable victory. The proposed plan does not do
away with the necessity of a fight. The relations between labor and
capital are such that only by fighting can they reach a better
understanding. But it asks the employers to consider carefully what they
are fighting for, and whether they will not lose far more from a defeat
than they will gain from a successful defense. And it asks the unions to
consider whether a victory, gained at the expense of labor-efficiency,
will not deprive them of its fruits. Let the unions fight for something
they can keep; and let the employers fight for something they will not
be sure to lose.
The writer is fully aware of the many difficulties attending the
practical application of any such policy. Indeed it could not be worked
at all, unless the spirit and methods of collective bargaining between
the employers and the labor organizations were very much improved. The
consequences of a strike would be extremely serious for both of the
disputants and for the consumers. If disagreements terminating in
strikes and lock-outs remained as numerous as they are at present, there
would result both for the producer and consumer a condition of perilous
and perhaps intolerable uncertitude. But this objection, although
serious, is not unanswerable. The surest way in which a condition of
possible warfare, founded on a genuine conflict of interest, can be
permanently alleviated is to make its consequences increasingly
dangerous. When the risks become very dangerous, reasonable men do not
fight except on grave provocation or for some essential purpose. Such
would be the result in any industry, both the employers and laborers of
which were completely organized. Collective bargaining would, under such
circumstances, assume a serious character; and no open fight would ensue
except under exceptional conditions and in the event of grave and
essential differences of opinion. Moreover, the state could make them
still less likely to happen by a policy of discreet supervision. Through
the passage of a law similar to the one recently enacted in the Dominion
of Canada, it could assure the employers and the public that no strike
would take place until every effort had been made to reach a fair
understanding or a compromise; and in case a strike did result, public
opinion could form a just estimate of the merits of the controversy. In
an atmosphere of discussion and publicity really prudent employers and
labor organizations would fight very rarely, if at all; and this result
would be the more certain, provided a consensus of public opinion
existed as the extent to which the clashing interests of the two
combatants could be fitted into the public interest. It should be
clearly understood that the public interest demanded, on the one hand, a
standard of living for the laborer as high as the industrial conditions
would permit, and on the other a standard of labor-efficiency equivalent
to the cost of labor and an opportunity for the exceptional individual
laborer to improve on that standard in his own interest. The whole
purpose of such an organization would be the attempt to develop
efficient labor and prosperous laboring men, whereas the tendency of the
existing organization is to associate the prosperity of the laboring man
with the inefficiency of labor. The employers are usually fighting not
for the purpose of developing good labor, but for the purpose of taking
advantage of poor, weak, and dependent laborers.
How far the central, state, and municipal governments could go in aiding
such a method of organization, is a question that can only be
indefinitely answered. The legislatures of many American states and
municipalities have already shown a disposition to aid the labor unions
in certain indirect ways. They seek by the passage of eight-hour and
prevailing rate-of-wages laws to give an official sanction to the claims
of the unions, and they do so without making any attempt to promote the
parallel public interest in an increasing efficiency of labor. But these
eight-hour and other similar laws are frequently being declared
unconstitutional by the state courts, and for the supposed benefit of
individual liberty. Without venturing on the disputed ground as to
whether such decisions are legitimate or illegitimate interpretations of
constitutional provisions, it need only be said in this, as in other
instances, that the courts are as much influenced in such decisions by a
political theory as they are by any fidelity to the fundamental law, and
that if they continue indefinitely in the same course, they are likely
to get into trouble. I shall, however, as usual, merely evade
constitutional obstacles, the full seriousness of which none but an
expert lawyer is competent to appraise. Both the state and the municipal
governments ought, just in so far as they have the power, to give
preference to union labor, but wherever possible they should also not
hesitate to discriminate between "good" and "bad" unions. Such a
discrimination would be beyond the courage of existing governments, but
a mild hope may be entertained that it would not be beyond the courage
of the regenerated governments. The adoption of some such attitude by
the municipal and state authorities might encourage employers to make
the fight along the same lines; and wherever an employer did make the
fight along those lines, he should, in his turn, receive all possible
support. In the long run the state could hardly impose by law such a
method of labor organization upon the industrial fabric. Unless the
employers themselves came to realize just what they could fight for with
some chance of success, and with the best general results if successful,
the state could not force him into a better understanding of the
relation between their own and the public interest. But in so far as any
tendency existed among employers to recognize the unions, but to insist
on efficiency and individual opportunity; and in so far as any tendency
existed among the unions to recognize the necessary relation between an
improving standard of living and the efficiency of labor--then the state
and municipal governments could interfere effectively on behalf of those
employers and those unions who stand for a constructive labor policy.
And in case the tendency towards an organization of labor in the
national interest became dominant, it might be possible to embody it in
a set of definite legal institutions. But any such set of legal
institutions would be impossible without an alteration in the Federal
and many state constitutions; and consequently they could not in any
event become a matter for precisely pressing consideration. In general,
however, the labor, even more than the corporation, problem will involve
grave and dubious questions of constitutional interpretation; and not
much advance can be made towards its solution until, in one way or
another, the hands of the legislative authority have been untied.
Before ending this very inadequate discussion of the line of advance
towards a constructive organization of labor, one more aspect thereof
must be briefly considered. Under the proposed plan the fate of the
non-union laborer, of the industrial dependent, would hang chiefly on
the extent to which the thorough-going organization of labor was
carried. In so far as he was the independent industrial individual which
the opponents of labor unions suppose him to be, he could have no
objection to joining the union, because his individual power of
efficient labor would have full opportunity of securing its reward. On
the other hand, in so far as he was unable to maintain a standard of
work commensurate with the prevailing rate of wages in any trade, he
would, of course, be excluded from its ranks. But it should be added
that in an enormous and complicated industrial body, such as that of the
United States, a man who could not maintain the standard of work in one
trade should be able to maintain it in another and less exacting trade.
The man who could not become an efficient carpenter might do for a
hod-carrier; and a man who found hod-carrying too hard on his shoulders
might be able to dig in the ground. There would be a sufficient variety
of work for all kinds of industrial workers; while at the same time
there would be a systematic attempt to prevent the poorer and less
competent laborers from competing with those of a higher grade and
hindering the latter's economic amelioration. Such a result would be
successful only in so far as the unions were in full possession of the
field; but if the unions secure full possession even of part of the
field, the tendency will be towards an ever completer monopoly. The
fewer trades into which the non-union laborers were crowded would drift
into an intolerable condition, which would make unionizing almost
compulsory.
If all, or almost all, the industrial labor of the country came to be
organized in the manner proposed, the only important kind of non-union
laborer left in the country would be agricultural; and such a result
could be regarded with equanimity by an economic statesman. The existing
system works very badly in respect to supplying the farmer with
necessary labor. In every period of prosperity the tendency is for
agricultural laborers to rush off to the towns and cities for the sake
of the larger wages and the less monotonous life; and when a period of
depression follows, their competition lowers the standard of living in
all organized trades. If the supply of labor were regulated, and its
efficiency increased as it would be under the proposed system,
agricultural laborers would not have the opportunity of finding
industrial work, except of the most inferior class, until their
competence had been proved; and it would become less fluid and unstable
than it is at present. Moreover, farm labor is, on the whole, much more
wholesome for economically dependent and mechanically untrained men than
labor in towns or cities. They are more likely under such conditions to
maintain a higher moral standard. If they can be kept upon the farm
until or unless they are prepared for a higher class of work, it will be
the greatest possible boon to American farming. Agriculture suffers in
this country peculiarly from the scarcity, the instability, and the high
cost of labor; and unless it becomes more abundant, less fluid, and more
efficient compared to its cost, intensive farming, as practiced in
Europe, will scarcely be possible in the United States. Neither should
it be forgotten that the least intelligent and trained grade of labor
would be more prosperous on the farms than in the cities, because of the
lower cost of living in an agricultural region. Their scale of wages
would be determined in general by that of the lowest grade of industrial
labor, but their expenses would be materially smaller.
That the organization of labor herewith suggested would prove to be any
ultimate solution of the labor problem, is wholly improbable. It would
constitute, like the proposed system, of corporate regulation, at best a
transitional method of reaching some very different method of
labor-training, distribution, and compensation; and what that method
might be, is at present merely a matter of speculation. The proposed
reorganization of labor, like the proposed system of institutional
reform, and like the proposed constructive regulation of large
industrial corporations, simply takes advantage of those tendencies in
our current methods which look in a formative direction; and in so far
as these several tendencies prevail, they will severally supplement and
strengthen one another. The more independent, responsible, and vigorous
political authority will be the readier to seek some formative solution
of the problem of the distribution of wealth and that of the
organization of labor. Just in so far as the combination of capital
continues to be economically necessary, it is bound to be accompanied by
the completer unionizing of labor. Just in so far as capital continues
to combine, the state is bound to appropriate the fruits of its monopoly
for public purposes. Just in so far as the corporations become the
lessees of special franchises from the state, pressure can be brought to
bear in favor of the more systematic and more stimulating organization
of labor; and finally, just in so far as labor was systematically
organized, public opinion would demand a vigorous and responsible
concentration of political and economic power, in order to maintain a
proper balance. An organic unity binds the three aspects of the system
together; and in so far as a constructive tendency becomes powerful in
any one region, it will tend by its own force to introduce constructive
methods of organization into the other divisions of the economic,
political, and social body.
Such are the outlines of a national policy which seeks to do away with
existing political and economic abuses, not by "purification" or
purging, but by substituting for them a more positive mode of action and
a more edifying habit of thought. The policy seeks to make headway
towards the most far-reaching and thorough-going democratic ideals by
the taking advantage of real conditions and using realistic methods. The
result may wear to advanced social reformers the appearance of a weak
compromise. The extreme socialist democrat will find a discrepancy
between the magnificent end and the paltry means. "Why seek to justify,"
he will ask, "a series of proposals for economic and institutional
reform most of which have already been tried in Europe for purely
practical reasons, why seek to justify such a humble scheme of
reconstruction by such a remote and lofty purpose?" It might remind him
of a New Yorker who started for the North Pole, but proposed to get
there by the Subway. The justification for the association of such a
realistic practical programme with an end which is nothing short of
moral and social improvement of mankind, is to be found, however, by the
manner in which even the foregoing proposals will be regarded by the
average American democrat. He will regard them as in meaning and effect
subversive of the established political and economic system of the
country; and he would be right. The American people could never adopt
the accompanying programme, moderate as it is from the point of view of
its ultimate object, without unsettling some of their most settled
habits and transforming many of their most cherished ideas. It would
mean for the American people the gradual assumption of a new
responsibility, the adoption of a new outlook, the beginning of a new
life. It would, consequently, be radical and revolutionary in
implication, even though it were modest in its expectation of immediate
achievement; and the fact that it is revolutionary in implication, but
moderate in its practical proposals, is precisely the justification for
my description of it as a constructive national programme. It is
national just because it seeks to realize the purpose of American
national association without undermining or overthrowing the living
conditions of American national integrity.