CHAPTER XXII.

ECONOMIC SUICIDE OF THE PROFIT SYSTEM.

The morning following, Edith received a call to report at her post of

duty for some special occasion. After she had gone, I sought out the

doctor in the library and began to ply him with questions, of which, as

usual, a store had accumulated in my mind overnight.

"If you desire to continue your historical studies this morning," he said

presently, "I am going to propose a change of teachers."

"I am very well satisfied with the one whom Providence assigned to me," I

answered, "but it is quite natural you should want a little relief from

such persistent cross-questioning."

"It is not that at all," replied the doctor. "I am sure no one could

conceivably have a more inspiring task than mine has been, nor have I any

idea of giving it up as yet. But it occurred to me that a little change

in the method and medium of instruction this morning might be agreeable."

"Who is to be the new teacher?" I asked.

"There are to be a number of them, and they are not teachers at all, but

pupils."

"Come, doctor," I protested, "don't you think a man in my position has

enough riddles to guess, without making them up for him?"

"It sounds like a riddle, doesn't it? But it is not. However, I will

hasten to explain. As one of those citizens to whom for supposed public

services the people have voted the blue ribbon, I have various honorary

functions as to public matters, and especially educational affairs. This

morning I have notice of an examination at ten o'clock of the ninth grade

in the Arlington School. They have been studying the history of the

period before the great Revolution, and are going to give their general

impressions of it. I thought that perhaps, by way of a change, you might

be interested in listening to them, especially in view of the special

topic they are going to discuss."

I assured the doctor that no programme could promise more entertainment.

"What is the topic they discuss?" I inquired.

"The profit system as a method of economic suicide is their theme,"

replied the doctor. "In our talks hitherto we have chiefly touched on the

moral wrongfulness of the old economic order. In the discussion we shall

listen to this morning there will be no reference unless incidentally to

moral considerations. The young people will endeavor to show us that

there were certain inherent and fatal defects in private capitalism as a

machine for producing wealth which, quite apart from its ethical

character, made its abolition necessary if the race was ever to get out

of the mire of poverty."

"That is a very different doctrine from the preaching I used to hear," I

said. "The clergy and moralists in general assured us that there were no

social evils for which moral and religious medicine was not adequate.

Poverty, they said, was in the end the result of human depravity, and

would disappear if everybody would only be good."

"So we read," said the doctor. "How far the clergy and the moralists

preached this doctrine with a professional motive as calculated to

enhance the importance of their services as moral instructors, how far

they merely echoed it as an excuse for mental indolence, and how far they

may really have been sincere, we can not judge at this distance, but

certainly more injurious nonsense was never taught. The industrial and

commercial system by which the labor of a great population is organized

and directed constitutes a complex machine. If the machine is constructed

unscientifically, it will result in loss and disaster, without the

slightest regard to whether the managers are the rarest of saints or the

worst of sinners. The world always has had and will have need of all the

virtue and true religion that men can be induced to practice; but to tell

farmers that personal religion will take the place of a scientific

agriculture, or the master of an unseaworthy ship that the practice of

good morals will bring his craft to shore, would be no greater

childishness than the priests and moralists of your day committed in

assuring a world beggared by a crazy economic system that the secret of

plenty was good works and personal piety. History gives a bitter chapter

to these blind guides, who, during the revolutionary period, did far more

harm than those who openly defended the old order, because, while the

brutal frankness of the latter repelled good men, the former misled them

and long diverted from the guilty system the indignation which otherwise

would have sooner destroyed it.

"And just here let me say, Julian, as a most important point for you to

remember in the history of the great Revolution, that it was not until

the people had outgrown this childish teaching and saw the causes of the

world's want and misery, not primarily in human depravity, but in the

economic madness of the profit system on which private capitalism

depended, that the Revolution began to go forward in earnest."

Now, although the doctor had said that the school we were to visit was in

Arlington, which I knew to be some distance out of the city, and that the

examination would take place at ten o'clock, he continued to sit

comfortably in his chair, though the time was five minutes of ten.

"Is this Arlington the same town that was a suburb of the city in my

time?" I presently ventured to inquire.

"Certainly."

"It was then ten or twelve miles from the city," I said.

"It has not been moved, I assure you," said the doctor.

"Then if not, and if the examination is to begin in five minutes, are we

not likely to be late?" I mildly observed.

"Oh, no," replied the doctor, "there are three or four minutes left yet."

"Doctor," said I, "I have been introduced within the last few days to

many new and speedy modes of locomotion, but I can't see how you are

going to get me to Arlington from here in time for the examination that

begins three minutes hence, unless you reduce me to an electrified

solution, send me by wire, and have me precipitated back to my shape at

the other end of the line; and even in that case I should suppose we had

no time to waste."

"We shouldn't have, certainly, if we were intending to go to Arlington

even by that process. It did not occur to me that you would care to go,

or we might just as well have started earlier. It is too bad!"

"I did not care about visiting Arlington." I replied, "but I assumed that

it would be rather necessary to do so if I were to attend an examination

at that place. I see my mistake. I ought to have learned by this time not

to take for granted that any of what we used to consider the laws of

Nature are still in force."

"The laws of Nature are all right," laughed the doctor. "But is it

possible that Edith has not shown you the electroscope?"

"What is that?" I asked.

"It does for vision what the telephone does for hearing," replied the

doctor, and, leading the way to the music room, he showed me the

apparatus.

"It is ten o'clock," he said, "and we have no time for explanations now.

Take this chair and adjust the instrument as you see me do. Now!"

Instantly, without warning, or the faintest preparation for what was

coming, I found myself looking into the interior of a large room. Some

twenty boys and girls, thirteen to fourteen years of age, occupied a

double row of chairs arranged in the form of a semicircle about a desk at

which a young man was seated with his back to us. The rows of students

were facing us, apparently not twenty feet away. The rustling of their

garments and every change of expression in their mobile faces were as

distinct to my eyes and ears as if we had been directly behind the

teacher, as indeed we seemed to be. At the moment the scene had flashed

upon me I was in the act of making some remark to the doctor. As I

checked myself, he laughed. "You need not be afraid of interrupting

them," he said. "They don't see or hear us, though we both see and hear

them so well. They are a dozen miles away."

"Good heavens!" I whispered--for, in spite of his assurance, I could not

realize that they did not hear me--"are we here or there?"

"We are here certainly," replied the doctor, "but our eyes and ears are

there. This is the electroscope and telephone combined. We could have

heard the examination just as well without the electroscope, but I

thought you would be better entertained if you could both see and hear.

Fine-looking young people, are they not? We shall see now whether they

are as intelligent as they are handsome."

HOW PROFITS CUT DOWN CONSUMPTION.

"Our subject this morning," said the teacher briskly, "is 'The Economic

Suicide of Production for Profit,' or 'The Hopelessness of the Economic

Outlook of the Race under Private Capitalism.'--Now, Frank, will you tell

us exactly what this proposition means?"

At these words one of the boys of the class rose to his feet.

"It means," he said, "that communities which depended--as they had to

depend, so long as private capitalism lasted--upon the motive of profit

making for the production of the things by which they lived, must always

suffer poverty, because the profit system, by its necessary nature,

operated to stop limit and cripple production at the point where it began

to be efficient."

"By what is the possible production of wealth limited?"

"By its consumption."

"May not production fall short of possible consumption? May not the

demand for consumption exceed the resources of production?"

"Theoretically it may, but not practically--that is, speaking of demand

as limited to rational desires, and not extending to merely fanciful

objects. Since the division of labor was introduced, and especially since

the great inventions multiplied indefinitely the powers of man,

production has been practically limited only by the demand created by

consumption."

"Was this so before the great Revolution?"

"Certainly. It was a truism among economists that either England,

Germany, or the United States alone could easily have supplied the

world's whole consumption of manufactured goods. No country began to

produce up to its capacity in any line."

"Why not?"

"On account of the necessary law of the profit system, by which it

operated to limit production."

"In what way did this law operate?"

"By creating a gap between the producing and consuming power of the

community, the result of which was that the people were not able to

consume as much as they could produce."

"Please tell us just how the profit system led to this result."

"There being under the old order of things," replied the boy Frank, "no

collective agency to undertake the organization of labor and exchange,

that function naturally fell into the hands of enterprising individuals

who, because the undertaking called for much capital, had to be

capitalists. They were of two general classes--the capitalist who

organized labor for production; and the traders, the middlemen, and

storekeepers, who organized distribution, and having collected all the

varieties of products in the market, sold them again to the general

public for consumption. The great mass of the people--nine, perhaps, out

of ten--were wage-earners who sold their labor to the producing

capitalists; or small first-hand producers, who sold their personal

product to the middlemen. The farmers were of the latter class. With the

money the wage-earners and farmers received in wages, or as the price of

their produce, they afterward went into the market, where the products of

all sorts were assembled, and bought back as much as they could for

consumption. Now, of course, the capitalists, whether engaged in

organizing production or distribution, had to have some inducement for

risking their capital and spending their time in this work. That

inducement was profit."

"Tell us how the profits were collected."

"The manufacturing or employing capitalists paid the people who worked

for them, and the merchants paid the farmers for their products in tokens

called money, which were good to buy back the blended products of all in

the market. But the capitalists gave neither the wage-earner nor the

farmer enough of these money tokens to buy back the equivalent of the

product of his labor. The difference which the capitalists kept back for

themselves was their profit. It was collected by putting a higher price

on the products when sold in the stores than the cost of the product had

been to the capitalists."

"Give us an example."

"We will take then, first, the manufacturing capitalist, who employed

labor. Suppose he manufactured shoes. Suppose for each pair of shoes he

paid ten cents to the tanner for leather, twenty cents for the labor of

putting, the shoe together, and ten cents for all other labor in any way

entering into the making of the shoe, so that the pair cost him in

actual outlay forty cents. He sold the shoes to a middleman for, say,

seventy-five cents. The middleman sold them to the retailer for a dollar,

and the retailer sold them over his counter to the consumer for a dollar

and a half. Take next the case of the farmer, who sold not merely his

labor like the wage-earner, but his labor blended with his material.

Suppose he sold his wheat to the grain merchant for forty cents a bushel.

The grain merchant, in selling it to the flouring mill, would ask, say,

sixty cents a bushel. The flouring mill would sell it to the wholesale

flour merchant for a price over and above the labor cost of milling at a

figure which would include a handsome profit for him. The wholesale flour

merchant would add another profit in selling to the retail grocer, and

the last yet another in selling to the consumer. So that finally the

equivalent of the bushel of wheat in finished flour as bought back by the

original farmer for consumption would cost him, on account of profit

charges alone, over and above the actual labor cost of intermediate

processes, perhaps twice what he received for it from the grain

merchant."

"Very well," said the teacher. "Now for the practical effect of this

system."

"The practical effect," replied the boy, "was necessarily to create a gap

between the producing and consuming power of those engaged in the

production of the things upon which profits were charged. Their ability

to consume would be measured by the value of the money tokens they

received for producing the goods, which by the statement was less than

the value put upon those goods in the stores. That difference would

represent a gap between what they could produce and what they could

consume."

MARGARET TELLS ABOUT THE DEADLY GAP.

"Margaret," said the teacher, "you may now take up the subject where

Frank leaves it, and tell us what would be the effect upon the economic

system of a people of such a gap between its consuming and producing

power as Frank shows us was caused by profit taking."

"The effect," said the girl who answered to the name of Margaret, "would

depend on two factors: first, on how numerous a body were the

wage-earners and first producers, on whose products the profits were

charged; and, second, how large was the rate of profit charged, and the

consequent discrepancy between the producing and consuming power of each

individual of the working body. If the producers on whose product a

profit was charged were but a handful of the people, the total effect of

their inability to buy back and consume more than a part of their product

would create but a slight gap between the producing and consuming power

of the community as a whole. If, on the other hand, they constituted a

large proportion of the whole population, the gap would be

correspondingly great, and the reactive effect to check production would

be disastrous in proportion."

"And what was the actual proportion of the total population made up by

the wage-earners and original producers, who by the profit system were

prevented from consuming as much as they produced?"

"It constituted, as Frank has said, at least nine tenths of the whole

people, probably more. The profit takers, whether they were organizers of

production or of distribution, were a group numerically insignificant,

while those on whose product the profits were charged constituted the

bulk of the community."

"Very well. We will now consider the other factor on which the size of

the gap between the producing and consuming power of the community

created by the profit system was dependent--namely, the rate of profits

charged. Tell us, then, what was the rule followed by the capitalists in

charging profits. No doubt, as rational men who realized the effect of

high profits to prevent consumption, they made a point of making their

profits as low as possible."

"On the contrary, the capitalists made their profits as high as possible.

Their maxim was, 'Tax the traffic all it will bear.'"

"Do you mean that instead of trying to minimize the effect of profit

charging to diminish consumption, they deliberately sought to magnify it

to the greatest possible degree?"

"I mean that precisely," replied Margaret. "The golden rule of the profit

system, the great motto of the capitalists, was, 'Buy in the Cheapest

Market, and sell in the Dearest.'"

"What did that mean?"

"It meant that the capitalist ought to pay the least possible to those

who worked for him or sold him their produce, and on the other hand

should charge the highest possible price for their product when he

offered it for sale to the general public in the market."

"That general public," observed the teacher, "being chiefly composed of

the workers to whom he and his fellow-capitalists had just been paying as

nearly nothing as possible for creating the product which they were now

expected to buy back at the highest possible price."

"Certainly."

"Well, let us try to realize the full economic wisdom of this rule as

applied to the business of a nation. It means, doesn't it, Get something

for nothing, or as near nothing as you can. Well, then, if you can get it

for absolutely nothing, you are carrying out the maxim to perfection. For

example, if a manufacturer could hypnotize his workmen so as to get them

to work for him for no wages at all, he would be realizing the full

meaning of the maxim, would he not?"

"Certainly; a manufacturer who could do that, and then put the product of

his unpaid workmen on the market at the usual price, would have become

rich in a very short time."

"And the same would be true, I suppose, of a grain merchant who was able

to take such advantage of the farmers as to obtain their grain for

nothing, afterward selling it at the top price."

"Certainly. He would become a millionaire at once."

"Well, now, suppose the secret of this hypnotizing process should get

abroad among the capitalists engaged in production and exchange, and

should be generally applied by them so that all of them were able to get

workmen without wages, and buy produce without paying anything for it,

then doubtless all the capitalists at once would become fabulously rich."

"Not at all."

"Dear me! why not?"

"Because if the whole body of wage-earners failed to receive any wages

for their work, and the farmers received nothing for their produce, there

would be nobody to buy anything, and the market would collapse entirely.

There would be no demand for any goods except what little the capitalists

themselves and their friends could consume. The working people would then

presently starve, and the capitalists be left to do their own work."

"Then it appears that what would be good for the particular capitalist,

if he alone did it, would be ruinous to him and everybody else if all the

capitalists did it. Why was this?"

"Because the particular capitalist, in expecting to get rich by

underpaying his employees, would calculate on selling his produce, not to

the particular group of workmen he had cheated, but to the community at

large, consisting of the employees of other capitalists not so successful

in cheating their workmen, who therefore would have something to buy

with. The success of his trick depended on the presumption that his

fellow-capitalists would not succeed in practicing the same trick. If

that presumption failed, and all the capitalists succeeded at once in

dealing with their employees, as all were trying to do, the result would

be to stop the whole industrial system outright."

"It appears, then, that in the profit system we have an economic method,

of which the working rule only needed to be applied thoroughly enough in

order to bring the system to a complete standstill and that all which

kept the system going was the difficulty found in fully carrying out the

working rule.

"That was precisely so," replied the girl; "the individual capitalist

grew rich fastest who succeeded best in beggaring those whose labor or

produce he bought; but obviously it was only necessary for enough

capitalists to succeed in so doing in order to involve capitalists and

people alike in general ruin. To make the sharpest possible bargain with

the employer or producer, to give him the least possible return for his

labor or product, was the ideal every capitalist must constantly keep

before him, and yet it was mathematically certain that every such sharp

bargain tended to undermine the whole business fabric, and that it was

only necessary that enough capitalists should succeed in making enough

such sharp bargains to topple the fabric over."

"One question more. The bad effects of a bad system are always aggravated

by the willfulness of men who take advantage of it, and so, no doubt, the

profit system was made by selfish men to work worse than it might have

done. Now, suppose the capitalists had all been fair-minded men and not

extortioners, and had made their charges for their services as small as

was consistent with reasonable gains and self-protection, would that

course have involved such a reduction of profit charges as would have

greatly helped the people to consume their products and thus to promote

production?"

"It would not," replied the girl. "The antagonism of the profit system to

effective wealth production arose from causes inherent in and inseparable

from private capitalism; and so long as private capitalism was retained,

those causes must have made the profit system inconsistent with any

economic improvement in the condition of the people, even if the

capitalists had been, angels. The root of the evil was not moral, but

strictly economic."

"But would not the rate of profits have been much reduced in the case

supposed?"

"In some instances temporarily no doubt, but not generally, and in no

case permanently. It is doubtful if profits, on the whole, were higher

than they had to be to encourage capitalists to undertake production and

trade."

"Tell us why the profits had to be so large for this purpose."

"Legitimate profits under private capitalism," replied the girl

Margaret--"that is, such profits as men going into production or trade

must in self-protection calculate upon, however well disposed toward the

public--consisted of three elements, all growing out of conditions

inseparable from private capitalism, none of which longer exist. First,

the capitalist must calculate on at least as large a return on the

capital he was to put into the venture as he could obtain by lending it

on good security--that is to say, the ruling rate of interest. If he were

not sure of that, he would prefer to lend his capital. But that was not

enough. In going into business he risked the entire loss of his capital,

as he would not if it were lent on good security. Therefore, in addition

to the ruling rate of interest on capital, his profits must cover the

cost of insurance on the capital risked--that is, there must be a

prospect of gains large enough in case the venture succeeded to cover the

risk of loss of capital in case of failure. If the chances of failure,

for instance, were even, he must calculate on more than a hundred per

cent profit in case of success. In point of fact, the chances of failure

in business and loss of capital in those days were often far more than

even. Business was indeed little more than a speculative risk, a lottery

in which the blanks greatly outnumbered the prizes. The prizes to tempt

investment must therefore be large. Moreover, if a capitalist were

personally to take charge of the business in which he invested his

capital, he would reasonably have expected adequate wages of

superintendence--compensation, in other words, for his skill and judgment

in navigating the venture through the stormy waters of the business sea,

compared with which, as it was in that day, the North Atlantic in

midwinter is a mill pond. For this service he would be considered

justified in making a large addition to the margin of profit charged."

"Then you conclude, Margaret, that, even if disposed to be fair toward

the community, a capitalist of those days would not have been able safely

to reduce his rate of profits sufficiently to bring the people much

nearer the point of being able to consume their products than they were."

"Precisely so. The root of the evil lay in the tremendous difficulties,

complexities, mistakes, risks, and wastes with which private capitalism

necessarily involved the processes of production and distribution, which

under public capitalism have become so entirely simple, expeditious, and

certain."

"Then it seems it is not necessary to consider our capitalist ancestors

moral monsters in order to account for the tragical outcome of their

economic methods."

"By no means. The capitalists were no doubt good and bad, like other

people, but probably stood up as well as any people could against the

depraving influences of a system which in fifty years would have turned

heaven itself into hell."

MARION EXPLAINS OVER-PRODUCTION.

"That will do, Margaret," said the teacher. "We will next ask you,

Marion, to assist us in further elucidating the subject. If the profit

system worked according to the description we have listened to, we shall

be prepared to learn that the economic situation was marked by the

existence of large stores of consumable goods in the hands of the profit

takers which they would be glad to sell, and, on the other hand, by a

great population composed of the original producers of the goods, who

were in sharp need of the goods but unable to purchase them. How does

this theory agree with the facts stated in the histories?"

"So well," replied Marion, "that one might almost think you had been

reading them." At which the class smiled, and so did I.

"Describe, without unnecessary infusion of humor--for the subject was not

humorous to our ancestors--the condition of things to which you refer.

Did our great-grandfathers recognize in this excess of goods over buyers

a cause of economic disturbance?"

"They recognized it as the great and constant cause of such disturbance.

The perpetual burden of their complaints was dull times, stagnant trade,

glut of products. Occasionally they had brief periods of what they called

good times, resulting from a little brisker buying, but in the best of

what they called good times the condition of the mass of the people was

what we should call abjectly wretched."

"What was the term by which they most commonly described the presence in

the market of more products than could be sold?"

"Overproduction."

"Was it meant by this expression that there had been actually more food,

clothing, and other good things produced than the people could use?"

"Not at all. The mass of the people were in great need always, and in

more bitter need than ever precisely at the times when the business

machine was clogged by what they called overproduction. The people, if

they could have obtained access to the overproduced goods, would at any

time have consumed them in a moment and loudly called for more. The

trouble was, as has been said, that the profits charged by the capitalist

manufacturers and traders had put them out of the power of the original

producers to buy back with the price they had received for their labor or

products."

"To what have our historians been wont to compare the condition of the

community under the profit system?"

"To that of a victim of the disease of chronic dyspepsia so prevalent

among our ancestors."

"Please develop the parallel."

"In dyspepsia the patient suffered from inability to assimilate food.

With abundance of dainties at hand he wasted away from the lack of power

to absorb nutriment. Although unable to eat enough to support life, he

was constantly suffering the pangs of indigestion, and while actually

starving for want of nourishment, was tormented by the sensation of an

overloaded stomach. Now, the economic condition of a community under the

profit system afforded a striking analogy to the plight of such a

dyspeptic. The masses of the people were always in bitter need of all

things, and were abundantly able by their industry to provide for all

their needs, but the profit system would not permit them to consume even

what they produced, much less produce what they could. No sooner did they

take the first edge off of their appetite than the commercial system was

seized with the pangs of acute indigestion and all the symptoms of an

overloaded system, which nothing but a course of starvation would

relieve, after which the experience would be repeated with the same

result, and so on indefinitely."

"Can you explain why such an extraordinary misnomer as overproduction,

should be applied to a situation that would better be described as

famine; why a condition should be said to result from glut when it was

obviously the consequence of enforced abstinence? Surely, the mistake was

equivalent to diagnosing a case of starvation as one of gluttony."

"It was because the economists and the learned classes, who alone had a

voice, regarded the economic question entirely from the side of the

capitalists and ignored the interest of the people. From the point of

view of the capitalist it was a case of overproduction when he had

charged profits on products which took them beyond the power of the

people to buy, and so the economist writing in his interest called it.

From the point of view of the capitalist, and consequently of the

economist, the only question was the condition of the market, not of the

people. They did not concern themselves whether the people were famished

or glutted; the only question was the condition of the market. Their

maxim that demand governed supply, and supply would always meet demand,

referred in no way to the demand representing human need, but wholly to

an artificial thing called the market, itself the product of the profit

system."

"What was the market?"

"The market was the number of those who had money to buy with. Those who

had no money were non-existent so far as the market was concerned, and in

proportion as people had little money they were a small part of the

market. The needs of the market were the needs of those who had the money

to supply their needs with. The rest, who had needs in plenty but no

money, were not counted, though they were as a hundred to one of the

moneyed. The market was supplied when those who could buy had enough,

though the most of the people had little and many had nothing. The market

was glutted when the well-to-do were satisfied, though starving and naked

mobs might riot in the streets."

"Would such a thing be possible nowadays as full storehouses and a hungry

and naked people existing at the same time?"

"Of course not. Until every one was satisfied there could be no such

thing as overproduct now. Our system is so arranged that there can be too

little nowhere so long as there is too much anywhere. But the old system

had no circulation of the blood."

"What name did our ancestors give to the various economic disturbances

which they ascribed to overproduction?"

"They called them commercial crises. That is to say, there was a chronic

state of glut which might be called a chronic crisis, but every now and

then the arrears resulting from the constant discrepancy between

consumption and production accumulated to such a degree as to nearly

block business. When this happened they called it, in distinction from

the chronic glut, a crisis or panic, on account of the blind terror which

it caused."

"To what cause did they ascribe the crises?"

"To almost everything besides the perfectly plain reason. An extensive

literature seems to have been devoted to the subject. There are shelves

of it up at the museum which I have been trying to go through, or at

least to skim over, in connection with this study. If the books were not

so dull in style they would be very amusing, just on account of the

extraordinary ingenuity the writers display in avoiding the natural and

obvious explanation of the facts they discuss. They even go into

astronomy."

"What do you mean?"

"I suppose the class will think I am romancing, but it is a fact that one

of the most famous of the theories by which our ancestors accounted for

the periodical breakdowns of business resulting from the profit system

was the so-called 'sun-spot theory.' During the first half of the

nineteenth century it so happened that there were severe crises at

periods about ten or eleven years apart. Now, it happened that sun spots

were at a maximum about every ten years, and a certain eminent English

economist concluded that these sun spots caused the panics. Later on it

seems this theory was found unsatisfactory, and gave place to the

lack-of-confidence explanation."

"And what was that?"

"I could not exactly make out, but it seemed reasonable to suppose that

there must have developed a considerable lack of confidence in an

economic system which turned out such results."

"Marion, I fear you do not bring a spirit of sympathy to the study of the

ways of our forefathers, and without sympathy we can not understand

others."

"I am afraid they are a little too other, for me to understand."

The class tittered, and Marion was allowed to take her seat.

JOHN TELLS ABOUT COMPETITION.

"Now, John," said the teacher, "we will ask you a few questions. We have

seen by what process a chronic glut of goods in the market resulted from

the operation of the profit system to put products out of reach of the

purchasing power of the people at large. Now, what notable characteristic

and main feature of the business system of our forefathers resulted from

the glut thus produced?"

"I suppose you refer to competition?" said the boy.

"Yes. What was competition and what caused it, referring especially to

the competition between capitalists?"

"It resulted, as you intimate, from the insufficient consuming power of

the public at large, which in turn resulted from the profit system. If

the wage-earners and first-hand producers had received purchasing power

sufficient to enable them to take up their numerical proportion of the

total product offered in the market, it would have been cleared of goods

without any effort on the part of sellers, for the buyers would have

sought the sellers and been enough to buy all. But the purchasing power

of the masses, owing to the profits charged on their products, being left

wholly inadequate to take those products out of the market, there

naturally followed a great struggle between the capitalists engaged in

production and distribution to divert the most possible of the all too

scanty buying each in his own direction. The total buying could not of

course be increased a dollar without relatively, or absolutely increasing

the purchasing power in the people's hands, but it was possible by effort

to alter the particular directions in which it should be expended, and

this was the sole aim and effect of competition. Our forefathers thought

it a wonderfully fine thing. They called it the life of trade, but, as we

have seen, it was merely a symptom of the effect of the profit system to

cripple consumption."

"What were the methods which the capitalists engaged in production and

exchange made use of to bring trade their way, as they used to say?"

"First was direct solicitation of buyers and a shameless vaunting of

every one's wares by himself and his hired mouthpieces, coupled with a

boundless depreciation of rival sellers and the wares they offered.

Unscrupulous and unbounded misrepresentation was so universally the rule

in business that even when here and there a dealer told the truth he

commanded no credence. History indicates that lying has always been more

or less common, but it remained for the competitive system as fully

developed in the nineteenth century to make it the means of livelihood of

the whole world. According to our grandfathers--and they certainly ought

to have known--the only lubricant which was adapted to the machinery of

the profit system was falsehood, and the demand for it was unlimited."

"And all this ocean of lying, you say, did not and could not increase the

total of goods consumed by a dollar's worth."

"Of course not. Nothing, as I said, could increase that save an increase

in the purchasing power of the people. The system of solicitation or

advertising, as it was called, far from increasing the total sale, tended

powerfully to decrease it."

"How so?"

"Because it was prodigiously expensive and the expense had to be added to

the price of the goods and paid by the consumer, who therefore could buy

just so much less than if he had been left in peace and the price of the

goods had been reduced by the saving in advertising."

"You say that the only way by which consumption could have been increased

was by increasing the purchasing power in the hands of the people

relatively to the goods to be bought. Now, our forefathers claimed that

this was just what competition did. They claimed that it was a potent

means of reducing prices and cutting down the rate of profits, thereby

relatively increasing the purchasing power of the masses. Was this claim

well based?"

"The rivalry of the capitalists among themselves," replied the lad, "to

tempt the buyers' custom certainly prompted them to undersell one another

by nominal reductions of prices, but it was rarely that these nominal

reductions, though often in appearance very large, really represented in

the long run any economic benefit to the people at large, for they were

generally effected by means which nullified their practical value."

"Please make that clear."

"Well, naturally, the capitalist would prefer to reduce the prices of his

goods in such a way, if possible, as not to reduce his profits, and that

would be his study. There were numerous devices which he employed to this

end. The first was that of reducing the quality and real worth of the

goods on which the price was nominally cut down. This was done by

adulteration and scamped work, and the practice extended in the

nineteenth century to every branch of industry and commerce and affected

pretty nearly all articles of human consumption. It came to that point,

as the histories tell us, that no one could ever depend on anything he

purchased being what it appeared or was represented. The whole atmosphere

of trade was mephitic with chicane. It became the policy of the

capitalists engaged in the most important lines of manufacture to turn

out goods expressly made with a view to wearing as short a time as

possible, so as to need the speedier renewal. They taught their very

machines to be dishonest, and corrupted steel and brass. Even the

purblind people of that day recognized the vanity of the pretended

reductions in price by the epithet 'cheap and nasty,' with which they

characterized cheapened goods. All this class of reductions, it is plain,

cost the consumer two dollars for every one it professed to save him. As

a single illustration of the utterly deceptive character of reductions in

price under the profit system, it may be recalled that toward the close

of the nineteenth century in America, after almost magical inventions for

reducing the cost of shoemaking, it was a common saying that although the

price of shoes was considerably lower than fifty years before, when they

were made by hand, yet that later-made shoes were so much poorer in

quality as to be really quite as expensive as the earlier."

"Were adulteration and scamped work the only devices by which sham

reductions of prices was effected?"

"There were two other ways. The first was where the capitalist saved his

profits while reducing the price of goods by taking the reduction out of

the wages he had paid his employees. This was the method by which the

reductions in price were very generally brought about. Of course, the

process was one which crippled the purchasing power of the community by

the amount of the lowered wages. By this means the particular group of

capitalists cutting down wages might quicken their sales for a time until

other capitalists likewise cut wages. In the end nobody was helped, not

even the capitalist. Then there was the third of the three main kinds of

reductions in price to be credited to competition--namely, that made on

account of labor-saving machinery or other inventions which enabled the

capitalist to discharge his laborers. The reduction in price on the goods

was here based, as in the former case, on the reduced amount of wages

paid out, and consequently meant a reduced purchasing power on the part

of the community, which, in the total effect, usually nullified the

advantage of reduced price, and often more than nullified it."

"You have shown," said the teacher, "that most of the reductions of price

effected by competition were reductions at the expense of the original

producers or of the final consumers, and not reductions in profits. Do

you mean to say that the competition of capitalists for trade never

operated to reduce profits?"

"Undoubtedly it did so operate in countries where from the long operation

of the profit system surplus capital had accumulated so as to compete

under great pressure for investment; but under such circumstances

reductions in prices, even though they might come from sacrifices of

profits, usually came too late to increase the consumption of the

people."

"How too late?"

"Because the capitalist had naturally refrained from sacrificing his

profits in order to reduce prices so long as he could take the cost of

the reduction out of the wages of his workmen or out of the first-hand

producer. That is to say, it was only when the working masses had been

reduced to pretty near the minimum subsistence point that the capitalist

would decide to sacrifice a portion of his profits. By that time it was

too late for the people to take advantage of the reduction. When a

population had reached that point, it had no buying power left to be

stimulated. Nothing short of giving commodities away freely could help

it. Accordingly, we observe that in the nineteenth century it was always

in the countries where the populations were most hopelessly poor that the

prices were lowest. It was in this sense a bad sign for the economic

condition of a community when the capitalist found it necessary to make a

real sacrifice of profits, for it was a clear indication that the working

masses had been squeezed until they could be squeezed no longer."

"Then, on the whole, competition was not a palliative of the profit

system?"

"I think that it has been made apparent that it was a grievous

aggravation of it. The desperate rivalry of the capitalists for a share

in the scanty market which their own profit taking had beggared drove

them to the practice of deception and brutality, and compelled a

hard-heartedness such as we are bound to believe human beings would not

under a less pressure have been guilty of."

"What was the general economic effect of competition?"

"It operated in all fields of industry, and in the long run for all

classes, the capitalists as well as the non-capitalists, as a steady

downward pull as irresistible and universal as gravitation. Those felt it

first who had least capital, the wage-earners who had none, and the

farmer proprietors who, having next to none, were under almost the same

pressure to find a prompt market at any sacrifice of their product, as

were the wage-earners to find prompt buyers for their labor. These

classes were the first victims of the competition to sell in the glutted

markets of things and of men. Next came the turn of the smaller

capitalists, till finally only the largest were left, and these found it

necessary for self-preservation to protect themselves against the process

of competitive decimation by the consolidation of their interests. One of

the signs of the times in the period preceding the Revolution was this

tendency among the great capitalists to seek refuge from the destructive

efforts of competition through the pooling of their undertakings in great

trusts and syndicates."

"Suppose the Revolution had not come to interrupt that process, would a

system under which capital and the control of all business had been

consolidated in a few hands have been worse for the public interest than

the effect of competition?"

"Such a consolidated system would, of course, have been an intolerable

despotism, the yoke of which, once assumed, the race might never have

been able to break. In that respect private capitalism under a

consolidated plutocracy, such as impended at the time of the Revolution,

would have been a worse threat to the world's future than the competitive

system; but as to the immediate bearings of the two systems on human

welfare, private capital in the consolidated form might have had some

points of advantage. Being an autocracy, it would have at least given

some chance to a benevolent despot to be better than the system and to

ameliorate a little the conditions of the people, and that was something

competition did not allow the capitalists to do."

"What do you mean?"

"I mean that under competition there was no free play whatever allowed

for the capitalist's better feelings even if he had any. He could not be

better than the system. If he tried to be, the system would crush him. He

had to follow the pace set by his competitors or fail in business.

Whatever rascality or cruelty his rivals might devise, he must imitate or

drop out of the struggle. The very wickedest, meanest, and most rascally

of the competitors, the one who ground his employees lowest, adulterated

his goods most shamefully, and lied about them most skillfully, set the

pace for all the rest."

"Evidently, John, if you had lived in the early part of the revolutionary

agitation you would have had scant sympathy with those early reformers

whose fear was lest the great monopolies would put an end to

competition."

"I can't say whether I should have been wiser than my contemporaries in

that case," replied the lad, "but I think my gratitude to the monopolists

for destroying competition would have been only equaled by my eagerness

to destroy the monopolists to make way for public capitalism."

ROBERT TELLS ABOUT THE GLUT OF MEN.

"Now, Robert," said the teacher, "John has told us how the glut of

products resulting from the profit system caused a competition among

capitalists to sell goods and what its consequences were. There was,

however, another sort of glut besides that of goods which resulted from

the profit system. What was that?"

"A glut of men," replied the boy Robert. "Lack of buying power on the

part of the people, whether from lack of employment or lowered wages,

meant less demand for products, and that meant less work for producers.

Clogged storehouses meant closed factories and idle populations of

workers who could get no work--that is to say, the glut in the goods

market caused a corresponding glut in the labor or man market. And as the

glut in the goods market stimulated competition among the capitalists to

sell their goods, so likewise did the glut in the labor market stimulate

an equally desperate competition among the workers to sell their labor.

The capitalists who could not find buyers for their goods lost their

money indeed, but those who had nothing to sell but their strength and

skill, and could find none to buy, must perish. The capitalist, unless

his goods were perishable, could wait for a market, but the workingman

must find a buyer for his labor at once or die. And in respect to this

inability to wait for a market, the farmer, while technically a

capitalist, was little better off than the wage-earner, being, on account

of the smallness of his capital, almost as unable to withhold his product

as the workingman his labor. The pressing necessity of the wage-earner to

sell his labor at once on any terms and of the small capitalist to

dispose of his product was the means by which the great capitalists were

able steadily to force down the rate of wages and the prices paid for

their product to the first producers."

"And was it only among the wage-earners and the small producers that this

glut of men existed?"

"On the contrary, every trade, every occupation, every art, and every

profession, including the most learned ones, was similarly overcrowded,

and those in the ranks of each regarded every fresh recruit with jealous

eyes, seeing in him one more rival in the struggle for life, making it

just so much more difficult than it had been before. It would seem that

in those days no man could have had any satisfaction in his labor,

however self-denying and arduous, for he must always have been haunted by

the feeling that it would have been kinder to have stood aside and let

another do the work and take the pay, seeing that there was not work and

pay for all."

"Tell us, Robert, did not our ancestors recognize the facts of the

situation you have described? Did they not see that this glut of men

indicated something out of order in the social arrangements?"

"Certainly. They professed to be much distressed over it. A large

literature was devoted to discussing why there was not enough work to go

around in a world in which so much more work evidently needed to be done

as indicated by its general poverty. The Congresses and Legislatures were

constantly appointing commissions of learned men to investigate and

report on the subject."

"And did these learned men ascribe it to its obvious cause as the

necessary effect of the profit system to maintain and constantly increase

a gap between the consuming and producing power of the community?"

"Dear me, no! To have criticised the profit system would have been flat

blasphemy. The learned men called it a problem--the problem of the

unemployed--and gave it up as a conundrum. It was a favorite way our

ancestors had of dodging questions which they could not answer without

attacking vested interests to call them problems and give them up as

insolvable mysteries of Divine Providence."

"There was one philosopher, Robert--an Englishman--who went to the bottom

of this difficulty of the glut of men resulting from the profit system.

He stated the only way possible to avoid the glut, provided the profit

system was retained. Do you remember his name?"

"You mean Malthus, I suppose."

"Yes. What was his plan?"

"He advised poor people, as the only way to avoid starvation, not to get

born--that is, I mean he advised poor people not to have children. This

old fellow, as you say, was the only one of the lot who went to the root

of the profit system, and saw that there was not room for it and for

mankind on the earth. Regarding the profit system as a God-ordained

necessity, there could be no doubt in his mind that it was mankind which

must, under the circumstances, get off the earth. People called Malthus a

cold-blooded philosopher. Perhaps he was, but certainly it was only

common humanity that, so long as the profit system lasted, a red flag

should be hung out on the planet, warning souls not to land except at

their own risk."

EMILY SHOWS THE NECESSITY OF WASTE PIPES.

"I quite agree with you, Robert," said the teacher, "and now, Emily, we

will ask you to take us in charge as we pursue a little further this

interesting, if not very edifying theme. The economic system of

production and distribution by which a nation lives may fitly be compared

to a cistern with a supply pipe, representing production, by which water

is pumped in; and an escape pipe, representing consumption, by which the

product is disposed of. When the cistern is scientifically constructed

the supply pipe and escape pipe correspond in capacity, so that the water

may be drawn off as fast as supplied, and none be wasted by overflow.

Under the profit system of our ancestors, however, the arrangement was

different. Instead of corresponding in capacity with the supply pipe

representing production, the outlet representing consumption was half or

two thirds shut off by the water-gate of profits, so that it was not able

to carry off more than, say, a half or a third of the supply that was

pumped into the cistern through the feed pipe of production. Now, Emily,

what would be the natural effect of such a lack of correspondence between

the inlet and the outlet capacity of the cistern?"

"Obviously," replied the girl who answered to the name of Emily, "the

effect would be to clog the cistern, and compel the pumps to slow down to

half or one third of their capacity--namely, to the capacity of the

escape pipe."

"But," said the teacher, "suppose that in the case of the cistern used by

our ancestors the effect of slowing down the pump of production was to

diminish still further the capacity of the escape pipe of consumption,

already much too small, by depriving the working masses of even the small

purchasing power they had before possessed in the form of wages for labor

or prices for produce."

"Why, in that case," replied the girl, "it is evident that since slowing

down production only checked instead of hastening relief by consumption,

there would be no way to avoid a stoppage of the whole service except to

relieve the pressure in the cistern by opening waste pipes."

"Precisely so. Well, now, we are in a position to appreciate how

necessary a part the waste pipes played in the economic system of our

forefathers. We have seen that under that system the bulk of the people

sold their labor or produce to the capitalists, but were unable to buy

back and consume but a small part of the result of that labor or produce

in the market, the rest remaining in the hands of the capitalists as

profits. Now, the capitalists, being a very small body numerically, could

consume upon their necessities but a petty part of these accumulated

profits, and yet, if they did not get rid of them somehow, production

would stop, for the capitalists absolutely controlled the initiative in

production, and would have no motive to increase accumulations they could

not dispose of. In proportion, moreover, as the capitalists from lack of

use for more profits should slacken production, the mass of the people,

finding none to hire them, or buy their produce to sell again, would lose

what little consuming power they had before, and a still larger

accumulation of products be left on the capitalists' hands. The question

then is, How did the capitalists, after consuming all they could of their

profits upon their own necessities, dispose of the surplus, so as to make

room for more production?"

"Of course," said the girl Emily, "if the surplus products were to be so

expended as to relieve the glut, the first point was that they must be

expended in such ways that there should be no return, for them. They must

be absolutely wasted--like water poured into the sea. This was

accomplished by the use of the surplus products in the support of bodies

of workers employed in unproductive kinds of labor. This waste labor was

of two sorts--the first was that employed in wasteful industrial and

commercial competition; the second was that employed in the means and

services of luxury."

"Tell us about the wasteful expenditure of labor in competition."

"That was through the undertaking of industrial and commercial

enterprises which were not called for by any increase in consumption,

their object being merely the displacement of the enterprises of one

capitalist by those of another."

"And was this a very large cause of waste?"

"Its magnitude may be inferred from the saying current at the time that

ninety-five per cent of industrial and commercial enterprises failed,

which merely meant that in this proportion of instances capitalists

wasted their investments in trying to fill a demand which either did not

exist or was supplied already. If that estimate were even a remote

suggestion of the truth, it would serve to give an idea of the enormous

amounts of accumulated profits which were absolutely wasted in

competitive expenditure. And it must be remembered also that when a

capitalist succeeded in displacing another and getting away his business

the total waste of capital was just as great as if he failed, only in the

one case it was the capital of the previous investor that was destroyed

instead of the capital of the newcomer. In every country which had

attained any degree of economic development there were many times more

business enterprises in every line than there was business for, and many

times as much capital already invested as there was a return for. The

only way in which new capital could be put into business was by forcing

out and destroying old capital already invested. The ever-mounting

aggregation of profits seeking part of a market that was prevented from

increasing by the effect of those very profits, created a pressure of

competition among capitalists which, by all accounts that come down to

us, must have been like a conflagration in its consuming effects upon

capital.

"Now tell us something about the other great waste of profits by which

the pressure in the cistern was sufficiently relieved to permit

production to go on--that is to say, the expenditure of profits for the

employment of labor in the service of luxury. What was luxury?"

"The term luxury, in referring to the state of society before the

Revolution, meant the lavish expenditure of wealth by the rich to gratify

a refined sensualism, while the masses of the people were suffering lack

of the primary necessities."

"What were some of the modes of luxurious expenditure indulged in by the

capitalists?"

"They were unlimited in variety, as, for example, the construction of

costly palaces for residence and their decoration in royal style, the

support of great retinues of servants, costly supplies for the table,

rich equipages, pleasure ships, and all manner of boundless expenditure

in fine raiment and precious stones. Ingenuity was exhausted in

contriving devices by which the rich might waste the abundance the people

were dying for. A vast army of laborers was constantly engaged in

manufacturing an infinite variety of articles and appliances of elegance

and ostentation which mocked the unsatisfied primary necessities of those

who toiled to produce them."

"What have you to say of the moral aspect of this expenditure for

luxury?"

"If the entire community had arrived at that stage of economic prosperity

which would enable all alike to enjoy the luxuries equally," replied the

girl, "indulgence in them would have been merely a question of taste. But

this waste of wealth by the rich in the presence of a vast population

suffering lack of the bare necessaries of life was an illustration of

inhumanity that would seem incredible on the part of civilized people

were not the facts so well substantiated. Imagine a company of persons

sitting down with enjoyment to a banquet, while on the floors and all

about the corners of the banquet hall were groups of fellow-beings dying

with want and following with hungry eyes every morsel the feasters lifted

to their mouths. And yet that precisely describes the way in which the

rich used to spend their profits in the great cities of America, France,

England, and Germany before the Revolution, the one difference being that

the needy and the hungry, instead of being in the banquet room itself,

were just outside on the street."

"It was claimed, was it not, by the apologists of the luxurious

expenditure of the capitalists that they thus gave employment to many who

would otherwise have lacked it?"

"And why would they have lacked employment? Why were the people glad to

find employment in catering to the luxurious pleasures and indulgences of

the capitalists, selling themselves to the most frivolous and degrading

uses? It was simply because the profit taking of these same capitalists,

by reducing the consuming power of the people to a fraction of its

producing power, had correspondingly limited the field of productive

employment, in which under a rational system there must always have been

work for every hand until all needs were satisfied, even as there is now.

In excusing their luxurious expenditure on the ground you have mentioned,

the capitalists pleaded the results of one wrong to justify the

commission of another."

"The moralists of all ages," said the teacher, "condemned the luxury of

the rich. Why did their censures effect no change?"

"Because they did not understand the economics of the subject. They

failed to see that under the profit system the absolute waste of the

excess of profits in unproductive expenditure was an economic necessity,

if production was to proceed, as you showed in comparing it with the

cistern. The waste of profits in luxury was an economic necessity, to use

another figure, precisely as a running sore is a necessary vent in some

cases for the impurities of a diseased body. Under our system of equal

sharing, the wealth of a community is freely and equally distributed

among its members as is the blood in a healthy body. But when, as under

the old system, that wealth was concentrated in the hands of a portion of

the community, it lost its vitalizing quality, as does the blood when

congested in particular organs, and like that becomes an active poison,

to be got rid of at any cost. Luxury in this way might be called an

ulcer, which must be kept open if the profit system was to continue on

any terms."

"You say," said the teacher, "that in order that production should go on

it was absolutely necessary to get the excess of profits wasted in some

sort of unproductive expenditure. But might not the profit takers have

devised some way of getting rid of the surplus more intelligent than mere

competition to displace one another, and more consistent with humane

feeling than wasting wealth upon refinements of sensual indulgence in the

presence of a needy multitude?"

"Certainly. If the capitalists had cared at all about the humane aspect

of the matter, they could have taken a much less demoralizing method in

getting rid of the obstructive surplus. They could have periodically made

a bonfire of it as a burnt sacrifice to the god Profit, or, if they

preferred, it might have been carried out in scows beyond soundings and

dumped there."

"It is easy to see," said the teacher, "that from a moral point of view

such a periodical bonfire or dump would have been vastly more edifying to

gods and men than was the actual practice of expending it in luxuries

which mocked the bitter want of the mass. But how about the economic

operation of this plan?"

"It would have been as advantageous economically as morally. The process

of wasting the surplus profits in competition and luxury was slow and

protracted, and meanwhile productive industry languished and the workers

waited in idleness and want for the surplus to be so far reduced as to

make room for more production. But if the surplus at once, on being

ascertained, were destroyed, productive industry would go right on."

"But how about the workmen employed by the capitalists in ministering to

their luxuries? Would they not have been thrown out of work if luxury had

been given up?"

"On the contrary, under the bonfire system there would have been a

constant demand for them in productive employment to provide material for

the blaze, and that surely would have been a far more worthy occupation

than helping the capitalists to consume in folly the product of their

brethren employed in productive industry. But the greatest advantage of

all which would have resulted from the substitution of the bonfire for

luxury remains to be mentioned. By the time the nation had made a few

such annual burnt offerings to the principle of profit, perhaps even

after the first one, it is likely they would begin to question, in the

light of such vivid object lessons, whether the moral beauties of the

profit system were sufficient compensation for so large an economic

sacrifice."

CHARLES REMOVES AN APPREHENSION.

"Now, Charles," said the teacher, "you shall help us a little on a point

of conscience. We have, one and another, told a very bad story about the

profit system, both in its moral and its economic aspects. Now, is it not

possible that we have done it injustice? Have we not painted too black a

picture? From an ethical point of view we could indeed scarcely have done

so, for there are no words strong enough to justly characterize the mock

it made of all the humanities. But have we not possibly asserted too

strongly its economic imbecility and the hopelessness of the world's

outlook for material welfare so long as it should be tolerated? Can you

reassure us on this point?"

"Easily," replied the lad Charles. "No more conclusive testimony to the

hopelessness of the economic outlook under private capitalism could be

desired than is abundantly given by the nineteenth-century economists

themselves. While they seemed quite incapable of imagining anything

different from private capitalism as the basis of an economic system,

they cherished no illusions as to its operation. Far from trying to

comfort mankind by promising that if present ills were bravely borne

matters would grow better, they expressly taught that the profit system

must inevitably result at some time not far ahead in the arrest of

industrial progress and a stationary condition of production."

"How did they make that out?"

"They recognized, as we do, the tendency under private capitalism of

rents, interest, and profits to accumulate as capital in the hands of the

capitalist class, while, on the other hand, the consuming power of the

masses did not increase, but either decreased or remained practically

stationary. From this lack of equilibrium between production and

consumption it followed that the difficulty of profitably employing

capital in productive industry must increase as the accumulations of

capital so disposable should grow. The home market having been first,

glutted with products and afterward the foreign market, the competition

of the capitalists to find productive employment for their capital would

lead them, after having reduced wages to the lowest possible point, to

bid for what was left of the market by reducing their own profits to the

minimum point at which it was worth while to risk capital. Below this

point more capital would not be invested in business. Thus the rate of

wealth production would cease to advance, and become stationary."

"This, you say, is what the nineteenth-century economists themselves

taught concerning the outcome of the profit system?"

"Certainly. I could, quote from their standard books any number of

passages foretelling this condition of things, which, indeed, it required

no prophet to foretell."

"How near was the world--that is, of course, the nations whose industrial

evolution had gone farthest--to this condition when the Revolution came?"

"They were apparently on its verge. The more economically advanced

countries had generally exhausted their home markets and were struggling

desperately for what was left of foreign markets. The rate of interest,

which indicated the degree to which capital had become glutted, had

fallen in England to two per cent and in America within thirty years had

sunk from seven and six to five and three and four per cent, and was

falling year by year. Productive industry had become generally clogged,

and proceeded by fits and starts. In America the wage-earners were

becoming proletarians, and the farmers fast sinking into the state of a

tenantry. It was indeed the popular discontent caused by these

conditions, coupled with apprehension of worse to come, which finally

roused the people at the close of the nineteenth century to the necessity

of destroying private capitalism for good and all."

"And do I understand, then, that this stationary condition, after which

no increase in the rate of wealth production could be looked for, was

setting in while yet the primary needs of the masses remained unprovided

for?"

"Certainly. The satisfaction of the needs of the masses, as we have

abundantly seen, was in no way recognized as a motive for production

under the profit system. As production approached the stationary point

the misery of the people would, in fact, increase as a direct result of

the competition among capitalists to invest their glut of capital in

business. In order to do so, as has already been shown, they sought to

reduce the prices of products, and that meant the reduction of wages to

wage-earners and prices to first producers to the lowest possible point

before any reduction in the profits of the capitalist was considered.

What the old economists called the stationary condition of production

meant, therefore, the perpetuation indefinitely of the maximum degree of

hardship endurable by the people at large."

"That will do, Charles; you have said enough to relieve any apprehension

that possibly we were doing injustice to the profit system. Evidently

that could not be done to a system of which its own champions foretold

such an outcome as you have described. What, indeed, could be added to

the description they give of it in these predictions of the stationary

condition as a programme of industry confessing itself at the end of its

resources in the midst of a naked and starving race? This was the good

time coming, with the hope of which the nineteenth-century economists

cheered the cold and hungry world of toilers--a time when, being worse

off than ever, they must abandon forever even the hope of improvement. No

wonder our forefathers described their so-called political economy as a

dismal science, for never was there a pessimism blacker, a hopelessness

more hopeless than it preached. Ill indeed had it been for humanity if it

had been truly a science.

ESTHER COUNTS THE COST OF THE PROFIT SYSTEM.

"Now, Esther," the teacher pursued, "I am going to ask you to do a little

estimating as to about how much the privilege of retaining the profit

system cost our forefathers. Emily has given us an idea of the magnitude

of the two great wastes of profits--the waste of competition and the

waste of luxury. Now, did the capital wasted in these two ways represent

all that the profit system cost the people?"

"It did not give a faint idea of it, much less represent it," replied the

girl Esther. "The aggregate wealth wasted respectively in competition and

luxury, could it have been distributed equally for consumption among the

people, would undoubtedly have considerably raised the general level of

comfort. In the cost of the profit system to a community, the wealth

wasted by the capitalists was, however, an insignificant item. The bulk

of that cost consisted in the effect of the profit system to prevent

wealth from being produced, in holding back and tying down the almost

boundless wealth-producing power of man. Imagine the mass of the

population, instead of being sunk in poverty and a large part of them in

bitter want, to have received sufficient to satisfy all their needs and

give them ample, comfortable lives, and estimate the amount of additional

wealth which it would have been necessary to produce to meet this

standard of consumption. That will give you a basis for calculating the

amount of wealth which the American people or any people of those days

might and would have produced but for the profit system. You may estimate

that this would have meant a fivefold, sevenfold, or tenfold increase of

production, as you please to guess.

"But tell us this: Would it have been possible for the people of America,

say, in the last quarter of the nineteenth century, to have multiplied

their production at such a rate if consumption had demanded it?"

"Nothing is more certain than that they could easily have done so. The

progress of invention had been so great in the nineteenth century as to

multiply from twentyfold to many hundredfold the productive power of

industry. There was no time during the last quarter of the century in

America or in any of the advanced countries when the existing productive

plants could not have produced enough in six months to have supplied the

total annual consumption as it actually was. And those plants could have

been multiplied indefinitely. In like manner the agricultural product of

the country was always kept far within its possibility, for a plentiful

crop under the profit system meant ruinous prices to the farmers. As has

been said, it was an admitted proposition of the old economists that

there was no visible limit to production if only sufficient demand for

consumption could be secured."

"Can you recall any instance in history in which it can be argued that a

people paid so large a price in delayed and prevented development for the

privilege of retaining any other tyranny as they did for keeping the

profit system?"

"I am sure there never was such another instance, and I will tell you why

I think so. Human progress has been delayed at various stages by

oppressive institutions, and the world has leaped forward at their

overthrow. But there was never before a time when the conditions had been

so long ready and waiting for so great and so instantaneous a forward

movement all along the line of social improvement as in the period

preceding the Revolution. The mechanical and industrial forces, held in

check by the profit system, only required to be unleashed to transform

the economic condition of the race as by magic. So much for the material

cost of the profit system to our forefathers; but, vast as that was, it

is not worth considering for a moment in comparison with its cost in

human happiness. I mean the moral cost in wrong and tears and black

negations and stifled moral possibilities which the world paid for every

day's retention of private capitalism: there are no words adequate to

express the sum of that."

NO POLITICAL ECONOMY BEFORE THE REVOLUTION.

"That will do, Esther.--Now, George, I want you to tell us just a little

about a particular body among the learned class of the nineteenth

century, which, according to the professions of its members, ought to

have known and to have taught the people all that we have so easily

perceived as to the suicidal character of the profit system and the

economic perdition it meant for mankind so long as it should be

tolerated. I refer to the political economists."

"There were no political economists before the Revolution," replied the

lad.

"But there certainly was a large class of learned men who called

themselves political economists."

"Oh, yes; but they labeled themselves wrongly."

"How do you make that out?"

"Because there was not, until the Revolution--except, of course, among

those who sought to bring it to pass--any conception whatever of what

political economy is."

"What is it?"

"Economy," replied the lad, "means the wise husbandry of wealth in

production and distribution. Individual economy is the science of this

husbandry when conducted in the interest of the individual without regard

to any others. Family economy is this husbandry carried on for the

advantage of a family group without regard to other groups. Political

economy, however, can only mean the husbandry of wealth for the greatest

advantage of the political or social body, the whole number of the

citizens constituting the political organization. This sort of husbandry

necessarily implies a public or political regulation of economic affairs

for the general interest. But before the Revolution there was no

conception of such an economy, nor any organization to carry it out. All

systems and doctrines of economy previous to that time were distinctly

and exclusively private and individual in their whole theory and

practice. While in other respects our forefathers did in various ways and

degrees recognize a social solidarity and a political unity with

proportionate rights and duties, their theory and practice as to all

matters touching the getting and sharing of wealth were aggressively and

brutally individualistic, antisocial, and unpolitical."

"Have you ever looked over any of the treatises which our forefathers

called political economies, at the Historical Library?"

"I confess," the boy answered, "that the title of the leading work under

that head was enough for me. It was called The Wealth of Nations. That

would be an admirable title for a political economy nowadays, when the

production and distribution of wealth are conducted altogether by and for

the people collectively; but what meaning could it conceivably have had

as applied to a book written nearly a hundred years before such a thing

as a national economic organization was thought of, with the sole view of

instructing capitalists how to get rich at the cost of, or at least in

total disregard of, the welfare of their fellow-citizens? I noticed too

that quite a common subtitle used for these so-called works on political

economy was the phrase 'The Science of Wealth.' Now what could an

apologist of private capitalism and the profit system possibly have to

say about the science of wealth? The A B C of any science of wealth

production is the necessity of co-ordination and concert of effort;

whereas competition, conflict, and endless cross-purposes were the sum

and substance of the economic methods set forth by these writers."

"And yet," said the teacher, "the only real fault of these so-called

books on Political Economy consists in the absurdity of the title.

Correct that, and their value as documents of the times at once becomes

evident. For example, we might call them 'Examinations into the Economic

and Social Consequences of trying to get along without any Political

Economy.' A title scarcely less fit would perhaps be 'Studies into the

Natural Course of Economic Affairs when left to Anarchy by the Lack of

any Regulation in the General Interest.' It is, when regarded in this

light, as painstaking and conclusive expositions of the ruinous effects

of private capitalism upon the welfare of communities, that we perceive

the true use and value of these works. Taking up in detail the various

phenomena of the industrial and commercial world of that day, with their

reactions upon the social status, their authors show how the results

could not have been other than they were, owing to the laws of private

capitalism, and that it was nothing but weak sentimentalism to suppose

that while those laws continued in operation any different results could

be obtained, however good men's intentions. Although somewhat heavy in

style for popular reading, I have often thought that during the

revolutionary period no documents could have been better calculated to

convince rational men who could be induced to read them, that it was

absolutely necessary to put an end to private capitalism if humanity were

ever to get forward.

"The fatal and quite incomprehensible mistake of their authors was that

they did not themselves see this, conclusion and preach it. Instead of

that they committed the incredible blunder of accepting a set of

conditions that were manifestly mere barbaric survivals as the basis of a

social science when they ought easily to have seen that the very idea of

a scientific social order suggested the abolition of those conditions as

the first step toward its realization.

"Meanwhile, as to the present lesson, there are two or three points to

clear up before leaving it. We have been talking altogether of profit

taking, but this was only one of the three main methods by which the

capitalists collected the tribute from the toiling world by which their

power was acquired and maintained. What were the other two?"

"Rent and interest."

"What was rent?"

"In those days," replied George, "the right to a reasonable and equal

allotment of land for private uses did not belong as a matter of course

to every person as it does now. No one was admitted to have any natural

right to land at all. On the other hand, there was no limit to the extent

of land, though it were a whole province, which any one might not legally

possess if he could get hold of it. By natural consequence of this

arrangement the strong and cunning had acquired most of the land, while

the majority of the people were left with none at all. Now, the owner of

the land had the right to drive any one off his land and have him

punished for entering on it. Nevertheless, the people who owned n

required to have it and to use it and must needs go to the capitalists

for it. Rent was the price charged by capitalists for not driving people

off their land."

"Did this rent represent any economic service of any sort rendered to the

community by the rent receiver?"

"So far as regards the charge for the use of the land itself apart from

improvements it represented no service of any sort, nothing but the

waiver for a price of the owner's legal right of ejecting the occupant.

It was not a charge for doing anything, but for not doing something."

"Now tell us about interest; what was that?"

"Interest was the price paid for the use of money. Nowadays the

collective administration directs the industrial forces of the nation for

the general welfare, but in those days all economic enterprises were for

private profit, and their projectors had to hire the labor they needed

with money. Naturally, the loan of so indispensable a means as this

commanded a high price; that price was interest."

"And did interest represent any economic service to the community on the

part of the interest taker in lending his money?"

"None whatever. On the contrary, it was by the very nature of the

transaction, a waiver on the part of the lender of the power of action in

favor of the borrower. It was a price charged for letting some one else

do what the lender might have done but chose not to. It was a tribute

levied by inaction upon action."

"If all the landlords and money lenders had died over night, would it

have made any difference to the world?"

"None whatever, so long as they left the land and the money behind. Their

economic role was a passive one, and in strong contrast with that of the

profit-seeking capitalists, which, for good or bad, was at least active."

"What was the general effect of rent and interest upon the consumption

and consequently the production of wealth by the community?"

"It operated to reduce both."

"How?"

"In the same way that profit taking did. Those who received rent were

very few, those who paid it were nearly all. Those who received interest

were few, and those who paid it many. Rent and interest meant, therefore,

like profits, a constant drawing away of the purchasing power of the

community at large and its concentration in the hands of a small part of

it."

"What have you to say of these three processes as to their comparative

effect in destroying the consuming power of the masses, and consequently

the demand for production?"

"That differed in different ages and countries according to the stage of

their economic development. Private capitalism has been compared to a

three-horned bull, the horns being rent, profit, and interest, differing

in comparative length and strength according to the age of the animal. In

the United States, at the time covered by our lesson, profits were still

the longest of the three horns, though the others were growing terribly

fast."

"We have seen, George," said his teacher, "that from a period long before

the great Revolution it was as true as it is now that the only limit to

the production of wealth in society was its consumption. We have seen

that what kept the world in poverty under private capitalism was the

effect of profits, aided by rent and interest to reduce consumption and

thus cripple production, by concentrating the purchasing power of the

people in the hands of a few. Now, that was the wrong way of doing

things. Before leaving the subject I want you to tell us in a word what

is the right way. Seeing that production is limited by consumption, what

rule must be followed in distributing the results of production to be

consumed in order to develop consumption to the highest possible point,

and thereby in turn to create the greatest possible demand for

production."

"For that purpose the results of production must be distributed equally

among all the members of the producing community."

"Show why that is so."

"It is a self-evident mathematical proposition. The more people a loaf of

bread or any given thing is divided among, and the more equally it is

divided, the sooner it will be consumed and more bread be called for. To

put it in a more formal way, the needs of human beings result from the

same natural constitution and are substantially the same. An equal

distribution of the things needed by them is therefore that general plan

by which the consumption of such things will be at once enlarged to the

greatest possible extent and continued on that scale without interruption

to the point of complete satisfaction for all. It follows that the equal

distribution of products is the rule by which the largest possible

consumption can be secured, and thus in turn the largest production be

stimulated."

"What, on the other hand, would be the effect on consumption of an

unequal division of consumable products?"

"If the division were unequal, the result would be that some would have

more than they could consume in a given time, and others would have less

than they could have consumed in the same time, the result meaning a

reduction of total consumption below what it would have been for that

time with an equal division of products. If a million dollars were

equally divided among one thousand men, it would presently be wholly

expended in the consumption of needed things, creating a demand for the

production of as much more; but if concentrated in one man's hands, not a

hundredth part of it, however great his luxury, would be likely to be so

expended in the same period. The fundamental general law in the science

of social wealth is, therefore, that the efficiency of a given amount of

purchasing power to promote consumption is in exact proportion to its

wide distribution, and is most efficient when equally distributed among

the whole body of consumers because that is the widest possible

distribution."

"You have not called attention to the fact that the formula of the

greatest wealth production--namely, equal sharing of the product among

the community--is also that application of the product which will cause

the greatest sum of human happiness."

"I spoke strictly of the economic side of the subject."

"Would it not have startled the old economists to hear that the secret of

the most efficient system of wealth production was conformity on a

national scale to the ethical idea of equal treatment for all embodied by

Jesus Christ in the golden rule?"

"No doubt, for they falsely taught that there were two kinds of science

dealing with human conduct--one moral, the other economic; and two lines

of reasoning as to conduct--the economic, and the ethical; both right in

different ways. We know better. There can be but one science of human

conduct in whatever field, and that is ethical. Any economic proposition

which can not be stated in ethical terms is false. Nothing can be in the

long run or on a large scale sound economics which is not sound ethics.

It is not, therefore, a mere coincidence, but a logical necessity, that

the supreme word of both ethics and economics should be one and the

same--equality. The golden rule in its social application is as truly the

secret of plenty as of peace."