HOW THE PROFIT SYSTEM NULLIFIED THE BENEFIT OF INVENTIONS.
"The general subject of the hostility of private capitalism to
progress," pursued the teacher, "divides itself, as I said, into two
branches. First, the constitutional antagonism between a system of
distinct and separate vested interests and all unsettling changes which,
whatever their ultimate effect, must be directly damaging to those
interests. We will now ask you, Harold, to take up the second branch of
the subject--namely, the effect of the profit principle to minimize, if
not wholly to nullify, the benefit to the community of such inventions
and improvements as were able to overcome the antagonism of vested
interests so far as to get themselves introduced. The nineteenth century,
including the last quarter of the eighteenth, was marked by an
astonishing and absolutely unprecedented number of great inventions in
economic processes. To what was this outburst of inventive genius due?"
"To the same cause," replied the boy, "which accounts for the rise of the
democratic movement and the idea of human equality during the same
period--that is to say, the diffusion of intelligence among the masses,
which, for the first time becoming somewhat general, multiplied
ten-thousandfold the thinking force of mankind, and, in the political
aspect of the matter, changed the purpose of that thinking from the
interest of the few to that of the many."
"Our ancestors," said the teacher, "seeing that this outburst of
invention took place under private capitalism, assumed that there must be
something in that system peculiarly favorable to the genius of invention.
Have you anything to say on that point beyond what has been said?"
"Nothing," replied the boy, "except that by the same rule we ought to
give credit to the institutions of royalty, nobility, and plutocracy for
the democratic idea which under their fostering influence during the same
period grew to flowering in the great Revolution."
"I think that will do on that point," answered the teacher. "We will now
ask you to tell us something more particularly of this great period of
invention which began in the latter part of the eighteenth century."
HAROLD STATES THE FACTS.
"From the times of antiquity up to the last quarter of the eighteenth
century," said the lad, "there had been almost no progress in the
mechanical sciences save as to shipbuilding and arms. From 1780, or
thereabouts, dates the beginning of a series of discoveries of sources of
power, and their application by machinery to economic purposes, which,
during the century following, completely revolutionized the conditions of
industry and commerce. Steam and coal meant a multiplication of human
energy in the production of wealth which was almost incalculable. For
industrial purposes it is not too much to say that they transformed man
from a pygmy to a Titan. These were, of course, only the greatest factors
in a countless variety of discoveries by which prodigious economies of
labor were effected in every detail of the arts by which human life is
maintained and ministered to. In agriculture, where Nature, which can not
be too much hurried, is a large partner, and wherein, therefore, man's
part is less controlling than in other industries, it might be expected
that the increase of productive energy through human invention would be
least. Yet here it was estimated that agricultural machinery, as most
perfectly developed in America, had multiplied some fifteenfold the
product of the individual worker. In most sorts of production less
directly dependent upon Nature, invention during this period had
multiplied the efficiency of labor in a much greater degree, ranging from
fifty and a hundred-fold to several thousand-fold, one man being able to
accomplish as much as a small army in all previous ages."
"That is to say," said the teacher, "it would seem that while the needs
of the human race had not increased, its power to supply those needs had
been indefinitely multiplied. This prodigious increase in the potency of
labor was a clear net economic gain for the world, such as the previous
history of the race furnished nothing comparable to. It was as if God had
given to man his power of attorney in full, to command all the forces of
the universe to serve him. Now, Harold, suppose you had merely been told
as much as you have told us concerning the hundredfold multiplication of
the wealth-producing power of the race which took place at this period,
and were left, without further information, to infer for yourself how
great a change for the better in the condition of mankind would naturally
follow, what would it seem reasonable to suppose?"
"It would seem safe to take for granted at the least," replied the boy,
"that every form of human unhappiness or imperfection resulting directly
or indirectly from economic want would be absolutely banished from the
earth. That the very meaning of the word poverty would have been
forgotten would seem to be a matter-of-course assumption to begin with.
Beyond that we might go on and fancy almost anything in the way of
universal diffusion of luxury that we pleased. The facts given as the
basis of the speculation would justify the wildest day-dreams of
universal happiness, so far as material abundance could directly or
indirectly minister to it."
"Very good, Harold. We know now what to expect when you shall go on to
tell us what the historical facts are as to the degree of improvement in
the economic condition of the mass of the race, which actually did result
from the great inventions of the eighteenth and nineteenth centuries.
Take the condition of the mass of the people in the advanced countries at
the close of the nineteenth century, after they had been enjoying the
benefits of coal and steam, and the most of the other great inventions
for a century, more or less, and comparing it with their condition, say,
in 1780, give us some idea of the change for the better which had taken
place in their economic welfare. Doubtless it was something marvelous."
"It was a subject of much nice debate and close figuring," replied the
boy, "whether in the most advanced countries there had been, taking one
class with another, and disregarding mere changes in fashions, any real
improvement at all in the economic basis of the great majority of the
people."
"Is it possible that the improvement had been so small that there could
be a question raised whether there had been any at all?"
"Precisely so. As to the English people in the nineteenth century,
Florence has given us the facts in speaking of the effects of foreign
commerce. The English had not only a greater foreign commerce than any
other nation, but had also made earlier and fuller use of the great
inventions than any other. She has told us that the sociologists of the
time had no difficulty in proving that the economic condition of the
English people was more wretched in the latter part of the nineteenth
century than it had been centuries previous, before steam had been
thought of, and that this was equally true of the peoples of the Low
Countries, and the masses of Germany. As to the working masses of Italy
and Spain, they had been in much better economic condition during periods
of the Roman Empire than they were in the nineteenth century. If the
French were a little better off in the nineteenth than in the eighteenth
century, it was owing wholly to the distribution of land effected by the
French Revolution, and in no way to the great inventions."
"How was it in the United States?"
"If America," replied the lad, "had shown a notable improvement in the
condition of the people, it would not be necessary to ascribe it to the
progress of invention, for the wonderful economic opportunities of a new
country had given them a vast though necessarily temporary advantage over
other nations. It does not appear, however, that there was any more
agreement of testimony as to whether the condition of the masses had on
the whole improved in America than in the Old World. In the last decade
of the nineteenth century, with a view to allaying the discontent of the
wage-earners and the farmers, which was then beginning to swell to
revolutionary volume, agents of the United States Government published
elaborate comparisons of wages and prices, in which they argued out a
small percentage of gain on the whole in the economic condition of the
American artisans during the century. At this distance we can not, of
course, criticise these calculations in detail, but we may base a
reasonable doubt of the conclusion that the condition of the masses had
very greatly improved upon the existence of the popular discontent which
they were published in the vain hope of moderating. It seems safe to
assume that the people were better acquainted with their own condition
than the sociologists, and it is certain that it was the growing
conviction of the American masses during the closing decades of the
nineteenth century that they were losing ground economically and in
danger of sinking into the degraded condition of the proletariat and
peasantry of the ancient and contemporary European world. Against the
laborious tabulations of the apologists of capitalism we may adduce, as
far superior and more convincing evidence of the economic tendency of the
American people during the latter part of the nineteenth century, such
signs of the times as the growth of beggary and vagabondage to Old World
proportions, the embittered revolts of the wage-earners which kept up a
constant industrial war, and finally the condition of bankruptcy into
which the farming population was sinking."
"That will do as to that point," said the teacher. "In such a comparison
as this small margins and nice points of difference are impertinent. It
is enough that if the indefinite multiplication of man's wealth-producing
power by inventive progress had been developed and distributed with any
degree of intelligence for the general interest, poverty would have
disappeared and comfort if not luxury have become the universal
condition. This being a fact as plain and large as the sun, it is
needless to consider the hairsplitting debates of the economists as to
whether the condition of this or that class of the masses in this or that
country was a grain better or two grains worse than it had been. It is
enough for the purpose of the argument that nobody anywhere in any
country pretended that there had been an improvement noticeable enough to
make even a beginning toward that complete transformation in the human
condition for the better, of which the great inventions by universal
admission had contained the full and immediate promise and potency.
"And now tell us, Harold, what our ancestors had to say as to this
astonishing fact--a fact more marvelous than the great inventions
themselves, namely, their failure to prove of any considerable benefit to
mankind. Surely a phenomenon at once so amazing in itself and involving
so prodigious a defeat to the hopes of human happiness must have set a
world of rational beings to speculating in a very impassioned way as to
what the explanation might be. One would suppose that the facts of this
failure with which our ancestors were confronted would have been enough
to convince them that there must be something radically and horribly
wrong about any economic system which was responsible for it or had
permitted it, and that no further argument would have been wanted to
induce them to make a radical change in it."
"One would think so, certainly," said the boy, "but it did not seem to
occur to our great-grandfathers to hold their economic system to any
responsibility for the result. As we have seen, they recognized, however
they might dispute as to percentages, that the great inventions had
failed to make any notable improvement in the human condition, but they
never seemed to get so far as to inquire seriously why this was so. In
the voluminous works of the economists of the period we find no
discussions, much less any attempt to explain, a fact which to our view
absolutely overshadows all the other features of the economic situation
before the Revolution. And the strangest thing about it all is that their
failure to derive any benefit worth speaking of from the progress of
invention in no way seemed to dampen the enthusiasm of our ancestors
about the inventions. They seemed fairly intoxicated with the pride of
their achievements, barren of benefit as they had been, and their day
dreams were of further discoveries that to a yet more amazing degree
should put the forces of the universe at their disposal. None of them
apparently paused to reflect that though God might empty his treasure
house for their benefit of its every secret of use and of power, the race
would not be a whit the better off for it unless they devised some
economic machinery by which these discoveries might be made to serve the
general welfare more effectually than they had done before. They do not
seem to have realized that so long as poverty remained, every new
invention which multiplied the power of wealth production was but one
more charge in the indictment against their economic system as guilty of
an imbecility as great as its iniquity. They appear to have wholly
overlooked the fact that until their mighty engines should be devoted to
increasing human welfare they were and would continue mere curious
scientific toys of no more real worth or utility to the race than so many
particularly ingenious jumping-jacks. This craze for more and more and
ever greater and wider inventions for economic purposes, coupled with
apparent complete indifference as to whether mankind derived any ultimate
benefit from them or not, can only be understood by regarding it as one
of those strange epidemics of insane excitement which have been known to
affect whole populations at certain periods, especially of the middle
ages. Rational explanation it has none."
"You may well say so," exclaimed the teacher. "Of what use indeed was it
that coal had been discovered, when there were still as many fireless
homes as ever? Of what use was the machinery by which one man could weave
as much cloth as a thousand a century before when there were as many
ragged, shivering human beings as ever? Of what use was the machinery by
which the American farmer could produce a dozen times as much food as his
grandfather when there were more cases of starvation and a larger
proportion of half-fed and badly fed people in the country than ever
before, and hordes of homeless, desperate vagabonds traversed the land,
begging for bread at every door? They had invented steamships, these
ancestors of ours, that were miracles, but their main business was
transporting paupers from lands where they had been beggared in spite of
labor-saving machinery to newer lands where, after a short space, they
would inevitably be beggared again. About the middle of the nineteenth
century the world went wild over the invention of the sewing-machine and
the burden it was to lift from the shoulders of the race. Yet, fifty
years after, the business of garment-making, which it had been expected
to revolutionize for the better, had become a slavery both in America and
Europe which, under the name of the 'sweating system,' scandalized even
that tough generation. They had lucifer matches instead of flint and
steel, kerosene and electricity instead of candles and whale-oil, but the
spectacles of squalor, misery, and degradation upon which the improved
light shone were the same and only looked the worse for it. What few
beggars there had been in America in the first quarter of the nineteenth
century went afoot, while in the last quarter they stole their
transportation on trains drawn by steam engines, but there were fifty
times as many beggars. The world traveled sixty miles an hour instead of
five or ten at the beginning of the century, but it had not gained an
inch on poverty, which clung to it as the shadow to the racer."
HELEN GIVES THE EXPLANATION OF THE FACTS.
"Now, Helen," pursued the teacher, "we want you to explain the facts that
Harold has so clearly brought out. We want you to tell us why it was that
the economic condition of humanity derived but a barely perceptible
advantage at most, if indeed any at all, from an inventive progress which
by its indefinite multiplication of productive energy should by every
rule of reason have completely transformed for the better the economic
condition of the race and wholly banished want from earth. What was there
about the old system of private capitalism to account for a _fiasco_
so tremendous?"
"It was the operation of the profit principle," replied the girl Helen.
"Please proceed with the explanation."
"The great economic inventions which Harold has been talking about," said
the girl, "were of the class of what were called labor-saving machines
and devices--that is to say, they enabled one man to produce more than
before with the same labor, or to produce the same as before with less
labor. Under a collective administration of industry in the equal general
interest like ours, the effect of any such invention would be to increase
the total output to be shared equally among all, or, if the people
preferred and so voted, the output would remain what it was, and the
saving of labor be appropriated as a dividend of leisure to be equally
enjoyed by all. But under the old system there was, of course, no
collective administration. Capitalists were the administrators, being the
only persons who were able to carry on extensive operations or take the
initiative in economic enterprises, and in what they did or did not do
they had no regard to the public interest or the general gain, but to
their own profit only. The only motive which could induce a capitalist to
adopt an invention was the idea of increasing his profits either by
getting a larger product at the same labor cost, or else getting the same
product at a reduced labor cost. We will take the first case. Suppose a
capitalist in adopting labor-saving machinery calculated to keep all his
former employees and make his profit by getting a larger product with the
same labor cost. Now, when a capitalist proposed to increase his output
without the aid of a machine he had to hire more workers, who must be
paid wages to be afterward expended in purchasing products in the market.
In this case, for every increase of product there was some increase,
although not at all an equal one, in the buying power of the community.
But when the capitalist increased his output by the aid of machinery,
with no increase in the number of workers employed, there was no
corresponding increase of purchasing power on the part of the community
to set off against the increased product. A certain amount of purchasing
power went, indeed, in wages to the mechanics who constructed the
labor-saving machines, but it was small in comparison with the increase
in the output which the capitalist expected to make by means of the
machinery, otherwise it would have been no object to him to buy the
machine. The increased product would therefore tend directly to glut yet
more the always glutted market; and if any considerable number of
capitalists should introduce machinery in the same way, the glut would
become intensified into a crisis and general stoppage of production.
"In order to avert or minimize such a disaster, the capitalists could
take one or two courses. They could, if they chose, reduce the price of
their increased machine product so that the purchasing power of the
community, which had remained stationary, could take it up at least as
nearly as it had taken up the lesser quantity of higher-priced product
before the machinery was introduced. But if the capitalists did this,
they would derive no additional profit whatever from the adoption of the
machinery, the whole benefit going to the community. It is scarcely
necessary to say that this was not what the capitalists were in business
for. The other course before them was to keep their product where it was
before introducing the machine, and to realize their profit by
discharging the workers, thus saving on the labor cost of the output.
This was the course most commonly taken, because the glut of goods was
generally so threatening that, except when inventions opened up wholly
new fields, capitalists were careful not greatly to increase outputs. For
example, if the machine enabled one man to do two men's work, the
capitalist would discharge half of his force, put the saving in labor
cost in his pocket, and still produce as many goods as ever. Moreover,
there was another advantage about this plan. The discharged workers
swelled the numbers of the unemployed, who were underbidding one another
for the opportunity to work. The increased desperation of this
competition made it possible presently for the capitalist to reduce the
wages of the half of his former force which he still retained. That was
the usual result of the introduction of labor-saving machinery: First,
the discharge of workers, then, after more or less time, reduced wages
for those who were retained."
"If I understand you, then," said the teacher, "the effect of
labor-saving inventions was either to increase the product without any
corresponding increase in the purchasing power of the community, thereby
aggravating the glut of goods, or else to positively decrease the
purchasing power of the community, through discharges and wage
reductions, while the product remained the same as before. That is to
say, the net result of labor-saving machinery was to increase the
difference between the production and consumption of the community which
remained in the hands of the capitalists as profit."
"Precisely so. The only motive of the capitalist in introducing
labor-saving machinery was to retain as profit a larger share of the
product than before by cutting down the share of labor--that is to say,
labor-saving machinery which should have banished poverty from the world
became the means under the profit system of impoverishing the masses more
rapidly than ever."
"But did not the competition among the capitalists compel them to
sacrifice a part of these increased profits in reductions of prices in
order to get rid of their goods?"
"Undoubtedly; but such reductions in price would not increase the
consuming power of the people except when taken out of profits, and, as
John explained to us this morning, when capitalists were forced by
competition to reduce their prices they saved their profits as long as
possible by making up for the reductions in price by debasing the quality
of the goods or cutting down wages until the public and the wage-earners
could be cheated and squeezed no longer. Then only did they begin to
sacrifice profits, and it was then too late for the impoverished
consumers to respond by increasing consumption. It was always, as John
told us, in the countries where the people were poorest that the prices
were lowest, but without benefit to the people."
THE AMERICAN FARMER AND MACHINERY.
"And now," said the teacher, "I want to ask you something about the
effect of labor-saving inventions upon a class of so-called capitalists
who made up the greater half of the American people--I mean the farmers.
In so far as they owned their farms and tools, however encumbered by
debts and mortgages, they were technically capitalists, although
themselves quite as pitiable victims of the capitalists as were the
proletarian artisans. The agricultural labor-saving inventions of the
nineteenth century in America were something simply marvelous, enabling,
as we have been told, one man to do the work of fifteen a century before.
Nevertheless, the American farmer was going straight to the dogs all the
while these inventions were being introduced. Now, how do you account for
that? Why did not the farmer, as a sort of capitalist, pile up his
profits on labor-saving machinery like the other capitalists?"
"As I have said," replied the girl, "the profits made by labor-saving
machinery resulted from the increased productiveness of the labor
employed, thus enabling the capitalist either to turn out a greater
product with the same labor cost or an equal product with a less labor
cost, the workers supplanted by the machine being discharged. The amount
of profits made was therefore dependent on the scale of the business
carried on--that is, the number of workers employed and the consequent
figure which labor cost made in the business. When farming was carried on
upon a very large scale, as were the so-called bonanza farms in the
United States of that period, consisting of twenty to thirty thousand
acres of land, the capitalists conducting them did for a time make great
profits, which were directly owing to the labor-saving agricultural
machines, and would have been impossible without them. These machines
enabled them to put a greatly increased product on the market with small
increase of labor cost or else the same product at a great decrease of
labor cost. But the mass of the American farmers operated on a small
scale only and employed very little labor, doing largely their own work.
They could therefore make little profit, if any, out of labor-saving
machinery by discharging employees. The only way they could utilize it
was not by cutting down the expense of their output but by increasing the
amount of the output through the increased efficiency of their own labor.
But seeing that there had been no increase meanwhile in the purchasing
power of the community at large, there was no more money demand for their
products than before, and consequently if the general body of farmers
through labor-saving machinery increased their output, they could dispose
of the greater aggregate only at a reduced price, so that in the end they
would get no more for the greater output than for the less. Indeed, they
would not get so much, for the effect of even a small surplus when held
by weak capitalists who could not keep it back, but must press for sale,
had an effect to reduce the market price quite out of proportion to the
amount of the surplus. In the United States the mass of these small
farmers was so great and their pressure to sell so desperate that in the
latter part of the century they destroyed the market not only for
themselves but finally even for the great capitalists who conducted the
great farms."
"The conclusion is, then, Helen," said the teacher, "that the net effect
of labor-saving machinery upon the mass of small farmers in the United
States was ruinous."
"Undoubtedly," replied the girl. "This is a case in which the historical
facts absolutely confirm the rational theory. Thanks to the profit
system, inventions which multiplied the productive power of the farmer
fifteenfold made a bankrupt of him, and so long as the profit system was
retained there was no help for him."
"Were farmers the only class of small capitalists who were injured rather
than helped by labor-saving machinery?"
"The rule was the same for all small capitalists whatever business they
were engaged in. Its basis, as I have said, was the fact that the
advantage to be gained by the capitalists from introducing labor-saving
machinery was in proportion to the amount of labor which the machinery
enabled them to dispense with--that is to say, was dependent upon the
scale of their business. If the scale of the capitalist's operations was
so small that he could not make a large saving in reduced labor cost by
introducing machinery, then the introduction of such machinery put him at
a crushing disadvantage as compared with larger capitalists. Labor-saving
machinery was in this way one of the most potent of the influences which
toward the close of the nineteenth century made it impossible for the
small capitalists in any field to compete with the great ones, and helped
to concentrate the economic dominion of the world in few and ever fewer
hands."
"Suppose, Helen, that the Revolution had not come, that labor-saving
machinery had continued to be invented as fast as ever, and that the
consolidation of the great capitalists' interests, already foreshadowed,
had been completed, so that the waste of profits in competition among
themselves had ceased, what would have been the result?"
"In that case," replied the girl, "all the wealth that had been wasted in
commercial rivalry would have been expended in luxury in addition to what
had been formerly so expended. The new machinery year by year would have
gone on making it possible for a smaller and ever smaller fraction of the
population to produce all the necessaries for the support of mankind, and
the rest of the world, including the great mass of the workers, would
have found employment in unproductive labor to provide the materials of
luxury for the rich or in personal services to them. The world would thus
come to be divided into three classes: a master caste, very limited in
numbers; a vast body of unproductive workers employed in ministering to
the luxury and pomp of the master caste; and a small body of strictly
productive workers, which, owing to the perfection of machinery, would be
able to provide for the needs of all. It is needless to say that all save
the masters would be at the minimum point as to means of subsistence.
Decaying empires in ancient times have often presented such spectacles of
imperial and aristocratic splendor, to the supply and maintenance of
which the labor of starving nations was devoted. But no such spectacle
ever presented in the past would have been comparable to that which the
twentieth century would have witnessed if the great Revolution had
permitted private capitalism to complete its evolution. In former ages
the great mass of the population has been necessarily employed in
productive labor to supply the needs of the world, so that the portion of
the working force available for the service of the pomp and pleasures of
the masters as unproductive laborers has always been relatively small.
But in the plutocratic empire we are imagining, the genius of invention,
through labor-saving machinery, would have enabled the masters to devote
a greater proportion of the subject population to the direct service of
their state and luxury than had been possible under any of the historic
despotisms. The abhorrent spectacles of men enthroned as gods above
abject and worshiping masses, which Assyria, Egypt, Persia, and Rome
exhibited in their day, would have been eclipsed."
"That will do, Helen," said the teacher. "With your testimony we will
wind up our review of the economic system of private capitalism which the
great Revolution abolished forever. There are of course a multitude of
other aspects and branches of the subject which we might take up, but the
study would be as unprofitable as depressing. We have, I think, covered
the essential points. If you understand why and how profits, rent, and
interest operated to limit the consuming power of most of the community
to a fractional part of its productive power, thereby in turn
correspondingly crippling the latter, you have the open secret of the
poverty of the world before the Revolution, and of the impossibility of
any important or lasting improvement from any source whatever in the
economic circumstances of mankind, until and unless private capitalism,
of which the profit system with rent and interest were necessary and
inseparable parts, should be put an end to."