CHAPTER XXII.
ECONOMIC SUICIDE OF THE PROFIT SYSTEM.
The morning following, Edith received a call to report at her post ofduty for some special occasion. After she had gone, I sought out thedoctor in the library and began to ply him with questions, of which, asusual, a store had accumulated in my mind overnight.
"If you desire to continue your historical studies this morning," he saidpresently, "I am going to propose a change of teachers."
"I am very well satisfied with the one whom Providence assigned to me," Ianswered, "but it is quite natural you should want a little relief fromsuch persistent cross-questioning."
"It is not that at all," replied the doctor. "I am sure no one couldconceivably have a more inspiring task than mine has been, nor have I anyidea of giving it up as yet. But it occurred to me that a little changein 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, butpupils."
"Come, doctor," I protested, "don't you think a man in my position hasenough riddles to guess, without making them up for him?"
"It sounds like a riddle, doesn't it? But it is not. However, I willhasten to explain. As one of those citizens to whom for supposed publicservices the people have voted the blue ribbon, I have various honoraryfunctions as to public matters, and especially educational affairs. Thismorning I have notice of an examination at ten o'clock of the ninth gradein the Arlington School. They have been studying the history of theperiod before the great Revolution, and are going to give their generalimpressions of it. I thought that perhaps, by way of a change, you mightbe interested in listening to them, especially in view of the specialtopic 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 themoral wrongfulness of the old economic order. In the discussion we shalllisten to this morning there will be no reference unless incidentally tomoral considerations. The young people will endeavor to show us thatthere were certain inherent and fatal defects in private capitalism as amachine for producing wealth which, quite apart from its ethicalcharacter, made its abolition necessary if the race was ever to get outof the mire of poverty."
"That is a very different doctrine from the preaching I used to hear," Isaid. "The clergy and moralists in general assured us that there were nosocial evils for which moral and religious medicine was not adequate.Poverty, they said, was in the end the result of human depravity, andwould disappear if everybody would only be good."
"So we read," said the doctor. "How far the clergy and the moralistspreached this doctrine with a professional motive as calculated toenhance the importance of their services as moral instructors, how farthey merely echoed it as an excuse for mental indolence, and how far theymay really have been sincere, we can not judge at this distance, butcertainly more injurious nonsense was never taught. The industrial andcommercial system by which the labor of a great population is organizedand directed constitutes a complex machine. If the machine is constructedunscientifically, it will result in loss and disaster, without theslightest regard to whether the managers are the rarest of saints or theworst of sinners. The world always has had and will have need of all thevirtue and true religion that men can be induced to practice; but to tellfarmers that personal religion will take the place of a scientificagriculture, or the master of an unseaworthy ship that the practice ofgood morals will bring his craft to shore, would be no greaterchildishness than the priests and moralists of your day committed inassuring a world beggared by a crazy economic system that the secret ofplenty was good works and personal piety. History gives a bitter chapterto these blind guides, who, during the revolutionary period, did far moreharm than those who openly defended the old order, because, while thebrutal frankness of the latter repelled good men, the former misled themand long diverted from the guilty system the indignation which otherwisewould have sooner destroyed it.
"And just here let me say, Julian, as a most important point for you toremember in the history of the great Revolution, that it was not untilthe people had outgrown this childish teaching and saw the causes of theworld's want and misery, not primarily in human depravity, but in theeconomic madness of the profit system on which private capitalismdepended, that the Revolution began to go forward in earnest."
Now, although the doctor had said that the school we were to visit was inArlington, which I knew to be some distance out of the city, and that theexamination would take place at ten o'clock, he continued to sitcomfortably 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 mytime?" 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 wenot 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 tomany new and speedy modes of locomotion, but I can't see how you aregoing to get me to Arlington from here in time for the examination thatbegins three minutes hence, unless you reduce me to an electrifiedsolution, send me by wire, and have me precipitated back to my shape atthe other end of the line; and even in that case I should suppose we hadno time to waste."
"We shouldn't have, certainly, if we were intending to go to Arlingtoneven 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 thatit would be rather necessary to do so if I were to attend an examinationat that place. I see my mistake. I ought to have learned by this time notto take for granted that any of what we used to consider the laws ofNature are still in force."
"The laws of Nature are all right," laughed the doctor. "But is itpossible that Edith has not shown you the electroscope?"
"What is that?" I asked.
"It does for vision what the telephone does for hearing," replied thedoctor, and, leading the way to the music room, he showed me theapparatus.
"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 wascoming, I found myself looking into the interior of a large room. Sometwenty boys and girls, thirteen to fourteen years of age, occupied adouble row of chairs arranged in the form of a semicircle about a desk atwhich a young man was seated with his back to us. The rows of studentswere facing us, apparently not twenty feet away. The rustling of theirgarments and every change of expression in their mobile faces were asdistinct to my eyes and ears as if we had been directly behind theteacher, as indeed we seemed to be. At the moment the scene had flashedupon me I was in the act of making some remark to the doctor. As Ichecked myself, he laughed. "You need not be afraid of interruptingthem," he said. "They don't see or hear us, though we both see and hearthem so well. They are a dozen miles away."
"Good heavens!" I whispered--for, in spite of his assurance, I could notrealize that they did not hear me--"are we here or there?"
"We are here certainly," replied the doctor, "but our eyes and ears arethere. This is the electroscope and telephone combined. We could haveheard the examination just as well without the electroscope, but Ithought you would be better entertained if you could both see and hear.Fine-looking young people, are they not? We shall see now whether theyare as intelligent as they are handsome."
HOW PROFITS CUT DOWN CONSUMPTION.
"
Our subject this morning," said the teacher briskly, "is 'The EconomicSuicide of Production for Profit,' or 'The Hopelessness of the EconomicOutlook of the Race under Private Capitalism.'--Now, Frank, will you tellus 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 todepend, so long as private capitalism lasted--upon the motive of profitmaking for the production of the things by which they lived, must alwayssuffer poverty, because the profit system, by its necessary nature,operated to stop limit and cripple production at the point where it beganto be efficient."
"By what is the possible production of wealth limited?"
"By its consumption."
"May not production fall short of possible consumption? May not thedemand for consumption exceed the resources of production?"
"Theoretically it may, but not practically--that is, speaking of demandas limited to rational desires, and not extending to merely fancifulobjects. Since the division of labor was introduced, and especially sincethe great inventions multiplied indefinitely the powers of man,production has been practically limited only by the demand created byconsumption."
"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 theworld's whole consumption of manufactured goods. No country began toproduce up to its capacity in any line."
"Why not?"
"On account of the necessary law of the profit system, by which itoperated to limit production."
"In what way did this law operate?"
"By creating a gap between the producing and consuming power of thecommunity, the result of which was that the people were not able toconsume 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, "nocollective agency to undertake the organization of labor and exchange,that function naturally fell into the hands of enterprising individualswho, because the undertaking called for much capital, had to becapitalists. They were of two general classes--the capitalist whoorganized labor for production; and the traders, the middlemen, andstorekeepers, who organized distribution, and having collected all thevarieties of products in the market, sold them again to the generalpublic for consumption. The great mass of the people--nine, perhaps, outof ten--were wage-earners who sold their labor to the producingcapitalists; or small first-hand producers, who sold their personalproduct to the middlemen. The farmers were of the latter class. With themoney the wage-earners and farmers received in wages, or as the price oftheir produce, they afterward went into the market, where the products ofall sorts were assembled, and bought back as much as they could forconsumption. Now, of course, the capitalists, whether engaged inorganizing production or distribution, had to have some inducement forrisking their capital and spending their time in this work. Thatinducement was profit."
"Tell us how the profits were collected."
"The manufacturing or employing capitalists paid the people who workedfor them, and the merchants paid the farmers for their products in tokenscalled money, which were good to buy back the blended products of all inthe market. But the capitalists gave neither the wage-earner nor thefarmer enough of these money tokens to buy back the equivalent of theproduct of his labor. The difference which the capitalists kept back forthemselves was their profit. It was collected by putting a higher priceon the products when sold in the stores than the cost of the product hadbeen to the capitalists."
"Give us an example."
"We will take then, first, the manufacturing capitalist, who employedlabor. Suppose he manufactured shoes. Suppose for each pair of shoes hepaid ten cents to the tanner for leather, twenty cents for the labor ofputting, the shoe together, and ten cents for all other labor in any wayentering into the making of the shoe, so that the pair cost him inactual 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 dollarand a half. Take next the case of the farmer, who sold not merely hislabor 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 wholesaleflour merchant for a price over and above the labor cost of milling at afigure which would include a handsome profit for him. The wholesale flourmerchant would add another profit in selling to the retail grocer, andthe last yet another in selling to the consumer. So that finally theequivalent of the bushel of wheat in finished flour as bought back by theoriginal farmer for consumption would cost him, on account of profitcharges alone, over and above the actual labor cost of intermediateprocesses, perhaps twice what he received for it from the grainmerchant."
"Very well," said the teacher. "Now for the practical effect of thissystem."
"The practical effect," replied the boy, "was necessarily to create a gapbetween the producing and consuming power of those engaged in theproduction of the things upon which profits were charged. Their abilityto consume would be measured by the value of the money tokens theyreceived for producing the goods, which by the statement was less thanthe value put upon those goods in the stores. That difference wouldrepresent a gap between what they could produce and what they couldconsume."
MARGARET TELLS ABOUT THE DEADLY GAP.
"Margaret," said the teacher, "you may now take up the subject whereFrank leaves it, and tell us what would be the effect upon the economicsystem of a people of such a gap between its consuming and producingpower as Frank shows us was caused by profit taking."
"The effect," said the girl who answered to the name of Margaret, "woulddepend on two factors: first, on how numerous a body were thewage-earners and first producers, on whose products the profits werecharged; and, second, how large was the rate of profit charged, and theconsequent discrepancy between the producing and consuming power of eachindividual of the working body. If the producers on whose product aprofit was charged were but a handful of the people, the total effect oftheir inability to buy back and consume more than a part of their productwould create but a slight gap between the producing and consuming powerof the community as a whole. If, on the other hand, they constituted alarge proportion of the whole population, the gap would becorrespondingly great, and the reactive effect to check production wouldbe disastrous in proportion."
"And what was the actual proportion of the total population made up bythe wage-earners and original producers, who by the profit system wereprevented from consuming as much as they produced?"
"It constituted, as Frank has said, at least nine tenths of the wholepeople, probably more. The profit takers, whether they were organizers ofproduction or of distribution, were a group numerically insignificant,while those on whose product the profits were charged constituted thebulk of the community."
"Very well. We will now consider the other factor on which the size ofthe gap between the producing and consuming power of the communitycreated by the profit system was dependent--namely, the rate of profitscharged. Tell us, then, what was the rule followed by the capitalists incharging profits. No doubt, as rational men who realized the effect ofhigh profits to prevent consumption, they made a point of making theirprofits 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 profitcharging to diminish consumption, they deliberately sought to magnify itto the greatest possible degree?"
"I mean that precisely," replied Margaret. "The golden rule of the profitsystem, the great motto of the capitalists, was, 'Buy in the CheapestMarket, and sell in the Dearest.'"
/>
"What did that mean?"
"It meant that the capitalist ought to pay the least possible to thosewho worked for him or sold him their produce, and on the other handshould charge the highest possible price for their product when heoffered it for sale to the general public in the market."
"That general public," observed the teacher, "being chiefly composed ofthe workers to whom he and his fellow-capitalists had just been paying asnearly nothing as possible for creating the product which they were nowexpected to buy back at the highest possible price."
"Certainly."
"Well, let us try to realize the full economic wisdom of this rule asapplied to the business of a nation. It means, doesn't it, Get somethingfor nothing, or as near nothing as you can. Well, then, if you can get itfor absolutely nothing, you are carrying out the maxim to perfection. Forexample, if a manufacturer could hypnotize his workmen so as to get themto work for him for no wages at all, he would be realizing the fullmeaning of the maxim, would he not?"
"Certainly; a manufacturer who could do that, and then put the product ofhis unpaid workmen on the market at the usual price, would have becomerich in a very short time."
"And the same would be true, I suppose, of a grain merchant who was ableto take such advantage of the farmers as to obtain their grain fornothing, 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 getabroad among the capitalists engaged in production and exchange, andshould be generally applied by them so that all of them were able to getworkmen 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 wagesfor their work, and the farmers received nothing for their produce, therewould be nobody to buy anything, and the market would collapse entirely.There would be no demand for any goods except what little the capitaliststhemselves and their friends could consume. The working people would thenpresently 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 thecapitalists did it. Why was this?"
"Because the particular capitalist, in expecting to get rich byunderpaying his employees, would calculate on selling his produce, not tothe particular group of workmen he had cheated, but to the community atlarge, consisting of the employees of other capitalists not so successfulin cheating their workmen, who therefore would have something to buywith. The success of his trick depended on the presumption that hisfellow-capitalists would not succeed in practicing the same trick. Ifthat presumption failed, and all the capitalists succeeded at once indealing with their employees, as all were trying to do, the result wouldbe 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 inorder to bring the system to a complete standstill and that all whichkept the system going was the difficulty found in fully carrying out theworking rule.
"That was precisely so," replied the girl; "the individual capitalistgrew rich fastest who succeeded best in beggaring those whose labor orproduce he bought; but obviously it was only necessary for enoughcapitalists to succeed in so doing in order to involve capitalists andpeople alike in general ruin. To make the sharpest possible bargain withthe employer or producer, to give him the least possible return for hislabor or product, was the ideal every capitalist must constantly keepbefore him, and yet it was mathematically certain that every such sharpbargain tended to undermine the whole business fabric, and that it wasonly necessary that enough capitalists should succeed in making enoughsuch sharp bargains to topple the fabric over."
"One question more. The bad effects of a bad system are always aggravatedby the willfulness of men who take advantage of it, and so, no doubt, theprofit system was made by selfish men to work worse than it might havedone. Now, suppose the capitalists had all been fair-minded men and notextortioners, and had made their charges for their services as small aswas consistent with reasonable gains and self-protection, would thatcourse have involved such a reduction of profit charges as would havegreatly helped the people to consume their products and thus to promoteproduction?"
"It would not," replied the girl. "The antagonism of the profit system toeffective wealth production arose from causes inherent in and inseparablefrom private capitalism; and so long as private capitalism was retained,those causes must have made the profit system inconsistent with anyeconomic improvement in the condition of the people, even if thecapitalists had been, angels. The root of the evil was not moral, butstrictly economic."
"But would not the rate of profits have been much reduced in the casesupposed?"
"In some instances temporarily no doubt, but not generally, and in nocase permanently. It is doubtful if profits, on the whole, were higherthan they had to be to encourage capitalists to undertake production andtrade."
"Tell us why the profits had to be so large for this purpose."
"Legitimate profits under private capitalism," replied the girlMargaret--"that is, such profits as men going into production or trademust in self-protection calculate upon, however well disposed toward thepublic--consisted of three elements, all growing out of conditionsinseparable from private capitalism, none of which longer exist. First,the capitalist must calculate on at least as large a return on thecapital he was to put into the venture as he could obtain by lending iton good security--that is to say, the ruling rate of interest. If he werenot sure of that, he would prefer to lend his capital. But that was notenough. 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 additionto the ruling rate of interest on capital, his profits must cover thecost of insurance on the capital risked--that is, there must be aprospect of gains large enough in case the venture succeeded to cover therisk 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 percent profit in case of success. In point of fact, the chances of failurein business and loss of capital in those days were often far more thaneven. Business was indeed little more than a speculative risk, a lotteryin which the blanks greatly outnumbered the prizes. The prizes to temptinvestment must therefore be large. Moreover, if a capitalist werepersonally to take charge of the business in which he invested hiscapital, he would reasonably have expected adequate wages ofsuperintendence--compensation, in other words, for his skill and judgmentin navigating the venture through the stormy waters of the business sea,compared with which, as it was in that day, the North Atlantic inmidwinter is a mill pond. For this service he would be consideredjustified in making a large addition to the margin of profit charged."
"Then you conclude, Margaret, that, even if disposed to be fair towardthe community, a capitalist of those days would not have been able safelyto reduce his rate of profits sufficiently to bring the people muchnearer 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 capitalismnecessarily involved the processes of production and distribution, whichunder public capitalism have become so entirely simple, expeditious, andcertain."
"Then it seems it is not necessary to consider our capitalist ancestorsmoral monsters in order to account for the tragical outcome of theireconomic methods."
"By no means. The capitalists were no doubt good and bad, like otherpeople, but probably stood up as well as any people could against thedepraving influences of a system which in fifty years would have turnedheaven 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 profitsystem worked according to the description we have listened to, we shallbe prepared to learn that the economic situation was marked by theexistence of large stores of consumable goods in the hands of the profittakers which they would be glad to sell, and, on the other hand, by agreat population composed of the original producers of the goods, whowere in sharp need of the goods but unable to purchase them. How doesthis theory agree with the facts stated in the histories?"
"So well," replied Marion, "that one might almost think you had beenreading them." At which the class smiled, and so did I.
"Describe, without unnecessary infusion of humor--for the subject was nothumorous to our ancestors--the condition of things to which you refer.Did our great-grandfathers recognize in this excess of goods over buyersa 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 calledgood times, resulting from a little brisker buying, but in the best ofwhat they called good times the condition of the mass of the people waswhat we should call abjectly wretched."
"What was the term by which they most commonly described the presence inthe 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 inmore bitter need than ever precisely at the times when the businessmachine was clogged by what they called overproduction. The people, ifthey could have obtained access to the overproduced goods, would at anytime have consumed them in a moment and loudly called for more. Thetrouble was, as has been said, that the profits charged by the capitalistmanufacturers and traders had put them out of the power of the originalproducers to buy back with the price they had received for their labor orproducts."
"To what have our historians been wont to compare the condition of thecommunity under the profit system?"
"To that of a victim of the disease of chronic dyspepsia so prevalentamong 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 powerto absorb nutriment. Although unable to eat enough to support life, hewas constantly suffering the pangs of indigestion, and while actuallystarving for want of nourishment, was tormented by the sensation of anoverloaded stomach. Now, the economic condition of a community under theprofit system afforded a striking analogy to the plight of such adyspeptic. The masses of the people were always in bitter need of allthings, and were abundantly able by their industry to provide for alltheir needs, but the profit system would not permit them to consume evenwhat they produced, much less produce what they could. No sooner did theytake the first edge off of their appetite than the commercial system wasseized with the pangs of acute indigestion and all the symptoms of anoverloaded system, which nothing but a course of starvation wouldrelieve, after which the experience would be repeated with the sameresult, 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 asfamine; why a condition should be said to result from glut when it wasobviously the consequence of enforced abstinence? Surely, the mistake wasequivalent to diagnosing a case of starvation as one of gluttony."
"It was because the economists and the learned classes, who alone had avoice, regarded the economic question entirely from the side of thecapitalists and ignored the interest of the people. From the point ofview of the capitalist it was a case of overproduction when he hadcharged profits on products which took them beyond the power of thepeople to buy, and so the economist writing in his interest called it.From the point of view of the capitalist, and consequently of theeconomist, the only question was the condition of the market, not of thepeople. They did not concern themselves whether the people were famishedor glutted; the only question was the condition of the market. Theirmaxim that demand governed supply, and supply would always meet demand,referred in no way to the demand representing human need, but wholly toan artificial thing called the market, itself the product of the profitsystem."
"What was the market?"
"The market was the number of those who had money to buy with. Those whohad no money were non-existent so far as the market was concerned, and inproportion as people had little money they were a small part of themarket. The needs of the market were the needs of those who had the moneyto supply their needs with. The rest, who had needs in plenty but nomoney, were not counted, though they were as a hundred to one of themoneyed. The market was supplied when those who could buy had enough,though the most of the people had little and many had nothing. The marketwas glutted when the well-to-do were satisfied, though starving and nakedmobs might riot in the streets."
"Would such a thing be possible nowadays as full storehouses and a hungryand naked people existing at the same time?"
"Of course not. Until every one was satisfied there could be no suchthing as overproduct now. Our system is so arranged that there can be toolittle nowhere so long as there is too much anywhere. But the old systemhad no circulation of the blood."
"What name did our ancestors give to the various economic disturbanceswhich they ascribed to overproduction?"
"They called them commercial crises. That is to say, there was a chronicstate of glut which might be called a chronic crisis, but every now andthen the arrears resulting from the constant discrepancy betweenconsumption and production accumulated to such a degree as to nearlyblock business. When this happened they called it, in distinction fromthe chronic glut, a crisis or panic, on account of the blind terror whichit caused."
"To what cause did they ascribe the crises?"
"To almost everything besides the perfectly plain reason. An extensiveliterature seems to have been devoted to the subject. There are shelvesof it up at the museum which I have been trying to go through, or atleast to skim over, in connection with this study. If the books were notso dull in style they would be very amusing, just on account of theextraordinary ingenuity the writers display in avoiding the natural andobvious explanation of the facts they discuss. They even go intoastronomy."
"What do you mean?"
"I suppose the class will think I am romancing, but it is a fact that oneof the most famous of the theories by which our ancestors accounted forthe periodical breakdowns of business resulting from the profit systemwas the so-called 'sun-spot theory.' During the first half of thenineteenth century it so happened that there were severe crises atperiods about ten or eleven years apart. Now, it happened that sun spotswere at a maximum about every ten years, and a certain eminent Englisheconomist concluded that these sun spots caused the panics. Later on itseems this theory was found unsatisfactory, and gave place to thelack-of-confidence explanation."
"And what was that?"
"I could not exactly make out, but it seemed reasonable to suppose thatthere must have developed a considerable lack of confidence in aneconomic system which turned out such results."
"Marion, I fear you do not bring a spirit of sympathy to the study of theways of our forefathers, and without sympathy we can not understandothers."
"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 haveseen by what process a chronic glut of goods in the market resulted fromthe operation of the profit system to put products out of reach of thepurchasing power of the people at large. Now, what notable characteristicand main feature of the
business system of our forefathers resulted fromthe glut thus produced?"
"I suppose you refer to competition?" said the boy.
"Yes. What was competition and what caused it, referring especially tothe competition between capitalists?"
"It resulted, as you intimate, from the insufficient consuming power ofthe public at large, which in turn resulted from the profit system. Ifthe wage-earners and first-hand producers had received purchasing powersufficient to enable them to take up their numerical proportion of thetotal product offered in the market, it would have been cleared of goodswithout any effort on the part of sellers, for the buyers would havesought the sellers and been enough to buy all. But the purchasing powerof the masses, owing to the profits charged on their products, being leftwholly inadequate to take those products out of the market, therenaturally followed a great struggle between the capitalists engaged inproduction and distribution to divert the most possible of the all tooscanty buying each in his own direction. The total buying could not ofcourse be increased a dollar without relatively, or absolutely increasingthe purchasing power in the people's hands, but it was possible by effortto alter the particular directions in which it should be expended, andthis was the sole aim and effect of competition. Our forefathers thoughtit a wonderfully fine thing. They called it the life of trade, but, as wehave seen, it was merely a symptom of the effect of the profit system tocripple consumption."
"What were the methods which the capitalists engaged in production andexchange made use of to bring trade their way, as they used to say?"
"First was direct solicitation of buyers and a shameless vaunting ofevery one's wares by himself and his hired mouthpieces, coupled with aboundless depreciation of rival sellers and the wares they offered.Unscrupulous and unbounded misrepresentation was so universally the rulein business that even when here and there a dealer told the truth hecommanded no credence. History indicates that lying has always been moreor less common, but it remained for the competitive system as fullydeveloped in the nineteenth century to make it the means of livelihood ofthe whole world. According to our grandfathers--and they certainly oughtto have known--the only lubricant which was adapted to the machinery ofthe 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 thetotal of goods consumed by a dollar's worth."
"Of course not. Nothing, as I said, could increase that save an increasein the purchasing power of the people. The system of solicitation oradvertising, as it was called, far from increasing the total sale, tendedpowerfully to decrease it."
"How so?"
"Because it was prodigiously expensive and the expense had to be added tothe price of the goods and paid by the consumer, who therefore could buyjust so much less than if he had been left in peace and the price of thegoods had been reduced by the saving in advertising."
"You say that the only way by which consumption could have been increasedwas by increasing the purchasing power in the hands of the peoplerelatively to the goods to be bought. Now, our forefathers claimed thatthis was just what competition did. They claimed that it was a potentmeans of reducing prices and cutting down the rate of profits, therebyrelatively increasing the purchasing power of the masses. Was this claimwell based?"
"The rivalry of the capitalists among themselves," replied the lad, "totempt the buyers' custom certainly prompted them to undersell one anotherby nominal reductions of prices, but it was rarely that these nominalreductions, though often in appearance very large, really represented inthe long run any economic benefit to the people at large, for they weregenerally effected by means which nullified their practical value."
"Please make that clear."
"Well, naturally, the capitalist would prefer to reduce the prices of hisgoods in such a way, if possible, as not to reduce his profits, and thatwould be his study. There were numerous devices which he employed to thisend. The first was that of reducing the quality and real worth of thegoods on which the price was nominally cut down. This was done byadulteration and scamped work, and the practice extended in thenineteenth century to every branch of industry and commerce and affectedpretty nearly all articles of human consumption. It came to that point,as the histories tell us, that no one could ever depend on anything hepurchased being what it appeared or was represented. The whole atmosphereof trade was mephitic with chicane. It became the policy of thecapitalists engaged in the most important lines of manufacture to turnout goods expressly made with a view to wearing as short a time aspossible, so as to need the speedier renewal. They taught their verymachines to be dishonest, and corrupted steel and brass. Even thepurblind people of that day recognized the vanity of the pretendedreductions in price by the epithet 'cheap and nasty,' with which theycharacterized cheapened goods. All this class of reductions, it is plain,cost the consumer two dollars for every one it professed to save him. Asa single illustration of the utterly deceptive character of reductions inprice under the profit system, it may be recalled that toward the closeof the nineteenth century in America, after almost magical inventions forreducing the cost of shoemaking, it was a common saying that although theprice of shoes was considerably lower than fifty years before, when theywere made by hand, yet that later-made shoes were so much poorer inquality as to be really quite as expensive as the earlier."
"Were adulteration and scamped work the only devices by which shamreductions of prices was effected?"
"There were two other ways. The first was where the capitalist saved hisprofits while reducing the price of goods by taking the reduction out ofthe wages he had paid his employees. This was the method by which thereductions in price were very generally brought about. Of course, theprocess was one which crippled the purchasing power of the community bythe amount of the lowered wages. By this means the particular group ofcapitalists cutting down wages might quicken their sales for a time untilother capitalists likewise cut wages. In the end nobody was helped, noteven the capitalist. Then there was the third of the three main kinds ofreductions in price to be credited to competition--namely, that made onaccount of labor-saving machinery or other inventions which enabled thecapitalist to discharge his laborers. The reduction in price on the goodswas here based, as in the former case, on the reduced amount of wagespaid out, and consequently meant a reduced purchasing power on the partof the community, which, in the total effect, usually nullified theadvantage of reduced price, and often more than nullified it."
"You have shown," said the teacher, "that most of the reductions of priceeffected by competition were reductions at the expense of the originalproducers or of the final consumers, and not reductions in profits. Doyou mean to say that the competition of capitalists for trade neveroperated to reduce profits?"
"Undoubtedly it did so operate in countries where from the long operationof the profit system surplus capital had accumulated so as to competeunder great pressure for investment; but under such circumstancesreductions in prices, even though they might come from sacrifices ofprofits, usually came too late to increase the consumption of thepeople."
"How too late?"
"Because the capitalist had naturally refrained from sacrificing hisprofits in order to reduce prices so long as he could take the cost ofthe reduction out of the wages of his workmen or out of the first-handproducer. That is to say, it was only when the working masses had beenreduced to pretty near the minimum subsistence point that the capitalistwould decide to sacrifice a portion of his profits. By that time it wastoo late for the people to take advantage of the reduction. When apopulation had reached that point, it had no buying power left to bestimulated. Nothing short of giving commodities away freely could helpit. Accordingly, we observe that in the nineteenth century it was alwaysin the countries where the populations were most hopelessly poor that theprices were lowest. It was in this sense a bad sign for the economiccondition of a community when the capitalist found it necessary to make areal sacrifice of profits, for it was a clear indication that t
he workingmasses had been squeezed until they could be squeezed no longer."
"Then, on the whole, competition was not a palliative of the profitsystem?"
"I think that it has been made apparent that it was a grievousaggravation of it. The desperate rivalry of the capitalists for a sharein the scanty market which their own profit taking had beggared drovethem to the practice of deception and brutality, and compelled ahard-heartedness such as we are bound to believe human beings would notunder 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 allclasses, the capitalists as well as the non-capitalists, as a steadydownward pull as irresistible and universal as gravitation. Those felt itfirst who had least capital, the wage-earners who had none, and thefarmer proprietors who, having next to none, were under almost the samepressure to find a prompt market at any sacrifice of their product, aswere the wage-earners to find prompt buyers for their labor. Theseclasses were the first victims of the competition to sell in the gluttedmarkets of things and of men. Next came the turn of the smallercapitalists, till finally only the largest were left, and these found itnecessary for self-preservation to protect themselves against the processof competitive decimation by the consolidation of their interests. One ofthe signs of the times in the period preceding the Revolution was thistendency among the great capitalists to seek refuge from the destructiveefforts of competition through the pooling of their undertakings in greattrusts and syndicates."
"Suppose the Revolution had not come to interrupt that process, would asystem under which capital and the control of all business had beenconsolidated in a few hands have been worse for the public interest thanthe effect of competition?"
"Such a consolidated system would, of course, have been an intolerabledespotism, the yoke of which, once assumed, the race might never havebeen able to break. In that respect private capitalism under aconsolidated plutocracy, such as impended at the time of the Revolution,would have been a worse threat to the world's future than the competitivesystem; but as to the immediate bearings of the two systems on humanwelfare, private capital in the consolidated form might have had somepoints of advantage. Being an autocracy, it would have at least givensome chance to a benevolent despot to be better than the system and toameliorate a little the conditions of the people, and that was somethingcompetition did not allow the capitalists to do."
"What do you mean?"
"I mean that under competition there was no free play whatever allowedfor the capitalist's better feelings even if he had any. He could not bebetter than the system. If he tried to be, the system would crush him. Hehad to follow the pace set by his competitors or fail in business.Whatever rascality or cruelty his rivals might devise, he must imitate ordrop out of the struggle. The very wickedest, meanest, and most rascallyof the competitors, the one who ground his employees lowest, adulteratedhis goods most shamefully, and lied about them most skillfully, set thepace for all the rest."
"Evidently, John, if you had lived in the early part of the revolutionaryagitation you would have had scant sympathy with those early reformerswhose fear was lest the great monopolies would put an end tocompetition."
"I can't say whether I should have been wiser than my contemporaries inthat case," replied the lad, "but I think my gratitude to the monopolistsfor destroying competition would have been only equaled by my eagernessto 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 ofproducts resulting from the profit system caused a competition amongcapitalists to sell goods and what its consequences were. There was,however, another sort of glut besides that of goods which resulted fromthe profit system. What was that?"
"A glut of men," replied the boy Robert. "Lack of buying power on thepart 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 ofworkers who could get no work--that is to say, the glut in the goodsmarket caused a corresponding glut in the labor or man market. And as theglut in the goods market stimulated competition among the capitalists tosell their goods, so likewise did the glut in the labor market stimulatean equally desperate competition among the workers to sell their labor.The capitalists who could not find buyers for their goods lost theirmoney indeed, but those who had nothing to sell but their strength andskill, and could find none to buy, must perish. The capitalist, unlesshis goods were perishable, could wait for a market, but the workingmanmust find a buyer for his labor at once or die. And in respect to thisinability to wait for a market, the farmer, while technically acapitalist, was little better off than the wage-earner, being, on accountof the smallness of his capital, almost as unable to withhold his productas the workingman his labor. The pressing necessity of the wage-earner tosell his labor at once on any terms and of the small capitalist todispose of his product was the means by which the great capitalists wereable steadily to force down the rate of wages and the prices paid fortheir product to the first producers."
"And was it only among the wage-earners and the small producers that thisglut of men existed?"
"On the contrary, every trade, every occupation, every art, and everyprofession, including the most learned ones, was similarly overcrowded,and those in the ranks of each regarded every fresh recruit with jealouseyes, seeing in him one more rival in the struggle for life, making itjust so much more difficult than it had been before. It would seem thatin those days no man could have had any satisfaction in his labor,however self-denying and arduous, for he must always have been haunted bythe feeling that it would have been kinder to have stood aside and letanother do the work and take the pay, seeing that there was not work andpay for all."
"Tell us, Robert, did not our ancestors recognize the facts of thesituation you have described? Did they not see that this glut of menindicated something out of order in the social arrangements?"
"Certainly. They professed to be much distressed over it. A largeliterature was devoted to discussing why there was not enough work to goaround in a world in which so much more work evidently needed to be doneas indicated by its general poverty. The Congresses and Legislatures wereconstantly appointing commissions of learned men to investigate andreport on the subject."
"And did these learned men ascribe it to its obvious cause as thenecessary effect of the profit system to maintain and constantly increasea gap between the consuming and producing power of the community?"
"Dear me, no! To have criticised the profit system would have been flatblasphemy. The learned men called it a problem--the problem of theunemployed--and gave it up as a conundrum. It was a favorite way ourancestors had of dodging questions which they could not answer withoutattacking vested interests to call them problems and give them up asinsolvable mysteries of Divine Providence."
"There was one philosopher, Robert--an Englishman--who went to the bottomof this difficulty of the glut of men resulting from the profit system.He stated the only way possible to avoid the glut, provided the profitsystem 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 getborn--that is, I mean he advised poor people not to have children. Thisold fellow, as you say, was the only one of the lot who went to the rootof the profit system, and saw that there was not room for it and formankind on the earth. Regarding the profit system as a God-ordainednecessity, there could be no doubt in his mind that it was mankind whichmust, under the circumstances, get off the earth. People called Malthus acold-blooded philosopher. Perhaps he was, but certainly it was onlycommon humanity that, so long as the profit system lasted, a red flagshould be hung out on the planet, warning souls not to land except attheir own risk."
E
MILY SHOWS THE NECESSITY OF WASTE PIPES.
"I quite agree with you, Robert," said the teacher, "and now, Emily, wewill ask you to take us in charge as we pursue a little further thisinteresting, if not very edifying theme. The economic system ofproduction and distribution by which a nation lives may fitly be comparedto a cistern with a supply pipe, representing production, by which wateris pumped in; and an escape pipe, representing consumption, by which theproduct is disposed of. When the cistern is scientifically constructedthe supply pipe and escape pipe correspond in capacity, so that the watermay be drawn off as fast as supplied, and none be wasted by overflow.Under the profit system of our ancestors, however, the arrangement wasdifferent. Instead of corresponding in capacity with the supply piperepresenting production, the outlet representing consumption was half ortwo thirds shut off by the water-gate of profits, so that it was not ableto carry off more than, say, a half or a third of the supply that waspumped into the cistern through the feed pipe of production. Now, Emily,what would be the natural effect of such a lack of correspondence betweenthe inlet and the outlet capacity of the cistern?"
"Obviously," replied the girl who answered to the name of Emily, "theeffect would be to clog the cistern, and compel the pumps to slow down tohalf or one third of their capacity--namely, to the capacity of theescape pipe."
"But," said the teacher, "suppose that in the case of the cistern used byour ancestors the effect of slowing down the pump of production was todiminish still further the capacity of the escape pipe of consumption,already much too small, by depriving the working masses of even the smallpurchasing power they had before possessed in the form of wages for laboror prices for produce."
"Why, in that case," replied the girl, "it is evident that since slowingdown production only checked instead of hastening relief by consumption,there would be no way to avoid a stoppage of the whole service except torelieve the pressure in the cistern by opening waste pipes."
"Precisely so. Well, now, we are in a position to appreciate hownecessary a part the waste pipes played in the economic system of ourforefathers. We have seen that under that system the bulk of the peoplesold their labor or produce to the capitalists, but were unable to buyback and consume but a small part of the result of that labor or producein the market, the rest remaining in the hands of the capitalists asprofits. Now, the capitalists, being a very small body numerically, couldconsume upon their necessities but a petty part of these accumulatedprofits, and yet, if they did not get rid of them somehow, productionwould stop, for the capitalists absolutely controlled the initiative inproduction, and would have no motive to increase accumulations they couldnot dispose of. In proportion, moreover, as the capitalists from lack ofuse for more profits should slacken production, the mass of the people,finding none to hire them, or buy their produce to sell again, would losewhat little consuming power they had before, and a still largeraccumulation of products be left on the capitalists' hands. The questionthen is, How did the capitalists, after consuming all they could of theirprofits upon their own necessities, dispose of the surplus, so as to makeroom for more production?"
"Of course," said the girl Emily, "if the surplus products were to be soexpended as to relieve the glut, the first point was that they must beexpended in such ways that there should be no return, for them. They mustbe absolutely wasted--like water poured into the sea. This wasaccomplished by the use of the surplus products in the support of bodiesof workers employed in unproductive kinds of labor. This waste labor wasof two sorts--the first was that employed in wasteful industrial andcommercial competition; the second was that employed in the means andservices of luxury."
"Tell us about the wasteful expenditure of labor in competition."
"That was through the undertaking of industrial and commercialenterprises which were not called for by any increase in consumption,their object being merely the displacement of the enterprises of onecapitalist 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 thatninety-five per cent of industrial and commercial enterprises failed,which merely meant that in this proportion of instances capitalistswasted their investments in trying to fill a demand which either did notexist or was supplied already. If that estimate were even a remotesuggestion of the truth, it would serve to give an idea of the enormousamounts of accumulated profits which were absolutely wasted incompetitive expenditure. And it must be remembered also that when acapitalist succeeded in displacing another and getting away his businessthe total waste of capital was just as great as if he failed, only in theone case it was the capital of the previous investor that was destroyedinstead of the capital of the newcomer. In every country which hadattained any degree of economic development there were many times morebusiness enterprises in every line than there was business for, and manytimes as much capital already invested as there was a return for. Theonly way in which new capital could be put into business was by forcingout and destroying old capital already invested. The ever-mountingaggregation of profits seeking part of a market that was prevented fromincreasing by the effect of those very profits, created a pressure ofcompetition among capitalists which, by all accounts that come down tous, must have been like a conflagration in its consuming effects uponcapital.
"Now tell us something about the other great waste of profits by whichthe pressure in the cistern was sufficiently relieved to permitproduction to go on--that is to say, the expenditure of profits for theemployment of labor in the service of luxury. What was luxury?"
"The term luxury, in referring to the state of society before theRevolution, meant the lavish expenditure of wealth by the rich to gratifya refined sensualism, while the masses of the people were suffering lackof the primary necessities."
"What were some of the modes of luxurious expenditure indulged in by thecapitalists?"
"They were unlimited in variety, as, for example, the construction ofcostly palaces for residence and their decoration in royal style, thesupport of great retinues of servants, costly supplies for the table,rich equipages, pleasure ships, and all manner of boundless expenditurein fine raiment and precious stones. Ingenuity was exhausted incontriving devices by which the rich might waste the abundance the peoplewere dying for. A vast army of laborers was constantly engaged inmanufacturing an infinite variety of articles and appliances of eleganceand ostentation which mocked the unsatisfied primary necessities of thosewho toiled to produce them."
"What have you to say of the moral aspect of this expenditure forluxury?"
"If the entire community had arrived at that stage of economic prosperitywhich would enable all alike to enjoy the luxuries equally," replied thegirl, "indulgence in them would have been merely a question of taste. Butthis waste of wealth by the rich in the presence of a vast populationsuffering lack of the bare necessaries of life was an illustration ofinhumanity that would seem incredible on the part of civilized peoplewere not the facts so well substantiated. Imagine a company of personssitting down with enjoyment to a banquet, while on the floors and allabout the corners of the banquet hall were groups of fellow-beings dyingwith want and following with hungry eyes every morsel the feasters liftedto their mouths. And yet that precisely describes the way in which therich used to spend their profits in the great cities of America, France,England, and Germany before the Revolution, the one difference being thatthe 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 luxuriousexpenditure of the capitalists that they thus gave employment to many whowould otherwise have lacked it?"
"And why would they have lacked employment? Why were the people glad tofind employment in catering to the luxurious pleasures and indulgences ofthe capitalists, selling themselves to the most frivolous and degradinguses? It was simply because the profit taking of these same capitalists,by reducing the consuming power of the people to a fraction of itsproducing
power, had correspondingly limited the field of productiveemployment, in which under a rational system there must always have beenwork 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 thecommission of another."
"The moralists of all ages," said the teacher, "condemned the luxury ofthe rich. Why did their censures effect no change?"
"Because they did not understand the economics of the subject. Theyfailed to see that under the profit system the absolute waste of theexcess of profits in unproductive expenditure was an economic necessity,if production was to proceed, as you showed in comparing it with thecistern. The waste of profits in luxury was an economic necessity, to useanother figure, precisely as a running sore is a necessary vent in somecases for the impurities of a diseased body. Under our system of equalsharing, the wealth of a community is freely and equally distributedamong its members as is the blood in a healthy body. But when, as underthe old system, that wealth was concentrated in the hands of a portion ofthe community, it lost its vitalizing quality, as does the blood whencongested 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 anulcer, which must be kept open if the profit system was to continue onany terms."
"You say," said the teacher, "that in order that production should go onit was absolutely necessary to get the excess of profits wasted in somesort of unproductive expenditure. But might not the profit takers havedevised some way of getting rid of the surplus more intelligent than merecompetition to displace one another, and more consistent with humanefeeling than wasting wealth upon refinements of sensual indulgence in thepresence of a needy multitude?"
"Certainly. If the capitalists had cared at all about the humane aspectof the matter, they could have taken a much less demoralizing method ingetting rid of the obstructive surplus. They could have periodically madea bonfire of it as a burnt sacrifice to the god Profit, or, if theypreferred, it might have been carried out in scows beyond soundings anddumped there."
"It is easy to see," said the teacher, "that from a moral point of viewsuch a periodical bonfire or dump would have been vastly more edifying togods and men than was the actual practice of expending it in luxurieswhich mocked the bitter want of the mass. But how about the economicoperation of this plan?"
"It would have been as advantageous economically as morally. The processof wasting the surplus profits in competition and luxury was slow andprotracted, and meanwhile productive industry languished and the workerswaited in idleness and want for the surplus to be so far reduced as tomake room for more production. But if the surplus at once, on beingascertained, were destroyed, productive industry would go right on."
"But how about the workmen employed by the capitalists in ministering totheir luxuries? Would they not have been thrown out of work if luxury hadbeen given up?"
"On the contrary, under the bonfire system there would have been aconstant demand for them in productive employment to provide material forthe blaze, and that surely would have been a far more worthy occupationthan helping the capitalists to consume in folly the product of theirbrethren employed in productive industry. But the greatest advantage ofall which would have resulted from the substitution of the bonfire forluxury remains to be mentioned. By the time the nation had made a fewsuch annual burnt offerings to the principle of profit, perhaps evenafter the first one, it is likely they would begin to question, in thelight of such vivid object lessons, whether the moral beauties of theprofit system were sufficient compensation for so large an economicsacrifice."
CHARLES REMOVES AN APPREHENSION.
"Now, Charles," said the teacher, "you shall help us a little on a pointof conscience. We have, one and another, told a very bad story about theprofit system, both in its moral and its economic aspects. Now, is it notpossible that we have done it injustice? Have we not painted too black apicture? From an ethical point of view we could indeed scarcely have doneso, for there are no words strong enough to justly characterize the mockit made of all the humanities. But have we not possibly asserted toostrongly its economic imbecility and the hopelessness of the world'soutlook for material welfare so long as it should be tolerated? Can youreassure us on this point?"
"Easily," replied the lad Charles. "No more conclusive testimony to thehopelessness of the economic outlook under private capitalism could bedesired than is abundantly given by the nineteenth-century economiststhemselves. While they seemed quite incapable of imagining anythingdifferent from private capitalism as the basis of an economic system,they cherished no illusions as to its operation. Far from trying tocomfort mankind by promising that if present ills were bravely bornematters would grow better, they expressly taught that the profit systemmust inevitably result at some time not far ahead in the arrest ofindustrial progress and a stationary condition of production."
"How did they make that out?"
"They recognized, as we do, the tendency under private capitalism ofrents, interest, and profits to accumulate as capital in the hands of thecapitalist class, while, on the other hand, the consuming power of themasses did not increase, but either decreased or remained practicallystationary. From this lack of equilibrium between production andconsumption it followed that the difficulty of profitably employingcapital in productive industry must increase as the accumulations ofcapital so disposable should grow. The home market having been first,glutted with products and afterward the foreign market, the competitionof the capitalists to find productive employment for their capital wouldlead them, after having reduced wages to the lowest possible point, tobid for what was left of the market by reducing their own profits to theminimum point at which it was worth while to risk capital. Below thispoint more capital would not be invested in business. Thus the rate ofwealth production would cease to advance, and become stationary."
"This, you say, is what the nineteenth-century economists themselvestaught concerning the outcome of the profit system?"
"Certainly. I could, quote from their standard books any number ofpassages foretelling this condition of things, which, indeed, it requiredno prophet to foretell."
"How near was the world--that is, of course, the nations whose industrialevolution had gone farthest--to this condition when the Revolution came?"
"They were apparently on its verge. The more economically advancedcountries had generally exhausted their home markets and were strugglingdesperately for what was left of foreign markets. The rate of interest,which indicated the degree to which capital had become glutted, hadfallen in England to two per cent and in America within thirty years hadsunk from seven and six to five and three and four per cent, and wasfalling year by year. Productive industry had become generally clogged,and proceeded by fits and starts. In America the wage-earners werebecoming proletarians, and the farmers fast sinking into the state of atenantry. It was indeed the popular discontent caused by theseconditions, coupled with apprehension of worse to come, which finallyroused the people at the close of the nineteenth century to the necessityof destroying private capitalism for good and all."
"And do I understand, then, that this stationary condition, after whichno increase in the rate of wealth production could be looked for, wassetting in while yet the primary needs of the masses remained unprovidedfor?"
"Certainly. The satisfaction of the needs of the masses, as we haveabundantly seen, was in no way recognized as a motive for productionunder the profit system. As production approached the stationary pointthe misery of the people would, in fact, increase as a direct result ofthe competition among capitalists to invest their glut of capital inbusiness. In order to do so, as has already been shown, they sought toreduce the prices of products, and that meant the reduction of wages towage-earners and prices to first producers to the lowest possible pointbefore any reduction in the profits of the capitalist was considered.What the old economists called the stationary condition of productio
nmeant, therefore, the perpetuation indefinitely of the maximum degree ofhardship endurable by the people at large."
"That will do, Charles; you have said enough to relieve any apprehensionthat possibly we were doing injustice to the profit system. Evidentlythat could not be done to a system of which its own champions foretoldsuch an outcome as you have described. What, indeed, could be added tothe description they give of it in these predictions of the stationarycondition as a programme of industry confessing itself at the end of itsresources in the midst of a naked and starving race? This was the goodtime coming, with the hope of which the nineteenth-century economistscheered the cold and hungry world of toilers--a time when, being worseoff than ever, they must abandon forever even the hope of improvement. Nowonder our forefathers described their so-called political economy as adismal science, for never was there a pessimism blacker, a hopelessnessmore hopeless than it preached. Ill indeed had it been for humanity if ithad 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 littleestimating as to about how much the privilege of retaining the profitsystem cost our forefathers. Emily has given us an idea of the magnitudeof the two great wastes of profits--the waste of competition and thewaste of luxury. Now, did the capital wasted in these two ways representall that the profit system cost the people?"
"It did not give a faint idea of it, much less represent it," replied thegirl Esther. "The aggregate wealth wasted respectively in competition andluxury, could it have been distributed equally for consumption among thepeople, would undoubtedly have considerably raised the general level ofcomfort. In the cost of the profit system to a community, the wealthwasted by the capitalists was, however, an insignificant item. The bulkof that cost consisted in the effect of the profit system to preventwealth from being produced, in holding back and tying down the almostboundless wealth-producing power of man. Imagine the mass of thepopulation, instead of being sunk in poverty and a large part of them inbitter want, to have received sufficient to satisfy all their needs andgive them ample, comfortable lives, and estimate the amount of additionalwealth which it would have been necessary to produce to meet thisstandard of consumption. That will give you a basis for calculating theamount of wealth which the American people or any people of those daysmight and would have produced but for the profit system. You may estimatethat this would have meant a fivefold, sevenfold, or tenfold increase ofproduction, 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 multipliedtheir production at such a rate if consumption had demanded it?"
"Nothing is more certain than that they could easily have done so. Theprogress of invention had been so great in the nineteenth century as tomultiply from twentyfold to many hundredfold the productive power ofindustry. There was no time during the last quarter of the century inAmerica or in any of the advanced countries when the existing productiveplants could not have produced enough in six months to have supplied thetotal annual consumption as it actually was. And those plants could havebeen multiplied indefinitely. In like manner the agricultural product ofthe country was always kept far within its possibility, for a plentifulcrop under the profit system meant ruinous prices to the farmers. As hasbeen said, it was an admitted proposition of the old economists thatthere was no visible limit to production if only sufficient demand forconsumption could be secured."
"Can you recall any instance in history in which it can be argued that apeople paid so large a price in delayed and prevented development for theprivilege of retaining any other tyranny as they did for keeping theprofit system?"
"I am sure there never was such another instance, and I will tell you whyI think so. Human progress has been delayed at various stages byoppressive institutions, and the world has leaped forward at theiroverthrow. But there was never before a time when the conditions had beenso long ready and waiting for so great and so instantaneous a forwardmovement all along the line of social improvement as in the periodpreceding the Revolution. The mechanical and industrial forces, held incheck by the profit system, only required to be unleashed to transformthe economic condition of the race as by magic. So much for the materialcost of the profit system to our forefathers; but, vast as that was, itis not worth considering for a moment in comparison with its cost inhuman happiness. I mean the moral cost in wrong and tears and blacknegations and stifled moral possibilities which the world paid for everyday's retention of private capitalism: there are no words adequate toexpress the sum of that."
NO POLITICAL ECONOMY BEFORE THE REVOLUTION.
"That will do, Esther.--Now, George, I want you to tell us just a littleabout a particular body among the learned class of the nineteenthcentury, which, according to the professions of its members, ought tohave known and to have taught the people all that we have so easilyperceived as to the suicidal character of the profit system and theeconomic perdition it meant for mankind so long as it should betolerated. I refer to the political economists."
"There were no political economists before the Revolution," replied thelad.
"But there certainly was a large class of learned men who calledthemselves 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, amongthose who sought to bring it to pass--any conception whatever of whatpolitical economy is."
"What is it?"
"Economy," replied the lad, "means the wise husbandry of wealth inproduction and distribution. Individual economy is the science of thishusbandry when conducted in the interest of the individual without regardto any others. Family economy is this husbandry carried on for theadvantage of a family group without regard to other groups. Politicaleconomy, however, can only mean the husbandry of wealth for the greatestadvantage of the political or social body, the whole number of thecitizens constituting the political organization. This sort of husbandrynecessarily implies a public or political regulation of economic affairsfor the general interest. But before the Revolution there was noconception of such an economy, nor any organization to carry it out. Allsystems and doctrines of economy previous to that time were distinctlyand exclusively private and individual in their whole theory andpractice. While in other respects our forefathers did in various ways anddegrees recognize a social solidarity and a political unity withproportionate rights and duties, their theory and practice as to allmatters touching the getting and sharing of wealth were aggressively andbrutally individualistic, antisocial, and unpolitical."
"Have you ever looked over any of the treatises which our forefatherscalled political economies, at the Historical Library?"
"I confess," the boy answered, "that the title of the leading work underthat head was enough for me. It was called The Wealth of Nations. Thatwould be an admirable title for a political economy nowadays, when theproduction and distribution of wealth are conducted altogether by and forthe people collectively; but what meaning could it conceivably have hadas applied to a book written nearly a hundred years before such a thingas a national economic organization was thought of, with the sole view ofinstructing capitalists how to get rich at the cost of, or at least intotal disregard of, the welfare of their fellow-citizens? I noticed toothat quite a common subtitle used for these so-called works on politicaleconomy was the phrase 'The Science of Wealth.' Now what could anapologist of private capitalism and the profit system possibly have tosay about the science of wealth? The A B C of any science of wealthproduction is the necessity of co-ordination and concert of effort;whereas competition, conflict, and endless cross-purposes were the sumand substance of the economic methods set forth by these writers."
"And yet," said the teacher, "the only real fault of these so-calledbooks on Political Economy consists in the absurdity of the title.Correct that, and their value as documen
ts of the times at once becomesevident. For example, we might call them 'Examinations into the Economicand Social Consequences of trying to get along without any PoliticalEconomy.' A title scarcely less fit would perhaps be 'Studies into theNatural Course of Economic Affairs when left to Anarchy by the Lack ofany Regulation in the General Interest.' It is, when regarded in thislight, as painstaking and conclusive expositions of the ruinous effectsof private capitalism upon the welfare of communities, that we perceivethe true use and value of these works. Taking up in detail the variousphenomena of the industrial and commercial world of that day, with theirreactions upon the social status, their authors show how the resultscould not have been other than they were, owing to the laws of privatecapitalism, and that it was nothing but weak sentimentalism to supposethat while those laws continued in operation any different results couldbe obtained, however good men's intentions. Although somewhat heavy instyle for popular reading, I have often thought that during therevolutionary period no documents could have been better calculated toconvince rational men who could be induced to read them, that it wasabsolutely necessary to put an end to private capitalism if humanity wereever to get forward.
"The fatal and quite incomprehensible mistake of their authors was thatthey did not themselves see this, conclusion and preach it. Instead ofthat they committed the incredible blunder of accepting a set ofconditions that were manifestly mere barbaric survivals as the basis of asocial science when they ought easily to have seen that the very idea ofa scientific social order suggested the abolition of those conditions asthe first step toward its realization.
"Meanwhile, as to the present lesson, there are two or three points toclear up before leaving it. We have been talking altogether of profittaking, but this was only one of the three main methods by which thecapitalists collected the tribute from the toiling world by which theirpower 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 equalallotment of land for private uses did not belong as a matter of courseto every person as it does now. No one was admitted to have any naturalright to land at all. On the other hand, there was no limit to the extentof land, though it were a whole province, which any one might not legallypossess if he could get hold of it. By natural consequence of thisarrangement the strong and cunning had acquired most of the land, whilethe majority of the people were left with none at all. Now, the owner ofthe land had the right to drive any one off his land and have himpunished for entering on it. Nevertheless, the people who owned nrequired to have it and to use it and must needs go to the capitalistsfor it. Rent was the price charged by capitalists for not driving peopleoff their land."
"Did this rent represent any economic service of any sort rendered to thecommunity by the rent receiver?"
"So far as regards the charge for the use of the land itself apart fromimprovements it represented no service of any sort, nothing but thewaiver 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 thecollective administration directs the industrial forces of the nation forthe general welfare, but in those days all economic enterprises were forprivate profit, and their projectors had to hire the labor they neededwith money. Naturally, the loan of so indispensable a means as thiscommanded a high price; that price was interest."
"And did interest represent any economic service to the community on thepart of the interest taker in lending his money?"
"None whatever. On the contrary, it was by the very nature of thetransaction, a waiver on the part of the lender of the power of action infavor of the borrower. It was a price charged for letting some one elsedo what the lender might have done but chose not to. It was a tributelevied by inaction upon action."
"If all the landlords and money lenders had died over night, would ithave made any difference to the world?"
"None whatever, so long as they left the land and the money behind. Theireconomic role was a passive one, and in strong contrast with that of theprofit-seeking capitalists, which, for good or bad, was at least active."
"What was the general effect of rent and interest upon the consumptionand 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 werevery few, those who paid it were nearly all. Those who received interestwere few, and those who paid it many. Rent and interest meant, therefore,like profits, a constant drawing away of the purchasing power of thecommunity at large and its concentration in the hands of a small part ofit."
"What have you to say of these three processes as to their comparativeeffect in destroying the consuming power of the masses, and consequentlythe demand for production?"
"That differed in different ages and countries according to the stage oftheir economic development. Private capitalism has been compared to athree-horned bull, the horns being rent, profit, and interest, differingin comparative length and strength according to the age of the animal. Inthe United States, at the time covered by our lesson, profits were stillthe longest of the three horns, though the others were growing terriblyfast."
"We have seen, George," said his teacher, "that from a period long beforethe great Revolution it was as true as it is now that the only limit tothe production of wealth in society was its consumption. We have seenthat what kept the world in poverty under private capitalism was theeffect of profits, aided by rent and interest to reduce consumption andthus cripple production, by concentrating the purchasing power of thepeople in the hands of a few. Now, that was the wrong way of doingthings. Before leaving the subject I want you to tell us in a word whatis the right way. Seeing that production is limited by consumption, whatrule must be followed in distributing the results of production to beconsumed in order to develop consumption to the highest possible point,and thereby in turn to create the greatest possible demand forproduction."
"For that purpose the results of production must be distributed equallyamong all the members of the producing community."
"Show why that is so."
"It is a self-evident mathematical proposition. The more people a loaf ofbread or any given thing is divided among, and the more equally it isdivided, the sooner it will be consumed and more bread be called for. Toput it in a more formal way, the needs of human beings result from thesame natural constitution and are substantially the same. An equaldistribution of the things needed by them is therefore that general planby which the consumption of such things will be at once enlarged to thegreatest possible extent and continued on that scale without interruptionto the point of complete satisfaction for all. It follows that the equaldistribution of products is the rule by which the largest possibleconsumption can be secured, and thus in turn the largest production bestimulated."
"What, on the other hand, would be the effect on consumption of anunequal division of consumable products?"
"If the division were unequal, the result would be that some would havemore than they could consume in a given time, and others would have lessthan they could have consumed in the same time, the result meaning areduction of total consumption below what it would have been for thattime with an equal division of products. If a million dollars wereequally divided among one thousand men, it would presently be whollyexpended in the consumption of needed things, creating a demand for theproduction of as much more; but if concentrated in one man's hands, not ahundredth part of it, however great his luxury, would be likely to be soexpended in the same period. The fundamental general law in the scienceof social wealth is, therefore, that the efficiency of a given amount ofpurchasing power to promote consumption is in exact proportion to itswide distribution, and is most efficient when equally distributed amongthe wh
ole body of consumers because that is the widest possibledistribution."
"You have not called attention to the fact that the formula of thegreatest wealth production--namely, equal sharing of the product amongthe community--is also that application of the product which will causethe 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 ofthe most efficient system of wealth production was conformity on anational scale to the ethical idea of equal treatment for all embodied byJesus Christ in the golden rule?"
"No doubt, for they falsely taught that there were two kinds of sciencedealing with human conduct--one moral, the other economic; and two linesof reasoning as to conduct--the economic, and the ethical; both right indifferent ways. We know better. There can be but one science of humanconduct in whatever field, and that is ethical. Any economic propositionwhich can not be stated in ethical terms is false. Nothing can be in thelong run or on a large scale sound economics which is not sound ethics.It is not, therefore, a mere coincidence, but a logical necessity, thatthe supreme word of both ethics and economics should be one and thesame--equality. The golden rule in its social application is as truly thesecret of plenty as of peace."