i I! : William W. Crehore fyxmll Wimvm^ Jihmg THE GIFT OF Jr'Wjph^..i.M..H-uiS^ A.2q.l37^ Z?fv7iI//3 6561 U.uf^.'Mj^^ f^ ^!>^^^- The date shows when this volume was taken. To renew this book copy the call No, and give to the librarian i E^ HOME USE RULES. All Books subject to Recall Al! books must be re- turned at end of college year for inspection and repairs. Students must re- turn all books before leaving town. Officers should arrange for the return of books wanted during their absence from town. Books needed by more than one person are held on the reserve hst. Volumes of periodi- cals and of pamphlets are held in the library as much as possible. For special purposes they are given out for a limited time. Borrowers should not use their library privileges for the bene- fit of other persons. Books of special value and gift books when the giver wishes it, are not allowed to circulate. Readers are asked to report all cases of books marked or mutilated. I DM Do not deface books by marks and writing. Cornell University Library HF1756 .091 Protection's brood 1924 030 185 668 The original of tliis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924030185668 PROTECTION'S BROOD A PRESENTATION OF THE DIRECT AND INDIRECT CONSEQUENCES OP THE CONTINUANCE OP A PROTECTIVE TARIFF SYSTEM IN THE UNITED STATES, — AND A DISCUSSION OF SOME OF THE SERIOUS PROBLEMS WHICH HAVE NATURALLY ARISEN IN CONNECTION WITH OR BECAUSE OF TOO LONG AN ADHERENCE TO A PROTECTIVE POLICY. BY WILLIAM W. CREHORE *'To him who hath shall be given; and from him who hath not shall be taken away even that which he hath." NEW YORK PRINTED FOR THE AUTHOR BY J. J. LITTLE & IVES CO. 1912 Pi-msiG ' COPTBIGHT, 1912, BY WILLIAM W. CBEHORB CONTENTS UGE iNTEODUCTIOliT 9 CHAFTER i. I. The Consumer and the Producer ... 21 II. How Prices are Affected by Natural and Artificial Conditions .... 31 III. Organization and Combination. — The Use of Power to Control Legislation . . 43 IV. Extravagance, Greed, and Corruption. — Class Distinction. — Publicity ... 59 V. Overproduction and Business Depression. — The Foreign Element in Our Laboring Population 83 VI. Domestic Manufactures for Foreign Trade. — Free Raw Material. — Prosperity . . 105 VII. Stock Watering as a Result of Excessive Profits. — Government Control for Pub- lic Utilities. — Publicity as a Method of Control 123 VIII. Monopoly vs. Competition. — The Sherman Anti-trust Law 147 IX. Waste of Natural Resources. — Special Problems 171 X. Combinations for Handling Food Products. — The Part Played by the Railroads. — Discouragement to the Farmers. — A Compensating Internal and External Revenue Tax as a Substitute fob the Protective System 215 INTEODUCTION. The original advocates of a tariff for protection in this country were compelled by the ravages of a great civil war to find a method of increasing revenue for meeting the obligations of our gov- ernment. Previous to the War between the North and the South our tariff laws were framed on the basis of a tariff for revenue only. After the war it was thought wise by the party in power to ar- range a tariff schedule which would incidentally benefit certain manufacturing interests, and at the same time add materially to the income of the Federal Government. The men who suggested this innovation and those who were intrusted with the task of prepar- ing the tariff schedules were at that time high in the confidence of the Eepublican Party. They felt particularly the responsibility which accompanied victory in the terrible scenes of the preceding years and they assumed the task of raising addi- tional revenue with a deep sense of their duty to an impoverished country. In the discussions which 9 10 PROTECTION'S BEOOD marked that period the feeling evidently pre- vailed that a protective tariff ought to be adopted mainly for the purpose of raising revenue, and only incidentally for the protection of infant in- dustries. It was argued that by the adoption of protection certain lines cf manufacturing could be undertaken in this country which had not pre- viously been thought to pay, and that by the aid of protection during the first few years of their existence they would then be firmly established on a basis which would be self sustaining. It was only because of the difficulty and uncer- tainty in determining how long a period protec- tion should be continued in each case that a time limit was not incorporated in the tariff laws framed ia those days. Even as late as 1878 and 1879 the sentiment among prominent leaders of the Eepublican Party was for a protective tariff whose tenure should be limited merely to the ex- tent of establishing each protected industry upon a firm commercial basis, and after that it should be withdrawn. "I am for that kind of Protec- tion," said James A. Garfield on the fioor of the House of Eepresentatives, "that leads to free trade. ' ' The tariff schedules in those days were not dic- tated by the protected interests. There was no lobbying or logrolling at the National capitol to obtain governmental favors for certain special in- INTRODUCTION 11 terests, because there were no special interests that were strong enougli to be of influence in shaping legislation. These favors were handed out after due and careful deliberation by men whose standing and reputation were beyond dis- pute, in accordance with their theory of benefiting the general business condition of the country and at the same time of helping the public treasury. There were in those days two principal argu- ments which were advanced by the advocates of a protective tariff, both of which seemed to carry about equal weight. First, there was the argu- ment for an increased revenue made necessary by the condition of the country, and incidentally for the advantages that would accrue to certain man- ufacturing industries by temporarily and par- tially excluding the goods of their foreign rivals until they should be in a position to compete on ■ equal terms. Second, there was the political ar- gument that even though more wealth could be acquired on a free trade basis it was more ad- vantageous for any civilized nation to cultivate several lines of industry and to broaden the scope of its markets, than to adopt exclusively those occupations which depended upon certain natural advantages not possessed by people of foreign nations, merely because these occupations were more remunerative in themselves. In this politi- cal argument it was held that money was not the 12 PEOTECTION'S BEOOD only tiling to be desired in this life, that for the most rapid advancement of the arts of civiliza- tion a diversity of employment was desirable, and that without government aid for this purpose the chief occupation of our people would be the devel- opment of the natural products and resources of the country while the higher arts of manufactur- ing and trade would be neglected. The writer is not one of those who believe that it was a mistake to adopt a policy of protection in those early days. Indirect taxes have always proved less burdensome or at least have been less easily recognized by the taxpayers and have, therefore, been more easily collected than taxes which are directly imposed at regular intervals. Furthermore, there is always less friction and less complaint resulting from an indirect method of taxation. After the Civil War our government was burdened with great debt to remove which it was necessary to increase taxation. It seems to have been wise on the part of those responsible for the then adopted method to extend encourage- ment to certain lines of industrial activity and while raising funds for the expense of the gov- ernment to help establish on a firm basis indus- tries which at that time either could not or would not have been undertaken in this country but for the protection thus given. Looking back over the situation across the forty years which have since INTEODUCTION 13 intervened, it can be said with confidence that many of our manufacturing industries which have flourished and are still flourishing owed their ex- istence in the beginning to the aid of a protective tariff, but it can be said with equal confidence that all of these are now and have been for many years able to hold their own in competition with their rivals anywhere in the world. In proof of this we can point to the gradual and steady in- crease of exported manufactures from this coun- try during the last two decades. The adoption of any law is and always will be a matter of compromise. So when the protective tariff of those days was adopted there were many points which did not satisfy the men who inspired the original proposal. Taxes were placed on raw materials like coal, iron and other minerals which were not in accordance with a true theory of pro- tecting infant manufacturing industries because the infants had to depend on these raw materials for their life and growth. This early departure from the true theory of protection (if there is such a theory) was the first serious mistake. To be sure, a tariff on imported coal, iron and other raw materials encouraged the development of our own mineral resources, but in the light of our present knowledge such encouragement was su- perfluous. As a result all our natural resources are now being rapidly exhausted and enormous 14 PROTECTION'S BEOOD wealth is being accumtilated by certain private interests which are thereby enabled to control the situation. Unquestionably there has been much develop- ment in this country that would otherwise not have taken place during the last forty years nor possibly during the next forty years if it had not been for the fostering influence of a protective tariff at the beginning. It is of common knowl- edge at this date, however, that the original pur- pose of granting incidental government aid has long been fulfilled. Because no time limit was set when government aid should be withdrawn the advantage obtained has been cumulative in its ef- fect, and the weak infant industries have become stronger than the strong; — the child is father to the man. Although this result is commonly recognized yet the system of protection has become so firmly intrenched in the policy of our government that it is a great problem how to control the steadily increasing power of these beneficiaries and how to reduce their advantage to an equitable basis. Be- cause nothing has been done to check these power- ful influences which are already reaching out for government control, those who are not benefici- aries under our tariff system have been seriously embarrassed and placed more and more at a dis- advantage in their business, so that the time is INTEODUCTION 15 approacMng when they will be heard from in no uncertain tones. The chief objection to any bounty system is the firm grip it eventually obtains on the community ; the task of shaking it off is almost hopeless. The longer the bounty is maintained the more power- ful the favored ones grow, and the less chance there is to procure its removal. This is the expe- rience of all civilized nations in the matter of a protective tariff. It has long been generally realized that some- thing should be done to check the growth of power among the protected beneficiaries, but the only serious effort in that direction yet under- taken has been exerted along the lines of govern- ment regulation of corporations. Such efforts do not strike at the source of the trouble and are con- sequently ineffectual by themselves. While the subject is being discussed and remedies suggested its importance is rapidly increasing. The bene- ficiaries of our system have grown from infants to giants of finance as well as of industry, and the difficulty of regulating or reducing their power is steadily growing greater. It is, therefore, proper to inquire what the effect of this "stand-pat" policy will be upon the business interests of the country and to discuss whether or not this effect is ultimately going to be for the greatest good of the greatest number. In other words, toward 16 PEOTECTION'S BEOOD what conditions are we tending under the present policy of protection and are these conditions en- tirely satisfactory now or will they become so by a further adherence to a "stand-pat" policy? In the pages which follow the intention has been to present some of these questions in a new light and to show an intimate connection between our system of protective tariff and some of the evils which at present beset society in this country. In the gradual development of the subject it is ex- pected that the following facts will be reasonably established. 1. Our long continued high tariff system is largely responsible for the enormous growth of corruption in politics and in high finance. 2. Our high tariff system enhances the cost of living and for this reason produces a higher labor cost. It is not because the cost of domestic labor is high that we require a high tariff, but it is be- cause of a high tariff that our labor cost is high. 3. Our high tariff system has brought about al- most absolute control of our natural resources by wealthy oligarchies, and the exploitation of these natural resources has been managed with wanton and profligate waste for the sake of quick profits. 4. By the exclusion of foreign competition our tariff system invites and encourages the forma- tion and maintenance of combinations and trusts formed to annihilate domestic competition also, INTEODUCTION 17 the latter following the former as a natural and logical consequence in the evolution of business. 5. The system is further responsible for fre- quently recurring periods of over-production fol- lowed by business depression. Indirectly, there- fore, it causes periods of idleness with the usual accompaniment of crime among the lower classes. 6. On account of the restricted market result- ing from the system combinations are formed to handle all farm produce and food stuffs so as to enhance the middleman's profits. These combina- tions act not only to depress the farmer's profits and consequently to discourage his industry, but also to attract labor from the rural districts into the cities where it is generally true that a living can be made with less effort than in the country. 7. The tariff system is causing the separation of society into classes. A man with money, no matter how he got it, may buy his way to the top. Social distinction apparently is based on different degrees of wealth, regardless of education or at- tainment in other directions. It is so much a part of business custom to overlook moral irregulari- ties that those in high society do not question the methods by which its members obtain their wealth or financial distinction. A large class of tariff beneficiaries has grown in wealth and has re- moved itself socially to a distance from those who are not direct beneficiaries. 18 PROTECTION'S BROOD 8. Over-capitalization, stock-watering, and ex- cessive capitalization of surpluses are processes based on enormous profits such as could not have been obtained in an open world's market on a free trade basis. 9. The high tariff system because of excessive profits induces extravagance, not only among its own beneficiaries, but thereby creates a sort of fashion or standard of extravagance which is em- ulated by others lower down the social scale who having thus acquired wasteful and improvident habits in prosperous times are usually left with- out means of support in times of business depres- sion. 10. Our system of protection has outlived its usefulness and is becoming a positive menace to the freedom of our institutions, to the opportunity of the middle and lower classes to make fair prof- its or a fair living, and to the moralities of all who are engaged in business from the top to the bottom. 11. The system has been in force so long now that even its complete removal would not break up the combinations or monopolies which own our natural resources, unless supplemented by a gov- ernment supervision insuring complete publicity of their acts and an impartial enforcement of the laws. 12. Our railroad system has come to be just as INTEODUCTION 19 important a factor in sustaining monopoly as tlxe protective tariff was in producing and developing it. A monopoly's hold on life is multiplied many fold by the little favors within the power of every railroad to grant or withhold. Enough has been written and published of late, as the result of both public and private investiga- tions into this and cognate subjects, to justify some general discussion and to indicate some gen- eral conclusions without reference to concrete ex- amples as a basis for the argument. In fact con- crete cases within the reader's own experience are sufficiently numerous to enable him to judge of the soundness of the views herein presented. Then, too, arguments to be convincing must be based on the average of many individual cases, and cannot rest securely on isolated events se- lected at random. No comparisons are drawn between the United States and the countries of Europe as to the effect of a protective tariff or the lack of it, because the prevailing conditions are so different in each case. The great discrep- ancy in the density of population renders futile most of the arguments based on comparison. It may be said, however, that the average condition of the laboring class in free-trade England is nnach better than it is in any of the continental countries having a protective tariff system, and that Great Britain's wealth per capita continues 20 PEOTECTION'S BKOOD to exceed that of any other country in the world. It is intended to present this subject in a way that will be easily understood, so that the reader may draw on his own daily experience and obser- vation for confirmation of the facts and deduc- tions here set forth. The average man is giving more thought to social problems than he ever did before, and it seems worth while to indicate how, by starting with certain definite and well-founded premises, he may arrive at reasonable conclusions for himself. Some will think our treatment of the subject too elementary and will be inclined to de- preciate its value, — ^but if the reader is helped to a better and more logical understanding of a com- plex subject and is awakened to a clearer knowl- edge of the situation that confronts him, an ade- quate excuse will have been found for the manner of its presentation. December, 1911. PROTECTION'S BROOD CHAPTER I. The Consumer and the Producer. At the outset it will be helpful in a study of the situation to outline briefly some familiar and well- established principles of social economics. The individual, who may or may not be engaged in manufacturing or producing, is primarily affected by the ratio existing between the price of what he has to sell and the cost of what he needs to buy. The average individual is both a producer and consumer. Every man's business prosperity is affected by every other man's powers both of production and consumption. Each one's con- suming power depends immediately upon his pro- ducing power which in turn depends upon the consuming power of others. If any link in this endless chain of supply and demand is tampered with, it breaks down and repairs are necessary. Meantime the power of the whole chain is im- paired. For instance, when consumption is tem- 21 22 PROTECTION'S BEOOD porarily checked in a certain line of goods, the market immediately becomes overstocked mitil production of these goods is stopped or curtailed, which stoppage deprives many of their employ- ment and at once contracts the general consuming power of the producers of these goods. Or, on the other hand, if production in a certain line of goods is temporarily checked, they become scarce and the price advances; this requires a greater outlay on the part of those who are compelled to have them and thus reduces their consuming power in other directions. In fact, a man's con- suming power is diminished by paying an in- creased cost for any commodity, no matter for what purpose the increase was levied or to whom it goes. So delicate is the balance between sup- ply and demand and so easily may the beam be tipped by artificial conditions. Money as everybody knows is only a medium of exchange. It cannot be eaten nor can it be used as clothing. The advantage to a consumer of pos- sessing money is that he may procure with it what he needs to buy. On the other hand if he can ex- change his own labor or the goods which he man- ufactures for things which he needs to buy in amounts of equivalent value he will be just as well off as if he had exchanged them through the medium of money. Money, therefore, exists for the convenience of buying and selling and is CONSUMER AND PRODUCER 23 simply a convenience, permitting a distribution of sales to be met by a concentration of purchases or vice versa. A consumer of shoes may be a pro- ducer of woolen goods and through the medium of money he will exchange a portion of his woolen goods for shoes, but he is a consumer of many other things besides shoes although he is a pro- ducer only of woolen goods. He is dependent for his consuming power upon the market in woolen goods, and his prosperity is advanced or curtailed in proportion to the demand for woolen goods. It is a common error to suppose that the con- sumer is in a class by himself apart from other people. Every man is both a consumer and a pro- ducer unless he is living on the surplus of an- other's production or of his own production of an earlier period. These are only apparent ex- ceptions to the rule since the capital on which he is dependent is itself a producing power, so that it may be repeated as an unqualified truth that every man is both a consumer and a producer. What is true of individuals in this respect is also true of organizations of individuals or so- called corporations. A manufacturing corpora- tion sells the finished product of which it is the producer. This same corporation, however, is a consumer of raw material, and in turning out its finished product a certain quantity of raw mate- rial is required, so that the manufacturer is im- 24 PEOTECTION'S BEOOD mediately dependent for his margin of profit both upon the market for his raw material and upon the market for his finished product. The indi- vidual as a consumer may think that he needs to buy very many articles which in reality might be dispensed with, but a manufacturing corporation will ascertain exactly what articles and how much of each must be purchased to put into each unit of its finished product. It is clear therefore that a corporation in its business relations solely is both a producer and a consumer, and it is also clear that in many cases what constitutes the finished product of one corporation is for another the raw material. For instance, pig iron is the finished product of the blast furnaces and is sold to the foundries as raw material. In the same way steel billets are sold to the mills as their raw material and again the product of the steel mill is sold as raw material to the contractor who fabricates it for a finished structure. This process might be followed through many other lines of industry, and with the ad- vance of manufacturing pursuits in this country ramifications and subdivisions of industry have increased and multiplied to a wonderful extent, untU it is a vexed question with corporate man- agers themselves to know whether ultimately the greatest advantage would result to them from an advance in the price of their finished product or CONSUMEE AND PEODUCER 25 from a reduction in the price of their raw mate- rial. One of the elements of cost and nowadays easily the chief element in the production of most manufactured articles is the wages paid to labor. The laborer is an individual producer who sells labor. He is also an individual consumer requir- ing food and clothing and a home in order to keep him in proper condition for producing labor. It becomes at once of primary importance to him that the ratio of the value of what he has to sell to the value of what he needs to buy shall be as great as possible, because his scale of living and therefore his social standing is determined by the amount of the margin between these two values, and this surplus either represents his power for enjoying the luxuries of life or makes him through the medium of the savings bank an integral factor as a capitalist. That is to say, if he does not spend his surplus on luxuries he becomes a capi- talist to the extent to which he has saved his money and is loaning it out at interest. It is obvious that if a detailed analysis of all branches of industry were undertaken the net- work of interdependence of one individual upon others or of one corporation upon others would be found wonderfully intricate, and therefore any change affecting one industry or one branch of in- dustries must eventually be far reaching in its 26 PEOTECTION'S BROOD secondary effects almost beyond calculation. As a result an assignment of tlie causes of any general uplift or depression of business is difficult to make. Every consumer or producer is affected not only by what happens to himself directly but also by what happens to others and thence to him- self indirectly. The fact also that every con- sumer is a producer further complicates the analysis. Prosperity is only a relative term when ap- plied to any particular line of business. A large demand requiring an increase of the supply makes a business seem prosperous, but a large demand for diamonds might not be called a large demand for steel, each being measured in dollars. In fact the demand for diamonds would be termed large or small in accordance with the average prevail- ing market for diamonds, and similarly with the demand for steel. In times of financial distress the demand for foodstuffs and other necessities of life is practically the same as at any other time but the demand for luxuries falls off tremen- dously. Hence during a general business depres- sion it may be that some lines of business will still be prosperous. In the main, of course, collateral advantages and disadvantages should be taken into account as well as the immediate advantages which will accrue from any change in legislation or the adop- CONSUMER AND PEODUCER 27 tion of any new policy of government. "We may define the immediate advantages as those which affect business interests immediately and directly. Since, therefore, a change may affect some indus- tries immediately and directly while it may affect others indirectly or remotely or even not at all, it may be concluded that whatever is an immedi- ate advantage to certain lines of industry may be only a collateral advantage to other certain lines of industry or may be a positive disadvantage. To illustrate, take the case of a tariff on woolen goods not made up into clothing. This tariff is of direct and immediate advantage to all producers of woolen goods enabling them to charge for their product in the home market an amount equal to ithe foreign price of woolen goods plus the tariff. This same tariff on woolen goods compels the manufacturer of finished clothing to pay an in- creased price for his raw material, so that he is obliged to charge the ultimate consumer of the clothing an increased price by the amount of the tax on his raw material. What, therefore, in this instance directly benefits the producer of woolen goods is a burden on the producer of finished clothing and is an increased burden on the ulti- mate consumer. There is a slight collateral ad- vantage to the producer of finished clothing in the fact that his profit is a percentage on his cost price and would therefore be slightly increased 28 PROTECTION'S BEOOD by the extra amount paid for Ms raw material. The ultimate consumer thereby also pays a higher price than would be required by the tariff on the raw material alone. The chief disadvantage to the producer of clothing is of course in the re- striction of his market because of the artificial price he is obliged to charge for his product. In the particular instance cited above the pro- ducer of woolen goods is the only one directly benefited by the tax. Practically everybody is a consumer of woolen goods in the form of finished clothing. If, therefore, the advantages which ac- crue to the producer of woolen goods from this tax do not outweigh in importance the disadvantages which accrue to the many ultimate consumers of finished clothing then it may be said that this particular tax is not beneficial in the aggregate, that is, con- sidering the sum total of its effects. The ultimate consumer of finished clothing reckons his disad- vantage by the increase in the cost of his clothing over what he would have to pay for goods of for- eign make. Two things must be taken into ac- count from his point of view : one is that by pay- ing the increased cost he is helping his govern- ment to obtain a larger revenue and, second, he is helping to increase the consuming power of the producer of woolen goods. The ultimate con- sumer on consideration discovers that his govern- CONSUMER AND PEODUCEE 29 ment is benefited by this tax only wben he buys imported goods, and when he buys domestic goods the home producer is benefited. He looks further and discovers that the benefit to himself from the additional consuming power thus conferred on the producer of woolen goods is so remote and minute as hardly to be recognized with a micro- scope. He, therefore, turns about and demands protection for his own business interests, what- ever line he may be engaged in, so that his advan- tages as a producer may not suffer in comparison with those of the producer of woolen goods. It is evident that the man whose line of busi- ness is profitable because of advantages due to nature and who can do well without the protection of a tariff duty on his finished product is not nec- essarily satisfied with this condition of affairs when he sees his neighbor under the protection of a tariff tax in some other line of business thriving all out of proportion with his own success. It is this discrimination which gives rise to great dis- satisfaction. It is not to be expected that the same treatment would be equally successful for all lines of industry, neither would it be possible to prepare a tariff schedule which would bear equally upon all its beneficiaries. Another diffi- culty is to prepare a schedule which will be equally beneficial under all conditions of the mar- ket. The more the market is restricted the more 30 PROTECTION'S BEOOD quickly changes take place which make p fixed rate of protection alternately either advantageous or disadvantageous. There is constantly being waged a strife between the consumer and the pro- ducer, and in an open field like the United States, where trade between all States is free, the effect of government aid for the producer and of a com- pensating tax for the consumer is to create com- plications in the general condition of business. For, the consumer and the producer are the same man. Each is benefited in the long run only as the direct government aid that he receives as a producer more than compensates for the tax he pays as a consumer. CHAPTEE II. How Prices are Affected by Natural and Artificial Conditions. Figures are not needed to show that the cost of living in the United States during the last twelve years has been gradually and continuously in- creasing without regard to general business con- ditions or a financial crisis. It can be shown that the cost of living began to increase at a more rapid rate soon after the passage of the Dingley tariff law than it had been increasing previous to that event. It is also true that during the last twelve years the world's supply of gold has been gradually increasing because of the discovery of new gold fields, and that due to this the cost of living in other parts of the world besides in the United States has also been increasing some. Why the cost of living should be affected by a variation in the world's gold supply should per- haps be briefly explained. Gold being now the monetary standard for the chief nations of the world, all prices are referred to gold as the stand- ard. One dollar in our money stands for and is 31 32 PROTECTION'S BROOD the exact equivalent of 25.8 grains of gold coin which is ninety percent fine. The amount of gold in the world is a varying quantity just as is the amount of cotton or any other commodity. When any commodity becomes more plentiful it natu- rally becomes cheaper, but when gold becomes more plentiful the monetary standard becomes cheaper, because the dollar is worth just the same 25.8 grains of gold, and 25.8 grains bears a smaller ratio to the total gold supply than it did before. If the total gold supply in the world re- mained always the same, then would gold be a real standard indeed. But it does remain fairly con- stant, more so than almost any other commodity, and this is one of the good reasons for its gen- eral adoption as the standard. "When, therefore, the supply of gold increases, its value, and hence the value of a dollar, decreases relatively to other commodities, and this makes the actual money price of the other commodities higher. Since, as has been shown, the consumer is re- quired under a protective tariff to pay more for what he needs to buy than he otherwise would, it follows that a protective tariff is one cause of a high cost of living. If the consumer who is also a producer is benefited by the protective tariff in his capacity as a producer more than he is injured by it in his capacity as a consumer he has no dread of a high cost of living, nor in fact is a high cost HOW PRICES AEE AFFECTED 33 of living relatively high from his point of view, because what might be called the artificial profit on his finished product can be and is applied to the artificial increment of his cost of living due to the same protective tariff, with the result that he is able to meet a high cost of living with the same expenditure of effort as that previously required of him to meet a lower cost of living under a lower tariff. But this does not apply to the average consumer. All consumers are not beneficiaries of the tariff in their capacities as producers. If it were attempted to formulate a tariff that would directly benefit everybody in his capacity as a producer such a schedule would be disproportion- ately prejudicial to everybody in his capacity as a consumer, and would have to include an item for every conceivable line of business industry. If such a schedule could be conceived it would yet be impossible to make it bear equitably on all lines of industry at all times. A comparison of the schedules of our present tariff laws with a list of the diversified business interests of the country would show that the former fall very far short of covering the latter. It may therefore be concluded that the average consumer is not a beneficiary of the tariff in his capacity as a producer. In real- ity only a comparatively few are directly benefited by the tariff. It is argued that a protective tariff is necessary 34 PEOTECTION'S BEOOD in order to enable manufacturers to pay better wages to laborers than are paid abroad for corre- sponding grades of service. It is intended by this argument to prove that the American laborer maintains a higher standard of living than his foreign rival and that it is a good thing for the country to have him do so. But owing to the fact that the laborer is himself also a consumer it be- comes necessary under a general system of pro- tection ,to pay somewhat higher wages to the laborer than are paid to his foreign competitor if he is expected to maintain merely the same stand- ard of living without any improvement on it at all. If it is desired to have him maintain a higher standard of living a further increase of wages must be given him to produce this result. The workingman comes into the market to sell his labor, which is subject to the natural laws of sup- ply and demand except in so far as he can by combination with other workmen form a labor trust and render the natural laws inoperative. The wages paid to the laboring man are not figured out on the basis of the cost of his living. There isn't an employer in the country who is willing to pay one penny more for labor than he is compelled to or than in the long run will be profitable. Consequently no basis exists for the argument that the amount of protection an indus- try should have is measured by the difference be- HOW PEICES AEE AFFECTED 35 tween domestic wages and foreign wages. Both are necessarily unstable quantities varying with the local supply and demand for labor. The laborer, on the other hand, is compelled to adjust the cost of his living to the amount of wages he receives, and, what has come to be recog- nized as more important, to the probable conti- nuity of service. The protectionists ' argument is that if the laborer's wages are high enough it makes no difference to him how much he has to pay for things to eat and wear. His opponents argue that because of the tariff tax on necessities the laborer is compelled to pay too much for things to eat and wear and without it he would be equally well or better off with less wages. It is this purchasing power of money which is the all-important thing to everybody and especially to the laboring classes; — what percentage of his earning power is required to buy his food, his clothing, and to pay his rent, — ^these are the vital questions affecting the comfort of himself and those dependent on him. The actual amount of his wages signifies nothing by itself until it is shown how much can be purchased with it. He can neither eat money nor wear it. To double his wages could have no effect upon his prosperity if the cost of everything he bought was doubled too. Thus the wage earner need not fear a reduction in wages which is accompanied by a correspond- 36 PEOTECTION'S BROOD ing reduction in the cost of things lie needs to buy. If a man who can save $1.00 per day out of his wages under a high tariff system, had both his wages and the cost of living diminished by a re- duction of the tariff, and could still save $1.00 per day just as before, he would be better off be- cause the purchasing power of that dollar after a reduction of the tariff rates would be greater than it was before. Therefore he would be just as well off as before if the re-adjustment left him somewhat less than one dollar a day. It is not the amount of income that counts, but the ratio existing between the price of what a man has to sell and the cost of what he needs to buy. For many years the American worMngman has been used as a tool to further the protected interests without being much benefited himself, and some- times greatly to his disadvantage. He has been taught to consider the size of his wages the all- important thing and to take no notice of the cost of things he needs to buy. He is now waking up to the fact that the latter has lately been increas- ing very rapidly each year, while his wages have not advanced proportionately. It is said by those whose experience has taught them that $1000 can be made to last about three times as long in Germany as in New York. If this is so a mechanic receiving $9.00 a week in Germany is as well off as one in New York re- HOW PRICES AEE AFFECTED 37 ceiving $27 a week. There are countries in which the purchasing power of gold is greater than it is in Germany, — for instance, Japan, China, and Mexico. It may be noted that the general effect upon the workiagman receiving the larger wage is to render him less provident and less careful than the workingman receiving the smaller wage, even though it be true that at the same time he lives better and enjoys what he has while he has it more than his more provident brother who saves part of his income. It is probably true that the observed differences between the rela- tive conditions of the European laborer and the laborer in this country are due to the fact that the foreigner has more provident habits and in his effort to lay aside provision for his old age necessarily lives on a lower plane than the corresponding grade of laborer in the United States who spends all he has from week to week. The correctness of this view is indicated by the large sums of money sent home every year by foreign laborers who come to this country. Much money earned here is subsequently taken or sent abroad to be spent by others living in foreign countries, because the money thus spent will buy more and will last longer. In one year foreign immigrants in the United States send away about $300,000,000 to be spent abroad. It is noteworthy that in recent years many 38 PEOTECTION'S BEOOD people whose income is derived from property and industries within the United States live abroad or spend most of their time in foreign lands where they can get more comfort for the same expenditure of money. Their money thus removed from this country together with the money spent by tourists traveling abroad, and the savings sent home by the foreign working- people who come here to get larger wages than they can get at home, all aggregate several hun- dred million dollars annually. This large fund leaves the country owing to the higher cost of liv- ing here than abroad. Many well-to-do people have for years been in the habit of taking their vacations in Europe and while there supplying themselves with clothing and other personal necessities for the season because they have been able to save much by so doing. The tariff laws and the advance in foreign prices during the last twelve years have made this process increasingly difficult, and a vigilant officer in the port of New York by a rigid enforcement of the law has re- duced the margin of profit on this custom very materially. Conflicting views are held on these questions by many educated thinkers and it still seems to be a question far from settled in the United States whether a protective tariff system with the collateral disadvantage of a high cost of liv- HOW PRICES AEE AFFECTED 39 ing is beneficial in the aggregate or not. The proper answer is that what is beneficial to the greatest number is more desirable than some- thing which is beneficial only to a few either di- rectly or indirectly. It has been shown that the laboring classes as a whole are taxpayers rather than beneficiaries under the system. The same is true of the farmer. It can be shown that the farmer has to pay more for his tools, his farm implements, his stock, and his labor than he would if there were no tariff. Similarly he is obliged to sell his produce in the open market in com- petition with the produce of the world without protection. There is, therefore, but one way in which the farmer can be even remotely benefited by the tariff and that is by the increased consum- ing power which the beneficiaries derive from the tariff. But this is offset by the decreased con- suming power of large numbers of others who are not direct beneficiaries of the tariff, so that eventually the farmer suffers heavily from the increased prices he pays, and the advantage he receives from the protective system is too ex- tremely small to compensate him. A general increase in a protective tariff will excuse a general advance in prices, and a continu- ous period under a high tariff will cause higher and higher prices because of the inevitable ten- dency to the formation of combinations that a high 40 PEOTECTION'S BEOOD tariff invites. This is not disproved by citing the case of any one commodity here and there for which the price has remained stationary or has fallen, although that particular commodity was one on which the tariff was raised. The intricate interdependence of all lines of business produces many apparent exceptions. An advance in the tariff on woolen goods would seem to indicate that the price of woolen goods should advance. If it did not advance within a reasonable period or even if it fell, this fact would not constitute a valid argument to prove that a general increase in protection did not advance prices. It might easily bo true at the same time that the advances in prices of other protected commodities which were more necessary to the needs and comfort of life than woolen goods had so reduced the general con- suming power of buyers that the demand for woolen goods fell off and thus caused a reduction of the price. Prices are first of all affected by the law of supply and demand, secondarily by other causes like legislation and indirect taxation. Whenever because of legislation or a special provision of nature there is a restricted supply of any needful commodity it then becomes possible to set its price without much regard to the demand. If at the same time competition has been eliminated by means of a combination or an agreement among HOW PRICES AEE AFFECTED 41 producers, the price can be set as higli as tlie traffic will bear. It is a most important achieve- ment from the producer's standpoint to be able to set this price where the most money can be made. This does not mean to set the price where the ratio of selling price to cost is the greatest that can be secured on each particular article of sale, but to set it where the largest profit can be made on the money invested in the busi- ness. For example, the price asked for any com- modity might be so high that no sales would be made at all. By lowering the price little by little sales would very gradually begin to increase and would continue to increase with the diminution of the price. If this process were carried on far enough the selling price would have dropped so near to the cost that all profit would be elim- inated and the business while still apparently in a most flourishing condition would really be con- ducted at a loss. It is obvious that there is a point between these two extremes of high and low selling price where the profit to the business would be a maximum. If the selling price could be accurately set just at this point no business would be lost except that which was unprofitable. That is to say, at this point of maximum profit the selling price is just high enough to make all the sales that are profitable. If it were the leaslf bit higher the loss of sales would more than offset 42 PEOTECTION'S BEOOD the increased profit on the sales made, and if it were the least bit lower the total loss on the sales would more than offset the increased amount of business thus obtained. It is evident that if the market for any com- modity becomes restricted, which is the same thing as saying that the supply is curtailed, the demand then being the same as it was before, the price must rise. Conversely if the price should rise from any cause whatever the demand would fall off, and consequently the supply could then be the more easily controlled. A protective tariff by increasing the price of foreign imports not only causes an increase of the domestic price, but also restricts the domestic market and conse- quently makes more easy combinations among producers. CHAPTEE III. Organization and Combination— The Use of Power to Control Legislation. Organization is necessary for the success of any- large undertaking. The Egyptian pyramids, probably the most wonderful engineering struc- tures of the ancients, were built by past masters in the art of organization. They were made pos- sible by the cheapness of labor and by its obedi- ence under competent leadership. The organized slave labor of that period was able to accomplish what the most powerful machinery of the present day could not accomplish. A group or com- bination of individuals properly organized is al- ways more efficient than the same individuals working alone. This statement needs no proof. If organization therefore is a good thing for industrial progress, the higher our civilization is the more completely will each industry be or- ganized for the purpose of reducing the cost of the output and of bringing the largest possible amount of business under a single administration. Organization in different individual lines of in- 43 44 PEOTECTION'S BEOOD dustry for many years followed the requirements of local conditions, and was necessarily more or less efficient according to the natural advantages or lack of such which prevailed in each locality. After the railroads began to be extended and to assume increasing proportions it was apparent that nat- ural conditions might be largely modified by the artificial help and assistance of the railroads or the lack of it. By means of railroad connection different widely separated plants were brought into close contact with each other and with the market for their products. Incidentally it thus came within the power of the railroads to ad- vance or retard the prosperity of any industry or locality by a well directed distribution of favors. Organization in the beginning of a process of manufacture must be followed all the way through by equally effective organization even to the plac- ing of the product on the market. An efficient organization in the factory may be entirely offset by a poor organization in the selling department, and thus the efficiency of the one may have to share in the general deficiency of management of the whole business. It is consequently of impor- tance that each succeeding process in the manu- facture of the output through the shipping and sales departments right down to the consumer himself shall be under an efficient and thorough organization for the purpose of keeping down OEGANIZATION 45 the cost and enhancing the profits of the busi- ness. When the Great Eastern was launched for the purpose of laying the first Atlantic cable it was freely predicted that no other use could ever be found for such a big boat and that the time would never come when steamships of her dimensions would be found profitable for the ocean carrying trade. A few years after the cable work was finished the Great Eastern was actually consigned to the scrap heap. In the forty years which have passed since then we have seen the size of ocean steamships gradually grow to exceed that of the Great Eastern until now the ocean carrying trade by several of the Atlantic lines is transported in ships measuring thousands of tons in excess of the Great Eastern and several hundred feet longer. The growth of organization in this country is no less remarkable than that of the Atlantic steamships. "When the power of organization in a small business is completely utilized and has been proved in competition with rivals whose business is not organized or is less efficiently or- ganized, naturally the next step in progress is to enlarge the business and to extend the or- ganization so far as the resources of the man- agement will permit. It having been found also that no link in the chain must be omitted if the 46 PEOTECTION'S BEOOD Mgliest efficiency is to be obtained, and tbat ef- ficiency in the sbop or the mill must be supple- mented by efficiency in the shipping department and in the selling department in order that the result may prove in the highest degree success- ful, what is more natural than that the organiza- tion should be extended in the other direction back of the shop and the mill to the place of assembling the raw material and back of that again to the business of procuring the raw material out of the ground? It was only necessary to build a tariff wall around the producers of raw material in this country to show them at once how with competi- tion narrowed down in that way a few more powerful and better organized men among them could either buy out or force out the weaker ones and by offensive and defensive agreements be- tween themselves easily control the situation. In this way the supply of coal in this country was eventually controlled by a few men; likewise the supply of iron ore, of petroleum, of copper, of lead, of zinc, and even of silver. It has finally come to this that just as soon as new sources of supply of raw material are discovered the first and almost the only problem considered by the discoverers is how they may sell out to the trust or combination which controls that particular kind of material. These combinations, each in its dif- COMBINATION 47 ferent line, so completely control the situation that any attempt to work small localities inde- pendently is almost sure to meet with failure if the combination controlling that kind of material chooses to oppose it. It is very evident that these things could not have reached their present gigantic proportions if our manufacturing industries had been able to import from foreign countries free of duty such raw materials as they had need of. It would not then have been possible for the few who control our sources of supply to maintain a monopoly of this control. In order to form a combination in the world's market for any particular raw ma- terial it would have been necessary to control the output from every different country on the face of the earth where such material was found, and to control also the transportation of it not only to this country but to every country. Such control would fn the great majority of cases be impossible owing to the necessity of espionage and enforcements of agreements at widely sep- arated points all over the world in different countries, under different laws, customs, and lan- guages. Any effort to do in the whole world what has been done in the United States in the way of combination of industries for the control of raw material would be successful only in the very few instances where the raw material sought 48 PEOTECTION'S BROOD to be controlled existed in two or three isolated spots on tlie earth's surface. The manufacturer having learned the value of organization and wishing to reach out to include more processes within his administration natu- rally looks back to the industries which are fur- nishing him with his raw material. There he finds a few individuals who by agreement among them- selves control the situation, and he finds that nothing is easier than to extend his organization by agreement with these men. Thus this manu- facturer has an immediate advantage over all competitors in the obtaining of raw material. The result is that eventually his combination or trust forms a continuous line directly from the producer of the raw material down through the mill, the shop, the shipping agency, and the sales agency into the hands of the consumer. All along this line are imposed additional tariffs for pro- tection ostensibly to cover the difference in cost between the domestic and foreign labor, so that the ultimate consumer finally pays a price which includes protection for the producer of the raw material, for the mill operator, for the manufac- turer, for the shipping agency and for the sales agency. The way in which our protective system most seriously disturbs the natural operation of the laws of supply and demand is through these com- COMBINATION 49 binations of similar interests, commonly called "trusts." These are usually corporations which by means of the tax which effectively keeps out foreign competition are enabled so far to con- trol the natural products and resources that they can and do fix the prices of said products inde- pendently of any competition and limited only by the demand. These combinations operate in restraint of trade by restricting the supply, thus enhancing the price and diminishing the general consuming power of those who are compelled to pay the increased price. But there follows an- other far reaching effect. Our forests and mines are yielding up their wealth regardless of waste and future shortage. Local climates are affected and unseasonable floods are caused by indiscrim- inate denuding of the hills and mountains, and the subsequent loss of crops and damage to prop- erty falls on those who are very far from being directly benefited by the tariff. Most of our west- ern mines are only half worked, the cream of the ore being taken to make quick profits; while the less desirable ore, which might be worked economically in conjunction with the other, is left behind. The enormous consumptive power of our people is a stimulating market, and with the grow- ing power derived from accumulating wealth and immunity from foreign competition these great combinations have in their control the destiny of 50 PEOTECTION'S BEOOD the Nation, if they can continue to deceive the people as to the real source of their tremendous power. Our National policy being one of protection, and the protected favorites being highly inter- ested parties, we find that much of our legislation on this subject has been made "by and with the advice and consent" of the direct beneficiaries of this system. It is no secret that these people send special envoys to lobby in Congress and to plead in the committee rooms for a continuance or an increase of tariff favors whenever it is proposed to make the slightest revision ; and until very recently their generous contributions to the campaign fund of the high tariff party have en- abled them practically to control the situation. On account of their indispensable contributions the high tariff party has played into their hands openly and with undisguised freedom, and the public has become so inured to the process that it is now considered a necessary preliminary, be- fore any revision is made in the tariff laws, to give the representatives of its beneficiaries a full opportunity to be heard in the committee rooms of Congress. The recent movement to check campaign contributions from large corporations has had a good effect in reducing implied obliga- tions of the Eepublican leaders in both houses of Congress, and has brought about such a condi- THE USE OP POWER 51 tion in Congress that its members are more ready to undertake the subject of tariff revision than heretofore. So long as the protected interests were allowed to make large and generous con- tributions to political campaign funds they natu- rally expected the special favors of the high tariff to be continued and so long as these contribu- tions shall be continued in any form whatsoever, whether legal or illegal, any legislation which is inimical to the protected interests will be well- nigh impossible under the rule of a high tariff party. It works around in a circle. The pro- tected favorites actually bought their favors from the Party in control, and this form of bribery and bartering away of the people's rights is the first corrupting influence of unequal tariff laws. The example set by Congress is followed less scrupu- lously in the State legislatures when special fran- chises or favors are to be obtained whether the people care to grant them or not. From this on to municipal governments and finally down to private business affairs men's consciences every- where show the strain of having been stressed beyond the elastic limit. This may be set down as another far reaching result of a policy of protec- tion. Now in the nature of things legislation pro- cured in this way and with the avowed purpose of favoring certain interests, cannot be either 52 PROTECTION'S BEOOD equable or equitable in its operation. If our tariff laws were framed in justice to all for pro- curing revenue only, they would impose a hori- zontal percentage tax ad valorem on every im- ported article of whatsoever nature, absolutely the same rate in every case ; or else, would impose on a few selected articles of luxury or necessity an internal and external revenue exactly equal in amoimt, each to each.* Any other distribution of the tax must necessarily be uneven and operate to overtax some for the benefit of others. Whereas an uneven method of taxation might be tempo- rarily beneficial if wisely arranged, it will not be denied that the individual who is discriminated against will sooner or later become discontented and wish for a re-adjustment. The great com- plexity of the subject is emphasized when dealing with single instances which can be made to prove almost any assertion made by either side. For this reason deductions should not be made from single instances but the subject should be studied as a whole and conclusions should be deduced from the effect on a majority and not from the effect upon a few. The scandal of purchasing favorable legisla- tion which has been carried on for nearly a gen- eration by the protected beneficiaries has at last * See Chapter X for discussion of this method of raising revenue. CONTEOL OF LEGISLATION 53 aroused a wholesome opposition. The people are fast realizing that protection means special leg- islation for the few and indirect taxes for the - many. Favors shown to the protected benefici- aries are no less than Government bounties. They are in reality taxes levied on the consumers and paid directly to the protected producers with- out even a pretense of using any part of these taxes for Government revenue. The only revenue derived by the Government in connection with a protective tariff is the duty paid on imported ma- terial. According to the original theory protec- tion was to be incidental to the main purpose of raising revenue for the Government; if the mod- ern practice of protection be carried to its logical conclusion the tax should be so high that there will be no imports at all and consequently no re- sulting revenue for the Government. Those who are sincere in their belief in protection as the forerunner of prosperity think that the con- sumers in the United States should not be al- lowed to purchase foreign goods but should be compelled to spend their money at home. The two great political parties in the United States have usually been aligned on opposite sides of this question and the long continuance of Ee- publican rule has furnished an opportunity to know what policy the Eepublican Party stands for, while it is equally true that the very brief 54 PEOTECTION'S BEOOD interval of the two disconnected Cleveland admin- istrations was not sufficient to establish definitely what the policy of the Democratic Party actually is on this subject. Promises are not always sup- plemented by performance, as is well known in the case of the Eepublican Party; and the same statement would be found true in the case of the Democratic Party if there were sufficient perform- ance of the latter during the last forty years to make any valuable deductions in regard to it. The Democratic Party is under great disadvan- tage in comparison with the Eepublican Party in respect to its stand on the subject of a protective tariff. In the Eepublican Party men strive to control legislation because they can thereby direct tariff favors their way. In the Democratic Party honest men do not have this incentive to control legislation. A man may be a Democrat and profess to be opposed to a protective tariff on principle, but when it comes to removing the tariff affecting his own line of business or some commodity in which he is financially interested he works and acts like a Eepublican for the time being, forgetting his principles and assuming a cloak of insincerity. A Eepublican may work for his own creed in perfect sincerity, for it is well known that he is actuated by selfish motives in this matter, and it causes no remark. With the Democrat on the other hand the situation is a CONTROL OF LEGISLATION 55 difficult one, since if he does not adopt selfish motives he loses an opportunity to become a beneficiary, and if he does adopt selfish motives he must renounce temporarily the principles of his creed and become insincere. To a very large extent the uncertainty and insincerity of individ- uals in the Democratic Party on the subject of protection is responsible for this Party's weak- ness during the last forty years and for the lack of good leaders within it. No man can work sincerely for the people at large to procure a re- vision of the tariff downward if at the same time he is secretly working to maintain or push upward the schedule on articles in which he is personally interested. For this reason we find few real beneficiaries of the system in the ranks of the Democratic Party, so that it is logical to expect the Eepublican Party, being composed of tariff beneficiaries and those who think they are, to be the Party of wealth and consequently to main- tain its ascendency by the use of wealth. A portion of the laboring population, chiefly the skilled workmen, also vote and work with the Eepublican Party. They have been taught for many years that protection is primarily for their benefit and that if protection were removed their wages would be reduced and the opportunity for employment would be much less than it is. It has already been shown that the workingman in 56 PROTECTION'S BROOD his capacity as a consumer is taxed very heavily and that the cost of his living has been steadily increasing under the influence of a protective tariff. To some extent his wages have been in- creased, but not proportionately. If the cost of his living and the amount of his wages were each to be reduced by the same amount he would still be just as well off. He has been taught, however, not to consider this fact but to vote blindly for the maintenance of a high tariff on the ground that he is one of the chief beneficiaries. Recently a strong movement has been begun by the labor organizations to enlarge their benefits under the protective tariff to an amount com- mensurate with the increased cost of living. In other words, labor is trying to get its share of the benefits of protection. This movement is virtu- ally a recognition of the fact that in the past labor has not been getting its share of the benefits of protection. Thus it is a tardy acknowledgment that the workingman has been misled by the Re- publican leaders. But there is evidence of the use of other tactics. It is of common knowledge that throughout the manufacturing districts many corporations intimate to the workingmen in their employ how they should vote and the workingmen naturally assume that a disregard of these hints would be followed by dismissal from service. This method of coercion is not so general as it CONTEOL OF LEGISLATION 57 used to be a few years ago and lias been made an unlawful practise in some States, but it still sur- vives and is another indication showing how the power of wealth is applied in the maintenance of a system framed for the benefit of certain special interests. Owing to this very protective tariff issue there has been of late years an increasing amount of dissatisfaction within the ranks of both great Parties, and a new alignment is taking place with the progressive element of both Parties on the one hand and the conservative element on the other. By whatever name they are called the Progressives will include those who realize the necessity for prompt action in dealing with the important problems incident to and following from the operation of the present system, and the Conservatives will include those who have bene- fited greatly under the system and who therefore believe in letting it alone or perhaps in modifying it only slightly. The Conservatives will hold back on any proposed change for fear that in haste a mistake will be made which will cause them to repent afterward; but the Progressives will favor reasonably prompt action in these mat- ters on the ground that delay is dangerous and is' daily inereasing the magnitude and the difficulty of the problem to be dealt with. Since procras- tination and postponement of these problems have 58 PEOTECTION'S BROOD brought the country into another period of busi- ness depression, and since those who would in ordinary times be too busy to attend to such mat- ters now have plenty of spare time on their hands, there will be more than the usual amount of interest shown in the program of the Progres- sives. CHAPTEE IV. Extravagance, Greed, and Corruption— Class Distinction— Publicity. It may be observed as one of the results of our protective tariff system that among its benefici- aries it usually begets extravagance. Under the fostering influence of protection profits in certain industries have risen by the gradual spreading apart of the cost price and the selling price until capital now can hardly be induced to embark on any business enterprise which does not promise a profit of 20 to 25 percent at the start. Profits at this rate and from 25 to 70 or 80 percent furnish a basis for the accumulation of large sur- pluses and consequent extravagance. Previous to the recent advance of 50 to 80 percent in duties on cotton goods which are used by the mass of the people in this country the cotton industry was even then making a handsome profit on its busi- ness according to the rate of dividends paid by some of the mills. A circular issued by a well known banking house in Boston and New York and published to show the value of the securities 59 60 PEOTECTION'S BROOD this house was offering for sale states the average yearly dividend paid by six prominent cotton mills in New England to be respectively 12.66 percent, 14.37 percent, 22.50 percent, 22.53 per- cent, 24.57 percent, and 53.77 percent. These six institutions under the bounties of the Dingley tariff have also piled up an average surplus of 63 percent of the total capitalization. For what pur- pose, it may be asked, did the Payne tariff law increase the rates on cotton goods after such a showing as this ? The foregoing instance is only one of many which might be cited to show the enormous profits realized by capital invested under the beneficent care of a protective tariff. Much talk is heard about capitalists receiving a fair return on their investment, but their greed for bigger and bigger profits seems to have surpassed all fair and reasonable bounds. Ordinary business competi- tion is being eliminated as fast as possible because it keeps profits down and capital, therefore, is not attracted. Trade agreements and tacit under- standings are much in vogue where actual busi- ness combinations cannot be formed, — and it is coming to be general that capital will hide itself away at savings bank rates or without remunera- tion rather than venture out into any sound busi- ness enterprise which does not give promise of 30 to 40 percent profit after a year or two. PRIVATE EXTRAVAGANCE 61 Whereas in the organization and executive man- agement of sound business industries great econ- omy and care are exercised to keep the cost down as low as possible and to push the selling price as high as possible, yet in the spending of the profits by those who receive the dividends or the sal- aries the same careful economy and restraint which is evident in their management of the busi- ness is often entirely absent. In fact very little observation is needed to convince the most skep- tical that in the management of their own private affairs our wealthy men as a rule are extravagant and wasteful. This no doubt proceeds largely from a reluctance to apply the increased effort necessary to prevent leakage and waste, and this in turn results from the fact that expenditures are required and attempted at a pace too fast and on a scale too large for the individual to keep track of. It has been said that under our high tariff system has grown up a decided class distinction. The real line of demarkation lies between the beneficiaries of the tariff and those who are not beneficiaries but are handicapped or injured by it. It should be clearly understood that the term beneficiary as used here is applied to those whom the tariff benefits more than it injures. That is to say, beneficiaries of the protective system are those who as producers make an additional profit. 62 PEOTECTION'S BEOOD due to the tariff protection, greater in amount than the taxes which as consumers they pay out so that to them the net result, balancing the ex- cess of profits against the excess of taxes, is bene- ficial. Every one pays an increased price for commodities on which a duty is levied whether he buys in the domestic or in the foreign market. Every one is a consumer and as such cannot escape paying this tax, but the man who as a producer is benefited more by the protection af- forded his own particular business than as a con- sumer he is injured by the tax on the things he needs to buy is the true beneficiary of a tariif system, and it should be understood that no other meaning of the term beneficiary is used in this discussion. It follows then that all others who cannot be classed under our definition of beneficiaries are injured by the protective system. High tariff advocates are fond of saying that everybody liv- ing under a protective system is benefited by it; that nobody is injured. They do not insist that everybody is benefited by it to the same degree, — and here is just where the argument fails. If the system is neither equitable nor equable some have advantages that others do not, and in the very great diversity of interests and occupations and in the network of interdependence of interests upon each other, the algebraic sum of the advan- CLASS DISTINCTION 63 tages and the disadvantages must be zero. We cannot get something out of nothing. No one will claim that wealth can be created by taxation. In fact there must necessarily be a diminution of the wealth derived from the power of capital by just the amount of every tax paid. There is then a marked class distinction. Those to whom the sum total of effects of the system is advantageous are in the money making or the prosperous class ; and those to whom the sum total of the effects of the system is disadvantageous or injurious are in the other class which is bur- dened with an unjust load of taxation. This latter class constitutes the real taxpayers under a pro- tective system. Many in this class may be pros- perous and well-to-do ; but they are prospering in spite of protection, that is, while paying a bur- densome and unjust tax to the beneficiaries of the system. They would be more prosperous without it. Although the beneficiaries pay a tax also, yet as has just been shown the amount of taxes which they pay is less than the excess of profits which they receive and therefore the net result is that the system pays their taxes for them and gives them a bounty besides. On the other h4nd the real taxpaying class of people must earn, in ex- cess of that which would be required for a living if there were no protection, enough to pay the added cost due to the protective system. This 64 PROTECTION'S BEOOD means that as a class they pay out for necessities more than they would be obliged to pay if the protective system did not exist and that this ex- cess itself is more than the additional profit or material benefit given to their business by the sys- tem. This class may therefore be correctly termed the taxpaying class, although a few of them even become wealthy in spite of this disad- vantage. Between these two classes there is by our definition a horizontal line of cleavage. Those for whom the benefits of protection just about equal: the disadvantages of the taxes they pay under it are situated close to this line and in many in- stances it is very difficult to say whether they are located above the line or below it. Others are located farther from the line, above it or below it, and at points more remote from the line the effects of the system are more clearly apparent in the excess of benefit over injury to the one class and the excess of injury over benefit to the other class. There is nobody who is not affected in some way, but only the net result of the effects is of material consequence. It is obvious that the small contributions of the many situated below the line when paid to the few situated above the line amount to large sums in individual cases. Since only the very small portion paid by the consumers as taxes on imports BENEFICIAEIES AND TAXPAYEES 65 goes to the government, the large bulk of the tax which falls on the consunaer actually goes into the pockets of the domestic producers. Now the sum total of the net balances paid out by the taxpaying class as defined abov$ is, after deduct- ing the amount collected by the government as import duties, exactly equal to the sum total of the bounty put into the pockets of the benefici- aries, since no wealth can be created or destroyed by the payment of this tax. It seems therefore that the claim that everybody living under a protective system is benefited thereby is unten- able. A further sub-classification should be noted. All those above the imaginary line being by defini- tion beneficiaries of the system and all others who are below it being taxpayers, this lower or taxpay- ing class comprises two distinct subdivisions, namely, those who are prosperous and those who are not prosperous. Those who are prosperous have been able to surmount the obstacle of a tax and to accumulate a surplus in spite of it. The great number who belong to this subdivision would all be benefited by an entire removal of the system of protection because their business would certainly prosper better without it if it prospers in spite of it. The other subdivision containing those who ave not prosperous repre- sents the real sufferers under the protective sys- 66 PEOTECTION'S BEOOD tern. They are the people who have not been able to accumulate a surplus because of the im- position of a tax, and although for this reason the weakest and least influential they constitute in the aggregate a very large majority of all classes taken together. We have then below the imaginary line two distinct tax-paying subdivisions, one very large and one very small, both of which are making daily contributions to the wealth of the few sit- uated above our imaginary line, and the sum total of the taxes paid by these two subdivisions, after deducting the small portion which goes to the government, is exactly the amount which is re- ceived by the beneficiary class. A definition of extravagance is hard to give. The meaning of the word as commonly used has a wide range between limits. When a man acquires more wealth than he needs for the maintenance of his customary standard of living and has to hunt around for means of investing it as well as for means of spending it he very naturally but not inevitably advances his scale of living and gravi- tates into the class which we call extravagant. If he spends without reference to the market price or without attempting to know whether he is pay- ing a fair price or not and if he buys articles which though costly give but transitory pleasure or if he is wasteful in their use, he is said to be EXTRAVAGANCE 67 extravagant within the ordinary meaning of the word. He may also make purchases which are very useful but for which he has no need either in his business or personally, and this would also be extravagant. What is extravagant for one man might not be extravagant for another. The limits of extravagance in each case vary with the purchasing power of the individual. Theoretically it might be said that extravagance is the use of wealth for any purpose beyond the absolute neces- sities and conveniences of life. Upon considera- tion it appears that this is no definition at all since the terms "necessities" and "conveniences" are too elastic. "What might be a real necessity for one individual would not be for another, and many things might be called for as "conven- iences" which ought rather to come under the head of luxuries. Then again the manner of liv- ing and the scale of living determine altogether the requirements of life. If we say that extrava- gance is the use of wealth for the acquirement of luxuries it will perhaps come nearer to the truth. Yet here is the same indefiniteness in the word "luxury," perhaps only in a less degree than be- fore. In business extravagance should be de- fined as the unremunerative use of funds or property in excess of what is absolutely neces- sary to run the business. In order to be extravagant it is not necessary 68 PROTECTION'S BEOOD to have acquired wealth or to be in the process of acquiring wealth. Many who are poor or moder- ately well off are extravagant beyond their means and examples of this are altogether too common to be overlooked. The extravagant ones among the poor people and the moderately well-to-do are not as a rule obtaining additional enjoyment and happiness by makiag expenditures beyond their means and they do not expect to acquire happi- ness in any such way. Their extravagance results largely from an attempt to live on a higher scale than is warranted by their income and this is done because of the force of public opinion, that is to say, because others are doing it and because they get a certain satisfaction in seeming to be what they are not and in trying to imitate the daily practise of those whose incomes enable them to spend on a much larger scale and with a freedom from care which is also jealously emulated by those lower down. The quality of economy means much more than a negative extravagance. It is not all of economy to plan and choose for the frugal consumption of the necessities of life and to ignore its luxu- ries ; economy goes further. It means hard work ; it means constant thought and attention to the use and wear of articles of consumption to make them last as long as possible, and to restrict cur- rent expenditure by the utmost possible applica- ECONOMY 69 tion of mental or nmseular effort in all times of labor or recreation. True economy is typical of restraint and implies a curbing of desires tbe gratification of wbicb wonld not add to the use- fulness of the individual or the length of his life, — ^but on the other hand it implies the employ- ment of such means and the consumption of such articles as will add to the usefulness of the indi- vidual and the length of his life. It is therefore a matter of individual judgment just where the compromise is to be effected between restraint and gratification. Extravagance on the other hand should not be defined as an expenditure beyond one's means. The very wealthy people are often extravagant to an injurious extent and yet they have the means so to be. The greatest injury which results from their extravagance is the effect (not the example alone) upon others in all classes of society from top to bottom. Beginning at the top the injury inflicted on those in their own class results from an increased demand for luxuries and the conse- quent maintenance of high prices commensurate with the demand. By an increased demand is not necessarily meant a demand from a greater num- ber of purchasers. The demand for a commodity is increased whenever an increased price is offered for it, and it is within the power of the wealthy class to bid up the price of any commodity or 70 PROTECTION'S BROOD luxury simply by supine willingness to pay ad- vances without remonstrance. The enlargement of this kind of demand for luxuries and staples is naturally taken advantage of by those who pro- duce these articles, and the tendency grows with the concentration of wealth in any community to "tax the traffic for all it will bear." This is in- jurious to all consumers of such articles or com- modities to whatever class they belong. The so-called middle class of well-to-do people are affected by the concentration of wealth in the community in so far as they are consumers of the same articles or commodities as are de- manded by the wealthy class, and they are further injured when they spend beyond their means in an attempt to imitate the mode and manner of life of the wealthy. The middle class of people derive some benefit as producers from the consumption of luxuries by the wealthy; but this benefit is more than offset by the generally injurious effect of extravagance upon the whole community by whomever practised. The manufacture and con- sumption of luxuries although it gives employ- ment to a portion of the middle and lower classes of people and by so doing enhances to a certain extent the consuming power of these producers, does not by itself lead to any permanently valu- able result. Luxuries are not wealth, nor are they income bearing property. They do not increase BENEFICIAEIES 71 the earning capacity of those who possess them and they are not capable of being used for profit except in rare instances where the value of any particular article of luxury is enhanced by cir- cumstances. Producers must be engaged in manu- facturing more useful and profitable things than luxuries in order that a condition of business sta- bility and progress may be maintained. The lower class of people are affected most of all by the concentration of wealth in any com- munity. They derive some benefit from the addi- tional employment given to labor and from the additional opportunity to obtain such employ- ment; but they suffer much loss from a general increase in the scale of prices on all the staples of life as well as from the effect of false stand- ards of living which cause discontent and unrest. According to our division of all who are living within the jurisdiction of a protective tariff into two classes, — ^known as beneficiaries on the one hand and (for lack of a better term) taxpayers on the other, — it is evident that all the wealth which is conferred by a protective system is possessed by those who belong to the class of beneficiaries and none of it by those who belong to the class of taxpayers. This is simply in accordance with our definition of beneficiaries as being those who are, benefited more than they are injured by the sys- tem, — and of taxpayers as being all who are 72 PEOTECTION'S BEOOD not beneficiaries, that is, those who are injured more than they are benefited. The consequence is that all who belong to the class of beneficiaries can afford a certain amount of extravagance ; but those who belong to the lower class are not as a rule able to afford one particle of extravagance.. Extravagance among the beneficiaries injures others as well as themselves, and the injury is not offset by any collateral benefit that may ac- crue temporarily to the taxpaying class. Extrav- agance among the taxpaying class is ruinous, and leads to one of two things, insolvency or crime. It is not claimed here that a protective tariff is the sole cause of extravagance. Extravagance ac- companies excessive wealth anywhere in the world whether there be protection or free trade, but it is claimed here that a protective tariff creates an artificial apportionment of wealth and those who get more of this wealth than the system costs, them are, as a class, extravagant, while those who get less of this wealth than the system costs them are in another class who cannot afford to be extravagant. Everybody must belong to one of these two classes. It is also claimed that, a class of beneficiaries having been created, ex- travagance will follow naturally and cannot be prevented. Give a man more property than he knows what to do with and no law can prevent COEEUPTION 73 him from using it extravagantly except a counter- tax which shall take it away from him. Such a process would be contrary to our free institutions and would be a lame sort of a remedy even if it were not altogether unfair. The proper remedy is to remove the bounty which enables him to amass surplus wealth at the expense of the taxpaying class. It will be admitted at this point that a protec- tive system tends rather to a concentration of wealth than to a distribution of it and that as a result there is on the one hand a class of people who can afford to be extravagant and on the other hand a class of people who cannot afford to be extravagant and that these two classes in- clude all the people although there is a very wide range in the definition of the term extravagance. As has been said, extravagance among those who cannot afford it leads either to insolvency or crime, to the former because the time will come when debts must be settled and there is nothing saved with which to settle, to the latter in order to avoid the former and by acquiring somebody's else property dishonestly to ward off the final day of reckoning. The two most ordinary forms of crime among the class who cannot afford ex- travagance are stealing from employers and cor- ruption. How often under the pressure of cir- cumstances at home or because ignorant of how 74 PEOTECTION'S BROOD to economize have men been tempted to take from the cash drawer little by little of that which did not belong to them with no further intent than to satisfy the wants of their families, hoping to repay when circumstances would permit! Corruption among this class of people usually takes the form of bribe-taking or "graft" as it has come to be called. Bribery has always existed from the beginning of civilization in some form or other and probably always will exist to some extent; but it is significant of a substantial in- crease in this form of corruption during recent years that it is commonly referred to in popular slang by such a familiar term as "graft." It seems to be the rule rather than the exception for some grades of public servants such as inspectors, superintendents, and supervisors of contracts, members of legislatures and countless other guardians of the people's interests to miss no op- portunity to betray those interests for a price when they think there is slim chance of being caught at it. Purchasing agents of railroad cor- porations and other large corporations often take advantage of the power of their positions to ex- act from the vendors what does not belong to them. This is only another form of stealing from employers. The recommendation or favorable report of the head of a department on a new de- vice or a new machine or any innovation in the "GEAFT" 75 business too often depends upon how mucli the department head is going to make out of the transaction irrespective of its advantage to the corporation which is to be guided by his report., Forms of "graft" have become so firmly em- bodied in the daily operations of many municipal and State governments in this country that they are taken as a matter of course, and it is astound- ing to hear from honest executives with the utmost honesty of purpose that they have been unable to get at this form of corruption and to root it out although its existence was flagrantly apparent and left no room for doubt. There is no denying that this serious state of affairs has been steadily growing worse of late years and has greatly shaken the general confi- dence in all business enterprise. To elect honest executives who will appoint honest and pains- taking subordinates will not effect a complete re- form of this kind of corruption. It is merely one important step in such a reform and must be either preceded or supplemented by the education of public opinion to a higher plane which will not wink at bribery any more than it now does at de- bauchery. Public opinion should be roused to point with derision at those of its servants who take bribes, to investigate rigidly, and to require an open accounting of the method by which public servants sometimes become suddenly wealthy 76 PROTECTION'S BEOOD without any apparent addition to their incomes. There seems to be but one way in which this can be accomplished effectively and that is by a cam- paign of publicity. It is presumptuous to jnc[uire minutely into the affairs of a private individual, but when an individual serves the public in any office whatever the people are entitled to know enough of his private affairs to allay any doubt as to the manner in which he may have become suddenly affluent. This applies with equal force to the stockholders of large corporations who are in the same relation to their executive officers as the people are to those who manage the govern- ment. Turning the light of publicity upon the action of public servants has been begun in a small way in certain investigations which have been held re- cently, but in most of them it has been too ap- parent from their scope and the restrictions imposed on the examiners that the effort to investigate was only secondary to the effort to provide a victim and to allay public suspicion as quickly as possible. This is not the spirit in which such investigations should be conducted in order to bring about reform. When the stock- holders of a mismanaged corporation start in- vestigating their culpable officials, they conduct the work with a force and vigor of earnestness that will bring out the truth and get results. It PUBLIC OPINION 77 ought to be the same way in investigations of public servants who do wrong. There is not enough of the force of public opinion behind these investigations, or it may even be said the force of public opinion is exerted in the wrong direction. If there is one thing more than another that has during the last twenty-five years deter- mined the course of action of our public men and public servants it has been the force of public opinion. A jury of twelve men will often convict or acquit a murderer in accordance with the strength of local opinion, subordinating the evi- dence to their own prejudgment of the case. When details of such cases have been published and widely discussed in the press before the trial it is almost impossible to obtain a jury which is not prejudiced. This has frequently been a rea- son for change of venue in many eases at law besides murder trials. It was the force of public opinion that induced President McKinley to de- clare a cause of war and Congress to declare war with Spain in 1898 although it was farthest from the President's personal desires. It is the force of public opinion expressedyin letters and tele- grams and interviews that sometimes drives Con- gress to pass much needed legislation in spite of a mass of special interests arrayed against it. Public opinion therefore being so strong a force could easily correct the scandal of bribe-taking 78 PEOTECTION'S BROOD and other forms of corruption among public serv- ants if it were directed against them. The trouble is that the moral tone is not high enough among the mass of the people themselves. Does that mean that there is not a majority of the people who would not resort to the same methods of cor- ruption and bribery if the opportunity came their way? We have traced the consequences of extrava- gance among those who cannot afford to be ex- travagant and we find that one of these results is corruption. Among the people who can afford to be extravagant there results much evil of a different form. Extravagance begets greed. The acquisition of wealth and the power to disburse it seem to act as incentives to most men to acquire more wealth by any means whatever. The in- dulgence of greed blunts the mental and moral sensibilities to such an extent that methods are adopted in business which would be considered scandalous in private life, and men become so in- ured to these methods that so far from question- ing their rectitude they incorporate them in the daily business program as part of the routine among the different departments of their busi- ness. Much light has been turned on to business methods of this kind by other recent investiga- tions, notably that of the sugar-weighing frauds whereby duties on imported sugar amounting to GREED AND CORRUPTION 79 millions of dollars were kept by the Sugar Trust from reacMng the United States Treasury by the use of false scales. Such forms of corruption which are sanctioned if not initiated by the wealthy owners of the business and, as in this case, are direct results of a protective tariff sys- tem, are more strongly denounced by public opinion than ordinary bribe-taking by public serv- ants has been. That is to say, public opinion is naturally more opposed to the unscrupulous greed of men who are already wealthy than it is to the dishonest acquisition of money by men who are struggling to maintain a livelihood. Does this mean that the weight of public opinion is against the greed itself rather than the immorality of the act? It would seem that this is so and it also seems probable that no substantial reform can be accomplished while public opinion is in such shape. Hypocrisy has been decreasing, but in its place has been growing a feeling of tolerance for dishonest business methods and a lax moral code among public servants which is commonly believed to be incurable, and is so if its cure depends only upon the moral courage of those whose per- sonal interests are involved. Men everywhere whether in office or out of office, whether em- ployers or employes, must be honestly opposed to dishonesty and immorality and not simply make an outward show of being opposed to them 80 PEOTECTION'S BBOOD if we are to rise to a Mgher plane in our civiliza- tion. "Malefactors of great wealth" is a term wHch. has been grossly misapplied but it certainly fits cases such as this. There are many men of wealth in this country whose business methods have been known to be dishonest and who have been known to resort to acts in business deals which they themselves would despise in private life. They have called it good business and the world has looked on in a half hearted way applauding the acquisition of wealth while ignoring the method by which it was acquired. Such a state of affairs does not engender confidence. If these men of wealth are to be permitted to continue their ob- jectionable practises until the public prosecutor finds time to attend to them, the evil will increase faster than it can be reduced by legal methods. In order to break it up public opinion must assert itself. Mentally the finger of scorn must be pointed at these men wherever they go ; they must in reality be ostracized from society; honest men must refuse to associate with them either in the clubs or in social life. They must be shown by the force of public opinion that their business methods are scandalous and are deemed to be a menace to our institutions and an evil example to our youth. They must be so absolutely ignored that the burden of proof will be upon them to get PUBLICITY 81 back into society and into the standing which they now falsely maintain. Society has nothing to gain and our civilization has everything to lose by following the lead of such men just because they are wealthy and by giving them respected places in the community or in the government just be- cause they have made money, no matter how. Men should not be rated wholly by their ability to pay debts, but also by the method which they employ in maintaining that ability. The time has come when the light must be turned on, and it must be a bright light in order to bring about reforms which shall permit our civilization to go forward instead of backward. It cannot stand still. Progress or retrogression, one or the other, is constantly taking place. CHAPTEE V. Overproduction and Business Depression— The Foreign Element in our Laboring Population. "We have seen in this country during the last thirty years several periods of business depres- sion, more or less severe, and these periods have usually alternated with seasons of great com- mercial activity. Stimulated by increasing de- mand at advancing prices our industries in the time of prosperity keep turning out their products under high pressure until they succeed in over- selling and overstocking the home market. There consequently comes a time when these products must be sold abroad or not at all. To some of our highly protected industries, — ^those that control the sources of their raw material and therefore pay no tax for what they use, — selling to the for- eigner merely means being satisfied with a smaller profit; and for a large number of our manufac- turers it is impossible to sell to the foreigner with any profit at all, because, owing to the tax (or its equivalent) imposed on their raw material and to the higher price of American labor, the finished 83; 84 PEOTECTION'S BEOOD product actually costs more before it leaves the American manufacturer's door than the foreigner is willing to pay for it. On this account we ex- port only about one twenty-fourth part of all our manufactures. This proportion of exports is too small to afford relief for our surplus manufac- tured products, and therefore many of our in- dustries close their doors, throwing thousands of men out of employment, whenever the home mar- ket has been oversold. Large, quick profits are super-stimulative in their effect, and human nature has not so far been able to resist the temp- tation to overproduce under these conditions; in just the degree that overproduction exceeds the demand, to just this extent must there be a re- action to bring things back to their normal con- dition. It is bound to come. When overproduc- tion occurs in several lines of trade at the same time, the reaction setting in causes real business depression affecting besides these lines of trade all other lines in any way dependent upon them. It should not be inferred from this that there are no other causes at work helping to produce busi- ness depression; but the truth should be empha- sized that periodical overproduction results from the stimulus of a protective tariff and that busi- ness depression will surely follow overproduction. This condition recurs with increasing frequency because the Nation is growing larger and the OVEEPEODUCTION 85 tariff system prevents many of onr industries from disposing of their surplus product at a profit in foreign markets. The natural method of recovery from the ills of overproduction is to allow prices to fall until a point is reached where there is a market for the product which has been overproduced. This process is likely to result in selling the product for less than it costs to produce it, but it may be argued that even if this is so the sacrifice is worth while in order to bring relief from business de- pression. In opposition to this natural law of trade, combinations of industries controlling a large part of the output in each instance, which have grown up as the result of our protective tariff system, have a tendency to maintain prices artificially at a constant level in periods of busi- ness depression resulting from overproduction, and this action very greatly retards the natural return to prosperity during one of these periods. Such combinations or trusts having made gener- ous profits during previous periods of prosperity are in a position to maintain prices at prohibitive figures during periods of depression, and by cut- ting down their office and factory forces to run along on a minimum of expense until the return of such times as will enable them to dispose of their surplus product for more than it cost them to produce it. Their employes, however, are not 86 PEOTECTION'S BEOOD so comfortably fixed during periods of depres- sion, and for them the policy of maintaining a constant price causes the greatest injury. These workingmen are thrown out of employment just when there is a dullness in all lines of trade, and their expenses go on just the same without any material reduction. Any combination in trade can under all ordi- nary conditions control the price of a product if it controls more than half the output. It is not necessary to control the whole output in order to maintain the price. Just as soon as competi- tors attempt to drop the price the combination can suppress the output sufficiently to readjust the price to its former level. If necessary the combination can suppress its whole output which amounts to more than one-half the available sup- ply. Consequently the price would be raised ac- cordingly to any reasonable figure which the combination might desire, at which time it would release as much of its output as it chose, sup- pressing it again when the price started to fall. Instances where this is being done and has been done are very common and are well known to those who have business dealings with such com- binations or trusts. A trust which controls a score of factories located in different parts of the country can readily close the doors of one or more of these plants when it is desired to restrict FIXING PRICES 87 the output; and it is also possible to choose from these different plants that location in which to restrict the supply which is most favorable either on account of differences in freight rates or local conditions connected with competitors in the same line of business or, again, because of ob- noxious labor conditions in some which do not exist in other localities. There are, therefore, from the trust's standpoint a great many ad- vantages in combination, aside from the economy arising from a concentration of the administra- tive force, and so long as the rights of others are not interfered with the net result to the com- munity would be advantageous if the only thing to be considered were the fact that prices can be fixed and maintained constantly at a lower average level because of the combination than if the business was subject to unrestricted competi- tion. There is, however, another effect resulting from the maintenance of a constant price throughout all seasons and conditions of business. Under prosperous conditions a constant price which would be at all suitable for periods of depression would be so low as to create an increasingly active demand. This fact has been clearly indi- cated in the case of the steel industry previous to the financial disturbance of 1907. It was well known that prices might have been advanced by 88 PROTECTION'S BROOD tlie U. S. Steel Corporation and its profits migM have been greatly augmented at that time, but it chose to maintain prices on an even level and this resulted in a cumulative increase in the de- mand such that the capacity of this corporation's output was sold for more than a year in advance when the decline in the demand began. There seems to be no doubt that the maintenance of a price at a constant level during such periods is an element acting to hasten tho advent of a period of overproduction. The reason for this is that at a time when the constant price is lower than could be charged with reason and profit the demand comes largely from speculators who are absorbing the product for immediate disposal at advanced rates, but for "quick deliveries." In the case of the Steel Corporation which usually maintains prices uniformly from year to year the only advantage gained by speculators in its product is in the matter of deliveries, it being im- possible to deliver steel immediately on an order given to the mills. Those having steel in stock do a large business in prosperous times because they are able to make immediate deliveries, which they do at advanced prices. Not only does the maintenance of a constant price thus tend to hasten the arrival of a period of overproduction, but when that period has ar- rived it acts to retard a return to prosperity, as A CONSTANT PEICE 89 has already been noted. During a period of de- pression it is necessary to make large concessions to buyers in order that business shall gradually and steadily resume a normal condition. It seems, therefore, that the policy of maintaining a con- stant price through all seasons and conditions of business, which has been adopted by many large corporations in this country in a perfectly honest endeavor to equalize business conditions and to minimize the evil effects of sudden changes in price, does not have the beneficial result which it was intended to give to the general public. Those immediately connected with such combinations in business deals are, of course, benefited by such a policy; but the ultimate effect being to hasten the coming of periods of overproduction and then to prolong the consequent periods of depression and retard the return to normal business conditions, the ill effects reach farther and touch a greater number of people than those immediately associ- ated with them in business. The efforts put forth by combinations thus maintaining a constant price to equalize and minimize the evil effects of sudden changes are most commendable, but under our system of protection these efforts are robbed of their excellent qualities because of the second- ary and unnatural result which of necessity fol- lows and which cannot be avoided so long as the industries of our country are denied the privilege 90 PROTECTION'S BROOD of a foreign market untrammeled by a Mgli cost of production. From the point of view of tlie public the latent power in a combination of industries requires watching. The very fact that combinations have power is presumptive evidence that they will use it to the disadvantage of others if thereby some additional advantage can be gained for them- selves. Eliminating the question of dishonesty entirely we have just seen that a trust can and does maintain prosperity prices after a pei;iod of overproduction, thus helping to prolong indefi- nitely a period of business depression. The more combinations there are the worse will be the ef- fect of keeping prices up in dull times. During recent years the rapid growth of combinations both in size and number has in this way retarded very materially a natural return to prosperity after every business depression. Because of over- production there is an unnecessarily large amount of capital tied up in a surplus product and the only benefit which is at all apparent is the continued employment given to labor in the accumulation of the product. The net result, however, to the workingman is just the same whether his employ- ment continues up to a period of overproduction and then ceases until the product has been dis- posed of, or ceases sometime previous to the ar- rival of the period of overproduction and begins INTERMITTENT DEPRESSION 91 again with tlie return of a healthy demand at a remunerative price. If the arrival of a period of overproduction could be accurately foretold the latter would, of course, be the more advantageous method from the workingman's point of view be- cause, although he might be discharged earlier in the process, the period of depression would be very much reduced and therefore the return of a healthy demand at a remunerative price and consequently his return to work would be has- tened. There is further cause of periodical commer- cial depression to be found in the fact that this tariff question is in politics at all. Before every Presidential election there is much hesitation on the part of large buyers to invest until quite as- sured that no change of the existing tariff sched- ules is contemplated by the incoming law-makers. This action by the investor is quite independent of his opinion as to the ultimate desirability of a change. He is actuated merely by considera- tions of a business nature to prevent being on the losing side in a deal. The consequences, how- ever, are felt by the public in a mild form of business depression, by the withholding of consid- erable money from circulation and the postpon- ing of new projects which would otherwise be giving employment to labor. Other causes of business depression are mostly 92 PROTECTION'S BROOD due to unwise legislation also, — some of it along the same lines or based on the same principles as our tariff legislation. Tor instance, the Sherman silver purchase law of 1890 was nothing more nor less than a government bounty to the silver mine owners to "protect" them against the falling off of the world's demand for silver. The people in- dividually did not want silver at any price, — ^but collectively they bought, on a contract entered into by their legal representatives in Congress, four million dollars worth of silver every month at double the market price; — only to store away in huge vaults in Washington, As government credit was at all times on a gold basis this action was merely the continuous exchange of gold for silver, draining the United States treasury and impairing its credit to enrich the owners and pro- ducers of silver. Why not have bought whiskey or something that would have improved with age? It would have been more sensible and profitable too, — and the whiskey producers had as much right to government help as the silver mine own- ers. Why this discrimination in favor of the silver men? It could never have been made ex- cept for the pressure and influence of the pro- tected interests, who drove a bargain with the silver men in Congress by which the McKinley Tariff became a law at the same time. Reference has been made to the increased cost WHAT THE FOEEIGNER PAYS 93 of American over foreign labor, and it is one of the chief arguments of the high tariff advocates that our system of protection is primarily for the workingman's benefit and that without it he would be reduced to the level of the "pauper" laborer of Europe. While contending, however, for protection to cover the increased cost of do- mestic over foreign labor some of our protected* industries are at the same time underselling the foreigner in his own market with the same Amer- ican produced and American manufactured goods, besides paying the carrying charges. It follows either that the American consumer is paying a, price for domestic goods which includes an exces- sive profit for the protected combination or else that he is helping the protected producer to pay the freight on American goods sold abroad. Either way the effect on the American consumer is the same ; his general consuming power is un- justly curtailed. It is of common knowledge that many products of the United States are sold abroad for much less than the prices for which they can be bought in the domestic market. Of late years prices in foreign markets have been advancing somewhat more rapidly than previously but not so rapidly as prices in the United States so that the differ- ence between the foreign and domestic price is even more apparent than it used to be. Yet the 94 PROTECTION'S BEOOD fact that one twenty-fonrtli part of our domestic manufactures is sold abroad shows that in some industries there is a profit in competition with the foreigner on his own ground. The gradual advance of prices in foreign markets will account somewhat for our increased foreign trade in man- ufactured goods, but under the great burden of a higher cost of labor our manufacturers generally will not be able to compete on equal terms in the foreign market until this disability is removed. As one instance of many which might be cited to show what has been done and can still be ac- complished whenever the domestic and foreign prices are far enough apart, it is related that un- der the old McKinley Tariff law of 1890 certain capitalists purchased a cargo of cut nails for ship- ment to Germany at the usual concession in price given to the foreign buyer. This cargo was shipped to a German port and there re-consigned by an agent back to the United States without unloading. On arrival here the nails were ad- mitted free of duty as being of American manu- facture and were sold in this country at the reg- ular domestic price netting the speculators a handsome profit after paying the freight both ways across the ocean. Let us now consider the effect on the laboring class of continuity of service or the reverse. After one of these periods of overproduction, UNSTEADY EMPLOYMENT 95 which occur with greater frequency and intensity because of the stimulative effect of our tariff sys- tem and the increase of population, many work- men are necessarily thrown out of employment and many others have their pay reduced. These unfortunate men and their families cannot so easily reduce their living expenses, and can never cut them out altogether. As a result the debts which they of necessity incur at such times have to be settled when work is resumed. Thus if for one cause or another one fifth of a man's time on the average was unemployed, he must receive one fourth greater wages during his occupied time than he need have if his time were fully occupied^ year in and year out. Then too there is the men- tal and moral effect upon a man of having one fifth of his time unemployed for any reason what- ever. Such a period of prolonged idleness does not give the benefit to be derived from a short vacation, but, on the contrary, it tends to render a man less efficient and less contented with his lot. There are other causes besides overproduc- tion which operate to throw the laborer out of employment; but as a rule they can be traced to the interference of legislation with the laws of nature, giving the advantage to those directly favored by it and causing unrest and discontent among those who think they are not getting their share of the reward for patient and faithful ser- 96 PROTECTION'S BEOOD vice. This feeling is an incentive to the forma- tion of labor unions which soon resort to the use of strikes and boycotts -to enforce their demands. The uniting of the labor interests by organiza- tion is in imitation of the great combinations of capital, and ostensibly for the purpose of meet- ing the "trusts" with their own weapon and on their own ground. Any inducement for the for- mation of combinations of capital is by natural sequence also an inducement for the formation of "trusts" among the laboring people. Strikes and lockouts are due to unnatural and unhealthy conditions, and one of these unhealthy conditions is the over-stimulative effect of a high tariff sys- tem, promoting a lack of confidence between em- ployer and employe, and alluring men on by the promise of quick wealth as they see it made by the protected favorites. Is it not more desirable for workingmen of all grades to have steady employ- ment all the year around, even at a less rate of wages per day? The growth of the foreign element in our labor population has of recent years been enormous. Previous to 1907, which was the banner year, immigration had been increasing for the first seven years of this century on an average of 120,000 annually. Since 1907 owing to business depression the number of immigrants has dimin- ished, being in 1909 but little larger than for the ALIEN LABOR 97 year 1902. In 1910 the number was about the same as in 1905. The maximum for any one year (which occurred in 1907) is over one million and a quarter. The average increase in our total population during the decade ending in 1910 was a little more than one million and a half each year. It will be observed that the immigration for 1907 was, therefore, almost as large as the average annual increase of our population since the begin- ning of the twentieth century. These figures are very important and impres- sive when it is considered that foreign immi- grants are largely composed of laborers and their families. Since the beginning of the century the number of immigrants from Italy alone has each year exceeded the number of those from any other one country, excepting in 1908. These statistics explain why the number of American born labor- ers is fast decreasing and why it is now true that few American laborers are employed on large contracts or public works. The testimony of those in charge of recent large operations con- firms these figures and goes further by saying that American workmen cannot be easily ob- tained, partly because they cannot live under the same conditions as foreigners do, partly because they do not wish to work so hard or continuously, and partly because they consider that kind of ser- vice beneath them. 98 PEOTECTION'S BEOOD It was testified by one of the Commissioners of the New York Board of Water Supply at a hear- ing on the question of employment of alien labor on the Catskill Aqueduct work that the contract- ors found that the immigrants did the best work and were steadier, and instead of there having been a complaint about the length of day the men would much rather work ten or twelve hours and get more money. Another witness testified that the average American laborer preferred to stay in the city with less money and that it was getting to be out of fashion for a native American to do a common laborer's work. In fifteen years he thought there would be but few American con- tractors left in New York because of the inroads which the Italians have already made in the con- tracting business. Still another witness testified that he had employed several native Americans on his contract and many of them left the next day, not one of them stayed a week, and he did not believe that Americans could be hired in New York City to go on to the Aqueduct work even if they were paid $5 a day. Another witness said that the bulk of unemployed American laborers do not want to work and the more they are paid the less they will do. Testimony to counteract the effect of the above was given by one of the Americans who applied for a job on the Aqueduct as a drill runner at ALIEN LABOE 99 $3.50 per day. He said that lie was placed in a gang of 28 men who were expected to room in a shack with 140 other men although there was room for about 35 comfortably. There were 13 cots and about half that number of mattresses which were reserved for the bosses. Men who paid $3.50 a week for their board got bread and bologna three times a day besides tea and coffee. Those who paid $5 received two fried eggs for breakfast and some sour meat for dinner. This man stood it for fourteen days and then asked for his time, on which he should have received $32 according to his own calculation, but all he ob- tained was $1.90 and he could get no more. Making due allowances for exaggerated state- ments there is no denying the truth that the labor situation is most unsatisfactory in all congested localities. While the great West is calling for help to prepare and harvest its crops conditions similar to the above exist in and around large cities in the East, and yet there is no inducement for these lalJorers to leave the large cities for barely three months' harvesting in the West and then to be thrown out of work for the remainder of the year without means enough to return to the cities. Even the railroads discriminate against American workmen by refusing to them the same low rates that are continually granted to immi- grants moving west from our Atlantic seaboard. 100 PROTECTION'S BEOOD Foreign laborers coming to this country find wages much better than those to which they have been accustomed so that being used to economical modes of living they do as a rule, even with the cost of living against them, subsist on less wages than American workmen of the same class, and, besides, they usually save some of their earnings for investment or contingencies. It has already been mentioned that foreigners are sending home annually more than $300,000,000 of the money they earn in this country. Many of them main- tain their foreign connections and in times of business depression in this country they do not remain here long out of employment, but sail for home where they can live more cheaply until the return of prosperity. They have learned by ex- perience that in the United States the recovery of business from periods of depression is very slow. This movement of labor helps to some extent in steadying the labor market during such times, but on the other hand it retards the return to pre- vious conditions because with the' approach of prosperity laborers are not on hand to man the factories and shops which are ready to start up. Unsteadiness in the labor market follows from unsteadiness in business conditions, and anything which causes capital to be withdrawn from indus- trial investment whether it be overproduction or lack of confidence has an immediate and impor- IMMIGRATION 101 tant effect upon labor. Our national business pol- icy should be such, as to prevent so far as possible periods of overproduction and to induce a quick return to normal conditions in times of business depression. Since nearly one-third the increase in our popu- lation during the last decade was due to foreign immigration, some attention should be given to the kind of population this is and to the effect its coming is having or will have upon the business, social, and labor conditions of the United States. It is a serious thing to contemplate that 32 per- cent of the average annual increase in our popu- lation is composed of this foreign element, and that only 68 percent of it is due to native re-pro- duction ; also that during the decade just past the predominance of the foreign element has been steadily growing. A recent analysis of the popu- lation of New York City gives only 19.3 percent of it as of native parentage and less than 40 per- cent of it as native born. When the character and quality of the foreign immigrant population is taken into consideration the seriousness of the situation becomes more impressive than ever. At the present rate of increase the majority of our population in seventy or eighty years will be com- posed of these new comers and their offspring. Are these people of a kind that is desirable? Will our National life and character be advanced or 102 PROTECTION'S BROOD retarded by the rule of such a majority as this? But leaving these questions unanswered let us turn to the already visible effect of the influx of such a large foreign element on the labor condi- tions and consequently on the business conditions of the country. The large percentage of Italian laborers being added to our population has driven native American laborers almost wholly from the market in some parts of the country in certain few classes of work. The foreigner has been used to a much lower standard of living than the American workman adopts, and where the two come in contact there is necessarily a lowering of the American's standard in order that the lat- ter may be able to compete with the former on terms even approaching equality. The American laborer dislikes this but cannot help it, and when the opportunity offers he breaks away from it. On account of his lower scale of living the foreign laborer can afford to work for less wages than the American does and consequently a large amount of work which would otherwise be manned by American workmen is performed by foreign laborers, thus reducing the chance of the Ameri- can for steady occupation at (for him) remuner- ative wages. It ought to be that the American workman could easily find other and better work to do when this occurs; — but too often it is the case that the times are out of joint or that there .CAPITAL NOT ATTEACTED 103 is a political upheaval making work scarce and hard to find, so that very much too often the na- tive laborer finds himself displaced by the new- comer and becomes disgusted with conditions and dissatisfied with our institutions. If conditions were as they should be the invest- ment of capital in new enterprise ought to absorb the native labor and all the foreign labor that comes to us besides. Our population is not in any sense what might be called congested. All European countries have many times the popula- tion per square mile that this country has. There- fore we must look to some other cause as the explanation of our lack of ability to employ labor. Some say that there is not enough floating capital in this country to provide employment for so much labor as keeps coming to our shores, — ^but that is a weak statement because foreign capital would be attracted here as needed if conditions were such as to make its use profitable and to give it steady employment. We must look to our National policy to find a reason for the timidity of capital to embark on new enterprise and for the narrow restriction of the capital that is al- ready invested within the control of a certain few financiers in a country whose population per square mile is less than one-tenth that of most European countries. In the next chapter the reason for this will be discussed more at length. ■ CHAPTER VI. Domestic Manufactures for Foreign Trade— Free Raw Material— Prosperity. The total exports for the United States in the year 1907 amounted to $22 per capita, and of this amount about forty percent was manufactured goods, the remainder being farm products and raw material. Our exports exceeded our imports with Europe, with North America, and Oceaniea, but with South America, Asia, and Africa our im- ports exceeded our exports. Of our total exports we sent Europe 69 percent. North America 18% percent. South America 4% percent, Asia 5 per- cent, Oceaniea 2 percent, and Africa 1 percent. Our total imports amounted to $17 per capita, of which one-third was raw material used in man- ufacturing. Only 21 percent of all our imports in 1907 were foods or food products, — the balance of imports into the United States being manu- factured goods of which the great bulk is dutiable. It appears, therefore, that the United States in the most prosperous year it has had for the last two decades was exchanging chiefly its agricul- 105 106 PEOTECTION'S BROOD tural and farm products with the principal na- tions of Europe for their manufactured goods. In spite of the enormous resources of this coun- try and the inventive genius of our people we are at a disadvantage in so doing. If the United States he compared commercially with the prin- cipal world powers, it will be seen that we need to encourage our manufacturing industries in a different way from that in which we have been doing. Great Britain has a population per square mile of 371 persons, Japan 336, Italy 310, the German Empire 306, France 190, and the United States (excluding possessions) has only 31. Mer- chandise imported into Great Britain exceeds that exported by $26 per capita, into Italy by $7 per capita, into the German Empire by $7.50 per capita, into France by $3 per capita, but the United States' exports amount to more than her imports by $1.50 per capita, while Japan's im- ports and exports about balance each other. It is universally acknowledged that the cost of living in any one of these countries is far less than it is in the United States, that is, (leaving out the idea of money) the necessities of life are more easily procured and are accessible to all with less exertion and less expenditure of time. Evidently these great nations that import more than they export know how to buy. They buy where they can obtain the best value for that FACTORY AND FAEM 107 which, they give in exchange. The facts that they are so greatly over-populated in comparison with the United States, and in spite of this that the cost of living is so much less than it is in the United States, prove that something is wrong with the policy of our government. There is an old tradition among New England farmers that for the enrichment of the farm and for the greatest average profit the hay and oats harvested should be "fed out" on the place. The western farmer (until the beef trust interfered) found it more profitable to feed his corn and to sell live beef and pork than to sell the corn. To apply this to our national life would not greater prosperity result for all our people if the product of our farms were fed out as much as possible within the country? If we turned our wheat and food stuffs into manufactured goods (as it were) before exporting them, an army of people could be employed in addition to those now busy. Our manufacturing industries are geographi- cally located chiefly in the northeastern quarter of the United States and the farms located beside them in the same States are far more profitable per acre of arable land than those in the other quarters of the country, better prices being ob- tained for their products. This is reasonable and logical. Farms near the manufacturing centres 108 PROTECTION'S BEOOD of population have a market for their products at their very doors without the expense of rail- road freight charges or the risks incurred by the transportation of perishable products to a dis- tance. When products are not controlled by monopoly the price by the natural law is higher where the population is denser. When therefore the high priced market is far from the farm, the farmer has to divide with railroad companies in order to sell his produce ; but when the populous market is contiguous to his farm, he gets prac- tically the full price paid. In seasons when farm products are plentiful and cheap near the popu- lous markets, farmers at a distance from the mar- kers have little or nothing left after paying the railroad transportation and incidental charges. Thus occasionally we have a season in which the farmers in the far west cannot obtain enough money for their fruit crop to pay for harvesting it, and it is fed to the hogs or left to rot upon the ground. It seems clear that the farmer is more pros- perous near a dense population than in thinly settled districts. The nearer his market he is the more money he makes. Conversely, an increase of the population and a distribution of the popu- lous centres around the country as much as pos- sible would greatly benefit the farmers. The farm lands of the great west cannot be picked up FEEDING THE FOEEIGNEE 109 and moved to the population centres, but the population can be moved to the farming regions of the west in much greater quantities than it is going there now. By planting manufacturing centres at different points throughout the great agricultural belt the farm products of the imme- diate localities would command a better price and the farmers would be correspondingly more pros- perous. Besides feeding the 92,000,000 people in the United States our farms furnish the largest part of our exports to foreign lands. Of the total value of manufactured goods produced in this country we export only one twenty-fourth part, but exports of wheat and other agricultural prod- ucts are nearly one-fourth of the total. If the foreigners who buy our wheat consume it at the same rate per capita as we do, then our farms are feeding 26,000,000 people in foreign lands. Now if these people or part of them should be added to our population and properly distributed so that the more populous centres were near our great agricultural belt, and if they should be at the same time profitably employed turning out manu- factured goods, our farmers would receive as much greater price for their products as would be saved by reason of the shorter transportation required to take their produce to the consumer. Neither would this deprive the transportation companies of any part of their business; on the 110 PROTECTION'S BROOD contrary it would result in giving tliem a more profitable and greatly increased business in the substitution of manufactured goods for farm products. Let us examine tbe foregoing statements a little more closely. If 20% is assumed as a fair aver- age profit at the place of delivery, and if it is assumed that out of this 20% must come the cost of transportation, it is plain that more money will remain for the producer if the carrying charge is 5% than if it were 10% of the value of the goods carried. In other words, it pays best when shipping to a distant market to send those goods on which the carrying charges amount to the smallest percentage of their value. Carrying charges, when based on anything, are based on weight and on the space occupied in transit. Con- sequently the most profitable goods to send to a distance are those in which the greatest value is condensed into the least space, — on which the carrying charges are 5% or 10% rather than 25% or 30% ad valorem; and this is true whether the greater charge is due to bulk or distance. Now comparing our manufactured exports with our agricultural exports we see that the economical process described above is reversed. Farm prod- uce occupies great bulk in transit compared with manufactured goods of equal value. For ex- ample, if a carload of wheat worth $1000 weighs BEST PAYING TEADE 111; approximately the same as a carload of manufac- tured goods worth $10,000, it would cost the rail- road companies no more to transport one than the other. With a carrying charge of $100 in each case the farmer is paying 10% of the value of his product to bring it to market, whereas the manufacturer pays only 1% of the value of his product for the same purpose. The logical con- clusion is that if more of the farm produce we now export were kept at home, and if instead we exported an equivalent amount of manufactured goods, the change would be of great benefit both to the farmers and to the laboring classes, and to the transportation companies also which would carry manufactured goods instead of farm prod- uce and thus not only lose none of their busi- ness but have a far more profitable business be- cause the increased cost of handlifig the former would justly entitle them to somewhat increased rates per cubic unit. Unfortunately the attitude of the railroads to- wards a change like this has to be taken into ac- count. If the railroad companies were allowed to charge rates proportionate to the value of the material transported, regardless of the cost of the transportation itself, then the advantage which might otherwise accrue to the farmer and the manufacturer by the change just described would be entirely wiped out. The history of the^ 112 PEOTECTION'S BEOOD celebrated California lemon case is an indication of wliat the railroad companies would like to do if they are not prevented from doing it by some higher authority. The Payne Tariff Law of 1909 raised the duty on lemons from 1 cent (the Dingley i^te) to 1% cents per pound supposedly to benefit the California lemon growers. Forth- with the railroad freight rates on lemons were adjusted to absorb all the advance in the tariff, leaving the lemon grower of California just where he was before the Payne Tariff was en- acted, — and giving the railroad companies prac- tically all the benefit from a tariff increase which was not intended to help them at all. It is this sort of immoral appropriation of the legitimate rights of others that has aroused in recent years strong public opposition to the railroad compa- nies of this country, — and quite reasonably so, — for not a single market can be established for any commodity without the chance of its being over- thrown if it does not curry favor with the rail- roads or if they should desire its establishment somewhere else. Fortunately we have a higher authority than the railroad companies, the Inter- state Commerce Commission, and occasionally its power has been very effectively wielded to right some of the wrongs perpetrated by the railroads.- The California lemon case is one of the wrongs which was subsequently righted by the Interstate FOREIGN TRADE EXCLUSIVELY 113 Commerce Commission and the railroad rates were reduced. Hosts of idle men are added annually to our population who ought to be employed in profitable industry thereby increasing our manufactured products and enlarging the home demand for our farm products and the necessities of life. The only thing that prevents employing these men is the system which taxes raw material so high that additional capital cannot be induced to enter the field of manufacturing for the foreign trade only. There should be a good profit in manufacturing for the foreign market but none of our manufac- turers are engaged exclusively in that business since the profits to be derived from home trade are required to offset the narrow margin with which our manufacturers must enter the foreign market. This is especially true of industries whose raw material is taxed. The continual in- flux, therefore, of foreign population increases the number of workmen more rapidly than capital can be induced to provide them employment, so that many of our working people are in a state of unrest and idleness most of the time. There are millions of idle dollars in this coun- try seeking safe investment which would imme- diately be embarked in manufacturing enterprises if such were made more attractive. High tariff advocates claim it to be their primary object to 114 PEOTECTION'S BEOOD encourage manufacturing, yet they support a tar- iff schedule which places a tax on raw material. Under the constantly changing conditions going on during the last fifteen years the Party of Pro- tection has made no effort until recently to revise the Dingley tariff schedules ; and the Payne tariff of 1909 can scarcely be considered a revision downward. Until a serious downward revision takes place brief periods of intermittent prosper- ity followed by overproduction, followed in turn by more or less severe depression, will grow more frequent and exert an increasing influence toward unrest and discontent. This problem must be faced soon and the polit- ical party which takes it up in earnest will secure to itself a triumph such as the Eepublican Party once enjoyed by reason of its firm stand on the slavery question and the preservation of the Union. An educational campaign must be inau- gurated, — a campaign of sober inquiry into the reasons for such intermittent prosperity as has existed during the last fifteen years; inquiry as to the causes of discontent and unrest among the people. The existing inequable conditions affect business men also, although they do not feel the unsteadiness of things so keenly as the laboring classes but look from one season of prosperity to another in the hope that a "stand pat" policy will continue the conditions which bring them EMPLOYING IDLE MEN 115 around periodically. But our Nation progresses. With her to "stand pat" is impossible, and we go forward more or less rapidly according to the obstructions we erect to hinder progress, but go forward we must. Our population is increasing at the rate of more than a million and a half annu- ally, and to prevent socialism, anarchy and all sorts of crime these people must be given proj&t- able employment. Instead of feeling elated over the fact that our farmers are feeding some 26,000,000 people in foreign lands, our aim should be to rise to a higher plane of civilization and, by furnishing the world's manufactures, to double the wealth-producing and therefore the consum- ing power of our own people. Instead of feeling worried over the fact that three quarters of a million foreign laborers come to our shores every year, we should be ready to welcome them with the open doors of new industries planted within easy access to the sources of raw material and the food supplies. Both sides to this controversy agree on the ulti- mate object, viz., — ^the improvement and increase of manufacturing industries as the first step to the improvement of business in general. The question is, — ^What is the best way to attain it? Business activity should not be so dependent on the size of our agricultural crops every year for putting money into circulation. If our food sup- 116 PEOTECTION'S BEOOD ply was consumed at home our prosperity would be more dependent on those who consume it than on its producers, — thus food-producing would be only a step in the wealth attaining power of the country instead of being the whole thing as at present. It is plain that there are two main re- quirements for continued prosperity, — (1) a con- tinuous supply of raw material, and (2) a contin- uous demand for the finished product. All other requirements reduce to these two ultimately. Capital can be had at any time if there is a con- tinuous demand for the finished product. Manu- facturing has been made attractive and profitable by creating an artificial demand instead of by the natural way of allowing the producer to use un- taxed raw material, but this method of encourag- ing manufacturing has about reached the limit; further encouragement can only come by cheapen- ing the supply of raw material. The policy which has been followed necessarily assumed in the beginning (1) that no foreign market would be needed for our manufactured goods, and (2) that the domestic supply of raw material was practi- cally unlimited and inexhaustible. Capital contin- ued to be attracted by manufacturing pursuits so long as the home market was large enough to con- sume what was produced, and the domestic supply of raw material was abundant. By the very in- centives supplied by this policy (and intentionally A LIVE ISSUE 117 so) our manufactures have rapidly outgrown the domestic market, but in so far as they cannot now meet the conditions of foreign markets, to that extent manufacturing must stop. It has been shown that one man's finished product is an- other's raw material. Whenever the price of the former is enhanced by a "protective" tax the lat- ter is burdened by the same amount at the very beginning as a first charge against the profits and prosperity of the business. It is time that one of the great political parties in this country took hold of the tariff question in dead earnest, or that a new party was formed to advocate this issue. The only means by which voters will be aroused and won is by live issues which touch the condition and welfare of the in- dividual. Not one voter in ten cares a fig which party is in control, except as he thinks its control will benefit his business or his own personal pros- perity. It is this solicitude for each one's per- sonal prosperity that saves the state in critical times like 1896. A change of government officials at Washington isn't going to benefit anybody un- less laws are to be amended and repealed and our policy changed for the improvement and enlarge- ment of trade in manufactured articles, either by reciprocity agreements or by the reduction of several important tariff schedules. The time to act is before conditions become serious. Our 118 PROTECTION'S BEOOD rapidly increasing population nmst be given prof- itable employment, and for this purpose new cap- ital must be attracted to manufacturing pursuits. If we are wise we will so amend the law that ample employment can be given to the hordes of immigrants constantly arriving, without crowding their predecessors in the least. If we are unpre- pared for them they will become an increasing public burden adding little or nothing to the home demand for our products. But worst of all their very condition of idleness engenders a dissatis- faction with our institutions, — increasing lawless- ness and anarchy, and breeding crime and evil of all sorts. Something should be said as to the real pros- perity of the masses as distinguished from that of the beneficiaries of protection. In his letter of acceptance seven years ago President Eoosevelt made this statement in reference to the last pre- ceding forty years of protection: — "These forty- odd years are the most prosperous years this Na- tion has ever seen; more prosperous years than any other nation has ever seen." It would not occur to many to dispute this statement, yet its truth depends entirely on whether its meaning is restricted to prosperity among the protected favo- rites or is intended to include prosperity of each individual composing the masses. The amassing of great wealth has brought many of our citizens PROSPEEITY FOE WHOM? 119 into prominence, and the newspaper notoriety which they have attained seems to have blinded the general public to the unsatisfactory condition of the middle and lower classes of people whose daily wages to be sure have continued during times of business activity but the cost of whose living has been steadily increasing at all times both of prosperity and depression. The safest in- dication we have of the prosperity of the masses is the record of savings bank deposits and depos- itors. Disregarding the third decade because of the incompleteness of statistics at that early period and the fourth decade because of the effect of the panic of 1837, let us consider the last sixty years of the nineteenth century as divided into two parts of three decades each. From 1840 to 1870 savings bank deposits increased five times as fast as from 1870 to 1900. From 1840 to 1870 the number of individual depositors increased twenty-one fold, and from 1870 to 1900 the num- ber of depositors was not quite quadrupled. Again, from 1840 to 1870 the amount deposited by each depositor increased 88%, while during the last thirty years of the century this amount increased only 17%. Finally the amount of de- posits per capita of the population increased seventeen fold from 1840 to 1870, while it was only a little more than doubled from 1870 to 1900. Allowing for other causes, such as the gradual 120 PROTECTION'S BROOD growth, of the habit or custom of using savings banks, a safe and conservative deduction from these figures would be that the American work- ingman was at least four times as prosperous un- der a revenue tariff in the fifth, sixth, and seventh decades of the nineteenth century, as he was un- der a protective tariff in the eighth, ninth, and tenth decades. This showing considered with the fact that the purchasing power of a dollar has been steadily declining during the last twenty years clearly in- dicates that the prosperity of the average wage earner has been of a retrograde character whether or not that of his employer has been pro- gressive. "To him who hath shall be given, and from him who hath not shall be taken away even that which he hath." If this text had been writ- ten with especial reference to the effect of a pro- tective tariff upon a nation of large resources, the truth could not have been more concisely ex- pressed. The effect is far reaching, touching not only the industrial and business life of the whole country, but permeating indirectly many phases of our common life, limiting individual liberty, making constantly wider the social gulf between its direct beneficiaries and those positively in- jured by it, fostering a spirit of discontent among those who are discriminated against, continually increasing the amount of idleness in our large THE EESULT INJURIOUS 121 comnmnities, causing an increase of crime and every evil whicli besets idle men, encouraging and confirming habits of bribery and corruption not only in political but in business life, in short cre- ating such highly artificial conditions that the nat- ural laws of supply and demand within our own territory are seriously deranged and all business not immediately concerned with the production or distribution of the necessities of life is in a continual state of unrest and uncertainty. It can- not be denied that these conditions are growing upon us. What are the American people going to do about it? CHAPTER VII. Stock Watering as a Result of Excessive Profits — Government Control for Public Utilities- Publicity as a Method of Control. President Taft during his candidacy and since his incumbency in the office of President of the United States has frequently made statements to the effect that the present crusade against dis- honesty and corruption in business management must continue with unabated vigor in order to stem the rising tide of Socialism in our midst. At first it seemed to many people that such a fear was groundless; gradually, however, one disclosure after another of the disabled condition of public service institutions and other corporations has confirmed his position. Socialism would provide, among other things, government ownership of public utilities, includ- ing the street railway systems as well as gas and electric lighting systems and all means of inter- communication ; and it is the aim of Socialists to bring about such a condition of affairs that gov- ermnent and municipal ownership shall become 123 124 PROTECTION'S BEOOD general. Disclosures of such mismanagement as reduced the Metropolitan Street Eailway in New York, and several other public utility corporations throughout the country, to a state of fiinancial dis- tress give an immense impulse to any movement toward government ownership, the very end which the men who are responsible for the dam- age desire of all others to avoid ; — and this is so not necessarily because of the effect of the dis- closures upon public opinion but because the logi- cal result of such mismanagement carried to its ultimate end is to compel government ownership as the only alternative for the protection of inno- cent stockholders and bondholders whose prop- erty has been despoiled, or to require that the government maintain and operate a property in which stock and bond holders can no longer be found to invest. The common way of despoiling properties of this kind has been to re-organize from time to time by taking in smaller or subsidiary corporations at highly fictitious valuations, partly for the pur- pose of concealing their really deplorable physi- cal condition from the public and the stockhold- ers, and partly to facilitate the usual distribution of the spoils. In general when a corporation's capital is impaired it means that the money which was originally invested by certain stock- holders and which then represented valuable as- CAPITAL IMPAIRED 125 sets such as equipment, trackage, real estate, and other property, no longer represents the same value as it did when the investment was made. Everybody knows that property depreciates in value, and the less carefully it is maintained and kept in repair the more rapidly the depreciation goes on. It is the moral duty of all corporate managers to keep the original investment of its stockholders in the best possible condition at all times and to set aside annually a sufficient amount for depreciation, using for these purposes not new capital but a portion of the gross income. If this is not done the value of the original in- vestment will fall off with accelerated rapidity and a time will surely come when new capital must be solicited for the purpose of putting old property in repair. This new capital, of course, is looking for dividends and the stockholders rep- resenting the original capital are also looking for dividends out of the same property, so that if both these classes of investors are to be remuner- ated at the old rate it is necessary to give the property a fictitious valuation as much above its original and actual value as is called for by the additional capital which has gone into the busi- ness. Stock watering results to a considerable extent from the failure of corporate management to provide for repairs and renewals or deprecia- tion out of the gross income of the business, and 126 PROTECTION'S BEOOD at such times it becomes necessary to resort to a fictitious valuation of the assets in order to keep the business from being declared insolvent al- though it actually is so. The continued calling for new capital to be spent merely in repairs and renewals piles up a corporation's liabilities to stockholders without in any way adding to the original value of the property, which must now show a fictitious value on the debit side in order to balance the liabili- ties to stockholders. The assets of a company are the stock and bondholders' security, and if the obligations to stock and bondholders are increased while the assets remain the same, there is no in- creased security to balance the new capitaliza- tion. There is, therefore, no way of protecting the original stockholders properly, unless provi- sion for depreciation is made out of the gross income. It would seem ridiculous to discuss such an elementary fact seriously if there were not constantly arising every day examples of the gross violation of this principle by corporate managers all around us. Oftentimes its violation is due merely to ignorance of proper methods of accounting, and is not a deliberate attempt to impair the corporation's capital. There are too many business executives in charge of the affairs of public utility or manufacturing corporations who are surprisingly ignorant of the fundamental DEPEECIATION 127 laws of accounting and who do not therefore get from their own books any adequate idea of their company's standing. When a corporation pays dividends without first providing for depreciation, it is in the end exactly the same thing as the unlawful practice of declaring dividends out of capital, because fail- ure to provide for the depreciation of property in its effect actually robs the original investor and forces him to share the property with a new investor whose money is required to restore it to its former earning capacity. When new capital is applied for the purchase of new equipment or new property which has an additional earning ca- pacity and does not displace old equipment, there is thus added to the company's earning power a sufficient amount to make the new investment val- uable in itself; but when new capital is applied to repairs and renewals, and the property represent- ing the original investment is thus replaced, either the original investor must be frozen out to make room for the new one, or. the old equip- ment which is now no longer in use must be car- ried on the books as an asset, or else (which amounts to the same thing) the new equipment must be given a fictitious value enough above its actual value to balance the combined liability of the company to both the old and the new invest- ors. Hence at the end of each year or other con- 128 PEOTECTION'S BROOD venient period the actual market value of the company's property is ascertained and entered on the books. If this value is less than it was at the previous inventory, funds to make up the dif- ference should be appropriated out of the com- pany's income and set aside either as a sinking fund or for the future rehabilitation of the prop- erty. Stock watering is also due to another rather prevalent cause more directly traceable to the tariff. Under the bounty of an excessively high protection the protected industries have made money and have made it fast. Some of them have become rich so fast that they realize the in- jurious effect the knowledge of the facts might" have if generally understood and so they en- deavor to cloak the truth by stock watering. A company making a net profit of $250,000 a year on an investment of half a million dollars could declare a fifty percent dividend; — ^but fifty per- cent looks rather too large to some people espe- cially if they are not doing as well as that in their own business, and therefore in order to cover things up and prevent criticism the direct- ors of said company may deem it wise to increase their capitalization to (say) five million dollars, on which the $250,000 dividend would be only five percent. So long as the nominal capital of a com- pany need not represent the actual intrinsic value EXCESSIVE PEOFITS 129 of its assets this mode of deception will be fairly- effective. The actual amount of money paid in or the actual value of the property turned over to a company can very seldom be known without a careful and painstaking examination. The trouble and expense involved in this constitute a practical guarantee that it will never be done un- less something exceedingly irregular takes place in the company's management. This method of stock watering has been very common for the last twenty years and is largely due to the opportuni- ties afforded to its beneficiaries by the bounty of a high tariff to make excessively high profits. In some States of the Union the law fixes a maxi- mum annual rate for dividends and corporations are not permitted to pay more. Such a law is an additional incentive to stock watering which af- fords an easy method of getting around it; and this is one of the many illustrations of the in- jurious effect of too much legislation. One bad law brings on another to correct its evil effects, and the process goes on from year to year getting us more and more involved in legislation which is either useless or well-nigh non-enforceable. For the past fifteen years the enormous in- crease in the number of re-organized combinations and mergers or holding companies has far ex- ceeded the wildest dreams of the originators of such methods and during this time the effect upon 130 PROTECTION'S BEOOD the properties involved has been cunmlative. "We may justly conclude that the combined effect of the destruction of original values and the legal- ized plundering of many properties has had a tremendous influence upon the investing public, not simply because of the distrust engendered thereby, but also because of the knowledge that there exists a wide discrepancy between so-called book values and the actual values of such prop- erties. One very cogent reason for the timidity of the investing public in a time of general busi- ness depression is the sore experience already gained by investors in enterprises which in pros- perous times, by bad management or dishonesty, have proved partial or total failures. These fail- ures are important contributing influences in pro- longing hard times for the reason that they ren- der all investors more or less timid. The present business stagnation is partly due to the general practice of unprincipled methods begun several years ago, and there is good ground for believing that we are now passing through an era which will mark the downfall of such enterprises as can live no longer under a financial system which has wrecked them, and will force the re-organization upon sound business principles of such others as survive and can "make good." Timidity has been increased also by the un- usual number of "wild-cat" schemes and stock- PUBLICITY 131 jobbing propositions whicb have succeeded fraud- ulently in enticing people's money away from them. So much "speculating" money has been in the hands of the investing public (beneficiaries of the tariff) during the past decade that get-rich- quick schemes have flourished without stint. The soundest remedy for these evils is Publicity, The law should require frequent audits and public statements of the private affairs of all companies and corporations, and these statements should be subject to verification and correction by govern- ment inspection or examination when deemed nec- essary or on application of a suflScient number of stockholders. Insecure or fraudulent companies could be very readily detected in this way, and with such warning on reliable authority investors who then speculated would do so with their eyes wide open. Moreover, such speculators would have no right later to appeal to the government for redress or for the punishment of offenders in a deal where their own negligence or cupidity was at fault. Publicity in some such way as above indicated would naturally be resisted by certain private in- terests on the ground that each had a right to do what he pleased with his own property. So long as there was no obligation put upon the owners of private interests to do otherwise than as they pleased, this reasoning would have no basis ; and 132 PEOTECTION'S BROOD the periodical publishing of statements or condi- tions of fact conld have no other effect than to put knowledge ia the hands of investors and cred- itors for them to use as they saw fit. Indirectly of course publicity would affect the business of any company, and that would be the understand- ing under which a system of publicity would be adopted. If a company were piling up a huge surplus out of its earnings competitors would quickly be found who would go into the same line of business thus tending to reduce the profits of all concerned; or if it were shown that the first company had a secure monopoly of the business and with it was piling up a huge surplus while paying large dividends everybody would then know that such a company was charging an un- reasonable figure for its product, and a great cry would arise for lowering the tariff rates on for- eign imports which would compete with this prod- uct. Thus publicity would be a powerful factor in itself for tariff reform. Amassing a surplus to use in times of business depression for supplementing losses is one thing, — but using a surplus for enlarging the plant in order to increase a company's output, and then issuing stock dividends capitalizing this new property, that is, capitalizing a surplus, is quite another thing. It is considered an evidence of good, thrifty business management to have an an- CAPITALIZING A SURPLUS 133 rnial surplus, part of which, is put back into the business for betterments and extensions. When the management can do this it shows a prosperous condition,— but it also shows that the earnings very much exceed the usual investor's rate of in- terest on the actual assets in the business,— and it shows that a normal amount of competition in this line of business has somehow been stifled. In the case of a private corporation the remedy for this is to induce a return of competition by abol- ishing the tariff on competing products. In the case of a public utility corporation the situation is different. A public utility corporation is per- forming a public service under a franchise or per- mit usually allowing the use of public property and requiring convenient public service to all people alike. For a public utility corporation to capitalize a surplus is just as reprehensible as to lomit to provide for the depreciation of its property,- the former because it shows an in- justice in the rates charged to the public, and the latter because it shows a neglect of the in- terests of its stock and bondholders. All public utilities as now enfranchised are practically with- out competitors in the district which they serve. That is, each has a monopoly of the trade in cer- tain districts or divisions of the country. If there are enough railroads to handle all the business that comes to them, this condition is highly bene- 134 PEOTECTION'S BROOD ficial to tlie public in the final adjustment of rates. A railroad has very few competing points, most of its right of way passing through towns and cities which are not served by any other railroad. Thus most of the inhabitants along its lines are absolutely dependent upon the one railroad for transportation of their freight and themselves, and even if there were no rate agreements be- tween the different railroad companies there could be but little real competition. When a railroad company uses part of its in- come to add to its real or fixed property and then issues stock on this property for the purpose of paying dividends on this too, in other words when it capitalizes a surplus, then the evidence is clear that it is charging more for its service to the pub- lic than it need to charge. There can be no denial of this statement. It is true that the public is benefited in some degree by the betterments and the extensions thus added to railroad property, — but the public should not thus be compelled to contribute the capital for these betterments in the form of advanced rates when the financial profit in the operation is absorbed by the railroad's stockholders without cost to them. The public benefit would be served just as well if the better- ments and extensions were made with new capi- tal paid in for that purpose, with this advantage that the rates need not then be as large ; and this AMORTIZINQ BONDS 135 new capital should not be in tlie form of bonds to be amortized out of the future income. The amortization of bonds is equivalent to a provision for depreciation without actually restoring the property to its original value. In other words, by amortizing its bonds a corporation is simply paying the depreciation reserve back to the capi- talist instead of using it to keep the property up to its full earning capacity. It is certainly unfair to the rate payers that a public utility corporation should use part of its income to amortize bonds which were issued to pay for new property or extensions and at the same time provide a reserve for the depreciation of this property, because the whole benefit of this operation accrues to the stockholders, who put up nothing whatever for it. If through negligence or oversight the original stockholders' property has been allowed to depre- ciate and bonds have to be issued to supply the lack of a reserve fund for the purpose of restoring the property, that is an entirely different thing,— and the amortization of such bonds out of the earnings is justifiable on the ground that it is the deferred payment of an account which had pre- viously been neglected. But even then the stock- holders ought to be made to pay for such neglect by the reduction of their dividends in the full amount required to amortize these bonds, because during the previous period of neglect the stock- 136 PEOTECTION'S BEOOD holders were receiving larger dividends tlian they could have received had the depreciation been taken care of. When the rate payers are them- selves the owners, as is the case with large munic- ipal or government-owned utilities, the foregoing arguments are of course inapplicable. Under our bountiful tariff laws of the past fifteen years there has arisen such a competition for capital that the possession of a surplus and such an oc- casional distribution of it (familiarly known as "cutting a melon") is said to be necessary to a railroad company in order to attract invest- ors. If capital cannot be secured for public util- ities or railroads from investors who will be sat- isfied with a fair rate of profit on the investment in addition to the normal increment in the intrin- sic value of the property in which they have invested, without insisting that part of the income be turned into capital also and given to them as a basis for further dividends, then indeed is there no limit to which rates may be raised by public utility corporations in their efforts to compete for capital. This is so because such a corporation's franchise gives it a limited monopoly. To sum up, then, it is logically, morally, and (it should be) legally necessary for a company to replace worn-out equipment with new, and to maintain the value of its whole property as far as possible against depreciation out of its earn- COMPETITION FOR CAPITAL 137 ings, so tliat tlie value of the original capital in- vested may always be represented truly by the value of the property. But if it be permitted to add to the capital account out of the income and then to offer this additional investment as an ex- cuse for the payment of additional dividends or interest charges, it amounts to the same thing as capitalizing a surplus, which is a permissible practice in a private corporation competing for a livelihood in the open market, but which is not permissible for a public utility corporation, be- cause any surplus or excess of profits beyond a fair remuneration to the capital invested is taken directly from the public in the form of excessive rates, and the people have no choice but to pay the increase because of the monopoly enjoyed by this corporation under its charter. The privilege of making capital out of income should be denied to all public utility corporations or else the/ should be compelled to surrender the protection guaranteed them in the charter insuring to each a limited monopoly. If the rates paid to a public utility corporation by the public for service are so high that a portion of the income remains after paying all expenses and a reasonable remunera- tion for its capital, it seems clear that this excess does not belong to the stock and bond holders who never contributed one penny of it, — but rather that it belongs to the public who have paid it all 138 PROTECTION'S BROOD in the form of excessive rates, and it should be paid back to the latter by a reduction of rates instead of to the former in the gnise of stock divi- dends. But let us go a step further and assume that this surplus is needed for the betterment of the property or for extensions which will be ad- vantageous to the public, then it is also evident that the interest or the dividends subsequently earned by this additional investment do not be- long to the stockholders who have not contributed one cent of it, but rather to the people who paid the excessive rates, and therefore any such profits should be handed back to the people in the form of reduced charges. By the same reasoning when betterments, and extensions are needed new capital should be raised for that specific pur- pose. Of course if there were no other way to have public utilities honestly administered government ownership and operation would be necessary. But there are many ways in which a wholesome gov- ernmental control may be exercised without nec- essarily hampering the legitimate freedom of ac- tion or seriously curtailing the profits of private enterprises. A governmental control in which the people had faith and whose purpose was simply to prevent dishonesty and trickery by pub- lishing all the acts and contracts of a corporation would be profitable to the corporations and popu- FEDERAL AUTHOEITY 139 lar with, the people, and would tend to maintain prosperity, — for it would establish general confi- dence and credit. To give our Federal govern- ment as much authority over corporations as it now possesses over the National banks would dis- pel all doubts and misgivings as to the difference between "good trusts" and "bad trusts"; and this is about all that anybody needs to know. If it was within the power of every one to make this discrimination confidence would be extended to deserving and honestly managed enterprises in- stead of being withheld altogether as it has been in the recent past. The two alternatives, therefore, are govermnient control or government ownership. If we are not prepared for government ownership of our pub- lic utilities we should establish an adequate gov- ernment control. A general discussion of govern- ment ownership would comprise the difference between municipal and State ownership, and ownership by the Federal government itself. Objections which would apply to one of these would be inapplicable to the others. Whereas the Federal government is and has been for some time in the hands of honest and capable men in whom the people have confidence, the same cannot be said of any of the municipal governments of large cities, nor unfortunately can it be said of many ©f the State governments. An 140 PEOTECTION'S BEOOD eminent authority on government ownership came from Glasgow a few years ago to Chicago to make a report and formulate a plan for munic- ipal ownership of its public utilities by the City of Chicago. Greatly to the surprise of the author- ities of Chicago, at whose invitation the expert had come over, he reported adversely on the whole project, and stated that in his opinion the City was not prepared to undertake municipal ownership. It was generally understood that his objections were based on the (to put it mildly) unbusinesslike way in which the municipal gov- ernment had been administered and the general recklessness in handling public property and pub- lic funds which he had observed as a habit of public officials. To commit large properties to the care of such men as for the* most part hold the public offices and administer the affairs of our municipalities would be a great mistake, and there is probably no community which would so- berly and deliberately decide to grant to such men the unrestricted control which municipal owner- ship involves. Perhaps it is a little hard to see why this is true with regard to municipal and State governments and is not true of the Na- tional government. One reason for it is that people in general take a more personal interest in National nominations and elections than in local nominations and elections. This statement PUBLICITY 141 is verified by election statistics wliicli show that the vote in "off" years falls far short of the vote cast either in presidential years or at congres- sional elections. Briefly, then, until the people shall begin to take a more vital interest in their local and State governments than they have been doing and begin to feel that there is necessity for a strict business administration of local affairs on well-defined and honest business principles we are still far from being prepared for municipal ownership. Turning this way and that for a remedy we come back to Publicity as the great cure. Dishon- esty and greed could not prevail if all things were done in the open light of day. By manipulating re-organization schemes so as to unload every- thing on to the public after the cream has been skimmed off by the insiders, the manipulators have been able to "fool some of the people all the time and all of the people some of the time" but not "all of the people all the time." Confi- dence is what the great mass of the people lack at the present time. There is plenty of capital for investment in good honest enterprise honestly and fearlessly administered, but not for re-or- ganizing broken down properties on the old famil- iar basis of leaving the thousands of small in- vestors to foot the bills for mismanagement. When buying stocks as everything else the 142 PROTECTION'S BROOD people want to know what they are getting, and they wish to obtain this knowledge independently of the vendor of the stock or of the market news bureaus which are the vendors' agents. If the law permitted an examination into the affairs of corporations or combinations at any and all times, by an agent of the Federal government, just as is now done in the case of the National banks, and made it obligatory upon the govern- ment to publish the information thus obtained at stated intervals and permitted it to be published oftener whenever in its discretion the information so given out would benefit the public or conserve the interests of investors, the people would need no further protection; — they would do the rest. Stock watering, fictitious valuations!, payments of dividends out of capital or before provision was made for depreciation, these and countless other devices for getting away with the investor's property would all be exposed before serious harm could be done. Complete publicity is all that is needed. Any government regulation going beyond this would be superfluous except in the case of public utilities. Publicity would put regu- lation directly into the hands of the people and by the knowledge obtained through the agency of the government the tariff laws and other ob- structive legislation could be dealt with in an intelligent and in no uncertain manner with con- ABUSE OF POWEE 143 fidenee that changes thus made in existing law would cure the evils complained of. Those whose wish is father to the thought say that only a few of the thousands of corporations in this country have abused their power. How do they know this? How can anybody know this? The light has been turned on these few only;— but how about the vast majority doing business today on which the light has never yet been turned? Nobody expects the comparatively small organi- zations to make a bad showing under examina- tion, for the very fact that they are small and not powerful is presumptive evidence that they have not profited excessively at other people's ex- pense. But there are many large and powerful corporations whose business methods and man- agement have not as yet been disclosed, and the very ignorance of these raises a presumption against them which is unjust and unfair to the honest corporation and which will injure it far more than the publication of its true condition might do even at a time when possibly it was, approaching insolvency. In fact such occasions requiring the tiding over of lean times would tend to become less frequent if those responsible for them knew that a date for publicity was coming round with the regularity of the tax gatherer. Analogous to this is a man's private life. The honest man who cares for the good opinion of Ms 144 PEOTECTION'S BEOOD neighbors is perfectly willing to liave tlie details of his life and the program of his movements made public at any time. The better he is known the more he is trusted even though he be over- taken by misfortune; — ^but not so with the man who has something to conceal. This man would, however, nine times out of ten, mend his ways if he knew that the light of publicity was to shine on him at all times ; for, public opinion is the re- straining force. This brings us to the question of responsibility. A man said to the writer several months ago, — "If I had only known enough a few years ago to incorporate my business I need not have been obliged to go into bankruptcy this past winter and put up all my personal property for the bene- fit of my creditors. I could have kept the assets of the corporation separate from my own prop- erty, and the creditors would have had to be sat- isfied with those." Here is a concise statement of one reason that has impelled many men to in- corporate their businesses, and it shows that there is an advantage resulting from incorporation in addition to the economy due to combination and organization. The public is familiar with the frantic efforts put forth by our district attorneys and others to get at the man "higher up," efforts which are nearly always unavailing because the really responsible party easily throws the blame COEPOEATION TAX 145 for misdeeds on to somebody else or dodges it altogether. This fact gives currency to the phrase "Corporations have no soul," and shows the ad- vantage of incorporating over other forms of business organization for those who wish to evade personal responsibility. So long as this advan- tage exists why should not the corporation be subjected to a special tax, and why should it not be compelled to give an account of itself at fre- quent intervals? Any complaint that it is unfair to treat the corporations any differently from private business houses is therefore not well founded, since the former have advantages not possessed by the latter. Corporations doing busi- ness "on the square" will welcome publicity. It will strengthen them with their stockholders; it will strengthen them with their creditors. CHAPTER VIII. Monopoly vs. Competition— The Sherman Anti- trust Law. The natural tendency toward monopoly is strong enough by the "survival of the fittest" rule without any help from a protective tariff. Other things being equal two or more industries in the same line of business in strict competi- tion with each other could not long remain so if one of them possessed a more skillful manager than the others; — or, if one of them possessed natural advantages superior to the others; — or, if one of them had money enough to provide its own transportation facilities and the others had not; — or, if one of them owned the patent on a certain machine which was indispensable to the business, and the others had nothing to rival it ; — or, if one of them was able to obtain its labor for less wages than any of the others could ; — or, if one of them could control a supply of the neces- sary raw material and the others could not; or, if one of them merely had more capital or could obtain more credit than any of the others and 147 148 PEOTECTION'S BROOD could therefore purchase its raw material at such times as the market was lowest and then store it away until used. The more restricted the mar- ket the more exaggerated would he the effect of any of these conditions. Under unequal condi- tions it would be well nigh impossible for several industries to remain indefinitely in competition, for the most favored one would gradually but surely pull away from all the others and by underselling them would finally establish a mo- nopoly of the business. In this whole United States under the different State laws and under the widely differing local conditions it is difficult to imagine competition upon anything like even terms between the various industries in any line of trade. Yet the same domestic market is for them all; — our Constitution having ensured free trade between all the States, there is no bar- rier excepting distance. Prices in New York are telegraphed to Chicago and the seller there knows at once by adding the freight charge to his local price whether it will or will not pay him to ship his goods to the distant point, and whichever way he decides to act the price in both markets is affected thereby. All competition is carried on under widely differing conditions and upon un- equal terms. To show how true this statement is, let any ten industries in the same line of busi- ness right in the City of New York be investi- GROWTH OF MONOPOLY 149 gated and it will be found that no two of them are turning out their product for exactly the same unit cost. Instead of competition being extended as our population increases the inevitable law of the sur- vival of the fittest is establishing monopoly more firmly every year. The aid given by a protective tariff which keeps away the competition of the foreigner furnishes a great impetus to the move- ment which all the forces of the government combined are powerless to check until this in- centive is removed. A protective tariff greatly contracts the field of competition and therefore shortens the time in which the fittest survivor can attain monopolistic control. The huge strides toward monopoly which have taken place in the last fifteen years are largely due to the Dingley tariff and have brought about an intense com- petition for capital among the great combinations in the different lines of industry so that each has to show an increasingly large revenue and sur- plus or else fall behind in the race when the time comes to acquire new capital for extensions and additions. It is not the increase in wages which has pushed prices up in this country nearly so much as the increased reward paid to capital which is insatiable. A monopoly having been established by the gradual underselling of com- petitors the tendency has been general (with a 150 PEOTECTION'S BEOOD few notable exceptions) to push up the price to the consumer quietly and gradually on one false pretext or another, a comparatively slight in- crease in wages being made the basis for an eleva- tion of the price utterly out of proportion with it. Whenever the public submits, out of sympathy with the workman, to an advance in prices, it encourages an endless chain with advantage to no one but the capitalist who can each time ad- vance the price a little more than the increase in wages warrants. A general advance of prices is bound to become established after a few years of this rotating process and the worst sufferers are the laborers in whose interest the advance was supposedly made. Eaising wages seems to necessitate raising prices, and raising prices does necessitate raising wages, — it works around in a circle with profit only to the man who controls the situation. The strain to get bigger and big- ger returns for capital also operates in an end- less chain since it in turn necessitates a general advance in prices, and the capitalist must have a greater income in order to meet the advance with the same ultimate profit to himself. It was stated in Chapter V that combinations controlling a large part of the output have a ten- dency to maintain prices artificially at a constant level in periods of business depression. If prices at such times were always based on the cost of ADVANCING PEICES 151 production it would be necessary for large com- binations to keep prices up in hard times. The normal demand having fallen off the output must be curtailed by the closing of shops or the shut- ting down of factories. For various reasons some shops belonging to large corporations are closed most of the time. The upkeep of these shops is a general charge on the revenue of the company and must be paid out of the earnings of the shops which are busy. Some shops are never opened excepting in the most prosperous times to take care of the surplus business, — ^yet their main- tenance has to be provided for at all times and the capital sunk in their equipment is largely un- productive. A corporation carrying a number of shops in this way must keep up the price of its product during hard times or lose money, al- though it can profitably undersell its smaller com- petitors in prosperous times. On the other hand a small concern operating only one shop all the time would not have this drain on its revenue in dull times. Just as the increased reward to capital begets luxury and indolence so an increase of wages beyond the power of the recipient to control his appetites begets inefficiency. It takes strong moral powers to prevent excesses, and overpaid workmen are more likely to impair the usefulness of their working hours by dissipation in their 152 PROTECTION'S BROOD leisure hours than are those who are underpaid or who spend more hours per day at their toil. There is no sentiment about this. Inefficiency in all branches of labor has increased notably in re- cent years until a resort to piece-work or pay by the unit of product seems almost a universal necessity. It is the chief endeavor of most skilled and unskilled laborers, especially those who band themselves together for exploiting employers of such labor, to make work last as long as possible and to make as much work as possible for each other in the different trades. It is not to be sup- posed that workmen of the present day are phys- ically the inferiors of their fathers to the extent of being able to do only half as much work ; — and yet this is exactly the level of inefficiency to which certain trades have sunk, in the building business, for instance, comparing the present with a period about thirty-five years ago. In these trades the prevailing idea is to let the slowest man set the pace for all, and their rules forbid any workman to do more than the most inefficient can do. In spite of such inefficiency wages to these workmen have advanced more than one hundred percent in the same period of time. Reasonable employers do not object to paying a higher rate of wages than prevailed thirty-five years ago, but they seriously object to getting only half their money's worth. An employer of men is always willing to LABOE UNIONS 153 pay one man twice as mucli as another who does only half as much work. In fact he would prefer to because thereby the work is accomplished in half the time and the capitalist can by multiplying such instances turn his money over twice as often. In the labor market monopoly has been brought about by intimidation, violence and bloodshed, — instead of by underselling competitors or out- ranking them in eflBciency and honestly driving them out of business in that way. It remains a mystery to most intelligent people how the better class of efficient workmen can band themselves with less skilled men and plod along at their level when by a little effort they might put themselves far ahead of the others who are in no sense either competitors or equals. The power of labor com- binations is very much weakened by their use of violence which alienates the sympathy of law-abid- ing citizens and drives away from their ranks men who prefer steady employment at reasonable wages to a life of tyranny and unrest. To be ef- fective as a business unit a labor combination must renounce tyranny and violence and must deal with capital in a straightforward responsible way, — ^keeping its engagements and contracts and being able at all times to furnish the kind and amount of labor required by any industry. Of what use can the recognition of a labor union be to capital if at the same time the union does 154 PROTECTION'S BEOOD not accept its responsibility and compel its mem- bers to carry out their contracts under adequate penalty for non-performance? The recognition of unions cannot be brought about by compulsion or intimidation, and if it is not made advanta- geous to capital to deal with organized labor as such, then the unions will never be recognized. Excesses must be held in check. One indiscre- tion will nullify the good work of years of patient endeavor and set public opinion against all or- ganized labor, the innocent as well as the guilty. The same thing is true in regard to capital, — one disclosure of dishonesty or corruption ren- ders the public timid and suspicious of the inno- cent as well as the guilty, — and why should a different principle obtain with labor? No more pernicious law was ever placed on our statute books than the so-called Sherman Anti- Trust law of 1890. The working of this law is so impracticable that no serious attempt to en- force it was made during the first ten years of its life. It has taken twenty years to get an authoritative opinion from the Supreme Court as to what it really means, — and the public is about evenly divided on the merits of this opinion. Aiming to restrict the fast growing tendency toward combinations of industries for the elim- ination of competition, this law makes the very act of combination a crime for those indulging in EESTRAINT OF COMPETITION 155 it whetlier the result is to restrain trade or not. The Supreme Court has ruled practically that the act of combination is unlawful if there can be proven also the intent to monopolize and to re- straiQ competition. Combination in restraint of trade is an impossibility, for combination does not restrain trade; — but combination in restraint of competition is the real practical thing that this law intended to suppress, according to the Supreme Court. A study of the enormous growth of combina- tions and monopolies in the United States, espe- cially since the enactment of this law, is enough to convince anybody that free and open compe- tition is no longer commercially economical or desirable, and that the law for its restriction has never been taken seriously by them. Hence the business stagnation and timidity of enterprise which accompany the efforts of the Taft admin- istration to compel strict obedience to this law. It has just been shown that open competition if left to itself long enough will result in monopoly by the natural law of the survival of the fittest. A law therefore which aims to compel competi- tion indefinitely, attempts to reverse nature. No sooner would a monopoly be dissolved into its constituent parts than, by reason of the various unequal conditions under which competition must be carried on, one of these parts would gradually 156 PROTECTION'S BEOOD tend to forge ahead of the others, and in a much shorter time than was required to build up the first one a new monopoly would be in existence. How can a law which seeks to compel competi- tion be reconciled with attempts to restrain the excessive competition which powerful industries have exercised in their efforts to destroy weaker rivals? If competition is desirable at one time and not at another where is the line to be drawn? When competition is used in eliminating com- petition how shall a law be framed to regulate it? If competition is the desirable end to be attained by breaking up monopolies, why should excessive competition be regarded as illegal when used by these very monopolies in the elimination of smaller rivals? Open competition cannot in the nature of things be preserved, because it is known also to be de- structive of those economies which lead to low prices, that is, lower prices are possible under the economies of combination management than where several industries in the same line are all competing for the business. It was not so well established when the Sherman law was passed as it has been since that time, that combination for the elimination of expense due to competition was the economic way to lower prices. Take for instance the grocery business in a large city. A half dozen groceries serve one district, perhaps THE COMBINATION SYSTEM 157 even two or more of them serving the same cus- tomer delivering little packages to each on each delivery and making several deliveries per day. If one management controlled all these six stores the orders for one and the same customer would be combined and delivered at one time by one wagon, — thus saving an enormous amount of labor and expense in the delivery system alone. Sim- ilarly saving would be made in the bookkeeping which would be done by one set of books, not by six. There is really no end to the advantages which might be enumerated as possessed by the combination system over the competitive system. The net result could be a lower price charged to the consumer of groceries. Unfortunately for our theory it does not always work out this way in practice. The removal of competition gives power to the combination to raise prices to any limit that the "traffic will bear." But the Sherman law steps in and with the intent to preserve low prices says that these combinations must not be formed ; — yet it is known that these combinations can profitably maintain lower prices than can exist under a system of open competi- tion between small units. In other words the law seeks to establish low prices by insisting on a high priced system and prohibiting the low priced system, because forsooth the low priced system is capable of abuse. This is absurd. Such a law 158 PROTECTION'S BROOD ought to be repealed or amended so as to prevent the abuse, not the existence of the low priced system. Our tariff laws counteract over and over again any effect the Sherman law might have had in preventing combinations, and as the prevention of combinations is the wrong means to the end sought this law seems to be of no use whatever. If the Sherman law was intended to enlarge or restore competition then it is directly opposed to our tariff laws which have had the effect of restricting competition even among our own in- dustries. At the time it was enacted the need of a measure which would counteract the effect of tariff legislation was seriously felt and the Sher- man law was largely the product of this feeling. It was realized that we were fast getting away from the old competitive methods of doing busi- ness and that the shutting out of foreign compe- tition had established a precedent which was being followed on a small scale in various ways by our domestic industries with profit to those who could survive and the gradual annihilation of those who could not. It was felt that this process must stop, and so instead of uprooting the evil a priori by restoring foreign competition, the Sherman law was passed attempting to compel domestic competition for fear that we should soon have no competition at all. But the Sherman law was COMPETITION WANING 159 not effective. It found no supporters among the beneficiaries of protection because the benefici-- aries could make money faster by combining and eliminating competition thaikby operating as sep- arate units, and as the government had already shut off foreign competition it was natural and easy by continuing the process to shut off do- mestic competition; — ^besides the inducement was great. This happened during a period of our history when the protected beneficiaries were pouring out their contributions liberally every campaign to keep the party of protection in power, and when these beneficiaries through their agents in the lobby and on the floor of Congress made themselves unmistakably felt in preventing the enforcement of inimical laws even when they could not control the entire legislative pro- gram. It was also at a time when the Silver Purchase law was gradually plunging the country more and more deeply into trouble and President Cleveland had his hands full without attempting to bother with Anti-Trust law viola- tions. Then came the McKinley administration which was too much in sympathy with the tariff bene- ficiaries to make any earnest effort at the enforce- ment of a law not popular with them; — and the same situation prevailed in the first administra- tion of Mr. Eoosevelt who professed at that time 160 PROTECTION'S BROOD merely to be carrying out McKinley's policies as he knew tliem to be. When in the second Roose- velt term a serious effort was made to prosecute violations of the Sherman law it was found to be a very difficult matter. It had been so long neglected that business men had lost all fear of its provisions, and so great progress had been made in the organization of combinations and monopolies that it had come to be believed by many that there could be no general enforcement of this law without depriving individuals of their property outright. This would have been uncon- stitutional, and a decision on this point by the Supreme Court of the United States was badly needed. To be sure the Northern Securities case had been before the Court and there the law had been upheld, but in this case the combination was so recent that the property had had very little time to change hands and to become disseminated among innumerable stockholders, so that the task of disintegrating it was comparatively simple and drew very little attention from other violators of the law on account of the dissimilarity between it and their own case. Thus things dragged on until the Tobacco and Standard Oil cases were sent up as a test. The Supreme Bench lacked several members when these cases first came up on the calendar for consideration, and adjourn- ment was taken without any action on them, it THE LAW IGNOEED 161 being expressly stated that the Court was un- willing to have such important cases disposed of by an incomplete tribunal. It was in the autumn of 1910, somewhat over a year after the inaugura- tion of Mr. Taft, that he finally succeeded in filling up the Supreme Court bench, and not until then did the Court begin a consideration of these important cases. When, therefore, a decision was reached in May, 1911, a period of about twenty-one years had elapsed since the enactment of this law with- out any authoritative definition of the meaning of its provisions and without any penalties hav- ing been imposed for violations thereof. No wonder that its provisions were ignored all this time and that, while new trusts and combinations were being formed unhindered, all the old ones were growing stronger and more impregnable, and no wonder that when finally confronted with the fear of actual enforcement of this law whose terms are as yet unintelligible to most seekers after truth the business men of this country have had to halt operations until some authority is able to tell them exactly how to comply with the law as it is and as it is going to be enforced. A constructive program is needed to show how busi- ness may be carried on in compliance with the law, and, as such procedure is beyond the prov- ince of the courts, whose only duty is to say what 162 PROTECTION'S BROOD is illegal, there seems to be no way to help busi- ness except by a repeal or a radical amendment of the law. In repealing this law some way should be de- vised at the same time and put into effect to prevent overcharging by combinations which have become practical monopolies ; and to be really ef- fective a complete system of publicity should be accompanied by the adoption of an internal and external compensating tariff system.* These two things would have a powerful influence in re- straining monopoly. Without protection any combination would be subject to competition by the foreigner and thus all the economies above referred to would be utilized to keep the domestic price below the foreign price. The net result of our monopolistic tendencies to date has been to draw an increasing amount of foreign goods to our ports because of the advance in domestic prices. It is quite conceivable that a monopoly might start in what is a really legitimate way, that is, enlarging by endogenous rather than by exoge- nous growth. An industry thus built up by im- provements and extensions and additions might with proper management some day surpass all competitors to the extent of monopolizing a ma- jority of the trade of the whole country, and * Described in Chapter X. MONOPOLY WITHOUT COMBINATION 163 yet miglit not have taken into its organization a single competitor or previously independent business, and therefore could not be called a com- bination. Of course this is not a rapid method of organizing a monopoly, and while it was grow- ing up the field could be preempted several times over by the combination of its rivals. Yet it is entirely possible for a monopoly to start in this way, and many monopolies based on good patents have grown up in this way and have become powerful. In what respect does such a monopoly benefit the public any more than a combination formed in the usual way, — and why should not the one be prohibited by law when the other is? The Sherman law was evidently enacted to pro- tect small business units whose prices to the public, although they are competitive, are neces- sarily higher than prices charged by a combina- tion ought to be, because the former are based on a higher unit cost. While therefore there exist just enough small houses doing business to keep the one big combination in healthy com- petition with them, prices to the public will then be better than by any other arrangement because the advantages of combination are reflected in the combination's prices which in turn cannot be made too high without driving the trade to the small competitors. On the other hand the small men must be allowed to get some of the business 164 PEOTECTION'S BEOOD or they cannot live. Thus it is only a matter of time when they must either be absorbed or drop by the way. If a way be adopted to permit com- bination even to the extent of monopoly and at the same time to control or regulate the conduct of these big business units, then a condition will have been established bringing the greatest bene- fit to the greatest number. To accomplish this it is suggested that a uni- form Federal incorporation law be enacted having the salient features of the present best State laws, — requiring stock to be issued for cash or for actual property at par, &c., &c., — and that all companies or associations or organizations hav- ing actual assets and working capital exceeding (say) $100,000 be obliged to incorporate under it before doing an interstate business of any kind. In the charter it should be set forth clearly just what each corporation is to be allowed to do, with not so much latitude as is now usually given in State instruments of that kind ; and it should also be provided in the charter just how each com- pany's books and records should be kept and how often and in what form it should make sworn financial statements to the government for pub- lication. Then it should be understood that the penalty for non-compliance with the law in any respect would be forfeiture of the Federal charter and the right to carry on interstate business. To FEDERAL INCORPOEATION 165 have independent knowledge of its affairs the government should employ a corps of inspectors to report occasionally or on complaint regarding the conduct of the business of each corporation and to make periodical examinations of the books and contracts of the corporation by way of con- firming the faicts and statements made public by the corporation itself. A provision requiring uni- formity in the bookkeeping and the periodically published statements of corporations conducting similar lines of business whose operations can be fairly compared, will be foun^ of immense value both to the government officials and to the interested portion of the public, because it will afford a means of comparison which will bring about a sort of standardization of the operations which are common to all, and will give to the public a better understanding of the variations in the cost of operations which are dissimilar. The Interstate Commerce Commission has done much good in establishing uniformity in railroad re- ports and statements, but it seems preferable to have the work here contemplated in charge of a separate commission created for this special pur- pose, and to limit the scope of the Interstate Commerce Commission's work to the control and regulation of public utilities. Under a Federal incorporation law these requirements should be imposed upon all the important business interests 166 PROTECTION'S BROOD of the country. The effect of sucli publicity as this would be to keep prices at a reasonable level without the necessity of any direct regulation. If some effective way to regulate these com- binations is not found then there must be but one result from a process that has been gradually taking hold of this country for the last twenty years. How easily and naturally that culmination will follow is apparent upon consideration. Two things must be admitted if our argument has been convincing up to this point, — one, that the public wiU pay higher prices for some things than are now paid, if all business were to be done again in the old way by competitive small con- cerns, — ^the other, that a reversion to the com- petitive system would be quickly followed by a return of the monopoly system just as soon as the law of the ''survival of the fittest" finished its work. Logically then it does seem as though the combination system had come to stay in spite of all that can be done to check it. We have also seen that the only disadvantage in the combina- tion system is the control it gives over prices. This is the only part which is of interest at all to the people, and this is of vital interest. The people's only agent being the government it de- volves upon the government to institute a control of the situation. Failing with one government the people will try another and in the end these GOVERNMENT OWNERSHIP 167 great combinations will be controlled by the people through, the government if they are not voluntarily subservient to the people's interests. This process of exogenous growth which has been gradually building up these big monopolies all these years has been preparing the way for an easy transition to complete government control or ownership. The gradual getting together of all the different small business units in any one line will have saved the government much time and expense in the final reckoning day when no other method can be found to handle them short of government ownership. It will be just one short step to take from the condition they have voluntarily assumed to acquisition by the govern- ment for the benefit of the people. It makes no difference that the government might prove a less efficient manager than the private interests now in control ; when facing a desperate situatioij, the people will prefer to take that chance as the alternative to being exploited. In general it seems clear then (1) that the thousands of gigantic combinations or trusts exist for and by reason of the ultimate consumer, (2) that there is but one power left which is greater than the trusts and that is the government, (3) that the government is the embodied power of the ultimate consumer, (4) that our system of protec- tive tariff by restricting the field is and has been 168 PEOTECTION'S BROOD from the beginning the strongest force acting to promote and encourage the growth of combina- tions or trusts, (5) that the ultimate consumer through his government is responsible for the protective tariff system, (6) that a removal of that system would be the easiest, quickest, and best way for the ultimate consumer to protect himself and check the growing power of mo- nopoly, and (7) that unless the ultimate consumer does protect himself in this way he must through his government eventually take charge and oper- ate these troublesome giants. In other words if is self evident that the inequalities of the tariff must be entirely removed in order to prevent the advent of government ownership and Socialism. The present administration at Washington is striving for an enforcement of the Sherman law which will restore our former system of competi- tion, explaining that being on the statute books the law must be enforced and that it is a good law under the recent interpretation of the Su- preme Court;— and that therefore an attempt should be made to control the trusts by the res- toration of competition. This refers to domestic competition, — but it may now be most positively asserted that a return to competition unless thereby is meant foreign competition is both im- practicable and, permanently, impossible. Where the people have had a taste of the low prices FOEEIGN COMPETITION 169 resulting from combination they are not enthu- siastic about restoring domestic competition as a means for controlling those trusts which do not need controlling, — ^but where the people have had a taste of the high prices of greedy monopoly they are quite willing to introduce the cure of foreign competition and to give it a long and fair trial, because they know that as a cure do- mestic competition is worn out. Mr. Taft says that we must restore competition to prevent Socialism, meaning that government ownership will follow an unchecked continuance of monopo- listic growth. If competition is the great desid- eratum why not argue for the introduction of foreign competition as well? The combination of widely separated units cannot be operated as economically as a combination of more nearly contiguous units, and thus there is more force in the argument if applied to foreign competition than there is if applied to domestic competition. It is at least certain that so long as our domestic industries are dependent upon monopoly con- trolled supplies of raw material there can be very little incentive to competition between them be- cause the margin above the raw material cost is too small to "go and come" on, especially with in- dustries manufacturing largely by machine proc- esses. Hence while we tax the raw material for our industries, efforts to restore domestic com- 170 PBOTECTION'S BEOOD petition in tliese lines are futile. Yet, we have seen that one man's raw material is another man's finished product, and that the consumer and the producer are so bound up together by mutual interdependence that they are indistin- guishable. CHAPTER IX. Waste of Natural Resources— Special Problems. It is not hard to see from the foregoing pages that directly or indirectly our system of protec- tion by tariff on imports has seriously disturbed the balance of internal commerce, has interfered with the natural course of trade, has in countless ways contributed to the rapid increase in prices and the cost of living, and has upset things in general to such an extent that the foundations of our political and social life have been under- mined by greed, extravagance, falsification and double dealing. Due to a notion prevalent in by- gone years, inculcated by the advocates of pro- tection, — that all our economic ills sprung from a lack of sufficient protection to our industries or perhaps from an inequitable distribution of tariff favors the remedy for which was to grant more protection to those who had less than others, — many other important problems were ignorantly neglected; and when attention has been called to this neglect no serious movement could be started to solve these problems because the interests de- 171 172 PROTECTION'S BROOD voted to protection usually made light of them and stood in the way of reform, fearing that their prerogative would be endangered by any altera- tion of the fiscal policy of the government. First and perhaps most important of these is the problem of conserving our natural resources. The result of taxing imports of lumber, coal, iron, petroleum, and other mineral products of which there was a liberal supply in this country, has been to encourage the immediate use of that supply. This has been going on for so many years that the supply is becoming exhausted, — even before our population is one-tenth part as dense as that of European countries. What will be our situation in regard to the supply of these natural products when we have as many people here per square mile as Great Britain, or Japan, or Germany? Our posterity can buy up more foreign countries, we say, as we bought Alaska. Or, they can remove the tariff and import their supply from other countries, — ^no matter if the price is increasing rapidly every year and they will have to pay many times more for these things than we would pay if we should import them now free of duty and should save our native sup- ply to be shared with posterity. What have we to do with posterity anyway? Does it make any difference to us whether they rise up and curse us, or call us blessed? Some day there will be CONSEEVATION 173 250 inhabitants here per square mile instead of 31 as at present, and they will use nine or ten times as much lumber and mineral ore as we use. If they have to bring it from a distance it will be correspondingly expensive, — ^but not only that, when our own supply is practically exhausted the foreigner will think his supply much more valuable than he does at this time when he has to dispose of it in competition with ours. There is the great obstacle. "We, by our present policy of using up our own supply first, are determin- ing the future market price of the foreign supply and it will be higher and more obstructive accord- ing to the degree of exhaustion which has over- taken our own supply. To establish a monopoly in any commodity there must be a comparative scarcity. As things become scarce they are more easily brought together under monopolistic con- trol. We have by building a tariff wall helped to restrict the available supply and thus have enabled the native supply to be the more readily monopolized. Long continuance has fostered and strengthened these combinations, and as the native supply runs low the foreigner can run his price up. If we had used the foreign supply in competition with the native supply from the be- ginning, the period of high prices due to scarcity would have been much delayed. Another score against the spirit of protection 174 PROTECTION'S BEOOD is that in the great struggle and strife engendered by the competition for capital, greed and cupidity have played an important part in preventing the proper economical marketing of the supply. This applies not so much to the coal and iron as to the ores containing gold and silver in conjunc- tion with other less valuable metals in the same ore beds. Ores below a specified richness are cast aside to be handled at some future time after the best of the yield has been worked up. In- stead of getting out of the ore all there is in it of known value and having it all prepared for the market at the same time, the custom has been quite prevalent to take the richest and turn it into money as fast as possible, ignoring the fact that the only way in which the rejected ore might be made to pay is to work it up along with the rich ore at a slight sacrifice of the profits on the latter. Then again by cutting off our big trees faster than others can grow up to take their places or without any law compelling the planting of a young tree for every mature one which has been removed, great changes are taking place in the flow of water in our mountain streams affecting the climates in many localities and reducing the value of adjoining land for agricultural purposes. The forests are great reservoirs holding the moisture of winter or of a wet season over into LUMBEE 175 a dry season, letting it go gradually and evenly so that under sueli natural protection a drought loses very mucli of its sting for the surrounding country. This of course has an effect on the local climate and a serious effect on the value of ad- joining farms. The removal of a large tract of timber may also change the direction of the pre- vailing winds in the locality at all seasons of the year, — thus affecting the climate in another way and removing a natural protection to vegeta- tion in the adjoining region. Under a diminish- ing supply the price of lumber has been going up and up during the last decade until now much lumber is imported from Canada in spite of the duty of from 50c. to $2.75 per thousand feet. The increased scarcity in this country has made it easier for the big dealers to combine their in- terests and get a better control of the situation because there are fewer sources of supply thaai there used to be. This combination of interests has been going on by trade agreements and mutual understandings rather than by any actual combining of each other's business units, — ^which would attract hostile criticism. The reduction of the duty on lumber has come too late. We have continued too long a policy which encouraged the rapid destruction without a compensating res- toration of our native supply, that is, we are now suffering from neglect to adopt a policy of ra- 176 PROTECTION'S BROOD tional conservation and reproduction in this field years ago. With the coal and iron supply the situation is somewhat different. We have no means of re- placing for the use of future generations the equivalent of the ore and coal we now take. For this reason a diminution of the local supply is a gradual destruction of it, which will put us more and more at the mercy of the foreigner as time goes on. Monopolistic control of the native supply by a few financial potentates has already reached such a point that the relation between supply and demand has little to do with the price any more. It is easy to see how the coal supply and particularly the anthracite coal supply has fallen almost entirely under the control of the railroads in this country, whereas the sup- plies of iron and lumber have not, at least not to any such extent in the case of iron, and not iat all in the case of lumber. Coal is practically ready for the consumer as soon as it comes from the ground; but iron ore has to undergo several processes of manufacture before it reaches the consumer. The delivery of the coal supply is therefore entirely dependent upon the railroads, — there is no other link in the chain. In the de- livery of iron to the ultimate consumer there are several links in the chain and the office performed by the railroads is proportionately only a small COAL AND lEON 177 part. In both cases, however, of the iron and the coal, the railroads are a positive necessity at some stage of the marketing process; — with lumber the railroads are not a necessity at least in the sense that plenty of lumber would not be brought into the retail market without their help. Our big lumber tracts are (or have been) lo- cated for the most part at the heads of mountain streams, in fact they were the cause of these streams being there, and down these streams the logs are floated until the navigable part of them is reached, where they are sawed into merchant- able sizes and from there carried by water trans- portation to any or all the principal ports of the United States. Most of the lumber trade is car- ried on in this way,^but with coal and iron this method would be impossible. Coal and iron are usually found in out-of-the-way parts of the mountainous regions where streams that were at one time in existence have dried up,— and even if there were streams conveniently at hand coal and iron could not be floated down them to the head of navigation. To get these minerals out, therefore, it is necessary to begin with the build- ing of a railroad, and with the coal supply the whole operation is railroading from the begin- ning to the end. It is no wonder then that our coal fields are practically controlled by the rail- roads, and of those which are not actually owned 178 PROTECTION'S BEOOD by some railroad company none is able to conduct its business independently of tbe service of a connecting railroad, or witbout tbe good will of such a railroad. This enormous power to control tbe native coal supply being in tbe bands of tbe railroads, tbe getting out of coal and distributing it to tbe people are tberef ore a public utility bandied and controlled by a public utility operator. If a rail- road company is a public utility tben every part of its business is contributory to tbe profit and responsibility of that public utility. Tbe situation that now confronts us witb the coal problem in the United States is one that should be handled as a public utility. Coal is no less a necessity to the people than illuminating gas, in fact it is more. If a gas company is subject to control by public commission in regard to its charges and the quality of its product, certainly the local coal dealers (who are merely distributing agents for the coal operating companies) ought to be pre- vented from charging rates which yield the oper- ators more than a fair return on tbe capital in- vested. It may be argued here that a reduction in price to the consumer would result in a more rapid ex- haustion of our native coal supply, and that this is tbe very thing to be avoided. Consideration of tbe facts will, however, show tbe contrary. COAL OPEEATORS 179 Since the Payne Tariff law was enacted in 1909 coal has been imported free of duty, excepting bituminous coal on which the duty is 45c. a ton only. Practically then there is free competition here for the foreigner already. Why has not the native price reflected the removal of the tariff? Chiefly because the foreign coal after arrival here is also subject to distribution by the railroads, and thus the complete situation is within their control. If the business were treated as a public utility in conjunction with the railroad service, and charges were determined on a scientific basis, the consumer would not only pay less for his coal but the foreign supply would be availed of in competition with the domestic supply, thus post- poning the time of the latter 's exhaustion instead of hastening it. Great progess has been made in the last few years through the Interstate Commerce Commis- sion and similar State commissions in equalizing and standardizing railroad and other public utility rates to minimize or to prevent discrimination, — but the work has really only just begun. In fact the old abuses are being continued in many localities because no complaint has been made or if made has not been substantiated by the pro- duction of evidence. The machinery of the Interstate Commerce Commission is too limited and its opportunities too restricted, because its 180 PROTECTION'S BROOD organization is not on a broad enougli scale. The power to initiate inquiries was vested in tMs Com- mission by Congress in 1910 and has not often been availed of because the number of complaints on hand to be disposed of have occupied its whole force and time. Such a body ought to be large enough and strong enough to do police duty on its own initiative. Rebates and private agree- ments could be uncovered in countless cases now unproven if the Commission should institute an investigation wherever the circumstantial evi- dence seemed to indicate that the law was being broken. Complaints naturally will emanate only from the small dealer or the small trader because the big fellow is receiving the favors from the carrier; but by complaining the small man fears an injury to his business in some other way and he therefore as a rule keeps silent. The application of all this to the coal business is apparent when the intimate relation between the railroads and the coal companies is con- sidered. It is applicable not only to the coal, iron, and petroleum trades but to every manufac- turing or farming industry in the country, most of which are dependent in some way on the rail- roads for getting their products to market. Hence the amount of attention which the Inter- state Commerce Commission can give to the coal carrying branch of the railroad business is lim- NEW DISCOVERIES 181 ited indeed. Nevertheless it is a highly important field for its activity. Introducing a complete sys- tem of publicity into the railroad business, turning on the light in all the relations existing between the coal operators and the carriers and their methods of doing business not only with each other but with the public, would automatic- ally effect a great reform and it would prepare the public mind gradually for an efficient method of government control. Where the combination controlling a large part of the native supply is enormously powerful as in the steel industry, new sources of raw material when discovered are usually turned over to or acquired by the combination for what they will bring. The smaller units in the business usually have all they can attend to in competition with the trust to operate what they already own with- out taking on any new property. It requires not only the capital necessary to buy the new prop- erty, but also enough to operate it, because to obtain a loan for this purpose is next to impos- sible. The small units have not been able to lay aside as much surplus as the trust, and naturally they are not the ones to acquire the new property. A man or bank contemplating making a loan for operating such properties, even with the value of many times the amount of the loan as security, must know for a certainty that the operators 182 PROTECTION'S BROOD can and will "make good" in spite of the trust's opposition and competition. The lender himself cannot operate the properties if the operator should fail in the undertaking, and neither can he force the trust to take them over until it wishes to do so, no matter how great the bargain a1 which they may be offered. It is conceivable that another operator should arise fully as strong financially as the trust itself, and should invest capital enough to bring the new unit into formidable rivalry with the trust ; — but when that time arrived the two powerful in- terests would both find it more profitable to com- bine than to continue competing. Thus we would have a more powerful controlling unit than ever. This process has been carried out again and again in various ways and in different lines of industry, particularly in the exploitation of our natural re- sources. The giants which now control them are securely intrenched because rival units of their size do not exist and are exceedingly hard to or- ganize. Private investors avoid these enterprises more and more, and the banks all turn them down for the same reason, — ^because the chances of success are very slim against the financial power of the already existing combination. The petroleum industry in this country pre- sents special features not like any of the fore- going. Coal oil is usually found contiguous to PETROLEUM INDUSTRY 183 the great coal fields themselves, but owing to the ease with which it can be brought to the surface of the ground in comparison with the work of mining coal, the investment required to enter upon the oil business is relatively very small. The combination controlling most of the native supply is the oldest and strongest monopoly in the United States and probably in the world, and yet there are many independent companies hand- ling the product of more remote parts of the country apparently at a good profit. This em- phasizes the enormous demand there is for the product, and also indicates that the very low cost of putting it on the market permits the small units to compete with the trust on a profitable basis, although it cannot be doubted that the trust, because of its superior organization and pipe-line facilities, can show the biggest margin of profit on corresponding sales. Early attempts of the railroads gradually to acquire a controlling interest in this trade were anticipated and met by the power of accumulated wealth and its covert use. The building of pipe lines from the oil fields to the distant markets was accomplished and the lines were in use long before anybody knew what was going on;— and it has proved a wonderfully profitable investment. Here lies the secret of the strength of the Standard Oil Company. Pipe lines convey the 184 PEOTEOTION'S BEOOD product to the markets independently of rail- road charges and annoyances, and enable this company to operate at a much lower cost or greater margin of profit than any of its rivals. The tariff has been removed from petroleum but the price is still controlled by the trust, — ^be- cause of its pipe lines, a method of transporta- tion cheaper than any railroad or steamship line, and outranking in efficiency any method available to both foreign and domestic competitors. The situation is peculiar to this trade alone. No other natural product in great demand for daily con- sumption excepting water and gas can be con- veyed through pipe lines. Competition on the same or equal terms with rivals cannot exist until the rivals have the use of pipe lines also. The trust owns the pipe lines and naturally will not share their use until compelled to do so. The smaller units cannot build more pipe lines at this late day for obvious reasons, — the great ex- pense and the difficulty of getting a right of way being the chief obstacle. The rapidly increasing wealth of this monopoly is of universal knowledge and shows that this trust might sell its product much lower than it does and make a good profit. If they had the use of the pipe lines its rivals would be glad to sell their product lower than they do, — but as it is they sometimes find it hard to make a profit at PIPE LINES 185 the same selling price as the trust. By ordering the use of these pipe lines as common carriers or a public utility, the public would then be bene- fited by the additional domestic competition; but the further advantage from the economies due to combination probably cannot be secured to the people without government control of the whole petroleum trade as thorough as that exercised over any other public utility. As a first step complete publicity should be compelled and con- tinually maintained by the government. If it be admitted that a return to the old method of competition between small units is impossible, even if it were desirable, and that disintegration of all these combinations could not be kept permanent without a gov- ernment police force greater than our stand- ing army, then it follows that the large unit sys- tem must be reckoned with as a permanent fac- tor. In all the industries handling the great staples of life and trade the large unit system prevails. Its advent has been greatly hastened by our false economic policy of granting a gov- ernment bounty in the guise of protection to those who own and operate our natural resources. A short-sighted policy, we say now that the logical result stares us in the face, — but what is to be done about it? The longer we wait before doing something the more nearly complete is the uni- 186 PROTECTION'S BROOD fication of the big interests becoming. The men who are most prominent and influential in these interests are growing personally wealthier day by day, and are constantly seeking new invest- ment for their surpluses. They invest in each other's enterprises as well as outside ones; and it is apparent that the interests of the financiers in these various groups are gradually becoming more and more interwoven one group with an- other. This interchange of interests increases the scope of their power and is merely another step in amalgamating the several monopolies al- ready controlling our natural resources, — and the movement has progressed too far already to be wholly checked by a change in the tariff laws. In the last analysis if we permit the process to go on without interruption, the supply of nat- ural resources and even the chief manufacturing industries of the country will be held by a power- ful oligarchy of financiers with whom no power other than our Federal government is large enough or strong enough to cope. It is inevitable that the people will then say, — if a committee is to control these things which are absolutely in- dispensable to our progress and business pros- perity, why should we not appoint the committee? In other words why should not the government control them for the benefit of all of us impar- tially? Then arrangements will be made accord- CUEEENCY EEFOEM 187 ingly. This deplorable situation has been brought on by forty-odd years under a protective tariff, and if this is Socialism let the advocates of pro- tectionism make the most of it, — for to them be- longs the credit. Fully as important as the conservation of our natural resources is the problem of currency re- form. Our banking laws are such at the present time that currency hides itself away just when it is most needed, and is plentiful when not much in demand. This happens because such is the operation of the natural law of supply and de- mand when there is a limited supply of any com- modity; — ^but in the commodity market when the supply runs low there follows an increased pro- duction to meet the needs of the trade, and automatically the production falls off when the supply has been replenished. This should be just as true of currency as of any commodity, and there is something fundamentally wrong when currency does not automatically accommodate it- self to the needs of business. Money is a medium of exchange, a convenience to facilitate the transaction of business. If therefore instead of being facilitated trade is retarded or obstructed occasionally by the lack of it, its value as a con- venience is uncertain. Of course when specula- tion or a strain of credit becomes excessive there 188 PROTECTION'S BROOD must come a reaction, and, credit being contracted in every direction, more actual currency is at such a time needed to transact the ordinary run of business than at other times when things are normal. This is so because (1) cash payments are more frequently demanded on ordinary trans- actions, and (2) because many who have currency in their possession prefer hoarding it to the risk of banking it or paying it out for property not easily exchangeable for it. In time of panic therefore when feeling is tense and there is prac- tically no credit given at all, the calling in of loans and the exchange of collateral securities for currency goes on until all the currency has been absorbed or hoarded away; and then it happens that something else has to be pressed into service in place of the regular currency. In the meantime failures due to maturing and call obligations which could not be met have occurred and financial confusion is the order of the day. It is clear enough that if the supply of cur- rency were not limited such occasions would not arise, for they could not. A scarcity of money would be met by an issue of more money to take its place and hence there being no limit to the amount which might be put in circulation there would be no fear in the business world that the supply would ever run low. On the other hand, however, there would be a well founded fear that DEPEECIATED CURRENCY 189 tlie authority issuing this currency in unlimited quantities might overreach the mark and pay out more than it could redeem if asked to. When this fear became really serious the matter would be tested and currency would be presented for re- demption in specie. If the gold were there to make all the exchanges asked for, a convertible currency would never depreciate. During our Civil War and thereafter the government was is- suing inconvertible paper money and it was well understood that the government could not re- deem it in specie at that time. Hence the amount of depreciation on that currency was an inverse measure of the faith of the people in the govern- ment's ability to redeem its own paper money at some future date not definitely known. That prolonged period of inconvenience and un- certainty was too costly ever to be repeated, — and since the resumption of specie payments in 1879 we have always had a convertible form of currency which may be exchanged at any time in proper quantities by the holder for gold coin at par. The very fact that this may be done pre- vents it from being done. When the holder of paper money knows he can always get gold for it if he wants it, he doesn't want it because the paper is more easily handled and carried about. So long as it is known to be convertible it will not depreciate. 190 PROTECTION'S BEOOD The great problem in currency, therefore, which confronts this country or any other civilized nation making extensive use of the credit sys- tem in daily business transactions is to invent a way of issuing convertible money without limit when demanded by necessity and at the same time of preventing its depreciation in value due to its very plenitude or cheapness. This prob- lem was but incompletely met in England by the Bank Charter Act in 1844 which restricted the issue of bank notes to 14,000,000 pounds in excess of the actual amount of specie in posses- sion of the Bank of England, the only bank au- thorized or permitted to issue notes of any kind. The incompleteness of this device lay in limiting the volume of the issue of bank notes to the actual specie on hand plus 14,000,000 pounds or to any other figure ; and three or four times since its enactment panics have occurred in England requiring the temporary suspension of the Bank Act. At these times the Bank of England issued as much currency as was required by the demand regardless of the required legal relation of the amount outstanding to the amount of specie in its vaults. Why, it may be asked, did not such an overissue of bank notes result in the deprecia- tion of all those outstanding? The answer is, because these notes were always convertible for specie, that is, all people who were somewhat dis- A CENTEAL BANK 191 trustful of them and took them to the bank re- ceived gold in return for them, — and at no time did the bank decline to make the transfer. The result was tw©fold: — (1) the bank notes outstand- ing were always kept at par with specie, and (2) the Bank of England could retire those that came in for exchange, thus automatically reducing the outstanding issue back to normal again. A central or government bank, as the Bank of England is, has on hand after this process a quantity of securities or other tangible property which it has taken in exchange, first, for the bank notes it issued and then, when these were pre- sented for redemption, for the gold which was used to redeem them. The net result is that the redeemed bank notes can be retired as no longer needed and the specie reserve can be replenished if necessary by the sale of some of the securities or property. Thus the discretionary power which must be lodged in the managing Board of Direc- tors of the central or government bank to deter- mine the safe margin at which bank notes can be issued for securities is seen to be very great. The fact which limits our issues of currency in times of stringency is that the United States Treasury issues only as much to each bank as is secured at the legal ratio by the deposit of gov- ernment bonds made by that bank with the Treas- 192 PROTECTION'S BROOD Tiry, — that is, except in the panic of 1907 the Treasury has never accepted any security for currency circulation other than government bonds. As there is a limit to the amount of these bonds available for this purpose there would necessarily be a limit to the amount of currency which could be put into circulation by this means.. In 1907 the Secretary of the Treasury under great pressure to relieve a tense situation accepted cer- tain railroad and industrial bonds in lieu of gov- ernment bonds as security for additional circula- tion. That the discretionary power to do this should be vested in one man alone does not seem wise. Yet railroad and industrial bonds which constitute a first lien on tangible property of recognized value do seem to be a better and more logical security for money circulation than evi- dences of the government's indebtedness which are a lien on nothing except the government's ability to pay them when due. But there are other forms of commercial paper more readily exchanged for money than railroad and industrial bonds. It would seem both reason- able and expedient for the government to accept, at all times when offered, commercial paper based on products of agriculture or manufacture in constant demand and easily salable. Such paper would not be offered in ordinary times and when it was offered would be held only until the final SECUEITY FOR CIRCULATION 193 disposition of the mercliandise, when its value in money would b© returned to the government, either in specie to replenish the reserve or in bank notes to be retired. Banks now loan on paper of this kind to a very limited extent, but they cannot loan bank notes when they haven't the bank notes, and if they cannot obtain bank notes from the government on such security the amount of it they can handle must be greatly curtailed. It would seem that if a central or government bank were chartered having the right to accept proper commercial paper as security for the issu- ance of bank notes under reasonable and proper restrictions, and that if such an institution were managed by a Board of Directors who were at once able, conservative, honest, and absolutely im- partial, the result ought to be, after all the details were carefully worked out, a perfectly elastic form of currency that would carry us safely and conveniently through any kind of financial stress. The amount of money in circulation has increased from $27 to $35 per capita of population in the last decade, but the public debt has decreased in that time from $14.52 to $11.58. On the face of it this shows that the limit will soon be reached to the device of guaranteeing an increasing circula- tion by a constantly decreasing bonded indebted- ness. This inverse movement due to the upward 194 PEOTECTION'S BROOD trend of prices in general and the very marked increase in extravagance wMcli calls for the greater use of currency among those people who spend a large amount of money has rendered rapidly more and more insufficient the quantity of government bonds available for securing the circulation. There can be no temporizing with this matter in its present state. The time to fix things right is before another crisis arrives to cause trouble and distress, — for the next one will necessarily be worse than the last unless the sys- tem is changed in the meanwhile. The necessity for bankers to combine and help each other through panics and financial crises is wrong both in practice and in principle. It affords an easy op- portunity for the exploitation of the weak by the strong and the unscrupulous operators, — an ad- vantage which should not be permitted to exist in a proper system properly and efficiently managed. Next we come to the problem of extravagance in its several bearings on our national life. This is really a matter of high importance also. Ex- travagance is not a universal failing. It is mainly (but not entirely) confined to those who have more money than they need. There is prob- ably no country in the world where those who have less than they really need to support life properly are as a rule more careful or rigidly PEOBLEM OF EXTRAVAGANCE 195 economical than here in the United States. Yet, we have the reputation both at home and abroad of being the most extravagant people on the globe. It is easy to explain how this comes about. Those who are extravagant make a show of it as a rule, — ^indeed they cannot help making a show of it. Those who have money or position are the only ones who are at all in the public eye, or about whom the under stratum of society cares to read in the public press. The lavish expenditures at notable weddings, the luxurious banquets served to exclusive society sets, the immense sums spent on private yachting trips, the enormous quantity of money spent for automoibles now in service, the luxuriously appointed and expen- sively furnished hotels and private dwellings, the magnificent ocean liners equipped with every modern luxury and convenience, — ^these and countless other things too numerous to mention are talked of at home and abroad until it would almost seem to the unthinking and does seem to the ignorant foreigner in the foreign land, that the life depicted in such reports is that of the average American citizen. As we are thought to be so are we, in the eyes of the foreigner who can reason only from those of us whom he sees. Wealthy Americans who travel abroad may be said to have so pre- pared the foreigner by their extravagance and 196 PROTECTION'S BROOD carelessness in the matter of prices that the aver- age American finds a European trip extremely uncomfortable if not entirely beyond the reach of his purse. But this is not all. The foreign mer- chant has learned to set one price for his coun- trymen but quite another one for the American who stops to trade with him. Indeed he carries this system of double dealing across the ocean even to our own doors by establishing his own agencies in this country to handle his product. The foreigner's idea has come to be that he must ask a big price when dealing with Americans or he will lay himself open to the charge of handling an inferior quality of goods, and the strength of his position lies in the very inability of the aver- age American purchaser to distinguish between the inferior and superior qualities except by price marks. When he enters our market he finds prac- tically only one competitor, namely, the trust or combination handling his particular line of goods, and he will not even be obliged to meet the trust's price in many instances if his market is among the wealthy or extravagant class of our people, most of whom can be persuaded to pay a higher price for an imported article more easily than to pay a lower one for the domestic article of the same quality. This impression that we are giv- ing the foreigner puts the vast majority of our people in a very false position and is extremely OUE EXAMPLE 197 unfortunate for us. It gives foreigners the idea that there is untold wealth in this country and that it results largely from our policy of protec- tionism which is, therefore, a policy worthy to be copied by others who wish to become wealthy. Undoubtedly the agitation of the tariff question and the partial adoption of a protective policy by some of the European countries within the past few years has come about by reason of the spec- tacle of those Americans who spend money faster than, class for class, the people of other nations can make it. It has had an influence in determin- ing the fiscal policy of many nations. When the people themselves vote on such an issue they are blind to everything else but the power and ex- ample of American wealth, and the policies thus adopted are due largely to a misrepresentation of the actual conditions prevailing in the United States for the great mass of the 92,000,000 in- habitants. Who can doubt that one reason for the recent rejection of our reciprocity proposal by the Canadians was that they did not wish to help the people of the United States get rich any fas- ter or more easily? And yet, for the large ma- jority of our people the tariff has imposed an in- tolerable burden under which they have struggled and are struggling with a patience and fortitude that entitle them to substantial relief at an early date. 198 PEOTECTION'S BEOOD In Chapter VII the capitalizing of a surplus was referred to as a practice not properly per- missible in public utility corporations ; — ^in private corporations, however, the investment of profits in this or some other way is not only permissible but necessary to the advancement of prosperity in any civilized country. An increase of pros- perity must be accompanied by the continual in- vestment of new capital in new enterprises or ex- tensions of existing enterprises. With a fixed amount invested from year to year there would be no progress; — ^the amount of business done would be practically just the same. Without the investment of new capital there could be no addi- tional employment for labor and consequently the increase in the population could not be taken care of, except on a charitable basis. With a fixed amount of capital invested in the country a fixed amount of labor can be employed and no more. In order to provide the increase of capital necessary each year a part of each man's profits during the previous year or years should be laid aside for that purpose. It does not increase the amount of capital invested to take it from one investment and put it into another. There is an erroneous impression that when a man buys stocks or bonds in Wall Street he is helping to swell the total amount of capital invested in the country. He is doing nothing of the kind unless the seller of the NEW CAPITAL NECESSAEY 199 stocks or bonds uses the money obtained therefor and invests it either directly or indirectly in some new enterprise or business not previously active. The vast amount of trading on the exchanges throughout the country does not as a rule add any new capital to the total invested but is merely a changing from one to another of certificates of ownership, — the bartering, for gain or loss, in shares of property which is already actively en- gaged in productive and, unfortunately, unpro- ductive enterprise. Therefore unless we are go- ing to obtain capital abroad from year to year for the required increases, it is necessary for those whose business is profitable to devote a por- tion of their surplus to capitalizing new industrial or commercial enterprise; — for, those who are running behind cannot do this, and if it is not done the business of the country will reflect this neglect in a general stagnation which is sure to ensue. It follows then that an excess of personal ex- travagance on the part of those who are making substantial profits and who therefore furnish most of the capital in the country must of neces- sity reduce the amount of surplus which can be devoted to investment as new capital. That is, if the amount of surplus each year be reduced by excessive and extravagant expenditures there will not be as much capital available for new invest- 200 PROTECTION'S BROOD ment as there would have been under careful and economical use of the surplus profits. Thus a dis- proportionately large increase of extravagance throughout the country means that the accumu- lation of surplus available for new investment each year is less than it otherwise would be, and it makes no difference whether the extravagance is scattered or confined to a few if it depletes the sum total of the surplus profits which might otherwise be devoted to capitalizing new enter- prise. Extravagance among the wealthy there- fore carries with it a proportional share of re- sponsibility for supplying the industries of this country with capital which is needed in abundance and on reasonable terms. Each year's new capi- tal is in a way dependent on the previous year's extravagance and is inversely proportional to it. This being admitted will account to a consideji-able extent for the growing scarcity of capital for in- vestment in new enterprise, or for the high price, demanded by capital seeking investment, — ^which is merely another way of saying the same thing. The phrase "high price demanded by capital seeking investment" should not be interpreted to mean the current interest charge on funds loaned out on securities of established value. It is a very different thing; and means the full re- ward demanded as capital's share of the ultimate return from new enterprise of any kind, and is CAPITAL SEGEEGATED 201 now mucli more thari a fair recompense ror the legitimate risk involved. But that is not all. It also follows that an excess of personal extravagance on everybody's part must reduce the total amount of funds avail- able for profitable investment in new enterprise from year to year. Of course those whose profits are large feel better able to be somewhat extrava- gant than those whose profits are small, and the former class do not sufficiently realize that it is they who must supply the great bulk of new capi- tal needed for the future ; but those whose profits are comparatively small are if they indulge in excessive extravagance throwing away their op- portimity of becoming large profit holders in the future, and thus by his very extravagance each one is helping in his own small way gradually to segregate in the control of a few multi-million- aires the chief bulk of the funds of the country which are each year required for increased invest- ment in new enterprise. The effect of this is not only to clog development by reducing the number of opportunities accessible to capital (if it were widely disseminated the chances would be vastly greater of its coming in contact with opportuni- ties, — ^for capital is wide awake and keen sighted), but also to restrict competition in capital, prac- tically to control the market for investment, be- coming gradually a combination or trust in capi- 202 PEOTECTION'S BROOD tal precisely similar in its operations to any other combination or trust. With a fixed number of workers and tools to work with the productive capacity of a country or a community is fixed. If the efficiency of the tools be increased without increasing the number of workers their productive capacity is enlarged. The idea of money should be eliminated from this discussion, as money is only a medium of ex- change used for convenience in distributing the country's production. It is clear that if all wages were doubled, production and other conditions re- maining the same, prices would necessarily be doubled. Let us suppose that, if possible, the product of each worker was placed in a public storehouse, and at the end of the year each one came and took his share of the total in propor- tion to the amount he had contributed, leaving be- hind the fixed percentage agreed upon as the remuneration of the capitalist who employed the workers. Now suppose that in the following year with the introduction of improved machinery each worker was able to deposit in this storehouse twice as much as formerly, then it is evident that each of them including the capitalist will receive as his proportionate share twice as much as he received the year before for exactly the same ex- penditure of effort, or, allowing a further fixed THE WORKER'S SHARE 203 percentage to the capitalist for the improved ma- cMnery, each would receive somewhat less than twice as much as formerly. With the gradual increase in the capacity and productiveness of their tools both workers and capitalists ought to receive a continually larger share of the country's production each year. All due allowance being made for a proper increment to capital and for the extra capital required to provide the improved machinery and to employ a constantly increasing body of workers, — it is but too evident that a few of our "captains of industry" have been tak- ing more than their share from the common store- house. Our bounty-giving tariff laws were and are responsible for this. They have brought about a condition which gives more power to capi- tal than it should be allowed to have, — and al- though the products controlled by some of these ultra- wealthy men have been on the free list since the Payne Tariff Law was enacted in 1909 yet the accumulation of their wealth goes right on un- checked because the surplus previously acquired by them was so stupendous that they now become lawfully entitled each year to a disproportionately large and constantly increasing percentage of the country's production and there is no way to pre- vent it by any just and reasonable process of wealth distribution. The country's surplus is being amassed at such an alarming rate in the 204 PROTECTION'S BROOD hands of these few that this easily accounts for the fact that the real workers do not receive the annually increasing surplus they should receive in view of the wonderful advance in modern busi- ness methods and machinery. All facts considered the foregoing statements are certainly conservative. The accumulation of wealth goes continuously forward year by year.' So long as more is produced than is consumed the surplus must keep growing, and somebody is getting it. There is nothing sensational about this; — it is a plain mathematical statement of truth. The trouble is that the very existence of such truths as these supplies the fuel and ammu- nition to sensational writers and speakers, and as a rule the remedies they suggest for correcting the evil would plunge us further and deeper into the mire. How are we to get back to the same condition of equality of opportunity that pre- vailed before the pursuit of wealth by taxing some for the benefit of others became the policy of this government? This question should be dis- cussed deliberately, not in the heat of passion nor in the spirit of envy or jealousy. The people as a whole are responsible for the laws which per- mitted and continued such a state of things, and therefore in the last analysis the blame should not be placed on those who took ad- vantage of the bounty foolishly authorized and INHERITANCE TAX 205 perpetuated by people free to act as they pleased. To prevent the further accumulation of an un- due share of wealth in the hands of a few in this country it is necessary to take away some of that which they already have. If this is not done no law which will not press unfairly on others can be devised to reduce these huge accumulations of wealth. No income tax can be imposed which would not be far more injurious to those it was not designed to reach than generally beneficial to them in the reduction of taxation. If it were otherwise such a tax would be found unconstitu- tional. It is not necessary to amend the Consti- tution to find a remedy for this matter. A Federal inheritance tax law would take care of the case. The accumulation in the hands of each of these magnates should be thoroughly dispelled at their death. Their public and private benefactions, if meritorious, should not be interfered with, but no more property should be allowed to pass to their heirs than is reasonably consistent with their manner and scale of living, and no estates should be allowed to incorporate or to perpetuate them- selves. This would involve, at such times, the forced sale of valuable securities and other prop- erty held by these estates, — which in itself would be an excellent way to keep the price of such se- curities and property more nearly at its re'al in- 206 PROTECTION'S BROOD trinsic value. Moreover it would cause the trans- fer of these securities or properties to be made to those who actually had the money with which to pay for them and not to men whose lives had been spent to a greater or less degree in indolence waiting for a patrimony. Many properties acquire a highly fictitious value because of the fact that no sales are made for years at a time, the owner- ship being vested in estates or trustees for the benefit of the heirs or successors of the original owners. If sales were required to be made, how- ever, at the death of large holders for the pay- ment of inheritance taxes, the value of such se- curities or properties would be regulated auto- matically and inflation of them would be practi- cally unknown. With a graduated inheritance tax law becoming more and more severe annually for the next few years, and with a removal of our protective tariff system, the people's burden of taxation would be materially reduced and we might expect to reach a time in the not very dis- tant future when the wages received by the worker could be exchanged for an ever increasing) amount year by year of the country's production instead of looking helplessly on while the ten- dency is in the opposite direction. Habits of thrift are not inborn in the human being; they have to be cultivated and nourished THRIFT 207 with care. The great bulk of capital now avail- able for new industry comes from those whose in- comes are so huge that it is a physical impossi- bility to spend them, and they therefore have to seek for ways in which to invest their surplus. Very little of the capital available for new enter- prise is the result of wholesome thrift and econ- omy. The acquisition of this habit by the pres- ent generation seems to have been neglected dur- ing youth. The necessity for it certainly has been minimized, — and the situation which has conse- quently arisen is becoming more and more intol- erable as the concentration of capital continues. The speed with which those who already have abundance can make more is ruthlessly discour- aging to the great mass of people who can only by the utmost thrift make very slow progress toward bettering their condition. Yet the concen- tration of capital in the hands of fewer and fewer individuals is largely automatic. They cannot now help it if they would. The movement has attained a momentum beyond their control. ''To him who hath shall be given." As a further aid in checking this movement such regulations should be enforced that the small capitalist will be at a minimum of disadvantage in competing with large business units, — government control of public utilities should be increased and ex- tended until equal commercial facilities have been 208 PROTECTION'S BROOD provided for all competitors both large and small. In the vast complexity of laws that beset our people it is well-nigh impossible to say with as- surance what the particular effect of any one law is, because the indirect effect of others can- not be entirely eliminated. We send a new set of law-makers to Congress every two years, — some of the states send a new set to the legisla- ture every two years, and some of them every year. These representatives of the people are en- tirely irresponsible for the injurious effects of previous legislation, being usually charged with particular mandates on special subjects, so that the injurious and non-enforceable laws of pre- vious sessions are seldom if ever disturbed until some great inconvenience is caused by their ex- istence and they are ordered removed by the people. If the slate could be partially cleaned up occasionally and a large number of useless laws removed there would be a better chance for the public to observe the real effect of our tariff laws on the business of the country. We have in the endeavor to nullify some of the injurious ef- fects of the tariff passed many laws which would otherwise have no sound basis for existence. The ideal condition for the citizen is of course to be ruled by as few laws as possible; the people in ignorance of their effect, or believing in the lead- ership of some political demagogue, or, in an en- MISDIEECTED LEGISLATION 209 deavor to correct some observed evil, overlooking the indirect effect that their legislation is going to have on some other and, for the time being, more obscure matter, have through their repre- sentatives suggested and secured the passage of many futile, cumbersome, and unprofitable laws. In this matter of legislation we have done many things we ought not to have done and we have left undone many things that we ought to have done, and without some well directed effort at unification we seem to be drifting a little farther and a little farther from the right and proper solution of such problems as are presented by the labor question, including the employers' liabil- ity, the liquor question, the divorce evil, the gam- bling question, the social evil, the Sunday observ- ance laws and many others which if less promi- nent are not less important to those whose lives and happiness are affected thereby. On some of these questions local option seems to be a fair and reasonable disposition of them, but on others there should be a National unification in the com- mon interest of all good people. Such problems as are quite properly soluble in different ways depending on the environment or point of view should be subject to settlement by local option,— while those which by common agreement of all law abiding people are soluble in only one way should be solidified by National enactment. 210 PEOTECTION'S BEOOD To relieve ourselves and our posterity from the ever increasing burden of accumulated legislation the custom ought to be adopted of limiting the life of such laws as concern our commercial and financial policy. If the law itself contained the provision that it should remain in force not longer than a definite time, say ten, fifteen, or fifty years, as the case might require, then if it proved to be a good law it would be re-enacted at the ex- piration of its term, but if it were not needed or desired it would die automatically. This would not of course prevent a repeal of the law before its natural termination if it were considered de- sirable to repeal it; but it would automatically clear our statute books of a quantity of laws which after trial have been found non-enforce- able, or which have outlived their real purpose, or which no longer apply to the evils they were aimed to correct. This system would be advan- tageous also in compelling the periodical recon- sideration of such laws and would permit appro- priate modifications to be made at the time of re-enactment so as to make them conform to the changes of our National life and customs and to the advancement of civilization. Thus the statute books would be automatically kept up to date. To do this by means of repeal has been proved impracticable or practically impossible. "What is everybody's business is nobody's business," — LIMITING LEGISLATION 211 and we can never get a law-making power in this country to take action on any public question un- til it is driven right up against it by the force of public opinion or the spur of private interests. It is appalling to contemplate the intricate mass of legislation already piled up, part of which is absolutely non-enforceable, part of which is anti- quated and ill-suited to our present needs, part of which was enacted by stealth and fraud and is discriminatory, benefiting some classes of citizens while injuring others, it being almost impossible to get any of it repealed owing to the infinite diversity of interests and the constant vigilance exercised by those who although in the minority desire no change in laws affecting themselves. If we had pursued such a method during the past twenty-five years we would not now be loaded with a maze of laws in many cases contradictory and unintelligible even to trained jurists;— and the expense of conducting ordinary litigation would be far less than it is. It has been shown that a reversion to domestic competition is impossible ; that the advent of for- eign competition in the cases of coal, iron,_ lumber, and petroleum, our chief natural resources, has been put off too long to have the desired effect without government intervention in some other way also; and that the effectual method of gov- 212 PEOTECTION'S BEOOD ernment intervention in the coal business would be to treat it as a public utility. The situation in the oil business, in the iron business, and in the lumber business is also such as to call for government oversight. As our natural resources become more and more necessary to the business of all, they should be put within reach of all who have use for them, on terms of equality. The time has come when the exploitation of the country's wealth for the benefit of a few should cease. Our natural resources in the beginning belonged to the people and have from time to time been turned over by the government to a few private individuals under a mistaken policy. They should not be managed so as to enrich a few at th-e ex- pense of the great majority who are by the pres- ent system not allowed a fair proportion of the benefits to be derived from the use of the natural wealth of the country. It is believed that a com- plete system of publicity will bring about a recti- fication of this evil without further government interference, because when the injustice of the present system is made clear by the frequent pub- lication of contracts entered into, profits divided, costs of operations, obligations to or from car- riers, sources and cost of supplies, &c., &c., and becomes a matter of public comment, the inter- ested few will take warning and for fear of radi- cal intervention will arrange matters voluntarily PUBLICITY 213 on a fair and equitable basis. At least they should be given this opportunity. And for the future, the government should own and lease for operation on suitable terms all these natural sources of supply. Men who convert to their own private interests a power they have obtained under a bad system are not to be blamed for so doing,— but the people who permit the continuance of a bad system are certainly to be blamed if they do not awaken be- fore it is too late and call upon the best talent in the land to set up a new system which will be fair to all. CHAPTER X. Combinations for Handling Food Products— The Part Played by the Railroads— Discourage- ment to the Farmers— A Compensating In- ternal and External Revenue Tax as a Sub- stitute for the Protective System. The census of 1910 shows in Missouri a total gain in population of 187,000 in ten years, — ^but for two cities, St. Louis and Kansas City, it shows a gain of 197,000,— which is 10,000 more than the gain for the whole State. The gain for ten years for the State of Michigan is 390,000, about one- half of which was in the City of Detroit alone. Four cities in Ohio gave half the increase of 610,000 in that State. Two cities in Minnesota gave half the increase in that State, — and in New York State 70 percent of the State's gain of 1,928,000 was in New York City. Iowa, which is largely an agricultural State, lost 7,000 popula- tion during the decade from 1900 to 1910, al- though its chief cities show increases of from 25 to 40 percent. These are typical instances of the situation the country over, indicating that the percentage of the rural to the total population is 215 216 PROTECTION'S BEOOD steadily decreasing, and in some locations (as in Iowa and Missouri) the rural population is actu- ally decreasing numerically. This congestion of the population in the cities at the expense of the rural districts has undoubtedly resulted in much hardship in both places and without any question has been one of the causes operating to raise the cost of living. As it is undesirable to have this movement continue an examination of the reasons for it should be made so that adequate measures may be recommended and adopted for checking it. In the first place city life is more attractive to the average individual than is country life. A liv- ing can be made with less exertion by the ordi- nary person in the city than in the country. Farming is hard work and it is being ascertained by those who have pursued it diligently that it requires a considerable expenditure of brain power as well as physical endurance and steady application at all seasons of the year to make it pay. Because of their hitherto inferior educa- tional advantages the farmers of the last genera- tion did not develop their resources as they should and might have done, and consequently their sons and daughters became discouraged with farming in the light of its comparative results and gradually drifted away toward the large cities. In the cities they made friends faster and made more friends ; they were able to get better pay for POPULATION CONCENTRATING 217 their work and there they stayed. More individ- ual opportunities came to them in the city to make money, — the very fact of their flocking to the cities enhancing the values of real estate and thus adding the element of speculation to the other at- tractions of city life. Such a reason as above would account for a portion of the great movement which has taken place toward the cities of this country, but cannot account for the full strength of it nor in fact be assigned as the chief cause. The recent enormous increase in the development and use of agricul- tural machinery is another cause which has mate- rially aided this movement. But a further exami- nation will disclose the fact that uneconomic forces have been at work to reduce and even to nullify in some instances the fruit of the farmers' labors. If the indicated movement were confined to the eastern States and to New England, it might be said that in these the soil was worn out and the farmer there now finds it no more possi- ble to compete with the western farmer and so has moved into the city. But the urban influx of population is not at all confined to the east, it is going on in the very richest region of the whole country, — the fertile Mississippi valley. A few years ago the centre of the wheat belt was in Minnesota, — now it has moved over the line to Winnipeg. Besides the movement toward the 218 PROTECTION'S BEOOD cities many have crossed the border into Canada, and large shiploads of European immigrants are being sent into the great Canadian northwest in- stead of to the wheat belt of the United States as formerly. In a country whose population is now only 31 per square mile all this signifies that something is out of gear and that the cry "back to the soil" probably has a meaning born of neces- sity. In the west we find that many ranchmen have sold their ranches and are going out of busi- ness because they can no longer get a paying price for their cattle, not because the population is en- croaching upon their land. In the east dairymen are becoming scarcer because they too cannot make it pay to produce milk for the market under the conditions which are imposed upon them. The multiplication of such instances makes beef and milk less plentiful than heretofore per capita of population, and consequently the price to the ulti- mate consumer has gone up just when there ought to be an inducement to producers to increase the supply. This is reversing a law of nature ; there is something wrong. The explanation of it is readily apparent to any one who has talked with the farmers in upper New England and New York State. The farmer's self appointed sales agent, the well known middle- man, the connecting link between the farmer and his market, has done this trick, — and he is grad- DAIEY FAEMEES 219 ually slaying the goose whicli has been laying for him the golden egg. A few years ago the farmers in upper New England received 5 cents a quart for their milk by carrying it to the neighboring towns and turning it over to the local dealers there who retailed it from house to house at the rate of 7 cents, an advance of 2 cents over the far- mer's price. It occurred to somebody to econo- mize on this method of delivery by organizing a collecting route and by getting the farmers to sell their milk at their own doors to the collector who by this means serVed many farmers in the same region with one wagon on one trip, thus very much reducing the expense. For this service a reduction of price was made according to the dis- tance and difficulty of the haul, and the farmers were very glad to receive 4% cents for their milk at their own doors rather than have the trouble and expense of hauling it to town themselves. The collecting agency grew; it added more terri- tory to its routes ; it combined with other agencies which were formed in adjoining regions. So long as the farmers were satisfied the people in the towns could get no milk in any way excepting through the agency, and thus these agencies grad- ually acquired a firmer control of the situation. Pretty soon it was thought to be discovered that the expense of gathering and delivering this milk was more than had been estimated upon and 220 PEOTECTION'S BROOD rather than lose their good hold on the farmers the agencies just boosted the price of milk in the cities and towns to 7% cents. Things went on smoothly this way for a while until a prolonged drought one season forced the farmers' price up a quarter of a cent, which was immediately made a valid excuse for advancing the price to the ulti- mate consumer in the cities and towns to 8 cents. The following season was a very good one and the farmers were reminded that there being no drought and milk being plentiful and transporta- tion being at a premium it was necessary to cut off half a cent a quart from their price, — but any suggestion to reduce correspondingly the price paid by the ultimate consumer in the cities and towns was quietly ignored. At this stage of the process then the price was 8 cents a quart to the consumer and 414 cents to the producer. After the lapse of sufficient time to permit these prices to become established as a regular habit the farmers were told that most of their product was being shipped by railroad to the large cities and that owing to the severe conditions of such trans- portation, which caused a greater percentage of loss by souring, it would be necessary to pay them less than formerly and the price was thereupon reduced to 4 cents. A little later without the as- signment of any reason in particular except that the supply of milk was falling off in proportion MILK SUPPLY 221 to the demand, the price in the large cities was advanced to 8l^ cents. It was true that produc- tion had been falling off somewhat since the last two reductions made to the farmers, because many of them had given up the business, and it was well known also that the demand had been increasing in the cities. By an occasional cut on the one side and periodical advances on the other side on one pretext or another the price to the producer ranges now from 2 to 3^^ cents a quart according to quality and distance from the mar- ket, while the retail price of milk in the large cities of this region is in the neighborhood of 9 cents. The middleman buys all the available space offered by the railroad companies for the trans- portation of this commodity and independent shipments are very hard and expensive to make. Is it any wonder that the farmers are turning their attention to other lines of business and that milk producing is being quietly abandoned to such an extent that the supply is all out of proportion to the legitimate demand? The general advance of prices and the cost of living has affected the farmer as well as other people. He is obliged to pay more for the help he hires, for the tools he uses, for the meat he buys, and for his sugar, flour, and other groceries. He cannot therefore stand the bearing down of prices for the products of his labor and investment with- 222 PROTECTION'S BROOD out a re-adjustment of his industries, and neces- sarily lie will direct Ms energies to producing the things which will yield him the best return. The situation in the milk trade is merely a single in- stance illustrating what is happening all over the country in countless other trades, including the beef trade, the butter and egg trade, the fruit trade, the hog trade, and the lumber trade. The constant spreading apart of the price paid to the producer and that extracted from the consumer is causing the production of these staples to lag behind the demand by a gradually widening gap, whereas an increase in the supply is urgently needed. The history of the western beef industry compels the same inevitable conclusion as to the real cause of the comparative scarcity of that commodity. The widening of the gap between the price paid to the producer and the price asked of the ultimate consumer has been a gradual proc- ess continuing through a series of years and re- sulting from the incessant bearing down of the price to the producer on one pretext or another, every slight increase in the producer's price being made an excuse for a substantial elevation of the price to the retailer and being always accompa- nied by a great noise and newspaper publicity, whereas the cuts periodically made from the pro- ducer's price are seldom if ever heard of. In fact this process is so well and skillfully manipulated BEEF SUPPLY 223 that the reductions of the price paid to the pro- ducer take place at different times in different localities, thus hiding the facts as much as possi- ble from the public gaze. The course of these two prices in the Chicago beef market through the last twenty years is roughly shown on page 224 by the two lines A and B, where A represents the movement of the price paid by the retailer and B the movement of the price paid to the producer, the intervening space between the two lines al- ways being the amount received by the beef trust as its share, which includes, besides the profit, the cost of dressing and transporting the beef and putting it on the market. The rapid widening of the gap between these lines during the period from 1891 to 1897 is wor- thy of attention. It should also be noted that the price to the producer in 1902 and that in 1910 are the same, whereas the price to the retailer was 33 percent higher in 1910 than in 1902. In 1891 the beef trust was satisfied to receive for its ser- vices and profit an amount equivalent to 21 per- cent of the price paid to the producer ; in 1900 the trust received an amount equivalent to 57 percent of the producer's price; in 1905 an amount equiv- alent to 59 percent; and in 1910 an amount equiv- alent to 93 percent. From the producer's point of view the amount paid by the trust to him was 83 percent of the price received by the trust from 224 PEOTECTION'S BROOD the retailer in 1891 ; in 1900 it was 64 percent of the price received from the retailer ; and in 1910 it was 52 percent. In spite of the high price of fod- •) D f^ ^ •» » ¥ » P f k ? J bi i /(W/ / / itn. s N 11193 \ /Stt- \ i!fr / \, ItfC / \ inT \ mn N "^ ifm \. / /WO . . \ \ 'TP- , -^ ^ -^ 'foil \ \ itet ) / tfas- \ '^ ^ /tree. \ /»/>» I V \ /9e9 1 ■--^ *.. i9/a der corn, if the beef trust were satisfied with the profits it made in 1891 or even in 1900, farmers would not now find the raising of cattle less prof- itable than the selling of grain. Is any further explanation needed to account for the increasing GIANT MIDDLEMEN 225 scarcity of beef and beef products or for the de- crease in population in tbe chief cattle growing districts of this country? Yet the reader should bear in mind that the conditions here cited in the milk trade and the beef industry are referred to merely as typical instances illustrating a similar state of affairs in each of the trades which pre- pare and distribute to the people the main staples or necessities of life. During the evolution of this system the middle- men have become giant corporations, and giant corporations have become middlemen. From handling beef and pork and the by-products of these industries the big beef houses are now as- suming charge of the butter and egg and cheese market; — ^not that these products have anything to do with beef and pork, but because the meth- ods they have developed for handling the beef trade are so admirably suited for making corre- spondingly large profits in these other trades. The result is that many producers of these com- modities are becoming discouraged and are turn- ing their attention to other branches of farming or else giving up altogether and migrating to the large cities. Many large ranches in the far west have been given up during the past few years on this account and necessarily the normal increase in the supply of beef has fallen off and has not kept up with the increased demand. Then too the 226 PROTECTION'S BROOD migration to the cities of those who were previ- ously producers in the agricultural regions aug- ments the demand for food in the already con- gested localities ; — and not only that, but the food which these people once consumed at its point of origin now has to be carried to them by the rail- roads, thus still further enhancing its cost. A cause becomes an effect and an effect becomes a cause. The disproportionate increase of popula- tion in the large cities enlarges the field and the legitimate need for the middleman, and the in- creasing activities of the middleman are putting more and more producers out of business and adding to the almost intolerable congestion of our large cities. To reduce the population in the cities will take away much evil of another sort, but chiefly will contract the sphere of the middle- man and diminish his importance. It should not be inferred from what has been said that the total loss of rural population is re- flected in the gain of the urban population during the past decade. Some of that loss has been a gain for Canada. Many farmers of our west and middle west have gone across the border and have settled on new land which they could obtain from the Canadian government on better terms than were offered by our government even at a time when ours had as good land to dispose of. In Canada the farmer finds his cost of living much CANADA ATTEACTIVE 227 lower than in the United States, he can buy his tools and equipment more cheaply, he can sell his wheat to better advantage because the Canadian government owns and operates the elevators, and in general he can maintain the same or a better standard of living on less income. The Canadian northwest is filling up by the attractions it offers to our own farmers as well as to immigrants, and thus the centre of the wheat belt has moved to Winnipeg. All students of urban congestion agree that the great problem can be solved best by a redistribu- tion of the population back to the villages and the rural districts, and as they cannot be driven they must be attracted m some way. Each man or woman is himself or herself helping to keep up the general cost of living for all of us if he or she insists on remaining away from the place where his or her talents or capacity can be utilized to the maximum for the general advancement of business. The more general the distribution of the population the closer the small farmers are to a market and the less will be the transportation cost on the food supply. Congestion of the popu- lation at a distance from the food supply gives the railroads a much larger business in the trans- portation of food products and gives them a corre- spondingly greater control of the distribution of food to the masses. The railroad's and the mid- 228 PEOTECTION'S BKOOD dleman's interest in this matter are practically alike. By combining their efforts they can not only curtail the cost of food distribution but they can also fix the price of food products within cer- tain limits depending for the most part on the percentage of the business which they can jointly control. Congested urban population therefore would seem to be a highly desirable condition from the point of view of the railroad or the middleman, and so it is up to a certain limit. "When the rural districts have been so far depop- ulated as to reduce the food supply below normal then the middleman and the railroads find the vol- ume of their business much less than it would be if a larger supply of food products could be ob- tained. Hence the cry which has been sent up lately throughout the northwest for men to be taken from the cities and sent back to the farms. In reply to the preceding discussion it will be said that the farmers throughout the west and south of this country are in a highly prosperous condition, — ^more prosperous than they ever have been in the history of this hemisphere. This is true for those engaged in cultivating the soil, and only goes to confirm the statement that there are not enough of them. Those who have remained behind and are raising the food which is being supplied to those who have migrated to the cities are reap- ing the rich reward which is their just due. They PEOSPEEOUS FAEMEES 229 have been improving themselves too in the inter- val which has passed, and by the adoption of labor saving devices, improved agricultural machinery, and scientific methods of treating the soil they have gradually been enabled to make greater . profits and actually to produce a much larger quantity of food per acre and per laboring capita than ever before. But these who are prosperous are pursuing for the most part those lines of in- dustry which have a world-wide market, a market too big to be controlled or manipulated by the giant combinations of middlemen. The raising of wheat and corn is giving our western farmers their handsome profits and their long run of pros- perity. This is a business in which they have reduced the cost of production to a minimum and the product of which is supplying not only the people of the United States but also 26,000,000 people in foreign countries. Those farmers who have wisely turned their attention and have bent their energies to this branch of the business are making money for themselves handsomely, but those who are still struggling along under the handicap of a market fixed for them by a middle- man 's trust are year by year becoming less pros- perous, and are gradually dropping out of the race. The foregoing facts are plainly indicated in the country's statistics. The State of Iowa which is and has been for twenty years a larger producer 230 PROTECTION'S BEOOD of live stock tlian any other one State in the Union actually lost population between 1900 and 1910. In 1906 the total number of cattle, sheep, and swine produced in the United States was 178 per 100 of the population ; in 1907 it was 186 per 100 of the population ; in 1908 it was 185 per 100 ; in 1909 it was 180 per 100; and in 1910 it was 166 per 100 of the population. Since 1907 this shows a continual diminution of the number of food ani- mals per capita of population, whereas before 1907 there was a gradual increase up to that time. Tak- ing the item of sheep by itself we find that there has been an increase ever since 1907, so that the decrease for the cattle and swine taken together is somewhat more than is indicated by the figures for the total. The increase in sheep raising is ac- counted for by the reason that this is a highly protected industry and that sheep have a value during lifetime for the purpose of supplying the wool market, and neither cattle nor swine can be utilized until ready for the butcher. Thus the great beef packer's trust has not as yet obtained the same hold on the sheep market that it has on the cattle and the swine market. It has been said that the middleman's interest and the railroad company's interest in this matter were practically identical, — and it should be un- derstood that all references here to railroad com- panies apply equally to the express companies RAILROAD INFLUENCE 231 which are practically and in reality only a branch of the same business. It is at least certain that by having some kind of a working understanding between them this business can be handled at a larger profit to each of them than by ignoring each other. The large ranchman has to depend on railroad facilities to get his beef and pork to market and the longer the haul and the poorer the accommodation the less the value of his products is at the point of origin of the shipment. This is also true of farmers in general, not only of ranch- men. With a market for farm products near at hand the farmer would be benefited not only by the curtailment of freight charges but would profit also in other ways by not being at the mercy of the transportation companies in every branch of his business. Very few, — practically none, — of the western farmers are served by more than one railroad. It is within the power of any railroad to discriminate in little ways and to annoy small shippers for the benefit of or at the request of larger ones even though the law at present pre- vents rate discrimination and collateral abuses. The railroads therefore are a great power in the situation, and it is not possible that the beef trust could have obtained its present control of the country's production if it had not been for the tacit but loyal co-operation of the railroad compa- nies. With the abandonment of competition the 232 PROTECTION'S BROOD rule of the "survival of the fittest" becomes the "survival of the most favored." Many under- handed methods are still in use by railroad com- panies where there is something to be gained by helping some shippers at the expense of others. One railroad company recently allowed its largest customer to become indebted to it, running up a bill of over $2,000,000 in a couple of years, and the Interstate Commerce Commission called this discrimination, quite properly. Next to the tariff the railroads have been the most important factor in building up the power- ful monopolies now flourishing in this country. The history of the early days of the Standard Oil Company shows how the railroads helped from the beginning to foster the monopoly of that organization while at the same time they made money for themselves. This is only one instance of many which might be cited. In that great struggle it was not the fittest that survived but the most favored. The methods which were fol- lowed to produce the desired results then are now under the ban of the law and are no longer con- spicuously employed ; — ^but other methods just as effective though less conspicuous are in vogue at this date. The railroads are indispensable under the system which we have been establishing and are becoming more so all the time. It is largely the monopolizing of trade in the necessities of RAILROAD INFLUENCE 233 life that has raised the cost of livLag so prodig- iously and without the assistance of the railroads this process could not have attained its present proportions, — ^hence the railroads must stand for their share of the responsibility for the advanced cost of living. In the control of the anthracite coal trade (already mentioned) we find the influ- ence of the railroads a direct one, although in other fields it is just as powerful but less direct. It may be safely concluded that whereas the pro- tective tariff system gave the impetus and the incentive for monopolistic control of the coun- try's products, the railroads have provided the means of enlarging the sphere of that control and of tightening its grip on the industries of the country. Indirectly but quite surely the railroads them- selves are today feeling the evil effects of our pro- tective tariff system; the recent resentment against them, which is now on the wane, has been almost entirely due to their attitude of favoritism toward certain of their largest customers at the expense of smaller ones, thus bringing upon them- selves a sort of popular indictment which has shown itself in more drastic legislation in many of the States, and has been the cause of increased power given to the Interstate Commerce Commis- sion for dealing with the railroads. These large customers of theirs are the bounty fed trusts and 234 PROTECTION'S BEOOD monopolies whose formation and rapid growth have been due to the protective tariff system coupled with the substantial assistance derived from special favors of the railroads themselves, for which the latter were well paid. The result has been to bring the railroads more strictly un- der government control and supervision than ever before and to cause so much doubt and anxiety among the stock and bondholders of railroad property that prices of the same have fallen off and it has recently been difficult to obtain new money for extensions and improvements. Such is the consequence of following a policy which, although profitable, was grossly unjust to the vast majority of shippers and was instrumen- tal in getting the favored shippers into trouble sooner and of a more serious nature than would have been the case if the railroads had pursued a policy of fair play and impartiality with all their customers. Yet it is not to be inferred that the railroads in the majority of instances chose such a course on their own initiative ; rather is it prob- able that the policy they have pursued was urged upon them in the guise of increased profits by the unscrupulous tariff beneficiaries whose greed and cupidity could not resist the opportunity afforded by an alliance with the railroad interests in order the more thoroughly and quickly to undermine competitors. FOOD CAI^BIED TOO FAE 235 If the distances to be covered were not so great tlie railroads' and also the middlemen's power to control would be proportionately reduced. Plant the factory beside the farm. If a redistribution of the population could be made so as to bring the producers and the consumers of the necessities of life closer together, a long step would be taken toward establishing a reasonable cost of living. It is on the necessities of life where the middlemen and the railroads pinch us. Food products have to be carried too far in this country before reach- ing a market. It is because the people cannot live without these products that enables the middle- man's trust practically to dictate the price and conditions of sale. Beyond a very brief delay the people cannot wait; they must have food at any price. The argument here is that our manufacturing industries should be more widely scattered throughout the farming regions, thus bringing a large population of laborers close to the produc- tion centres of the food supply. Factories should also be located as near as possible to the supplies of raw material. The railroads will lose nothing thereby. On the contrary they will gain, as al- ready explained in Chapter VI, for they will transport finished manufactured products in- stead; — and the profit in carrying this class of freight, ton for ton, is much greater than for 236 PROTECTION'S BROOD transporting food products. The greatest advan- tage from this arrangement however would result to the ultimate consumer. He would get his food cheaper, and the middlemen would be far less able to manipulate food markets, not having the comprehensive backing of the railroads. Then, too, the character of the freight handled by the railroads being changed to non-perishable goods, the average customer whether shipper or con- signee has more chance for fair play. The ulti- mate consumer can exist without sewing machines for some time, but food products he must have at any price. The ratio of manufactured, products to all other tonnage carried by the railroads of the United States has been about 1 to 6 every year since 1900. When manufactured goods form the bulk of railroad shipments in this country, and food products and raw material have been rele- gated to a minority, then times will be perma- nently better. The chief reason why things have not been done this way in the past is because the manu- facturers have been the prime movers. Industries are located, according to their kind, where water is plentiful, where power is cheap, where labor is abundant, or where raw material is readily available. These important considerations usu- ally outweigh all others in determining where the capitalist will build his factory. If the plant is PLANT FACTOEY NEAE FAEM 237 to be a small one the problem of the procurement of the necessary labor will be comparatively of much greater importance than if the plant is to be a large one. In the latter case he may build where he likes and labor will come to him. He should then choose with reference to the food and raw material supply and the sources of power. The steel plant established at Gary, Indiana, is an illustration of the wisdom of such a policy; and the tendency is sure to grow, in these modern times when manufacturing units of small size are giving place to large units, in the direction of locating these large plants according to the food and raw material supplies, relying upon labor to follow of its own volition. As the price of food is so large a factor in the cost of labor, and as labor is an increasingly important factor in the cost of manufacturing, the location of large plants in or near the great agricultural regions is sure to find additional favor with the manufacturers as time goes on. But there is another reason why the great middlemen's trust in the live stock trade has such a firm hold on the consumer. There is no foreign competition, the existence of which would might- ily relieve the situation. Our tariff laws have for years placed a duty on dressed meats im- ported into this country from abroad, and the beef trust has taken every advantage of this fact to 238 PROTECTION'S BROOD perpetuate its monopoly. It is not the meagre duty of half a cent a pound or so that keeps dressed beef from being imported; it is the fact that there is any duty at all levied on it. Because dressed beef is dutiable it is subjected to all the rigors of our customs regulations; and the arbi- trary powers of the inspectors, secret agents, and detectives to condemn or to delay landing indefi- nitely, which the existence of any tariff at all makes possible, works a great injustice upon the mass of our people in the matter of prices for beef. On the prairies of Central and Southern Brazil cattle are slaughtered by the thousand for their hides and horns, non-perishable products, while their carcasses are left to rot upon the ground, food for the birds of the air. These, too, are the best and highest grade of grass fed ani- mals. For a decade at least the men interested in these importations not only from South America but also from Australia and South Africa have done all in their power through their agents and representatives at Washington to ob- tain such regulations as would enable them to place thousands of tons of beef, pork, and mutton in the homes of the American workingman at prices about half of those at present prevailing and still pay the required duty. Beef is a perishable article, and each day it is delayed whether inside or outside of cold storage, BEEF IMPOETS IMPOSSIBLE 239 not only adds to its cost but decreases its food value. Advance information by cable precedes any sMpment of this kind to the Port of New York and when a cargo arrives it is more than probable that upon technicalities of one sort or another it will be so delayed that when admitted the beef would be valueless or the margin of profit on its shipment would be entirely wiped out. This has been the experience of those who have in the past attempted shipments of this nature, and the result does not encourage them to undertake more business of the same kind. The history of import- ers in other trades also presents similar experi- ences, and it has come to be pretty well under- stood that the great trusts which deal in our food products and other perishable articles are satis- fied with any rate of duty just so that the product which they handle is made dutiable; — they will see to the rest. Thus does our tariff system pre- sent another feature which is accountable for the growth and perpetuation of monopoly as well as the increased cost of living, and the whole cost of this feature too is passed on to the ultimate con- sumer. A horizontal revenue tariff, — that is, a law im- posing a uniform percentage tax ad valorem on every imported article, — was proposed by repre- sentatives of the Democratic Party in Congress 240 PEOTECTION'S BROOD in 1882 or 1883, but it was not at all popular even among tlie Democrats. In those days the policy of protection was finding a constantly increasing number of supporters from the actual and would- be beneficiaries, and the latter class was fast be- coming real beneficiaries. In these days a would- be beneficiary generally finds the way to the reali- zation of his hopes completely blocked by the powerful influences that endeavor to appropriate the tariff benefits to their own exclusive use. The adoption of a horizontal tariff would of course wipe off the slate the whole theory of protection and would reduce the beneficiaries to the level of everybody else so far as advantages go, — and this is exactly what is so sorely needed to restore equal opportunity to all our citizens. For several reasons another way of removing the protective system in the United States seems preferable to the adoption of a horizontal reve- nue tariff, — and that is to impose on a few selected articles of necessity or luxury an internal and external ad valorem revenue exactly equal in amount or compensatory to each other. The ar- ticles selected should be taxed in the finished state only, as finished products ready for ultimate consumption. Eaw materials should not be taxed, that is, materials which are used only for fur- ther manufacturing. If the government collected the same tax on articles manufactured in the SUBSTITUTE FOR PEOTECTION 241 United States that it collected on corresponding articles imported from foreign countries, then nobody would be either benefited or injured by the operation. The chief and most valid objection made to any proposal for reducing the tariff is that the government's revenue would thereby be diminished. Every proposal in recent years for reducing the tariff has had to be accompanied by some other proposal designed to substitute addi- tional revenue for the government in place of that which the proposed reduction of the tariff would take away. Income taxes in one form or another have found the most favor for this pur- pose, — ^yet the recently enacted Corporation Tax Law is the only one proposed in some years that has not been found to be unconstitutional. Two things bearing on this point are abso- lutely certain and sure. One is that the govern- ment must be provided with sufficient revenue to pay the expenses of its operation;— and the other is that no law which favors some interests or in- dividuals at ' the expense of other interests or individuals will ever be satisfactory or will allay the unrest and discontent which is increasing day by day. The method of imposing a compensating internal and external revenue on a few important articles of consumption meets both these points and is not open to Constitutional objection. Fur- thermore, one of the chief beauties of this scheme 242 PEOTECTION'S BEOOD is that it need not be adopted wholesale, but could be applied to one schedule at a time, and those industries could be selected first for its applica- tion which are known to be prosperous beyond the necessity of aid from a protective tariff. If the tariff is to be reduced, as all parties agree that it should be, the principle of protection will be abandoned anyway. The two things are in- compatible. Let us see how a compensating internal and ex- ternal revenue would work out in the cases of sugar, iron, and tobacco, — two necessities and one luxury. In 1911 about 4,000,000,000 pounds of sugar was imported from foreign countries to the United States, on which a duty of $52,000,000 was collected at rates varying from .95 to 1.90 accord- ing to the degree of refinement but averaging 1.3 cents a pound. The total consumption of sugar in the United States was roughly 7,000,000,000 pounds, which amount of course in- cludes the 4,000,000,000 pounds imported as well as what was produced in the United States. If a tax were levied on the whole 7,000,000,000 pounds the average rate of that tax need be only about 7% mills per pound in order to raise for the gov- ernment the same $52,000,000. Now the case of sugar is peculiar in that practically no refined sugar at all is imported ; — the whole 4,000,000,000 pounds was raw sugar imported for manufacture. APPLIED TO SUGAE 243 If the tax on this raw sugar was taken off, as it should be, the above method would re-impose a tax of only 71/2 niills per pound on this imported sugar after it was refined. With the reduction of the rate from 1.3 cents to 714 mills the price of sugar to the ultimate consumer ought to be re- duced by the difference, namely, 5y2 mills per pound. If, on the other hand, it were desired to increase the government's revenue from this source the average rate of 1.3 cents could be re- tained and levied on the whole 7,000,000,000 pounds consumed, thus producing $91,000,000 revenue without raising the price of sugar at all. In other words if the same tax were placed on all the sugar consumed here as is now collected only on the sugar we import, then the government would derive from it a revenue of $91,000,000 in- stead of $52,000,000 as now, and the price to the ultimate consumer would remain the same, that is it would not be affected by the collection of this additional revenue. It has been noted that the case of sugar is peculiar in that practically no refined sugar at all is imported. The reason for this is that there is, in addition to the graduated duty, a further duty on the refined sugar which is prohibitive. By the addition of one or two processes in the manufacture of the raw sugar by the planters and with very little additional expense an acceptable 244 PROTECTION'S BEOOD grade of white sugar could be made and put on the retail market in this country for Sy^ to 4 cents a pound duty paid. That this is not done is one of the indirect consequences of the long con- tinuance of our protective system. The refiners constitute the court of last resort in this business. The Louisiana planters have tried putting a cheap grade of white sugar on the market several times, but they soon found that although the people would be glad to get it there was no channel through which to reach them except through the regular retail dealers where the way was blocked because of the certainty that such retailers as , handled the inferior grades of white sugar would be forever afterward blacklisted by the trust. On the one hand the trust refused to buy any sugar above the grade of No. 16 Dutch standard, and on the other hand the planters could find no other market for sugar above that grade (that is, for the cheap grades of white sugar) because all the retailers knew that if they bought it they could not obtain from the refiners the better grades of granulated sugar which they must handle also for their better class of customers. Being driven to choose between the two the re- tailers naturally chose to be backed by the more powerful organization, and as a consequence there is not enough of a market for the cheaper grades of white sugar even at half the price of refined MAEKET REGULATED 245 sugar to induce any considerable supply. This again is the reason that no inferior white sugars are imported, — the importer cannot dispose of any above the grade of raw sugar since the trust has things so regulated that there is no market for it. If the importer wishes to bring in a more nearly refined sugar he then meets the additional duty imposed for the direct benefit of the sugar trust. And this bountiful treatment is given by our present system to an organization recently convicted of filching from the government, by fraudulent weighing devices, millions of dollars! How much better it would be to tax all refined sugar in the finished state at the same rate whether imported or not so that the trust would be compelled to contribute its share of the taxes! What if the American sugar planters should be forced out of business by the removal of their protection? So much the better for the consumer who wants cheap sugar. There are plenty of other profitable uses for the land now devoted to sugar raising, and sugar raising should be car- ried on only where by natural conditions it can be done with the least expenditure of effort. Sugar cane develops much more luxuriantly in a tropi- cal climate under a tropical sun and copious rains. It is indeed doubtful whether the protection we now give the planters is not all absorbed in the difference between the natural advantages for the 246 PEOTECTION'S BEOOD development of the product in a tropical coun- try as compared with, those in this country, leav- ing not a bit for the difference between the labor cost at home and abroad. The case of iron works out in this way : 2,000,- 000 tons of ore annually are imported on which the government collects about $300,000. This should be let in free and the $300,000 obtained in another way. The 600,000 tons of manufactured iron imported into this country now yield the government about $10,000,000 annually, which is at the average rate of 8.3 mills per pound. If this $10,000,000 and the $300,000 now collected on the ore should be raised on the total amount of 35,000,000 tons consumed annually in the United States, the rate of tax would be less than 1/6 of a mill per pound instead of 8.3 mills as now, which means an average reduction in the price to the ultimate consumer of 8.1 mills or about 27 percent. Moreover if the government needed more revenue it could be derived from this source up to an amount of nearly fifty times $10,000,000 without the slightest increase in the price to the ultimate consumer. The difference would come out of the profits of the American manufacturers. In the case of tobacco the annual importation of about 49,000,000 pounds yields a revenue of $26,000,000 to the government. Our total con- sumption is 954,000,000 pounds which yields an PEOTECTION ANNIHILATED 247 internal revenue to the government of $67,000,000 additional, — ^making the total income now derived by the government from the tobacco consumption $93,000,000. If this same revenue were to be raised on the country's consumption of 954,000,- 000 pounds the tax rate would be only 9% cents per pound instead of an average of 53 cents a pound as it is now. The merit of this method of revenue raising lies in the fact that the whole amount paid out by the people as a tax all goes to the government, — ^not largely to the protected manufacturer as now. Another advantage is that this method compels the trusts to share with the people the expense of the government. By this method all inequali- ties are adjusted. No foreigner would be sub- jected to any less rate of taxation when landing his goods in this country than the domestic man- ufacturer is compelled to pay. It annihilates the whole theory of protection and that is all. It takes nothing else away from the manufacturer except his protection. If the domestic manufac- turer wanted to push up his price to cover himself on this new deal by preserving all of his former profits, then the importer of foreign goods would immediately have the advantage, and this would operate as a strong preventive. The country is demanding the proper control of these giant in- dustries which we have nurtured and pampered 248 PROTECTION'S BEOOD until they now dominate everytliing. The best way to control their power is to reduce it, and this can only be accomplished through the annihi- lation of protection. The great obstacle which has stood in the way of tariff reduction hereto- fore has been the consequent loss of revenue to the government. The method of taxation here outlined is sure to remove the protective features of the present system and can be made to provide any desired revenue while reducing prices to the ultimate consumer and diminishing the exorbitant profits of the protected favorites. If these are the ends we seek to obtain, how can they be more simply and easily reached? We, who are the native citizens of this marvel- ous country whose progress and development, in spite of protection, have astonished the world, have many things to be thankful for. As with young people, so this young Nation has refused to profit by the lessons taught by other and older nations ; we have insisted upon learning by actual experience. Yet there are advantages as well as disadvantages in this mode of discipline, and if we are now wise we shall take to ourselves the lessons of experience, not wasting time in idle regrets for the inevitable consequences of past ignorance and folly, but pressing at once for the correction of errors, for the elimination of such EQUAL OPPORTUNITY 249 national policies as have brought us injury, and for the early modification of such others as are now seen by the light of experience to be forerunners of evil yet to come. It should be remembered that the greatest hindrance to the proper education of the masses along lines of national policy has been the activity of those who have a personal interest to serve by the pro- mulgation of one or another policy of action. Misleading of the masses whose vote is all-power- ful has been going on in countless ways, the true inwardness of which does not appear on the sur- face but the intent of which, however well masked, is to perpetuate the power and influence of a few at the expense of the many and to prevent a re- adjustment of things so that the same broad and equal opportunity will be open to all our citizens as was intended to be established by the men who wrote the Declaration of Independence. Was the taxation of the Colonists by a British king in those days as much of a burden as the system of taxation which our people through their ignor- ance have in these days imposed upon themselves in favor of an oligarchy of special interests? Whether the answer be yes or no we know this much,— that the evolution of our present system of taxation has developed indirectly much evil that burdens the people in different ways more seriously than the taxation itself, so that we 250 PEOTECTION'S BEOOD are now brought face to face with many problems that have arisen by reason of a system of taxation which was encouraged in utter ignorance of the secondary consequences of its adoption, and which has been perpetuated with utter indifference to the appearance of these evils as they have mani- fested themselves from time to time. In the great Family Tree of the Protective Tariff (1) there are two general branches, — the Beneficiaries (2a) and the Taxpayers (2b), — ' from each of which has sprung several genera- tions of progeny. In the third generation the two children of Beneficiaries are Major Extrava- gance (3a) and Economy (3b), — and the two children of Taxpayers are Minor Extravagance (3c) and Eigid Economy (3d). Following the lineage from 3a the descendants of Major Extrav- agance in the fourth generation are High Living (4a) and Greed (4b) which includes corruption with all its pernicious effects on the community by example or otherwise. The descendants of High Living are Early Death (5a) and 111 Health (5b), of which the latter begets on the one hand Eace Suicide (6a) and on the other Lawless Children (6b), that is, the kind of children resulting from the relinquishment of parental care and training to hirelings, the inevitable consequence being a lack of discipline and law abiding characteristics FAMILY TEEE 251 in this generation. The descendants of Greed (4b) are Crime in High Life (5c) and Dishonor (5d) the former begetting Imprisonment (6c) with all that it involves for the friends and rela- tives of the prisoner and for his future opportu- nity in business. Going back to Economy (3b) we find the children of the fourth generation to be "Wealth (4c) and Speculation (4d). The de- scendants of "Wealth are Honestly Employed (5e) and Dishonestly Employed (5f), the children of the latter being Monopoly (6d) and Oppression (6e). Monopoly begets Periodical Business De- pression (7a) in the next generation, and Oppres- sion includes the driving of small business units out of the race, by competition which cuts under cost, or by trade agreements partaking of the na- ture of the boycott. From Speculation the de- scendants in the next generation are High Finance (5g), meaning the illegal or the techni- cally legal but yet immoral exploitation of the weak by the strong, and Gambling (5h) ; — from the former of these two we again have two chil- dren named Crime (6f) and Dishonor (6g). The child of Crime is Imprisonment (7b). Eeturning to the branch of the family headed by Taxpayers in the second generation, we find the children of Minor Extravagance (3c) to be Insolvency (4e), Stealing (4f) from employers or otherwise, so as to compensate for their extrava- 252 PROTECTION'S BROOD gance and eke out a bare living, and Corruption (4g) including all forms of bribe-taking, tip-tak- ing, and many other evils. Directly descended from Insolvency are Mendicancy (5i) including all forms of beggary. Public Charges (5]') com- prising the inmates of charitable institutions and poor houses or asylums of different sorts, and Strikes (5k) of labor against conditions which would be acceptable to others who make a proper effort to live within their income but of course are not satisfactory to those who are shiftless and self-indulgent or lazy. This commentary neces- sarily applies to that class of laborers only who would be reasonably well off but for a misappli- cation and extravagant use of their earnings. During the anthracite coal strikes a few years ago many of the women banded together and peti- tioned the operators not to increase the wages of the miners, their husbands, because if they did the men would only spend so much the more in the saloons and dives of the neighborhood. It is of common knowledge that there are similar con- ditions existing among certain classes of the laboring people all over the country today, al- though the assumption is not warranted that such a situation is at all general among the laboring people. As a direct descendant of Strikes there is Business Depression (6h) due to the timidity of capital which is prevented from embarking on A CHANGE COMING 253 new enterprise during any general labor disturb- ance. From Eigid Economy (3d) there are de- scended Old Age Competency (4h) and Small Capital (4i) whose children in the next genera- tion are Severe Competition (51) and Final De- struction (5m) by the big business units in the great struggle for the survival of the fittest. This allegorical portrayal of the situation is not at all pleasant to contemplate. In reviewing it we should consider on the other hand what a vast change has been going on in the awakening of public conscience to a realization of the true state of things. For forty years or more these evils have been practised in our midst and the people have looked on with indifference, paying little or no attention to them and turning a deaf ear to the occasional disclosures of one or another form of corruption and oppression. Eecently there has begun a real awakening. What has caused the change that is now taking place and is absorbing public attention almost to the entire exclusion of all other topics of interest ? The change has come about because at last the people's personal and private affairs have been seriously disturbed and upset by the system. So long as business was good and there was remunerative employment enough for all, the people had little time to think of the ultimate and inevitable effect a continua- tion of our policy was bound to bring about, and 254 PROTECTION'S BROOD so long as the evils occasionally brought to light did not concern them directly they took very slight interest in the general trend of events. But when business activity relaxed and orders fell off, putting out of employment gradually hundreds and thousands of workers and rendering unprofit- able the investments of thousands more in the great law-abiding middle class of people, then a realization of the true cause began to be im- pressed upon them, and the demand for a change of policy is now growing stronger and stronger. In the past when such public feeling in regard to our fiscal policy has been aroused it has always been lulled back to a state of coma by a sudden return of business activity artificially induced and supported in great part by the large financial in- terests whose excessive profits and enormous power were seriously endangered by any sugges- tion of injury resulting from the tariff policy. This time, however, in the general agitation of this question because the big interests themselves have been the object of attack they are naturally in no mood to assist in a general movement for a return of business activity. In fact they are themselves beginning to see the hopelessness of continuing the present conditions much longer and are joining in the cry for reform, partly to get on to the side of the majority, partly to blind the general public to their real position, and TIME TO ACT 255 partly to court general favor in the hope of being of enough influence in the camp of the reformers to prevent a thorough and complete overthrow of the system from which their immense power has been derived and under which it is main- tained. This awakening of the public conscience is truly significant. The time is now opportune to de- mand an abandonment of the miscalled Policy of Protection, and such a demand will be as much in the interest of the bounty fed beneficiaries as in the interest of the oppressed taxpayers,— since the periods of business depression which recur under the present system with accelerated fre- quency are injuring the former as well as the latter, since the general and rapid increase in the cost of living is injuring the former as well as the latter, and since, unless a change is made, all the other conditions which we have described will soon become so intolerable that the people will be forced against their will to resort to government ownership with all its attendant ills of another sort.