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 BUSINESS ADMINISTRATION 
 
 The texts listed on this page form the basic material for the 
 LaSalle Business Administration Course and Service. They 
 constitute a library of standard practice in all the important 
 divisions of business management. 
 
 Titles 
 BUSINESS PSYCHOLOGY 
 
 Authors 
 
 Hugo Munsterberg, Ph.D., M.D., LL.D. 
 
 Harvard University 
 
 PERSONAL EFFICIENCY, AP- 
 PLIED SALESMANSHIP, 
 AND SALES ADMINISTRA- 
 TION Irving R. Allen 
 
 Sales Counselor 
 
 BUSINESS LAW I . . . 
 
 BUSINESS LAW II . . 
 BUSINESS ENGLISH . 
 BUSINESS ECONOMICS 
 
 INDUSTRIAL ORGANIZA- 
 TION AND MANAGEMENT . 
 
 MONEY AND BANKING . . 
 
 INVESTMENTS AND SPECU- 
 LATION 
 
 ORGANIZING A BUSINESS . 
 
 FINANCING A BUSINESS . . 
 
 ADVERTISING 
 
 RETAIL MERCHANDISING . 
 
 CREDITS AND COLLEC- 
 TIONS 
 
 ■\ Samuel D. Hirschl, S.B., J.D. 
 
 . l- Member of the Illinois Bar 
 
 Edwin Herbert Levi'is, Ph.D., LL.D. 
 
 Lewis Institute, Chicago 
 
 Ernest Ludlow Bogart, Ph.D. 
 
 University of Illinois 
 
 TRANSPORTATION AND 
 TRAFFIC 
 
 OCEAN TRAFFIC AND 
 TRADE 
 
 ACCOUNTING 
 
 OFFICE ORGANIZATION AND 
 MANAGEMENT 
 
 Hugo Diemer, M.E. 
 
 Pennsylvania State College 
 
 Henry Parker Willis, Ph.D. 
 
 Secretary, Federal Reserve Board 
 
 Louis Gueniher 
 
 Editor, "Financial World" 
 
 Maurice H. Robinson, Ph.D. 
 
 University of Illinois 
 
 Elmer H. Youngman 
 
 Editor, "Bankers Magazine" 
 
 E. H. Kastor 
 
 H. W. Kastor & Sons 
 
 Paul Neystrom, Ph.D. 
 
 University of Minnesota 
 
 Edward M, Skinner 
 
 Manager, Wilson Bros. 
 
 R. S. White 
 
 American Steel & Wire Co. 
 
 H. E. Kramer 
 
 I. L. Sharfman, Ph.D. 
 
 University of Michigan 
 
 B. Olney Hough 
 
 Editor, "American Exporter" 
 
 Henry Parker Willis, Ph.D. 
 
 C. C. Parsons 
 
 Manager, Shaw-Walker Co. 
 
 LaSalle Extension University 
 
 I
 
 BUSINESS ECONOMICS 
 
 ERNEST L. BOGART, Ph.D. 
 
 Professor of Economics, University of Illinois; Author of Economic 
 History of the United States^ Financial History of Ohio^ etc. 
 
 J » & J 
 
 3 J 3 i ' 
 
 La Salle Extension University 
 - Chicagfo 
 
 1915
 
 Copyright, 1915 
 LaSalle Extension University 

 
 IP 
 
 +t6 
 6^^ 
 
 CONTENTS 
 
 I. The Modern Industrial System 
 
 The JManorial System 1 
 
 Private Property 3 
 
 The Nature of Competition 4 
 
 Industrial Liberty 5 
 
 Industrial Society 5 
 
 Capital in Modern Industry 6 
 
 Labor in Modern Industry 7 
 
 The State and Modern Industry 8 
 
 II. The Agricultural Resources of the United 
 States 
 
 The Land Policy of the United States 10 
 
 Irrigation 13 
 
 Dry-Farming 14 
 
 Size of Farms 14 
 
 Farm Tenure 16 
 
 The Rural Exodus 17 
 
 Importance of Agriculture 18 
 
 Agricultural Products 18 
 
 Extensive and Intensive Farming 19 
 
 Agriculture as a Science 20 
 
 Cereals 20 
 
 Live Stock 21 
 
 Cotton 23 
 
 Forests 24 
 
 ^ Fisheries 25 
 
 — Natural Resources and Economic Laws 26 
 
 C Law of Increasing Returns 26 
 
 ^ Law of Diminishing Returns 27 
 
 > III, The Mineral Resources of the United States 
 
 ^ Character of Natural Resources 29 
 
 iii
 
 iv Contents 
 
 Two Views of Conservation 30 
 
 A Rational Policy of Conservation 31 
 
 Coal 32 
 
 Petroleum 34 
 
 Iron 36 
 
 Precious Metals 38 
 
 Copper 39 
 
 Our Debt to Nature 40 
 
 Water Power 40 
 
 IV. Capitalistic Production 
 
 Use of Capital in Production 45 
 
 The Nature of Capital 45 
 
 Progress in Capitalistic Production 47 
 
 Causes of Industrial Progress 48 
 
 The Factory System 49 
 
 Division of Lahor 49 
 
 Use of Machineiy 51 
 
 Localization of Industry 52 
 
 Production on a Large Scale 53 
 
 Economies of Large-Scale Production 56 
 
 Widening of the Market. .^ 57 
 
 Concentration in Other In(^ptries 58 
 
 Effects of Industrial Concentration 59 
 
 Standardization > 59 
 
 Interchangeable Parts 60 
 
 V. Trusts and Monopolies 
 
 The Combination Movement 62 
 
 Individual and Partnership Organization 64 
 
 Corporations 64 
 
 Trusts 65 
 
 Causes of the Trust Movement 66 
 
 Economies in INIarketing 67 
 
 Economies in Integration 68 
 
 The Influence of Promotors 69 
 
 Miscellaneous Causes of Trusts 69 
 
 Economic Effects of Trust 72 
 
 Trusts and Labor 73 
 
 Monopoly Control and Prices 74 
 
 Monopoly and Individual Opportunity 76 
 
 Monopoly Evils 77
 
 Contents v 
 
 VI. Speculation and Crises 
 
 Speculative Risks in Industry 79 
 
 Function of the Speculator 80 
 
 Services of Stock and Produce Exchanges 80 
 
 Benefits of Speculation 81 
 
 Illegitimate Speculation 82 
 
 Crises 84 
 
 VII. The Modern Wage System 
 
 The Factory System and Labor 91 
 
 The Wage-Earning Class 92 
 
 Dependence of the Wage-Earner 93 
 
 The Wage System 94 
 
 The Evolution of the Wage Contract 95 
 
 Public Regulation of Labor Conditions 97 
 
 Labor's Bargaining Power 98 
 
 Necessity of Protective Legislation 99 
 
 VIII. Labor Organizations and Collective Bargaining 
 
 Causes of Labor Organizations 102 
 
 Types of Labor Organizations 102 
 
 National Organizations 103 
 
 Objects and Methods of Labor Unions 104 
 
 Standard Rate of Pay 106 
 
 Reduction in Working Hours 108 
 
 Restriction of Output 110 
 
 Fraternal Benefits of Labor Unions 112 
 
 Collective Bargaining 113 
 
 Strikes and Lockouts 114 
 
 Conciliation and Arbitration 114 
 
 IX. Woman and Child Labor 
 
 Early Origin 117 
 
 The Field of Employment 118 
 
 Effect of Woman Labor Upon the Occupation 
 
 of Men 119 
 
 Wages of Women 120 
 
 The Effects of Woman Labor 122 
 
 Readjustment of Woman's Work 123 
 
 Child Labor 124 
 
 Evils of Child Labor 125 
 
 Labor Legislation 126 
 
 Factory Acts 127 
 
 Minimum Wage Legislation 129
 
 vi Contents 
 
 X. Unemployment and Insurance 
 
 Extent of Unemployment 132 
 
 Classification of the Unemployed 133 
 
 Causes of Unemployment 131: 
 
 Remedies for Unemployment 138 
 
 Industrial Accidents 140 
 
 , Causes of Accidents 142 
 
 Employers' Liability 143 
 
 Workmen's Compensation 143 
 
 Sickness, Old-Age, and Unemployment Insur- 
 ance 145 
 
 Old-Age Pensions in the United States 146 
 
 XI. Machinery and Industrial Efficiency 
 
 Evils of Machinery 149 
 
 Displacement of Labor by Machinery. 149 
 
 Is New Employment Created ? 151 
 
 Irregularity of Employment 153 
 
 Lowering of the Grade of Labor 153 
 
 Monotony of Work 154 
 
 Conclusions as to Machinery 155 
 
 Industrial Education 156 
 
 Need of Better Training 159 
 
 XII. Profit-Sharing and Co-operation 
 
 The Nature of Profit-Sharing 162 
 
 Advantages of Profit-Sharing 163 
 
 Objections to Profit-Sharing 164 
 
 Future of Profit-Sharing 166 
 
 Co-operation 167 
 
 Consumers' Co-operation in England 167 
 
 Experiments in the United States 169 
 
 Methods of Distribution 169 
 
 Producers' Co-operation 170 
 
 Financial Co-operation 171 
 
 Advantages of Co-operation 172 
 
 Disadvantages of Co-operation 173 
 
 XIII. Money and Banking 
 
 Credit Economv 176 
 
 Value of Money 177 
 
 Rising and Falling Prices 178 
 
 Bimetallism 179 
 
 Government Paper Money 180
 
 Contents vii 
 
 Kinds of j\Ioney in the United States 181 
 
 The Function of Credit 181 
 
 Banks 182 
 
 Elasticity* of Currency 183 
 
 The Federal Reserve System 184 
 
 Asset Currency 185 
 
 Savings Banks 185 
 
 XIV. Transportation and Communication 
 
 Monopolistic Nature of Transportation Service. 187 
 
 Railroad Consolidation 188 
 
 Railroad Rates 189 
 
 Governmental Regulation of Railroads 190 
 
 Public Ownership 191 
 
 Other Transportation Agencies 191 
 
 Telephone and Telegraph 192 
 
 Water Transportation 193 
 
 Canals 193 
 
 The American Merchant Marine 194 
 
 XV. Problems of Distribution 
 
 Nature of the Problem 198 
 
 Kinds of Distribution 199 
 
 Importance of Distribution 200 
 
 Bases for Distribution 201 
 
 Rent 202 
 
 Interest 204 
 
 Profits 206 
 
 Wages ■ 207 
 
 Inequality in Earning Power 209 
 
 Distribution of Fortunes 211 
 
 Causes of Fortunes in the United States 212 
 
 Tendencies 213 
 
 XVI. Saving and Spending 
 
 The Rational Use of Wealth 215 
 
 Economy in Consumption 220 
 
 The Relation of Consumption to Productive 
 
 Efficiency 221 
 
 The Nature of Saving and Spending 222 
 
 The Fallacy of Making Work 224 
 
 Useful Savings 225 
 
 The Waste of Luxuries 225 
 
 The Need of Luxuries 227
 
 viii Contents 
 
 The Intermediate View 228 
 
 The Socialization of Wealth 229 
 
 XVII. Taxation and Tariff 
 
 The Nature of Taxes 231 
 
 Rules of Taxation 232 
 
 Bases of Taxation 233 
 
 Progressive Taxes 233 
 
 Direct and Indirect Taxes 235 
 
 The General Property Tax 236 
 
 Inheritance Taxes 237 
 
 Growth of Public Debts 238 
 
 The Tariff 238 
 
 Conclusion 241 
 
 XVIII. The Functions of Government 
 
 The Primary Functions of the State 243 
 
 The Regulative Functions of the State 244 
 
 The Economic Functions of the State 244 
 
 Limits of State Action 245 
 
 Anarchism 245 
 
 Extreme Individualism 246 
 
 Modified Individualism 247 
 
 The Culture State Theory 247 
 
 Socialism 248 
 
 The Single Tax 253 
 
 Public Ownership 253 
 
 XIX. Economic Progress 
 
 Progress in the Field of Labor 255 
 
 Progress in Production 256 
 
 Problems in Distribution 257 
 
 Distribution of the Social Income 258 
 
 Increased Command over Comforts 259 
 
 The Future 260
 
 BUSINESS ECONOMICS 
 
 CHAPTER I 
 
 the modern industrial system 
 
 The Manorial System 
 
 "We shall probably get the clearest idea of the com- 
 plexity of our modern industrial society if we contrast it 
 briefly with the simpler state of social organization which 
 preceded it. For this purpose we may take the English 
 manor of the eleventh century. At that time England 
 was purely agricultural, and the whole country was 
 divided into manors, of which the lord was regarded as 
 the owner, under feudal conditions, while those who culti- 
 vated the land were his tenants. These tenants — villeins 
 and cotters — worked on the lord's land two or three days 
 in the week, and the rest of the time they devoted to the 
 cultivation of their own holdings. 
 
 The whole of the land of the manor, both that of the 
 lord and that of the tenants, was cultivated on an elabo- 
 rate system of joint labor. The land was divided into 
 strips of about half an acre each, and a man's holding 
 might consist of a dozen or more of these strips scattered 
 about in different parts of the manor. This was done in 
 order to secure equality in the fertility and location of 
 each man's land. At that time the prevailing method of 
 agriculture was known as the three-field system, in which 
 one field, comprising about one-third of the manor and 
 
 1
 
 2 Business Economics 
 
 containing a portion of the scattered strips of land belong- 
 ing to the lord and every tenant, was planted with wheat, 
 a second field, comprising another third of the culti- 
 vated land, was planted with barley or oats, while the 
 third field was left fallow. The second year saw the sec- 
 ond stage of this three-year rotation, one-third of the 
 manor lying fallow each year to recuperate from this 
 exhausting method of cropping; artificial manures were 
 unknown. 
 
 Now the significant characteristics of such a manorial 
 society were three. First, it was economically self-suf- 
 ficient, that is, practically everything that was needed or 
 was consumed on the manor was produced there. There 
 was no need of intercourse with the outside world and 
 there was little contact with it. Salt, iron, and millstones 
 were almost the only commodities that the inhabitants of 
 such a manor had to buy from outsiders. Consequently 
 there was no production of goods for a market, little 
 money, and almost no trade. The few things that were 
 purchased were paid for at prices fixed by custom. 
 
 Second, agriculture was carried on under a system of 
 joint labor and under customary methods which did not 
 change from generation to generation. It is clear that 
 as long as all the land of the manor was thrown together 
 for purposes of cultivation into fields on which were 
 planted wheat or barley or which lay fallow, no one indi- 
 vidual could cultivate his land differently from his neigh- 
 bors. Indeed the holdings of the different tenants were 
 not even separated by fences, but only by ridges of grass. 
 On the land which lay fallow the cattle were turned out to 
 graze; if any man had attempted to plant a new crop 
 the third year, his neighbors' cattle would have devoured 
 it under such a system. Production was regulated ab- 
 solutely by custom, and no opportunity was given for
 
 Modern Industrialism 3 
 
 the development of the inventiveness or initiative of the 
 progressive individual. 
 
 Third, the tenants were personally unfree, that is, they 
 did not have the liberty of moving freely from place to 
 place, but were bound to the soil which they cultivated. 
 A man could not freely choose either his occupation or 
 his residence. There was no mobility or freedom of 
 movement. Labor was wholly or partly compulsory, and 
 on terms rigidly fixed by custom or by superior authority. 
 
 Such a society differs from that of today in almost 
 every point, and offers a startling proof of how far we 
 have progressed in the past eight or nine hundred years. 
 For many of these characteristics, however, we do not 
 need to go back to the English mediaeval manor; the 
 plantation of the South two generations ago, with its 
 system of slave labor, furnishes an illustration more fa- 
 miliar to most of us. With such a condition of industrial 
 development we may now profitably contrast our own of 
 the twentieth century. The chief characteristics of the 
 modern industrial system are the institutions of private 
 property, of competition, and of personal liberty. 
 
 Private Pbopertt 
 
 The institution of private property is so familiar to us 
 and so fundamental in modern economic life that we com- 
 monly regard it as a natural right. Nevertheless private 
 property, like most other economic institutions, is the re- 
 sult of a long evolution. Primitive man could hardly 
 have had the conception of private property, and when 
 it did begin to emerge, it was at first confined to movables. 
 Indeed we may say that on the mediaeval English manor 
 the private ownership of land did not yet exist in the 
 modern sense. It was found that when each cultivator 
 was permitted to fence in his holding and to call it his
 
 4 Business Economics 
 
 own, be cultivated it mucli more carefully and produced 
 much more. Enclosure led to private property in land 
 and to individual freedom in its use. Today in the United 
 States the possession and transfer of landed property is 
 almost as easy as that of movables. 
 
 Private property must be justified on the ground of 
 social utility, because under this method of control so 
 much more is produced than under any system of com- 
 munal ownership yet tried. But objectors are not want- 
 ing who contend that limits should be placed upon this 
 institution and that the right of use, of bequest, and pos- 
 sibly of unlimited acquisition should be brought under 
 social control. The beneficence of private property turns 
 largely upon the existence of competition and individual 
 liberty, and to these we must now turn. 
 
 The Natuee of Competition 
 
 Competition is defined as "the act of seeking or en- 
 deavoring to gain what another is endeavoring to gain 
 at the same time. ' ' But competition in modem industrial 
 life is not merely a struggle to appropriate an existing 
 good. The very contest, as over the control of a market, 
 may and probably will lead to cheaper and larger produc- 
 tion and thus to the benefit of society. Competition is a 
 selective process in our modern economic society, and 
 through it we have the survival of the fittest ' ' Competi- 
 tion," so runs the proverb, ''is the soul of trade." Th^re 
 is, to be sure, a dark side to the picture, for economic 
 competition involves the defeat of the weaker party, but 
 this does not necessarily mean his destruction, for his 
 very failure may sharpen his faculties and secure his ulti- 
 mate success or at worst he may find employment under 
 his successful rival. But here again it is being urged 
 that competition is brutal and that we should go back to
 
 Modern Industrialism 5 
 
 the mediaeval method of regulation by custom or resort 
 to combination and monopoly. We are now witnessing 
 experiments in both directions, but competition still re- 
 mains the controlling force of modern economic society 
 and bids fair to continue so. It should however be the 
 function of society to raise the ethical level of com- 
 petition. 
 
 Industrial Liberty 
 
 Industrial liberty has been developed even more slowly 
 and painfully than the institution of private property and 
 has in some instances not yet been wholly won. Slavery 
 and serfdom have given way before the higher and more 
 beneficent conception of freedom or liberty. We believe 
 today that a man generally knows what is best for him 
 and will utilize his opportunities to the best advantage; 
 that by giving him a maximum of freedom the welfare of 
 society will at the same time be best promoted. Conse- 
 quently in our modern industrial society a man is given 
 not only social and religious liberty, but freedom to move, 
 to choose his occupation, to produce and to trade, to asso- 
 ciate with his fellows, and to expend his income as he 
 pleases. But here again, while the prevailing rule is lib- 
 erty, society has found it necessary to lay restrictions 
 upon tlie abuse of this liberty. It is not enough even to 
 regard the industrial world as a great game in which each 
 may act as he pleases provided only he observes the rules 
 of the game. A higher conception of responsibility and 
 duty must accompany freedom of action if we are to se- 
 cure the best results. 
 
 Industrial Society 
 
 The term ''industrial society" has already been fre- 
 quently used and needs a somewhat fuller explanation.
 
 6 Business Economics 
 
 About the year 1760 there took place in England what is 
 usually called the Industrial Revolution. A number of 
 inventions were made which rendered it possible to use 
 steam-driven machinery in the manufacture, first, of 
 textiles and then of other goods. Manufactures were re- 
 moved from the home, where they had hitherto been car- 
 ried on, to the factory. Capital began to be used in large 
 masses; machinery displaced hand tools; and the laborer 
 ceased to own the implements with which he worked. 
 Men, machines, and capital were massed in the factory 
 and organized under the management of a new set of 
 industrial organizers for the purpose of producing goods 
 for a world market. The development of such an indus- 
 trial society has been attended by the minute division of 
 labor, by a growing separation of classes, by concentra- 
 tion of the population in urban centers, by the increasing 
 cost and complexity of machinery, by the development of 
 improved methods of transportation and of credit, by the 
 combination of labor and of capital, by an enormous in- 
 crease of production, and by the growing concentration 
 of wealth. 
 
 Capital in Modern Industry 
 
 The introduction of power manufacture completely 
 revolutionized industry. The independent workman with 
 his own tools was superseded by the factory; the small 
 producer has given way in turn to the trust. With the 
 introduction of expensive machinery it became necessary 
 to organize capital on a large scale. Corporations with 
 limited liability were organized for the manufacture of 
 goods, the exploitation of mines, the building of railroads, 
 and the carrying on of trade. As methods of production 
 improved, industry became more and more concentrated, 
 and finally huge trusts took over the operation of com-
 
 Modern Industrialism 7 
 
 bined plants. The business unit has grown increasingly- 
 larger, and the need and power of capital have become in- 
 creasingly important. Capital has played a role of grow- 
 ing significance and has become more and more powerful 
 in modern economic life. Indeed the name ''capitalistic 
 production" has been applied to modern industry because 
 of the predominant importance of capital in all lines of 
 wealth production. 
 
 Impersonal, growing by sheer force of its own mo- 
 mentum, capital is often thought of as intensely selfish 
 and even cruel. Abuses which have arisen in the develop- 
 ment of modern capitalistic industry must be remedied, 
 but attacks upon capital itself are misguided and rest 
 upon a mistaken analysis of methods of production. 
 
 Labor in Modern Industry 
 
 Before the introduction of the factory system, under 
 the so-called "domestic" system of industry, the laborer 
 carried on his work in his own home, where he provided 
 the raw material, owned his own tools, furnished the mo- 
 tive power — his muscles, and was his own master. Today 
 every one of these conditions is changed. The work is 
 carried on in the factory ; the raw material, the tools, and 
 the motive power are all provided by the capitalist, the 
 laborer contributing only his own more or less skilled 
 labor, while the conditions under which he carries on his 
 work are largely determined for him. He is no longer 
 his own master. To protect himself against the growing 
 power of capital the worker has organized with his fel- 
 lows into trade unions. These seek to meet the monopo- 
 listic power of capital by exerting a monopolistic control 
 over labor. While they realize that modern productive 
 processes cannot be carried on without capital, they also 
 insist that labor is equally essential. They claim that
 
 8 Business Economics 
 
 capital has received more than its fair share of their joint 
 production and has exploited labor; consequently they 
 insist that labor must now demand its just reward and 
 enforce the claim by strikes and by raising wages. To 
 enforce their monopoly, the policy of the closed shop is 
 often advocated. The interests of capital and labor have 
 thus often been made to appear antagonistic instead of 
 complementary to one another. Frequently in their 
 struggles the interests of the consumer have been entirely 
 lost sight of. 
 
 The State and Modern Industry 
 
 These conflicts in the productive processes of modern 
 economic society have led many people to look to the state 
 as the regulator of industry and to invoke state aid or 
 state intervention along many lines. Maladjustments in 
 the labor contract, mistaken production, leading perhaps 
 to speculation and financial panics, abuses of power by 
 corporate interests, discriminations by railroads, and 
 similar irregularities are made the excuse for an appeal 
 to state authority. Some would even go so far as to have 
 the state take over and manage all productive enter- 
 prises; but socialism is as yet a protest rather than a 
 constructive force. 
 
 In the last analysis the state is the regulator of all in- 
 dustrial undertakings, for they all concern society. The 
 state must hold the balance even and see that fair play 
 is given to all groups and all classes; but the greatest 
 amount of freedom compatible with economic justice 
 must be sought for. It is a difficult question how far the 
 state must interfere in the conduct or management of 
 industrial enterprises in order to secure social justice. 
 There is at present a decided tendency to a strengthening 
 of the regulative power of the state for the protection of
 
 Modern Industrialism 9 
 
 the weaker classes of society. And yet on the whole the 
 institutions of private property, free competition, and a 
 maximum of individual liberty remain the fundamental 
 conditions of our economic life. 
 
 But while under the system of individualism, industrial 
 activities have been multiplied, wealth has been enor- 
 mously increased, and human progress has been greatly 
 advanced, there still remain many abuses and evils. 
 Many practical economic problems still await solution. 
 Some of these have already been suggested in the pre- 
 ceding paragraphs ; others remain to be presented. It is 
 the purpose of this text to apply to some of the more 
 important practical current problems of our modern in- 
 dustrial life the principles of economic science and to 
 endeavor to reach fair and just conclusions on contro- 
 verted points. 
 
 TEST QUESTIONS 
 
 1. What were the three distinguishing characteristics of a 
 manorial society? 
 
 2. What industrial conditions make impossible the manorial 
 form of industrial organization in our own day? 
 
 3. What justification is there for the existence of private prop- 
 erty in modern industrial society? 
 
 4. How may private property be said to rest upon competi- 
 tion? 
 
 5. Does competition tend to perpetuate itself or does it lead 
 inevitably to monopoly ? 
 
 6. Can personal liberty exist in a state of free competition? 
 
 7. Why has the name "capitalistic production" been applied 
 to modern industry ? 
 
 8. What were the chief characteristics of the domestic system 
 of industry ? 
 
 9. How does the factory system differ from the domestic sys- 
 tem? 
 
 10. What is the position of labor in modern industry?
 
 CHAPTER II 
 the agricultural resources of the united states 
 
 The Land Policy of the United States 
 
 The land area of the United States, exclusive of Alaska 
 and our island possessions, is a little less than 3,000,000 
 square miles, or an area somewhat less than the whole of 
 Europe (3,700,000 square miles). Of this about 465,000 
 square miles, or a little more than one-sixth, still remain 
 in the possession of the federal government and consti- 
 tute the public domain. The rest, except that which 
 belonged to the original thirteen states, has been given 
 to railways or to the states for educational purposes, or 
 has been sold and given away to individual settlers. 
 
 In the disposition of the public domain the policy of 
 the government has, on the whole, been to place it as rap- 
 idly as possible in the hands of cultivators and also to 
 use it as a fund to promote internal improvements and 
 education. About 200,000,000 acres had been granted to 
 railroads down to 1871 (at which time land grants were 
 discontinued) to secure their early construction. 
 
 This policy has often been bitterly condemned, and it 
 has been contended that the land should have been saved 
 for actual settlers. It may however be said that without 
 such grants the railroads would not have been built at as 
 early a date as they actually were, and that without rail- 
 roads the land was practically worthless, as it was too far 
 removed from any navigable waterway to have access to 
 
 10
 
 Agricultural Resources 11 
 
 a market. Moreover the federal treasury lost nothing, 
 for the sections of land alternating with those granted to 
 the railroads were sold to settlers for $2.50 an acre in- 
 stead of $1.25, the customary price for the public lands. 
 
 The grants of land for educational purposes have been 
 generally approved. Upon such grants rests the estab- 
 lishment of our state agricultural colleges. 
 
 The unique and characteristic feature of the land pol- 
 icy of the United States has been the granting of land to 
 the settler upon actual residence and cultivation for five 
 years. Such a grant of 160 acres is called a "home- 
 stead" and since 1862 has been made to any citizen who 
 is the head of a family or above the age of twenty-one 
 years. In this way over 230,000,000 acres have been 
 placed without cost in the possession of the actual culti- 
 vators. The newer public land states are peopled by pro- 
 prietors, and there has never grown up in the United 
 States a large class of rich landowners whose land is cul- 
 tivated by a tenant peasant class, such as exists in Eng- 
 land and parts of Europe. For this we must thank not 
 only our land policy, but also the vast extent of unoccu- 
 pied land that might be had almost for the asking. 
 
 Now, however, the public lands available for agricul- 
 ture have been exhausted ; practically all that remains is 
 situated in the arid zone and needs systematic irrigation 
 before it can be made available for any use except that of 
 grazing. There are still many acres of choice land in In- 
 dian reservations, and as a consequence of the pressure 
 upon this resource and also because of the improvidence 
 of the old reservation system, the policy has now been 
 adopted of dividing these lands among the Indians in 
 individual ownership, under careful safeguards, and of 
 assimilating the Indians to the rest of the population.
 
 12 
 
 Business Economics 
 
 IOWA 
 
 ILLINOIS 
 
 OHIO 
 
 INDIANA 
 
 DELAWARE 
 
 MARYLAND 
 
 KENTUCKY 
 
 MISSOURI 
 
 NEW YORK 
 
 KANSAS 
 
 PENNSYLVANIA 
 
 NEW JERSEY 
 
 VIRGINIA 
 
 TENNESSEE 
 
 NEBRASKA 
 
 VERMONT 
 
 WEST VIRGINIA 
 
 MINNESOTA 
 
 CONNECTICUT 
 
 MICHIGAN 
 
 WISCONSIN 
 
 SOUTH CAROLINA 
 
 GEORGIA 
 
 RHODE ISLAND 
 
 NORTH CAROLINA 
 
 ALABAMA 
 
 MISSISSIPPI 
 
 MASSACHUSETTS 
 
 SOUTH DAKOTA 
 
 NORTH DAKOTA 
 
 ARKANSAS 
 
 OKLAHOMA 
 
 NEW HAMPSHIRE 
 
 LOUISIANA 
 
 OIST. OF COLUMBIA 
 
 CAUFORNIA 
 
 TEXAS 
 
 WASHINGTON 
 
 OREGON 
 
 FLORIDA 
 
 COLORADO 
 
 IDAHO 
 
 UTAH 
 
 MONTANA 
 
 WYOMING 
 
 NEVADA 
 
 NEW MEXICO 
 
 ARIZONA 
 
 National Conservation Commission 
 YiG. 1.— Percentage of Improved Land to Total Area
 
 Agricultural Resources 13 
 
 Ierigation 
 
 The exhaustion of the fertile and well-watered lands 
 of the Mississippi Valley has forced the later comers to 
 have recourse to the arid soils in the almost rainless re- 
 gion west of the one-hundredth meridian of longitude. 
 The character of farming under such climatic conditions 
 must of necessity be very different from what it is in the 
 rainy districts, and the versatility and adaptability of the 
 American farmer are well illustrated by the development 
 which has taken place there. The first effort at the solu- 
 tion of the problem was in irrigation, a method which had 
 been early practised by the Pueblo Indians, and later and 
 most successfully by the Mormon settlers in Utah. By 
 1910, according to the census, 13,738,657 acres were under 
 irrigation. This represents an increase of 82.7 per cent 
 over the number of acres under irrigation in 1900. The 
 total cost of these irrigation works in 1910 was $307,860,- 
 369.00, or $22.41 for every acre actually watered. The 
 annual cost of operating these great irrigation works was 
 $1.07 per acre. 
 
 Up to 1900 most of the construction work had been done 
 by private initiative and the works were completed at 
 comparatively small cost, because the most readily avail- 
 able water was turned upon the most accessible land. Be- 
 ginning about 1900, very strong pressure was brought 
 to bear upon the federal government to assist in the con- 
 struction of the larger and more expensive irrigation 
 systems which the situation called for. In response to 
 this demand. Congress, in 1902, provided for the building 
 of irrigation works out of the proceeds from the sales of 
 public lands, and since then some of the largest irriga- 
 tion systems have been constructed under this policy. 
 
 As one sees thousands of acres of land which formerly 
 were a barren waste transformed into some of the most
 
 14 Business Economics 
 
 fertile and productive farms in the country, he may eas- 
 ily become eloquent over the wonderful possibilities in 
 irrigation. This enthusiasm has all too often been used 
 by unscrupulous or ignorant promoters in selling land 
 or irrigation bonds, and the losses which have followed 
 have given these securities a bad name with investors. 
 We should bear in mind that there are limits to the irri- 
 gation developments of our western states. The water 
 supply is limited and in many sections has already been 
 over-appropriated. There is still room for conservative 
 expansion and for more intensive use of the resources 
 now available, but there are no unlimited opportunities. 
 Experience has shown that regulation and conservation 
 of the limited water supply by government authority are 
 essential to the success of irrigation. 
 
 Dry-Farming 
 
 A second and even more interesting development of 
 American agriculture is the so-called dry-farming which 
 is being successfully introduced into the semi-arid re- 
 gions. Carefully selected seeds and plants of crops espe- 
 cially adapted to these climatic conditions are used, and 
 then a very careful and intensive method of tillage is fol- 
 lowed. The soil is plowed deep and thoroughly pulver- 
 ized so that the roots can strike down to the deeper levels 
 and absorb all the moisture available. Extraordinary re- 
 sults have already been attained, and the region that the 
 older geographies labeled ''The Great American Desert" 
 bids fair to become one of the most flourishing districts 
 of the country. 
 
 Size of Farms 
 
 That part of the area of the United States which has 
 already been reduced to private ownership is divided into
 
 Agricultural Resources 
 
 15 
 
 o 
 t-l 
 
 -u 
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 4-1 
 
 02 
 
 •a 
 p 
 
 .a 
 
 B 
 
 ci 
 
 d 
 
 as 
 
 o 
 
 3 
 
 -a 
 « 
 
 fin
 
 16 Business Economics 
 
 6,311,502 farms. As almost half of the land in these 
 farms is micultivated, being forest, waste land, or pas- 
 ture, it is evident that there is still room for a great in- 
 crease in the agricultural production of the United States 
 without bringing additional land into the field. The aver- 
 age size of these farms is 138 acres, which looms large 
 indeed when compared with the 20-acre farms of France 
 and the 60-acre farms of Great Britain. The difference 
 is due of course to the difference in the methods of agri- 
 culture and the character of the crops, the European con- 
 ditions demanding intensive cultivation while our meth- 
 ods are still largely extensive. 
 
 Farm Tenuee 
 
 A more important question even than the number and 
 size of farms, from an economic point of view, is that of 
 ownership. In 1880, when for the first time the federal 
 census collected the statistics of farm tenure, the gratify- 
 ing result was announced that three-quarters (74.5 per 
 cent) of the farms in the United States were cultivated 
 by their owners. The last census however showed that 
 the proportion had fallen to 62.1 per cent in 1910, and 
 alarm has been expressed that our democratic conditions 
 of land ownership are giving way to a system of tenantry, 
 that the o^vnership of our farms is being concentrated in 
 fewer hands, and that methods of large-scale production 
 in agriculture are crushing out the independent farmer 
 as effectively as they have crowded out the small manu- 
 facturer and retailer in other fields. Correctly inter- 
 preted, however, the statistics seem to indicate that the 
 growth of the tenant class marks the endeavor of farm 
 laborers and farmers' sons to establish themselves as in- 
 dependent farmers rather than the fall of former owTiers 
 to the rank of tenants. The great majority of the young
 
 Agricultural Resources 17 
 
 men are laborers, the majority of those in middle life are 
 tenants, while the older men are for the most part owners 
 of farms. There seems to be a healthy progress upward 
 in the advancement of wage laborers and farmers' chil- 
 dren, first, to tenancy, and finally, with increased ability 
 and capital, to farm ownership. Moreover most of the 
 rented farms are hired by negroes, the change in whose 
 status from slave to tenant marks a great advance. 
 
 The Rural Exodus 
 
 Another change in our farming population that has 
 been viewed with considerable misgiving is the movement 
 from the farm to the city and the decline in the propor- 
 tion of the agricultural population to the whole. Indeed 
 the change has been startling, as the United States has 
 passed from a primitive agricultural stage of develop- 
 ment to a highly organized manufacturing and commer- 
 cial stage. From 86.3 per cent of the population in 1820 
 the percentage of those engaged in agriculture fell stead- 
 ily until it reached 35.6 per cent in 1910. Many persons 
 have thought that such a movement indicated the de- 
 sertion of our farms, owing to the greater attraction of 
 the cities and the disappearance of a healthy agricultural 
 population. It has indicated rather a great improve- 
 ment in the arts of agriculture, whereby one person to- 
 day, working with improved machinery and better knowl- 
 edge, can produce nearly three times as much as his 
 grandfather did. The labor set free has gone to the 
 cities — cities of over 8,000 inhabitants now containing 
 two-fifths of our population as compared with one-thir- 
 tieth one hundred years ago — and there produces the 
 thousand and one things which contribute to our modern 
 well-being. A smaller number can now raise all the food 
 necessary to feed the population; that the rest are free
 
 18 Business Economics 
 
 to do other things must certainly be counted a gain, 
 though the conditions under which work in the factory 
 and life in the city are carried on at present leave much 
 to be desired. 
 
 Impoktance of Agkiculture 
 
 Writing about 1865, an eminent English traveler, Sir 
 S. Morton Peto, apologized for calling the United States 
 an agricultural country; today he would be spared this 
 worry, for the census of 1910 gave the net value of prod- 
 ucts of the farm as $5,487,161,000 and of pure manufac- 
 tures as $8,530,261,000. Indeed since 1890 the value of 
 the manufactures of the country has been larger than of 
 the farm products, and the United States now ranks as 
 one of the leading manufacturing nations of the world. 
 That we are continuing to grow relatively faster as a 
 manufacturing nation is sho^\^l by the fact that the total 
 value of our manufacturing products increased 81.2 per 
 cent from 1900 to 1910, while the value of agricultural 
 products increased only 68.6 per cent. Nevertheless the 
 value and amount of the agricultural products are stu- 
 pendous; the United States leads all countries in the 
 production of dairy products, corn, and wheat, and the 
 greater part of the lumber, meats, tobacco, and cotton 
 which enter into the w^orld's trade come from her forests 
 and fields. 
 
 Agricultural Products 
 
 While the territory of the United States is well adapted 
 by nature to the cultivation of a great variety of agricul- 
 tural products, as a matter of fact four main branches 
 furnish the bulk of the value of our total agricultural 
 products. These are the raising of live stock and the pro- 
 duction of hay and grain, cotton, and dairy produce. The
 
 Agricultural Resources 19 
 
 regional distribution of these products is fairly well 
 marked. Over half of the live stock and of the hay and 
 grain farms are situated in the North Central States; 
 nearly half of the dairy farms are located in the North 
 Atlantic division; practically all the cotton is confined to 
 the southern zone. The same may also be said of tobacco 
 and sugar. The semi-arid region of the West is given 
 over almost exclusively to stock-raising. Illinois and 
 Iowa lead as agricultural states. 
 
 Extensive and Intensive Farming 
 
 The character of agriculture in the United States, as 
 in all new countries, has hitherto been extensive, that is, 
 a small amount of labor and capital has been applied to 
 a relatively large amount of land, and only the cream of 
 the soil has been skimmed off, as it were. Where labor is 
 dear and land is clieap this is the most economical method 
 for the farmer; and although European critics have se- 
 verely censured our system of "earth butchery," where- 
 by the fertility of the soil has been exhausted by constant 
 cropping, \\dth no effort to restore the exhausted proper- 
 ties by fertilizing, the practice w^as justified in colonial 
 days by the conditions which produced it. Now how- 
 ever the practical exhaustion of the free public domain 
 has had the effect of raising the price of lands in the Mid- 
 dle West, and this in turn will cause a more careful and 
 intensive system of cultivation. In other words, as our 
 social and industrial conditions approach more closely 
 those of Europe, we may expect our agricultural methods 
 to do so also. One of the most serious practical prob- 
 lems now confronting the American farmer is the change 
 from the old, wasteful, extensive methods to the new, 
 careful, intensive methods of farming. Those who can- 
 not make the change will complain of the unprofitable-
 
 20 Business Economics 
 
 ness of agriculture, but to those who successfully meet 
 the new conditions the future offers much greater rewards 
 than even the era of free land could produce. 
 
 Agkicultuke as a Science 
 
 It has been said that the year 1887 marked the begin- 
 ning of a new stage of development in American agricul- 
 ture, namely, that of reorganization, because in that year 
 Congress passed the Experiment Station Act. This 
 caused the application of the principles of experimental 
 science to agriculture on a more comprehensive and sys- 
 tematic scale than had ever been attempted before. Stim- 
 ulated by the increased activity of the government ex- 
 periment stations, the agricultural colleges have ex- 
 panded their work. They are offering practical courses 
 to the farmers, and in co-operation with the railroads 
 some of them are sending out special lecturers, with mov- 
 ing laboratories, to bring the teachings of science as close 
 home to the producers as possible. Finally, the won- 
 derful work being done by Burbank and others in select- 
 ing and crossing, by travelers for the federal Agricul- 
 tural Department in securing from all over the world 
 plants suited to our varied climatic conditions, and by the 
 experiment stations and agricultural colleges in spread- 
 ing the new knowledge among the farmers and putting it 
 into actual practice — all these departures promise to 
 revolutionize agriculture and to make it, as one writ-er 
 has said, a learned profession. 
 
 Ceeeals 
 
 The production of cereals is the most important branch 
 of agriculture, comprising corn, wheat, oats, barley, rye, 
 buckwheat, and rice. Since the building of the trunk rail- 
 roads, by which the western territory was given access to
 
 Agricultural Resources 21 
 
 a market, the progress of cereal production has been ex- 
 tremely rapid, nor does there seem to be any observable 
 slackening. With the introduction of improved varieties 
 of spring wheat, cereal production is being pushed far- 
 ther up into Canada and our own Northwest. The 
 center of cereal production has moved steadily westward, 
 from eastern Indiana in 1860 to eastern Iowa in 1910. 
 With the practical exhaustion of unoccupied land suitable 
 for grain-raising in the United States, it is clear that the 
 future extension of the industry depends rather upon im- 
 provements in the methods of agriculture than upon the 
 addition of new lands. The very practical problem here 
 presented to the American farmer if he wishes to main- 
 tain his supremacy in the world's markets is being nobly 
 and successfully met by the agricultural experiment sta- 
 tions. For example, they are teaching the farmer how to 
 increase his yield of wheat by scientific seed selection 
 and by more careful methods of tillage, from an average 
 of 15.4 bushels per acre for the whole country in 1910 to 
 treble that amount, as is actually produced in France. 
 
 Of the separate crops corn is by far the most impor- 
 tant, representing 60 per cent of the total value of all 
 cereals produced in 1910. Most of the corn is fed to stock 
 throughout the so-called "corn belt" and comes to market 
 in the form of pork and beef. Although corn is very 
 nutritious and is a favorite article of diet in this country 
 in various forms, astonishingly little of it is exported. 
 The development of a foreign market still awaits the en- 
 terprise of the American farmer and food manufacturer. 
 
 Live Stock 
 
 The production of live stock is essentially a frontier 
 industry, and while it will probably always be carried on 
 in the semi-arid grazing districts of the West, which can
 
 22 
 
 Business Economics 
 
 i-H 
 
 <» 
 -u 
 cS 
 -u 
 02 
 
 >^ 
 
 CO 
 
 g 
 c3 
 
 c 
 o 
 
 I 
 
 CO 
 
 d
 
 Agricultural Resources 23 
 
 be reclaimed for agriculture only at considerable ex- 
 pense, it already shows a relative decline. Owing to the 
 great growth of the population, the domestic demand now 
 consumes almost all the meat produced and the exports 
 are declining. This is one of the reasons for the recent 
 rise in the price of meat. The industry is extensive. 
 
 Quite the opposite is true of the dairy industry, which 
 is intensive, being carried on for the most part in the 
 vicinity of large cities where land is expensive. The 
 changing character of agriculture and the fact that it is 
 itself a business enterprise which demands a knowledge 
 of market conditions and business methods are well 
 illustrated by the nature of the dairy industry. Dairies 
 are inspected and must conform to certain standards ; the 
 milk must be sterilized and shipped, often by special 
 trains, to the cities. Over a third of the butter and prac- 
 tically all of the cheese is now made in factories instead 
 of on the farm ; so it is a question whether the latter at 
 least should not be classified as a product of manufacture 
 rather than of agriculture. 
 
 Cotton 
 
 Of the last of the four important branches of agricul- 
 ture, namely, cotton-raising, there is not so much to be 
 said. Owing to the intensive nature of its cultivation, 
 machinery has never been applied on a large scale to its 
 production, as was done in the case of hay and grain. 
 The wasteful methods that prevailed in the South before 
 the Civil War have been largely corrected, and the tend- 
 ency to sterility of the soil has been met by the increased 
 use of fertilizers and scientific rotation of crops. The 
 statistics of cotton crops for the past thirty years do not 
 indicate any decrease in productiveness and show that 
 the point of diminishing returns has not yet been reached.
 
 24 Business Economics 
 
 A peculiar and interesting feature about cotton pro- 
 duction is that it is largely in the hands of tenants. The 
 old slave plantations of the South have been broken up 
 into small holdings and many of these are operated by 
 tenants, negroes and whites, who are too poor or too im- 
 provident to buy the land outright. The main problems 
 connected with cotton culture are labor problems; and 
 the question has often been anxiously asked whether the 
 free negro will produce as much as the former slave. 
 This can now be confidently answered in the affirmative, 
 although it yet remains to be seen whether he can be 
 made as efficient a producer as his white competitor. 
 Upon the answer to that question depends not merely the 
 future of cotton production, but the economic salvation 
 of the negro himself. The constantly expanding use of 
 cotton goods assures a brilliant future to the cotton-grow- 
 ing states of the South, for not merely is there an assured 
 market in America and Europe, but the primitive peoples 
 of Asia and Africa may be depended upon to absorb in- 
 creasing quantities of cotton fabrics. 
 
 Forests 
 
 Hand in hand with the heedless extensive methods of 
 agriculture in the past went wasteful use and even de- 
 struction of our forest resources. The annual cut of lum- 
 ber in the United States is today about forty billion feet 
 board measure; at this rate of consumption it is esti- 
 mated that the present available supply will last only 
 from 35 to 50 years. It will doubtless surprise most 
 readers to learn that about three-fourths of the annual 
 wood cut is consumed as fuel, probably half of our popu- 
 lation still depending upon wood instead of coal for fuel. 
 The rapid exhaustion of our forest supplies, with the 
 attendant effects upon moisture, floods, etc., has brought
 
 Agricultural Resources 25 
 
 the question of forest preservation to the front as a prac- 
 tical economic problem. We have been squandering the 
 heritage of our children and efforts are now being made 
 to repair some of the loss before we are declared bank- 
 rupt. In 1898 the federal government began practical 
 work in the introduction of forestry; this received a 
 great stimulus in 1905 when the care of the national for- 
 est reserves, embracing over 60,000,000 acres, w^as put 
 under the control of the Forest Service. The work has 
 been slowly growing, until in 1915 nearly 4,000 men were 
 employed in the Federal Forest Service. Over 2,000 men 
 are employed for the protective work over the National 
 Forest Reserves and state and private timber lands. 
 This gives about one man for every 80,000 acres as 
 against one for every 1,700 acres in Prussia. 
 
 Several states have taken up the movement for the con- 
 servation of forests. New York has a forest reserve of 
 nearly 2,000,000 acres, in which it supervises the cutting 
 of timber and attends to reforestation on the cut-over 
 areas. Pennsylvania has a similar reserve of nearly 
 1,000,000 acres, and other states are following their ex- 
 ample. That it is high time to devote attention to the 
 better conservation of this natural resource is made evi- 
 dent by the high and increasing price of lumber, its grow- 
 ing scarcity, and deterioration in quality. 
 
 Fisheries 
 
 There is one other natural resource the conditions of 
 whose supply resemble those of forestry and of agricul- 
 ture in general ; this is the fisheries. 
 
 As in the case of the other two industries, so with the 
 fisheries, we have been using up our capital and declar- 
 ing enormous dividends at the expense of the future. 
 The value of the annual catch of fish in the United States,
 
 26 Business Economics 
 
 including Alaska, is close to $70,000,000, and is probably- 
 exceeded only by the fishing industry of Japan, with 
 Great Britain as a close third. The problem of the better 
 conservation of this resource has been taken in hand by 
 the federal government, through the Fish Commission, 
 and much has been done to repair our early prodigality 
 by restocking lakes and streams with fish. More strin- 
 gent fish and game laws have also been passed by most 
 of the states, designed to prevent the extermination of 
 the supply. 
 
 With careful use, providing for depreciation and re- 
 storing the elements destroyed, all of these should prove 
 inexhaustible and should continue to furnish man with 
 food and lumber for all time. 
 
 Natural Resources and Economic Laws 
 
 After this brief survey of the natural resources of the 
 United States, it is proper to make some practical deduc- 
 tions as to the tendencies of progress in this line. Econ- 
 omists often use the terms "increasing returns" and 
 ''diminishing returns." These words explain certain 
 principles which are very applicable to agricultural pro- 
 duction. 
 
 Law of Increasing Returns 
 
 The law of increasing returns simply means that cer- 
 tain industries will yield a proportionately larger in- 
 crease for any additional time, labor, or thought that may 
 be expended in the productive processes. It is a well- 
 known fact in farming that the extra cost involved in 
 plowing deeper, harrowing finer and at the proper sea- 
 sons, and selecting the best seed will often give a very 
 much greater relative return. This fact usually accounts 
 for the difference between a thrifty and a poor farmer.
 
 Agricultural Resources 27 
 
 The law of increasing returns gives the scientific farmer 
 his great advantage over the indifferent farmer. It not 
 only compensates for extra work which is applied, but 
 gives something over and above this return, a sort of 
 differential gain. The same land that yields $15 worth 
 of wheat per acre if $5 worth of labor is applied, may 
 yield $25 worth of wheat when $8 worth of labor is ap- 
 plied. In the first case the net yield would be $10 per 
 acre and in the second case it would be $17 per acre. 
 The difference is produced by the operation of the law 
 of increasing returns. The extra $3 applied in labor is 
 paid for and in addition to this sum there is $7 extra for 
 clear profit. 
 
 Law of Diminishing E-etukns 
 
 A point is reached, however, in most production when 
 the application of an additional amount of labor will not 
 yield a proportionately large increase. In the example 
 just given, it is likely that if $10 worth of labor were 
 applied to the acre, the yield of wheat would amount to 
 only $26 and the net return would be only $16. The yield 
 would still have been larger than in the former case, but 
 the net return smaller. When such a point is reached, 
 the process responds to the law of diminishing returns. 
 By continuing the process, the returns gradually become 
 less and finally reach a point where further application 
 of labor will bring no additional returns. 
 
 Land is peculiarly responsive to these two economic 
 principles. Because it responds to the law of increasing 
 returns, the movement for scientific farming is meeting 
 with such generous response. On the other hand, be- 
 cause all land is subject to the law of diminishing re- 
 turns, there tends to become a scarcity of land for the 
 people of the globe. If it were not so, the people of New
 
 28 Business Economics 
 
 York or London could be self-supporting upon a single 
 acre of ground by simply applying more and more labor. 
 If such were the case, there could be no problem of over- 
 population. The operation of these two principles must 
 always be borne in mind when the future possibilities of 
 our agricultural resources, or of any other industry sub- 
 ject to the laws of increasing and duninishing returns, 
 are being considered. 
 
 ^& 
 
 TEST QUESTIONS 
 
 1. What has been the policy of the United States Government 
 in its disposition of public lands? 
 
 2. How has the land policy of the United States assisted the 
 cause of education ? 
 
 3. Is there any more valuable agricultural land open for entry 
 in the public domain of the United States ? 
 
 4. How can you account for the strenuous efforts that have been 
 made within recent years for redeeming large sections of arid 
 land by means of irrigation ? 
 
 5. What is meant by dry-farming? 
 
 6. How do the farms of the United States compare in size 
 with those of the European countries? To what is this difference 
 due? 
 
 7. What are the main causes for the movement of population 
 from the farm to the city ? 
 
 8. What four branches of agricidture furnish the bulk of our 
 agricultural products ? 
 
 9. What condition in the live stock industrj^ is contributing to 
 the high price of meats ? 
 
 10. Upon what conditions does the future of the cotton crop 
 in the South depend ? 
 
 11. What is meant by the law of increasing returns in agricul- 
 tural production ? Illustrate. * 
 
 12. What is meant by the law of diminishing returns? 
 
 13. How is scientific farming related to these two natural eco- 
 nomic laws ?
 
 CHAPTER III 
 the mineral resources of the united states 
 
 Character of Natural Resources 
 
 The natural resources of any country may be divided 
 into two broad groups, which call for different treatment 
 and give rise to very different problems. There are, on 
 the one hand, resources which are exhaustible but Avhich 
 can be restored again and, on the other hand, resources 
 wdiich, once exhausted, can never be replaced again by 
 human agency. Under the first head come the soil, the 
 forests, the fisheries, and even the water power, for all 
 of these can be made to yield steady returns to man for 
 thousands of years, if used intelligently. Under the sec- 
 ond head belong coal, petroleum, natural gas, and all the 
 minerals ; man may discover substitutes or he may econ- 
 omize in the use of these substances, but he can never 
 augment their supply. 
 
 In the previous section we considered some of the prob- 
 lems that arise in the use of the soil in agriculture, and 
 those connected with our forests and fisheries. For the 
 most part they had to do with the intelligent use of these 
 agencies and the restoration or repair of the elements 
 destroyed. In this section we are met by a very different 
 problem, namely, the conservation of a limited supply of 
 resources and their most economical application to the 
 needs of mankind. 
 
 29
 
 30 Business Economics 
 
 Two Views of Conservation 
 
 We can distinguish two contrasting answers to this 
 problem, one careless and optimistic, and the other pessi- 
 mistic and fearful of the future. According to the former 
 point of view we should not borrow trouble of the future ; 
 man's career has been one of constant progress; when he 
 has been confronted with a "difficulty he has invariably 
 met it. Indeed necessity has been the most prolific 
 mother of invention. If our coal supplies are exhausted, 
 man will devise means of utilizing the heat of the sun, the 
 force of the tides, the motion of the waves, the stores of 
 electrical energy in the air, all of which will yield inex- 
 haustible supplies of heat and energy. If our stores of 
 iron should fail, some enterprising inventor would surely 
 discover a practicable and commercially profitable 
 method of extracting aluminum from clay. New sources 
 of raw materials will undoubtedly be discovered before 
 the old ones give out, and we may confidently expect that, 
 while the material bases of a high civilization may shift 
 somewhat, they \vill never crumble and fall. 
 
 The other school has sounded a louder note of alarm. 
 At the present rate of consumption the coal and iron de- 
 posits of Europe and America must soon be exhausted. 
 The supplies of copper, lead, and other metals in favor- 
 able locations are also being consumed at an alarming 
 rate, and no other known supplies are in sight. Within 
 the past century scientific knowledge and engineering 
 skill have combined to unlock the storehouses of the 
 geologic ages, and now like prodigals ^e are dissipating 
 our fortunes. To treat these exhaustible sources of sup- 
 ply as permanent sources of income, without regard for 
 the future, is based upon unsound theory and must lead 
 to reckless practice.
 
 Mineral Resources 31 
 
 A Rational Policy of Conservation' 
 
 As so often in opposing counsels, there is an element 
 of truth in each of these contrasting points of view. 
 However, the safer plan is not to wait until we have ex- 
 hausted our natural resources before remedying the evil, 
 but to heed the warnings now. 
 
 This necessity has been recognized in the activities of 
 our national and state governments and private organ- 
 izations for conservation. The National Conservation 
 Commission, the Commission on Inland Waterways, and 
 the Commission on Country Life, through the facts 
 which they have collected upon the rate of consumption 
 of the natural resources of the United States and the 
 recommendations which they have made, have turned the 
 eyes of the country to the duty which the present genera- 
 tion owes to the future as a trustee of these riches. Meas- 
 ures have been taken for the better utilization and con- 
 servation of these resources through local, state, and 
 national action. 
 
 As a result of the national awakening, we may expect 
 to see a more rational use made of the gifts of nature and 
 a better organization of our national life. Heretofore 
 the ideal of our business men has been to exploit, one 
 might almost say pillage, the stores of nature as rapidly 
 as possible ; it was a pioneer stage of industry, inevitable 
 but wasteful. From now on the new conception must be 
 the restoration of exhausted elements, where possible, as 
 of the soil and the forests, and the careful use of the non- 
 renewable stores of wealth so that at least we shall not 
 make them engines of destruction, as in the case of floods 
 and devastation occasioned by careless hydraulic mining 
 in the West. Let us now turn to a more detailed consid- 
 eration of the separate items in our inventory of national 
 wealth.
 
 32 Business Economics 
 
 Coal 
 
 Our modern civilization may be said to rest upon coal, 
 for upon its possession depends man's ability to utilize 
 most of the other items of his wealth. Passing over its 
 utility as a fuel to heat our houses, we may observe that 
 without coal it would be impossible to smelt the iron 
 needed in all our industries, to drive the machinery, to 
 run our locomotives or steamboats, or in a word to carry 
 on the manifold activities of our industrial life. Accord- 
 ing to the United States Geological Survey, there are 
 335,000 square miles of coal-bearing strata in this coun- 
 try, but the larger part of the coal is too impure to be 
 useful for industrial purposes ; it serves in many localities 
 however as domestic fuel, as in the case of the lignite 
 deposits of the Northwest. An estimate by Professor 
 Tarr places the coal-producing area in the United States 
 at not over 50,000 square miles. At the present rate of 
 consumption — over 75,000,000 tons of anthracite and over 
 375,000,000 tons of bituminous coal in 1913 — it has been 
 estimated that the anthracite coal deposits will last for 
 only fifty years longer, while we have only enough bitu- 
 minous coal for one hundred years. 
 
 The large deposits of coal in England and their early 
 development gave that country a great advantage over 
 Europe. But as long ago as 1861 Professor Jevons, a 
 noted English economist, sounded a note of alarm. He 
 prophesied that because of the superior size and charac- 
 ter of the coal deposits of America, industrial supremacy 
 must inevitably pass to this country. His prediction has 
 already been verified in the case of coal and iron produc- 
 tion and will probably soon prove true of textiles also. 
 The coal deposits of the United States are thirty-seven 
 times as great as those of England, but at the present
 
 Mineral Resources 
 
 33 
 
 a 
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 2 
 
 o 
 O 
 
 o 
 
 a 
 o 
 
 en 
 
 Q
 
 34 Business Economics 
 
 rate of mining are threatened with exhaustion at no dis- 
 tant date. It has been estimated that in China there are 
 coal deposits capable of supplying the world with fuel 
 for another thousand years. But such estimates are, in 
 the present state of our knowledge about China, the 
 merest guesses, and, if true, would seem to point to the 
 future industrial supremacy of that country in the 
 world's markets. 
 
 Two-thirds of the coal mined in the United States is 
 obtained from the Appalachian field, extending from New 
 York to Alabama, Pennsylvania being the largest coal- 
 producing state in the Union. In the iron and steel in- 
 dustries most of the coal is coked, as it is better for blast- 
 furnace use in this form, giving greater heat and contain- 
 ing less sulphur or other injurious substances than coal. 
 Owing to the smaller bulk and cost of transporting ore, 
 most of the iron and steel industries are situated in the 
 vicinity of the coal supply, as in Pennsylvania, Ohio, 
 Illinois, Alabama, etc. 
 
 Petroleum 
 
 Petroleum, or coal-oil, is closely allied to coal in its 
 origin and distribution and must be classed with, it as a 
 most important product, not only for industrial uses, but 
 also because of the contributions it has made to the com- 
 forts of living. In its production the United States ranks 
 first, being closely followed by Eussia ; together these two 
 countries furnish over 90 per cent of the world's supply 
 of petroleum. Enormous economies have been effected 
 in its production and distribution, which latter is done by 
 piping the crude oil underground to the refineries. For 
 illuminating purposes it is the cheapest form of artificial 
 light ; as a fuel it is supplanting coal where the latter is 
 dear or its cost of carriage high, as on ocean steamers.
 
 Mineral Resources 
 
 35 
 
 V 
 +-> 
 
 a 
 
 --3 
 O 
 +-» 
 
 "a 
 P 
 
 CO 
 
 C5 
 
 
 o 
 
 o 
 o
 
 36 Business Economics 
 
 Finally the construction of light and convenient gasoline 
 motors has given it great importance as a source of mo- 
 tive power. Natural gas is closely related to petroleum, 
 but the supply has been so reduced by rapid and reckless 
 use that it has but a limited economic outlook and is of 
 local significance only. 
 
 Iron 
 
 Of all the metals iron must be considered the most 
 useful for man, far surpassing the so-called precious 
 metals in economic importance. Its great utility is so evi- 
 dent that its production and use have often been taken 
 as a criterion of the material progress of a community. 
 Iron is the only metal that can be welded and is accord- 
 ingly of great significance, whether in making strong 
 machinery, as the shafts of oc^an steamships, or the 
 framework of a twenty-story building, or, in the form of 
 steel, the most delicate surgical instruments or watch 
 springs. Judged by the test of iron ore production, the 
 United States ranks high, for it turns out about four- 
 fifths of the world's supply; all of this is used for domes- 
 tic consumption, in its own blast furnaces, though 
 much of it is afterwards exported in the form of pig iron 
 or structural iron or steel. Though iron is universally 
 distributed throughout creation, it must occur in large 
 beds or deposits before it can be profitably mined. 
 
 The most favorable situation of an iron ore for profitable 
 extraction is near good coking coal for smelting and limestone 
 for a flux, as in the Birmingham district of Alabama; and in 
 such a situation even low-grade ores can be worked profitably. 
 Unless this is the case, iron ore cannot be extensively mined 
 excepting under conditions of great abundance and economical 
 methods of transportation, as in the Lake Superior district, 
 where thick and remarkablv uniform beds of good ore occur in
 
 Mineral Resources 37 
 
 such a position that water transportation to the market is pos- 
 sible. Where these conditions do not exist, iron-mining is fea- 
 sible only on a small scale for the local market. Thus, in the 
 Rocky Mountains there are almost inexhaustible supplies of 
 iron, often of a high grade, which are at present of no value 
 whatsoever.^ 
 
 The most wonderful iron-mining region in the United 
 States and probably in the world lies in the northern part 
 of Michigan and Minnesota, Avhere five ranges or lines of 
 hills contain immense deposits. These lie so near the sur- 
 face that they can be dug out of open pits at a cost of 
 from 10 to 50 cents a ton, against $1 a ton in a shaft or 
 underground mine. Three-fourths of the iron ore pro- 
 duced in the United States is mined in this district. Its 
 proximity to the lake ports makes possible its transpor- 
 tation to the iron and steel manufacturing centers at very 
 low rates. Machinery has been applied on an immense 
 scale to the work of mining, loading, and unloading the 
 ore. Steam shovels scoop up the ore from the open pit, 
 filling cars at the rate of almost one a minute; the work 
 of loading this into the ore ships at the ports is equally 
 expeditious, only about two hours being required to load 
 an ore ship of 6,000 tons, while the work of unloading is 
 performed for the most part by an endless chain of buck- 
 ets and traveling cranes. 
 
 By these means an ultra-intensive exploitation of these 
 magnificent deposits is taking place and it is a question 
 whether they will not soon be exhausted. "But the 
 Americans," writes Professor Lero'y-Beaulieu, a 
 friendly but keen critic of our industrial development, 
 '^ relying on the constant good-will of nature, are confi- 
 dent that they will discover either new and productive 
 ranges in this district, or rich deposits in other districts. " 
 
 1 Tarr, Economic Geology of the United States, pp. 7, 119. 
 
 jL JL 9J aJ (^ *
 
 38 Business Economics 
 
 Precious Metals 
 
 The precious metals have received more than their fair 
 share of attention, for the industrial progress of the 
 world is much less dependent upon their presence in large 
 and easily obtained quantities than it is upon the more 
 common metals. Nevertheless they are important be- 
 cause of their use in the arts and in exchange as 
 money. In their production the United States stands 
 second, being surpassed in the output of gold by the 
 Transvaal in Africa and in that of silver by Mexico. The 
 production of these metals has always in the world's his- 
 tory proceeded spasmodically, and a speculative spirit 
 has usually been present. More recently, however, scien- 
 tific geological knowledge and improved metallurgical 
 methods are changing the industry of gold- and silver- 
 mining from a gambling venture to a legitimate industry. 
 
 The practical problem at present confronting Ameri- 
 can gold-mining companies is to reduce expenses, some 
 of the principal bearings having for some years sho^vn 
 signs of exhaustion, as for instance in the Cripple Creek 
 district of Colorado. There is always a chance, however, 
 that new gold fields may be discovered to make good the 
 exhaustion of the old. In the case of silver, on the other 
 hand, the metal is found in such abundance that the pres- 
 ent rate of production seems almost indefinitely assured ; 
 a slight increase of the price or improvements in the art 
 of extracting the metal will at any time bring enlarged 
 supplies on the market. Africa, Australia, and the 
 United States produce almost all the world's supply of 
 gold, Colorado being the leading state in the last-named 
 country. Mexico and the United States together produce 
 over two-thirds of the world 's silver, the leading rank in 
 this country being held by Nevada.
 
 Mineral Resources 39 
 
 Copper 
 
 Among the other metals copper is by far the most im- 
 portant. In primitive civilizations, before the art of 
 smelting iron had been discovered, copper was indis- 
 pensable because it was so easily malleable; in Homeric 
 times, for instance, armor, utensils, money, etc., were 
 made of copper or alloys of copper (bronze and brass). 
 After an eclipse of some centuries copper has again risen 
 to the front rank by reason of its qualities as a conductor 
 of electricity. The new use of electricity to transmit 
 power and the development of electrical industries have 
 greatly increased the demand for this metal and have 
 caused a great expansion in its production. Here again 
 the United States holds first rank, contributing over half 
 of the world 's copper supply. As in the case of iron, the 
 northern peninsula of Michigan is the most important 
 center of copper production, with Montana a close sec- 
 ond and Arizona contributing most of the remainder. 
 
 Like petroleum, copper production is controlled by a 
 small number of operators, five mining companies alone 
 furnishing one-half of the American supply. Unlike pe- 
 troleum, it is far from being monopolized, for new and 
 rich supplies lie just on the margin of profitable working 
 and will always be brought into the market whenever the 
 price warrants. One reason for American pre-eminence, 
 aside from the rich stores of the metal, lies in the prog- 
 ress made in the art of refining it by the electrolj^tic 
 process, considerable foreign ore being brought here to be 
 treated by this method. 
 
 Nature has not blessed the United States so abundantly 
 with the miiQor metals, lead, zinc, and aluminum, while 
 almost all the tin used here has to be imported.
 
 40 . Business Economics 
 
 Our Debt to Nature 
 
 It is apparent from even this brief and hasty survey 
 of the mineral resources of the United States, comprising 
 those extractive industries which once exhausted can 
 never be restored by man, that this country is wonder- 
 fully well supplied with the material means of civiliza- 
 tion. Minerals and metals are remarkably abundant and 
 accessible. The wonderful material progress of the 
 United States during the nineteenth century is abun- 
 dantly explained by this fact, though due credit must 
 also be given to the enterprise, industry, and genius of 
 those who developed these natural resources. The indus- 
 trial supremacy of the American nation, founded on such 
 a stable material basis, seems well assured. We of 
 this country have been rather inclined to boast of our 
 industrial progress and our material bigness, whereas it 
 must now be apparent that we owe much, if not most, to 
 the bounty of nature. We should therefore see to it, in 
 a proper spirit of humility and thoughtfulness, that Ave 
 do not waste our heritage, but hand it on as nearly undi- 
 minished as possible to our children. 
 
 Water Power 
 
 There is one other asset in our national wealth which 
 has already contributed much to our progress and is 
 destined to play an even more important role in the fu- 
 ture and that is our wat^r power. In colonial days, be- 
 fore the invention of the steam engine and the use of 
 coal, this was of prime importance and determined the 
 location of many a town, inasmuch as the best site was at 
 the ''fall line" of the rivers, where water power was ob- 
 tainable. With the invention of the steam engine and 
 the use of steam as a motive power, industry became less
 
 Mineral Resources 41 
 
 dependent upon water power and moved away from the 
 rivers to the vicinity of coal mines. Now again has come 
 another swing of the pendulum, and with the rise of elec- 
 tricity as a motive power and the harnessing of our 
 streams and waterfalls for the creation of electrical 
 energy, we are beginning to value more highly this 
 source of power. Here again we find the United States 
 wonderfully blessed as compared with other countries. 
 ''It is probable," says Shaler, "that, measured in horse 
 power or by manufactured products, the energy derived 
 from the streams of this country is already more valua- 
 ble than those of all other lands put together." The 
 total amount of direct water power used by manufactur- 
 ing establishments in 1910 was 1,822,888 horse power, or 
 about 10 per cent of all the power used. 
 
 Prior to 1890 the largest use of water power was in its 
 direct application to machinery at the immediate point of 
 development. Since that time, however, the us& of elec- 
 tricity as an agency whereby the energy developed by 
 falling water can be transformed and applied to the 
 driving of machinery has entirely changed the conditions 
 under which the power of our streams can be utilized. 
 The practical possibility of transmitting electrical power 
 over long distances — for example, over 200 miles from 
 the Sierras to San Francisco — has removed the necessity 
 of building factories immediately adjacent to Avater pow- 
 ers, but permits its utilization where most convenient 
 and often where the lack of coal has made the use of 
 steam power impracticable. The best-known example of 
 the development and transmission of electrical energy 
 for industrial purposes is the case of Niagara Falls, but 
 more striking illustrations may be found on the Pacific 
 coast and in the great Keokuk dam across the Missis- 
 sippi with a capacity of 300,000 horse power. The ex-
 
 42 
 
 Business Economics 
 
 cS 
 CCi 
 
 a 
 
 o 
 
 V 
 
 O 
 I 
 
 to
 
 Mineral Resources 43 
 
 istence of wonderful opportunities on the Atlantic sea- 
 board gives brilliant promise for the future of manufac- 
 turing in this region. 
 
 So valuable indeed are these sources of power now 
 seen to be that there is danger that their control may 
 be monopolized by a few shrewd and far-sighted indi- 
 viduals before the general public awakes to a realization 
 of their importance. It has frequently been asserted 
 that there is a "water jDower trust" already organized 
 for this purpose. The opportunities for wealth-getting 
 have hitherto been so great in this country and the great 
 task of the American people has thus far been so ex- 
 clusively the one of developing its wonderful natural 
 resources that we have grown careless of our com- 
 mon rights and have permitted private individuals to 
 monopolize a number of limited resources of this char- 
 acter. One of the great practical problems of the future 
 is that of securing the growing value of these natural 
 monopolies to the whole nation, without at the same time 
 retarding the energy and industrial development of the 
 American people. 
 
 TEST QUESTIONS 
 
 1. Into what groups may the natural resources of our country 
 be divided ? Illustrate. 
 
 2. What two answers are given to the problem of conserving 
 our natural resources? 
 
 3. What are the characteristics of a rational policy of con- 
 servation ? 
 
 4. Where are the leading coal deposits of the country found ? 
 
 5. At the present rate of use, how long will our known supply 
 of coal last? 
 
 6. What is the most favorable situation for iron-ore deposits? 
 State reasons. 
 
 7. Where is the most wonderful iron-mining region of the 
 United States located ? What makes it such a remarkable region ?
 
 44 Business Economics 
 
 8. Why may it be said that the gold- and silver-mining in- 
 dustrj' is passing from a gambling venture to a legitimate in- 
 dustry ? 
 
 9. What are the chief gold-producing centers in the United 
 States? 
 
 10. Why is copper so very important in modern industry ? 
 
 11. Upon what factors does activity in the copper-mining re- 
 gions depend? 
 
 12. To what extent is water power used in modern industry?
 
 CHAPTER IV 
 capitalistic production 
 
 Use of Capital in Production 
 
 Modern production is usually called "capitalistic" be- 
 cause it involves in its processes the use of a large 
 amount of capital. In a primitive stage of culture man 
 appropriated directly from nature's bounty the food and 
 shelter which he required. But today man has adopted 
 long and round-about methods of producing goods, in- 
 volving numerous steps between his first efforts and the 
 turning out of the finished articles. He invents tools and 
 machinery to assist him in his work, and while he multi- 
 plies the processes of production he also enormously in- 
 creases the results. 
 
 Capital has become absolutely indispensable in modern 
 production and is yearly playing a more important role. 
 At the same time various problems, born of the new con- 
 ditions, have arisen, such as the growth of large-scale 
 production, the elimination of the small producer and 
 the independent artisan, the growth of trusts, the rhyth- 
 mic recurrence of speculative periods and industrial 
 crises, the relations of labor and capital, and others sim- 
 ilar in character. 
 
 The Nature of Capital 
 
 "What is capital? This question is very pertinent to 
 the topic of capitalistic production. It is easier to de- 
 
 45
 
 46 Business Economics 
 
 scribe the main features of a capitalistic society than to 
 explain the nature of capital itself. We may omit the 
 fine distinctions that are made by the economist and 
 describe capital in a few simple words. Capitalistic pro- 
 duction is an indirect or a round-about system of produc- 
 tion. Labor is first applied to the making of tools and 
 machinery, and these in turn are used for further produc- 
 tion. All production is for the ultimate purpose of satis- 
 fying human wants. But if, since the beginning of time, 
 men had produced only for immediate consumption, we 
 should still be making our living as the gorilla or chim- 
 panzee. A\Tien man first used some of his spare time to 
 chip an axe or an arrow head, he began to create capital. 
 Capital is therefore in the nature of a surplus — some- 
 thing which is taken out of production not for immediate 
 consumption, but to be used in aiding further production. 
 This explanation of capital makes it clear that it can 
 be increased only by increased savings and by temporary 
 sacrifices. The building of the Panama Canal illustrates 
 this process as clearly in modern industrial life as the 
 illustration of the arrow head in primitive life. The 
 people of the United States have denied themselves the 
 immediate enjoyment of approximately $500,000,000 in 
 order that this great instrument to commerce and indus- 
 try might be constructed for future use. From this con- 
 ception of capital, it is evident that it consists only of the 
 concrete instruments made by man. It involves labor 
 and saving. Land and similar elements given by nature 
 are excluded by the definition. If we are to develop our 
 capitalistic system of production, we must produce two 
 classes of wealth : one for immediate consumption to sup- 
 ply the necessities of life and another for future produc- 
 tion. Of the three factors in production usually men- 
 tioned, namely, land, labor, and capital, man has it in his
 
 Capitalistic Production 
 
 47 
 
 po"wer to increase the third factor, capital, in proportion 
 as he is willing to save out of present production. 
 
 Progress in Capitalistic Production 
 
 The most striking phenomenon of the nineteenth cen- 
 tury "was the great industrial progress of the more devel- 
 oped nations. This is best sho"wn in the follo"wing table, 
 taken from Mulhall's Industries and Wealth of Nations: 
 
 Growth of Manufactures in the Nineteenth Century 
 
 
 MiiiLioNS OF Dollars 
 
 COUNTKIKS 
 
 1820 
 
 1840 
 
 1860 
 
 1894 
 
 United Kingdom 
 
 France 
 
 1,411 
 
 1,168 
 
 900 
 
 511 
 
 1,654 
 
 1,883 
 1,606 
 1,484 
 852 
 2,516 
 
 2,808 
 2,092 
 1,995 
 1,129 
 3,455 
 
 4,263 
 2,900 
 
 Germany 
 
 3,357 
 
 Austria 
 
 1,596 
 5,236 
 
 Other states 
 
 
 
 EuroDe 
 
 5,644 
 
 268 
 
 8,341 
 467 
 
 11,479 
 
 1,907 
 
 17,352 
 
 United States 
 
 9,498 
 
 Total 
 
 5,912 
 
 8,808 
 
 13,386 
 
 26.850 
 
 
 
 Extraordinary as has been this universal growth, the 
 development of manufactures in the United States has 
 been still more marvelous, both absolutely and in relation 
 to other branches of industry. Between 1850 and 1910 
 both the population and the products of agriculture quad- 
 rupled, but the value of manufactured products increased 
 twenty fold and that of capital invested in manufac- 
 tures thirty fold. The United States, though politically 
 younger than the countries of Europe, is industrially one
 
 48 Business Economics 
 
 of the most advanced. The application of labor-saving 
 machinery and of improved and economical methods of 
 production and distribution has probably proceeded fur- 
 ther here than in any other land. Nowhere can we study 
 to better advantage, therefore, than in America the prob- 
 lems that have grown out of this advanced capitalism. 
 
 Causes of Industrial, Peogeess 
 
 The causes of this rapid industrial development are 
 enumerated by the census report as five in number: (1) 
 the agricultural resources of the country, (2) the mineral 
 resources, (3) the highly developed transportation facili- 
 ties, (4) the freedom of trade betw^een states and terri- 
 tories, and (5) the absence of inherited and over-con- 
 servative ideas. 
 
 We have already considered the wonderful agricul- 
 tural and mineral resources of the countiy and have seen 
 how greatly the American people are indebted for their 
 industrial prosperity to the bounty of nature. The mag- 
 nificent system of inland waterw^ays, comprising over 
 18,000 miles of navigable rivers, and the railroad system, 
 with over 200,000 miles of track, facilitate a rapid and 
 cheap exchange of products. The enormous domestic 
 market afforded the American manufacturer, larger in 
 consuming capacity than that of any other country in the 
 world, has permitted the economic production of goods 
 on a large scale and a consequent reduction in cost. 
 
 Foreigners have often asked the question why, if free- 
 dom from tariffs and trade restraints has been a good 
 thing within the United States, freedom of trade with 
 other countries would not prove equally advantageous. 
 In answer to this, James G. Blaine, formerly Secretary 
 of State, wrote: "It is the enjoyment of free trade and 
 protection at the same time which has contributed to the
 
 Capitalistic Production 49 
 
 unexampled development and marvelous prosperity of 
 the United States. ' ' Finally the absence of tradition and 
 of over-conservative ideas handed down from a former 
 and more primitive system of industry has been a great 
 boon. There have been developed traits of energy, in- 
 ventiveness, and ingenuity, which, aided by a universal 
 system of compulsory free education, have contributed 
 greatly to the material progress of the people. 
 
 The Factoey System 
 
 The system under which the production of wealth in a 
 modern industrial nation is carried on is usually called 
 the * 'factory system," and to this we must now turn, for 
 it is in the factory that the utilization of machinery and 
 capital finds its greatest development. The term is not 
 easily defined, but we may adopt the description given by 
 the late Carroll D. Wright: *'A factory is an establish- 
 ment where several workmen are collected for the pur- 
 pose of obtaining greater and cheaper conveniences of 
 labor than they could procure in their own homes, for 
 producing results by their combined efforts which they 
 could not accomplish separately, and for preventing the 
 loss occasioned by carrying articles from place to place 
 during the several necessary processes to complete their 
 manufacture." The essential elements in such a system 
 are the minute division of labor, the large use of labor- 
 saving machinery, the increasing specialization and local- 
 ization of industry, and tlie concentration of production 
 in fewer and larger establishments with consequent in- 
 crease of product and reduction of cost. 
 
 Division of Labor 
 
 The division of labor may mean either the separation 
 of occupations or the division of a process into minute
 
 50 Business Economics 
 
 parts. An illustration of separation of occupations may 
 be found in the manufacture of a carriage. One factory 
 produces the hubs, another produces the wheels, a third 
 produces the axles, a fourth produces the body, a fifth 
 manufactures the upholstery, a sixth manufactures the 
 hardware, and a seventh (the so-called carriage factory) 
 assembles the parts and places the completed product on 
 the market in the form of a carriage. 
 
 As an example of an extreme division of labor, the 
 slaughtering and meat-packing industry offers a classical 
 example, though in this case the use of complex machin- 
 ery is not involved. Professor Commons ^ writes as fol- 
 lows: 
 
 It would be difficult to find another industry where division 
 of labor has been so ingeniously and microscopically worked 
 out. The animal has been surveyed and laid off like a map ; 
 and the men have been classified in over thirty specialties and 
 twenty rates of pay, from 16 cents to 50 cents an hour. The 
 50-cent man is restricted to using the knife on the most delicate 
 parts of the hide (floorman) or to using the ax in splitting the 
 backbone (splitter) and, wherever a less skilled man can be 
 slipped in at 18 cents, I8V2 cents, 20 cents, 21 cents, 221^ 
 cents, 24 cents, 25 cents, and so on, a place is made for him, and 
 an occupation mapped out. In working on the hide alone there 
 are nine positions, at eight different rates of pay. A 20-cent 
 man pulls off the tail, a 22i/^-cent man pounds off another part 
 where the hide separates 'readily, and the knife of the 40-cent 
 man cuts a different texture and has a different "feel" from 
 that of the 50-cent man. Skill has become specialized to fit the 
 anatomy. 
 
 The Classified Index to Occupations, Thirteenth Cen- 
 sus of the United States (1910), shows how division of 
 
 1 Quarterly Journal of Economics, Vol. XIX, p. 3.
 
 Capitalistic Production 
 
 51 
 
 labor exists in the cotton mills. It gives the following 
 lines of work : 
 
 Manufacturers and 
 proprietors 
 
 Officials 
 
 Managers and superin- 
 tendents 
 
 Foremen and overseers 
 
 aerks 
 
 Apprentices 
 
 Back boys 
 
 Bailers 
 
 Banders 
 
 Beaders 
 
 Beamers 
 
 Bobbin boys 
 
 Breaker hands 
 
 Card clothiers 
 
 Card fixers 
 
 Card grinders 
 
 Card strippers 
 
 Carders 
 
 Carpenters 
 
 Chainers 
 
 Cleaners 
 
 Cloth balers 
 
 Cloth cutters 
 
 Cloth menders 
 
 Cloth steamers 
 
 Combers 
 
 Cotton shakers 
 
 Creelers 
 
 Designers 
 
 DoflEers 
 
 Donblers 
 Drawers-in 
 
 Drawers and drawing- 
 frame tenders 
 Dressers 
 Drillers 
 Dryers 
 Dyers 
 Engineers 
 Filling carriers 
 Finishers 
 Folders 
 
 Harness brushers 
 Harness makers 
 Helpers 
 Inspectors 
 Jack-frame tenders 
 Laborers 
 Lappers 
 Loom fixers 
 Machinists 
 Nappers 
 Oilers 
 Packers 
 Pickers 
 Piecers 
 Pressmen 
 Printers 
 Quillers 
 Eeelers 
 Kibbers 
 
 Eoll coverers 
 Rollers (cloth) 
 Eojjers 
 Eovers 
 
 Eoving- frame tenders 
 Scrubbers 
 Section hands 
 Sewers and seamers 
 Shearers 
 Sizers 
 
 Slasher tenders 
 Slubber tenders 
 Sorters 
 Sjiare hands 
 Speeders 
 Spinners 
 Spoolers 
 Spool fixers 
 Stampers 
 Starchers 
 Sweepers 
 Trimmers 
 Twisters 
 Warpers 
 Washers 
 Weavers 
 Winders 
 Wrappers 
 Yarn pourers 
 Other occupations not 
 specified 
 
 Use of Machiitery 
 
 Usually, however, when the division of labor becomes 
 as minute as that described, the routine-like process is 
 handed over to a machine. Indeed Mr. John A. Hobson 
 states as a law of machine industry the fact that as soon
 
 52 Business Economics 
 
 as a process becomes perfectly automatic and mechanical 
 a machine is invented which can do the work better and 
 more rapidly than human hands. Hand in hand, there- 
 fore, with the subdivision of labor goes the extension of 
 labor-saving machinery. Labor becomes relatively of 
 less importance than capital in the new methods of pro- 
 duction, and man becomes a machine tender rather than 
 an independent producer. 
 
 There are practical benefits and disadvantages con- 
 nected w^ith this system. Many writers insist that the 
 effect on the worker is narrowing in the extreme, but Pro- 
 fessor Marshall points out that his labor as tender of a 
 machine demands a higher order of intellectual develop- 
 ment than that of a handicraftsman, and that he has more 
 leisure, while the product of the present system is im- 
 measurably greater than under the old hand methods. 
 The manufacture of products by machinery has in turn 
 required the making of machines by machinery, as the 
 complex machines of today could not be turned out by 
 hand methods. A characteristic feature of the modern 
 factory system therefore has been the gro"\vth of the ma- 
 chine trades, which supply the equipment of the new 
 industry. 
 
 Localization of Industry 
 
 With the growing specialization of industry there has 
 gone on an increasing localization in some favored spot 
 or locality. Thus most of the collars and cuffs (85 per 
 cent) manufactured in the United States are made in 
 Troy, N. Y. ; 64 per cent of the oyster-canning is carried 
 on in Baltimore; 54 per cent of the gloves are made in 
 Gloversville, N. Y. ; 48 per cent of the coke in Connells- 
 ville. Pa. ; 48 per cent of the brassware in Waterbury, 
 Conn.; and 46 per cent of the carpets in Philadelphia.
 
 Capitalistic Production 53 
 
 Wliile there are undoubted advantages in such localiza- 
 tion and specialization in a particular industry, such as 
 reputation, growth of special skill, etc., there are also off- 
 setting disadvantages, such as the complete prostration 
 of the whole community if the particular trade upon 
 which it depends is disastrously affected by trade de- 
 pression or by a shifting of the industry to some other 
 locality. 
 
 Peoduction on a Large Scale 
 
 More striking than the concentration of manufactures 
 in particular places has been its concentration in a few 
 large establishments and under the control of fewer indi- 
 viduals. Without entering as yet into the discussion of 
 the trust problem, we may at this time take up the earlier 
 and important tendency of industry to be conducted on 
 a large scale. This concentration into a relatively 
 smaller number of establishments has been going on 
 pretty steadily since 1850 and shows no signs of abate- 
 ment at this time. In the case of the iron and steel indus- 
 tries, cotton manufactures, and leather goods, the move- 
 ment is positively startling, an actual decrease in the 
 number of establishments having occurred in the half 
 century. This is most marked in the monopolized in- 
 dustries. 
 
 At the same time there has gone on an enormous in- 
 crease in the size of the individual plant, in the capital 
 employed, the number of men employed, and the value of 
 the product. Almost the only industries which have not 
 yet displayed this tendency are those which are essen- 
 tially local in their nature, as grist mills, cheese and 
 butter factories, etc. But in general it is characteristic 
 of manufactures in the United States. The same ten- 
 dency has been manifest in the countries of Europe,
 
 54 
 
 Business Economics 
 
 1. VALOE OF MANIiFACTUREO PfiODUCTS FOB 48 LEADING CITffiSeJSffl 
 
 MILLION* OP DOLLARt 
 
 IttWTORK 
 
 CMtCAOO 
 
 MfLAOELPMU 
 
 •T^LOUia 
 
 CLtVELANO 
 
 OJETROtT 
 
 vrrrsounoH 
 
 eOSTON 
 
 BUFFALO 
 
 MILWAUKCf 
 
 NCWARK 
 
 Cincinnati 
 
 BALTIMORC 
 
 minneapolis 
 
 KANSAS CtTV. KANS. 
 
 AAN FRANCISCO 
 
 ^ensev ciTT 
 
 INDIAN A t>0Ll8 
 
 »ROVIDENCe 
 
 flOCMESTCn 
 
 VOUISVILLE 
 
 SOUTH OMAHA 
 
 VOUNOSTOWN 
 
 LAWRCNCC 
 
 NCW ORLEANS 
 
 WORCESTEd 
 
 BATONNI 
 
 AKRON 
 
 PERTH AMBOT 
 
 tYNN 
 
 PATEHSON 
 
 LOS AftOELCS. 
 
 BRtOOEPORT 
 
 FALL RfVCn 
 
 noAiA 
 
 TOLEDO 
 
 OMAHA 
 
 •avtan 
 
 LOWELL 
 
 TONKER8 
 
 ST PAUL 
 
 KANSAS CITT. ma 
 
 ttltt BEDFORD, 
 
 DENVlM 
 
 ffCAOmO 
 
 NEW HAVCN 
 
 StAriLff 
 
 WATCaSUHT 
 
 2. AVERAGE NUMBER OF WAGE EARNERS FOR 48 LEADING CmESi 1909 
 
 Mrw TOON 
 Cf"C*00 
 
 OCT nor 
 
 BO»T0M 
 
 P«OViOt"Ct 
 
 woacEaTiB 
 
 MINH|*»0«.l» 
 
 Ntw •UvtM 
 
 «ATiAfti/a« 
 
 TftJOO 
 
 rniftCuM 
 iOeAxaiLU 
 
 CkWMN 
 
 AMI ON 
 
 KANU3 CiTT. Ma 
 TO"I*S 
 
 VOt«r6tTOwM 
 
 «^-& 
 
 Til 
 
 United States Census 
 Fig. 7. — Charts Showing the Relative Importance of the Leading American 
 Cities as Manufacturing Centers 
 
 though there a system of well-developed and fairly vigor- 
 ous hand trades has resisted the movement and made 
 the development in this respect much less rapid than in 
 this country. 
 
 The following tables explain more in particular the 
 tendency toward concentration since 1850 :
 
 Capitalistic Production 
 
 55 
 
 o t^ 
 
 i~, <£> CO 
 
 05 
 
 a 
 
 < 
 
 125 
 o 
 
 o 
 
 00 
 
 o o 
 o o 
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 10 o 
 
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 to ^^ *-^ m 
 
 ^ 0J_ 00 " 
 
 i-T 
 
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 000 
 
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 CO cs 
 
 to 10 
 
 CI 
 
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 <1-l 
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 e tH s- ii 
 
 a aj oj «j 
 
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 m 
 H 
 
 
 
 M 
 
 H 
 
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 c: a' a. 
 
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 t- Co 
 
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 S 
 
 c 
 
 OS 
 
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 P oo'^W 
 
 S. to (M 
 
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 CO Oi 
 1—1 to 
 ^^ C<1_ 
 
 CI 1—1 
 
 •» ■«»■ 
 
 o 
 
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 I- CI 
 
 O^ O 00 
 
 00" oT CO 
 
 C] I— I 1—1 
 
 o o 
 o to 
 
 Oi^ to 
 
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 Cq 1— I rH 
 
 o o 
 
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 Th t^ rH 
 
 €0*^ to" 06 
 1— ( 
 
 o o 
 
 CI C5 
 
 "*^ ""J, ^. 
 
 Co" b-T oJ 
 
 S 
 ® 
 

 
 56 Business Economics 
 
 Economies of Large-Scale Production 
 
 Large-scale production is more profitable than produc- 
 tion on a small scale in all industries which are subject 
 to the law of increasing returns. By this, of course, is 
 meant that the return in product for each additional dol- 
 lar's worth of labor and capital employed grows greater, 
 the larger the scale on which the enterprise is conducted. 
 When this is true the big enterprise will be able to under- 
 sell the little enterprises and eventually to drive them out 
 of business. This is true not only in the competitive indus- 
 tries, but also in those which enjoy a legal or a natural 
 monopoly, as street railways, gas and water plants, etc., 
 all of which show an irresistible tendency to consolida- 
 tion. Before drawing any conclusions as to the desira- 
 bility of such a movement, let us examine some of the 
 economies of large-scale production. 
 
 The most striking and the most important is the econ- 
 omy in fixed capital. Concentration is a result of ma- 
 chine production. As machinery becomes more expen- 
 sive, the breaking up of the processes of manufacture 
 into small parts requires more complex and detailed ma- 
 chinery; a larger outlay is requisite for an up-to-date 
 plant. Thus the average amount of capital invested in 
 each iron and steel establishment in the United States 
 increased from $47,000 in 1850 to $2,282,000 in 1910. The 
 head of a steel company in Pittsburgh recently testified 
 before the Industrial Commission that to build and equip 
 a plant for the manufacture of iron and steel under mod- 
 ern conditions would call for an investment of from $20,- 
 000,000 to $30,000,000. It is clear that under such condi- 
 tions of expensive machine methods a small plant would 
 have little chance of existence. 
 
 Steam railways afford another good illustration of an 
 industry in which enormous economies are effected by the
 
 Capitalistic Production 57 
 
 concentration of a number of small, independent lines 
 under one unified control. Every machine is utilized to 
 the utmost ; there is no needless duplication of machinery 
 such as would occur if several small plants divided up the 
 business, while expensive machines to carry on relatively 
 small processes can be profitably installed. 
 
 But other economies than those in the use of capital 
 are present in large-scale production. A large concern 
 can hire more expensive and better managers, can afford 
 to experiment with new methods, can effect a more mi- 
 nute and economical division of labor, as for example in 
 the slaughtering business above referred to. A striking 
 economy can also be effected in the utilization of what 
 were formerly waste products, and still are in small con- 
 ceras. This has been carried furthest in the oil-refining 
 and meat-packing industries ; a recent statement of Swift 
 & Company, for instance, alleged that the dividends on 
 the stock were paid out of the by-products, such as neats- 
 foot oil, land fertilizer, glue, fats, etc. Owing, however, 
 to the generally wasteful methods prevailing in the 
 United States, not so much attention has been given to 
 this point as in England and Germany. A final economy 
 which can be secured by a large business may be men- 
 tioned, namely, carrying on allied or subsidiaiy proc- 
 esses. Thus the Standard Oil Company builds its o^^^l 
 pipe lines, makes its own barrels, tin cans, pumps, tanks, 
 sulphuric acid, etc. 
 
 Widening of the Maejket 
 
 Such an extension in the size of the single establish- 
 ment would not of course have been possible if improve- 
 ments in the arts of communication and transportation 
 had not at the same time immensely widened the market. 
 As long as the market was local and a factory could af-
 
 58 Business Economics 
 
 ford to send its goods over only a limited territory, there 
 was of course a fixed limit to the expansion of that indus- 
 try. Now, however, when markets are often world-wide 
 and the demand for goods has so enormously increased, 
 when the modem railway and steamship can transport 
 goods cheaply and quickly half around the globe, enter- 
 prises can be expanded and conducted on a scale commen- 
 surate with the expanded market and improved methods. 
 It is clear then that the tendency to production on a 
 large scale is the logical result of machine methods, that 
 it secures great economies, and that in industries of in- 
 creasing returns it is absolutely inevitable. 
 
 Concentration in Other Industries 
 
 But not only in manufacturing is this movement ob- 
 servable. More recently concentration in large establish- 
 ments has revolutionized the retail trade. Department 
 stores have supplanted the small shops because they can 
 buy on better terms, get cheaper transportation, offer a 
 greater variety to the customer at a lower price, and save 
 him time as well as trouble. The growing ease of 
 communication with central shopping districts, the rapid 
 changes in fashion with the consequent large variety 
 which only a large establishment could afford to carry — 
 all these factors have helped the movement along. There 
 are limits to such a movement, for small tradesmen will 
 always hold the repairing trades and the sale of perish- 
 able goods; thus there are no businesses so scattered as 
 the small stores of the butchers and the grocers. But on 
 the whole we may safely conclude that the small store- 
 keeper is doomed now just as the small manufacturer 
 was two or three decades ago. In the carrying trade 
 country carriers and a few cabmen in the cities are the 
 only survivals of the small independent business; the
 
 Capitalistic Production 59 
 
 steam railroad and the electric railway have driven the 
 small carrier out of business. In agriculture alone, 
 where concentration is strictly limited by the necessity 
 for intensive cultivation, and in professional and per- 
 sonal service, where the very nature of the business pre- 
 vents it, there is little or no development in the direction 
 of large-scale methods. 
 
 Effects of Industeial CoNCENTRATioisr 
 
 The industrial and social effects of this development 
 have been marked in all countries. In the United States 
 the main attention has been given to the organization and 
 development of machinery, and a wonderful industrial 
 advance has followed the movement. The economic read- 
 justments have consequently been made with comparative 
 ease, and the labor set free by the invention of new ma- 
 chines has been reabsorbed in the same or other indus- 
 tries. Consequently the social effects have not been so 
 marked as to call for special emphasis. As the same ques- 
 tion presents itself, however, in connection with the more 
 recent trust movement we may profitably defer its dis- 
 cussion to the next section. 
 
 Standardization 
 
 There is one other characteristic feature of modem 
 capitalistic machine industry wliich deserves special 
 mention, especially as its development has been carried 
 furthest in the United States. Reference is made to the 
 system of stardardization and of interchangeable parts. 
 In no single feature is the contrast between modern ma- 
 chine methods and those of the old hand trades greater. 
 By standardization is meant the production of so-called 
 ** standard products" according to some acceptable size, 
 form or shape. In the manufacture of screws or iron
 
 60 Business Econoynics 
 
 beams or even ready-made clothing, for example, certain 
 dimensions and sizes which are best adapted for general 
 use are selected as standard sizes and these are then 
 turned out in large quantities by automatic machinery. 
 The advantages of such a system, in cheapness, quickness 
 of delivery, ability to replace a single broken part, etc., 
 are numerous and manifest. 
 
 The possibilities of standardization are strikingly shown in 
 a recent international incident. The Egyptian Government 
 desired a bridge for the Atbara at the earliest possible moment ; 
 inquiry was made of the English bridgeraakers, but no promise 
 of prompt delivery could be secured. Within twenty-seven days 
 after the tender of the contract was made to an American firm 
 the bridge was ready fo-r shipment. The feat, not a remarkable 
 one, was due to the standardization of bridge material. This 
 in itself was a guarantee of quick delivery and construction.^ 
 
 Interchangeable Paets 
 
 Standardization was followed by the system of inter- 
 changeable parts, according to which each part of an in- 
 tricate machine or product is made exactly like the same 
 part in every other machine. The parts can thus be 
 turned out in large quantities and assembled at a single 
 operation. From the standpoint of the consumer or user 
 of the machines thus made, the great merit of the system 
 lies in the fact that he can quickly and at small expense 
 duplicate any broken part. It is today applied to almost 
 every product of large consumption, from agricultural 
 implements and steam engines to watches and nails. By 
 producing machinery on this plan it has been possible for 
 American manufacturers to extend their trade very ma- 
 terially in foreign lands. The newspapers once reported 
 that Mr. E. H. Harriman had expended $65,000,000 in 
 
 2 McVey, Modern Industrialism, p. 145.
 
 Capitalistic Production 61 
 
 standardizing the equipment on his railroad systems; 
 while this sum is enormous, it was undoubtedly justified 
 by the increased economy in repairs and operation. 
 
 TEST QUESTIONS 
 
 1. What is really meant by capital as used in modern in- 
 dustry ? 
 
 2. How may capital be increased? 
 
 3. "What five causes does the census report give for the rapid 
 industrial development in the United States? 
 
 4. "What definition has Carroll D. Wright given of a factory ? 
 
 5. Illustrate the two meanings which the words "division of 
 labor" may indicate. 
 
 6. How does division of labor bring about the introduction 
 of labor-saving machinery? 
 
 7. What are some of the economies of large-scale production? 
 
 8. What are some of the effects of industrial concentration? 
 Illustrate. 
 
 9. How does standardization assist modern production? Give 
 an example of standardization.
 
 CHAPTER V 
 trusts and monopolies 
 
 The Combination Movement 
 
 We have already seen how production upon a large 
 scale has superseded production upon a small scale in 
 most important branches of manufactures. We have now 
 to inquire whether production upon a large scale is in 
 turn to be supplanted by single consolidated enterprises, 
 by those combinations of capital known as trusts. Under 
 one of these three conditions industry must be carried 
 on. Few people wish to revert to the stage when produc- 
 tion was carried on in small establishments, but warm 
 controversy and difference of opinion still exist as to 
 whether centralized management by a single company or 
 combination offers superior advantages to production by 
 independent competing establishments. The concentra- 
 tion of production in a few large establishments has been 
 followed by the consolidation of these larger units into a 
 single whole. 
 
 Since the days of Adam Smith capital has tended to 
 combine for the purpose of fixing prices, and these com- 
 binations have passed through several phases. The ear- 
 liest form is the agreement of independent concerns to 
 fix prices, as was done by the American railroads in their 
 early traffic agreements. The next step was to divide 
 the field, as has been done by the French railways and 
 the American express companies. A third phase of com- 
 
 62
 
 Trusts and Monopolies 63 
 
 bination was the pool, which attempted to regulate the 
 output rather than to fix the price or divide the field. 
 Railway, whisky, beam and other pools were organized 
 for this purpose, but all broke down because of the diflS- 
 culty of enforcing the agreement and the temptations to 
 each member to break it secretly for the sake of the large 
 profits obtainable. By this time it had become clear that 
 if a real permanent consolidation of interests was to be 
 secured by the competing enterprises, some closer form 
 of combination must be devised which could not be broken 
 at will by any member. An industrial union and not a 
 loose confederation must be attained. 
 
 Accordingly the next step was taken in 1882 by the 
 formation of the Standard Oil Trust, so called because 
 the constituent concerns handed over their business to 
 the complete control of a central board of trustees, receiv- 
 ing in return trust certificates which entitled them to 
 dividends. Similar trusts were formed in the whisky, 
 sugar, and other industries, but were speedily declared 
 illegal by the federal Supreme Court. By this decision 
 the form of combination was changed, but the movement 
 itself was not at all checked. 
 
 The next phase and the last was the establishment of 
 holding corporations, which are organized to buy up and 
 hold a majority of the stock of a number of individual 
 corporations, wliicli still retain their corporate existence. 
 In this way unity of control is secured, to which is added 
 a certain flexibility; but it is really the trust under an- 
 other legal form. Where pooling and combination by 
 means of holding companies have been forbidden by law, 
 as in the case of railroad companies, actual consolidation 
 has often taken place, though when trusts are spoken of 
 the other form of combination is more often meant. From 
 the point of view of business organization the holding
 
 64 Business Economics 
 
 company is simply an extension of the principle of the 
 corporation, and to a consideration of this we must there- 
 fore turn. 
 
 Individual and Paetnership Oeganization 
 
 There are three classes of establishments by which in- 
 dustry is carried on — those which are the property of an 
 individual, those which belong to partnerships or firms of 
 unlimited liability, and those which belong to corpora- 
 tions of limited liability. The usefulness of the individ- 
 ual system is of course limited to small undertakings, 
 where but little capital and credit are necessary; this 
 form of organization still dominates the field in agricul- 
 ture, in the small retail trade, and in the repairing indus- 
 tries. The partnership is a joint undertaking by two 
 or more individuals and makes larger enterprises possi- 
 ble, but as each individual is liable for all obligations of 
 the firm or his partners his personal liability is greatly 
 increased. It is well adapted to certain undertakings, 
 such as moderate-sized mercantile establishments and 
 professional firms, owing to a certain elasticity in the 
 contractual relations of its members, but it is not suited 
 to large industrial ventures, both because of the excessive 
 personal liability and because of the necessity of dissolv- 
 ing the partnership upon the death, withdrawal, or in- 
 solvency of any member. 
 
 CORPOEATIONS 
 
 The advantage of the corporation lies in the fact that 
 it has a continuous existence, and that the liability of the 
 shareholders is limited to the amount of capital actually 
 contributed by each ; it is well adapted to modern enter- 
 prise because it permits the summation of large amounts 
 of capital from a number of small savers and centralizes
 
 Trusts and Monopolies 65 
 
 the use of this capital in the most economical manner. 
 There may thus be concentration of management without 
 concentration of ownership. The federal census report 
 on manufactures in 1910 showed that, although only one- 
 fourth of the manufacturing establishments were organ- 
 ized as corporations, yet they produced 79 per cent of 
 the total manufactures in money value. The relative 
 number of corporate enterprises showed an increase of 
 nearly 100 per cent over that of 1900. In the field of 
 transportation, corporations are in almost exclusive 
 control. Most banks and insurance companies are organ- 
 ized under this form, while mercantile and industrial 
 undertakings are being more and more generally organ- 
 ized as corporations. Not merely are most of our busi- 
 ness enterprises being conducted under corporate form 
 and organization, but most recently, as has been already 
 pointed out, there has been a movement to combine indi- 
 vidual corporations into larger concerns, or trusts. The 
 trust is usually thought of as a monopoly and, while not 
 necessarily so, it usually does exercise monopoly control ; 
 but for the present we shall consider the trust problem 
 from the standpoint of business organization, deferring 
 to the end of the section the discussion of monopoly. 
 
 Trusts 
 
 The trust movement may be said to have begun with 
 the formation of the Standard Oil Trust in 1882, but 
 down to 1898 its progress was slow. Beginning with the 
 revival of prosperity in 1898, however, there ensued a 
 veritable stampede of business managers to enter into 
 combinations. During the next three years 149 large 
 combinations, with a capital of over $3,000,000,000, were 
 formed. The movement spent most of its force by 1902, 
 though it is by no means at an end yet. A few figures
 
 66 
 
 Business Economics 
 
 from reliable authorities will make clear tlie extent of the 
 movement. According to the New York Journal of Com- 
 merce, industrial (that is, manufacturing and commer- 
 cial) and gas trusts were organized in the United States 
 between 1860 and 1900, not including combinations in 
 banking, shipping, railroads, etc., as shown in the accom- 
 panying table : 
 
 Decade 
 
 NtJMBEB 
 
 Okganized 
 
 Total, Nominal Capital 
 
 1860-69 
 1870-79 
 1880-89 
 1890-99 
 
 2 
 
 4 
 
 18 
 
 157 
 
 $ 13,000,000 
 
 135,000,000 
 
 288,000,000 
 
 3,150,000,000 
 
 Total, 40 years 
 
 181 
 
 $3,586,000,000 
 
 Another more recent list bj^ John Moody ^ gives the 
 number of industrial trusts organized down to January 
 1, 1904, as 318; these have acquired or control 5,288 
 plants and have a total nominal capital of $7,246,342,533. 
 A movement so general and widespread and of such 
 gigantic proportions must have had some powerful and 
 intelligible causes behind it. For it was not confined to 
 the United States, but was equally observable in such 
 industrially diverse countries as England, France, Ger- 
 many, Russia, and other European nations. 
 
 Causes of the Teust Movement 
 
 The most important and general cause was the desire 
 to secure the legitimate economies of large-scale produc- 
 tion. A combined or federated industry may secure even 
 
 1 The Truth Ahout the Trusts, p. 469.
 
 Trusts and Monopolies 67 
 
 greater economies than a single large factory. These 
 have been concisely stated as follows : ^ 
 
 The cost of management, amount of stock carried, advertising, 
 cost of selling the product, may all be smaller per unit of 
 product. A large aggregation can control credit better and 
 escape loss from bad debts. By regulating and equalizing the 
 output in the different localities, it can run more nearly full 
 time. Being acquainted with the entire situation it can reduce 
 the friction. A strong combination has advantages in shipment. 
 It can have a clearing-house for orders and ship from the near- 
 est source of supply. The least efficient factories can be first 
 closed when demand falls off. Factories can be specialized to 
 produce that for which each is best fitted. The magnitude of 
 the industry and its presence in different localities strengthens 
 its influence with the railroads. Its political as well as its 
 economic power is increased. 
 
 Economies in Marketing 
 
 Many of these economies of production are not new to 
 these trusts, but have been secured equally by large-scale 
 manufacturing establishments. Some of the savings, 
 especially in buying raw material and marketing their 
 products, are peculiar to the trusts and mark a more ef- 
 ficient mode of organization than mere concentration of 
 industry in single large establislmients. Thus it has 
 been found possible to dispense with a great number of 
 traveling salesmen, of whom it was said that 30,000 lost 
 their positions in the year 1898 alone. ^¥lien the whisky 
 trust was formed only twelve of the eighty distilleries en- 
 tering into the combination were kept running, but as 
 these were the largest, best located, and best equipped, 
 and were run at their full capacity, they were able to turn 
 out as much as all had done before and at an immense 
 
 2 Fetter, Principles of Economics, p. 321.
 
 68 Business Economics 
 
 economy. The saving of cross freights by having an 
 order filled from the plant most conveniently located is 
 considerable; Mr. Gates estimated the saving of the 
 American Steel & Wire Company in this single point at 
 $500,000 a year. Such an economy could not be secured 
 by a single establishment, no matter how well organized 
 or on how large a scale. 
 
 Economies in Integration 
 
 The specialization of particular factories to do special 
 processes is well illustrated by the organization of the 
 United States Steel Corporation. The growth of this 
 combination is an example not only of consolidation, but 
 of the integration of industry, that is, the grouping to- 
 gether under one control of a whole series of industries, 
 including the economical use of by-products. From the 
 mining of the ore and coal, through the processes of car- 
 rying it to the furnaces, coking the coal and making the 
 pig iron, manufacturing the latter into the finished forms 
 of iron and steel products, and down to the marketing of 
 the latter, every step is carried on under the control of 
 the United States Steel Corporation. The assets of the 
 company were stated as follows soon after its organiza- 
 tion, and they illustrate the magnitude and scope of its 
 operations : 
 
 Iron and Bessemer ore properties $ 700,000,000 
 
 Plants, mills, machinery, etc 300,000,000 
 
 Coal and coke fields 100,000,000 
 
 Eailroads, ships, etc 80,000,000 
 
 Blast furnaces 48,000,000 
 
 Natural gas fields 20,000,000 
 
 Limestone properties 4,000,000 
 
 Cash and cash assets 148,251,000 
 
 Total $1,400^51,000
 
 Trusts and Monopolies 69 
 
 The Intluence of Promoters 
 
 In addition to economies due to improvements in meth- 
 ods of organization, production, and marketing, another 
 cause for the sudden and vigorous outburst of trust pro- 
 motion in the years 1898-1902 may be found in the profits 
 to be secured by promoters and organizers. After the 
 successful launching of the first few trusts, with their un- 
 doubted economies and advantages, the movement was 
 taken in hand by professional promoters, who organized 
 combinations, often with the help of underwriters, in 
 every branch of industry where there was any promise 
 of profit. That many of these were artificial or prema- 
 ture is evident from the financial results. Of the 183 
 industrial combinations eniunerated by the census in 
 1900, one-third paid no dividends whatever after their 
 formation and another one-third paid no dividends to the 
 holders of common stock. 
 
 As an indication of the profits obtained by the success- 
 ful trust promoter may be cited the testimony given be- 
 fore the Industrial Commission in the case of the Tin 
 Plate Trust, stating that this promoter realized from 
 $2,000,000 to $3,000,000 profit from the undertaking. 
 When to this is added the profit obtained by the owners 
 of the constituent plants, which were usually taken over 
 by the trust at an exorbitant valuation, it is clear that 
 the stimulus of financial gain was probably stronger in 
 many cases than that of economy in production. The bill 
 was of course paid in most cases by the investing public, 
 which absorbed large amounts of industrials in the years 
 of their active promotion. 
 
 Miscellaneous Causes of Trusts 
 
 Other causes have sometimes been adduced to explain 
 the growth of combinations, such as the tariff and rail-
 
 70 Business Economics 
 
 road freight discriminatiorLS, but these are too local in 
 their influence to explain adequately the world-wide 
 movement toward combination. Trusts exist in free- 
 trade England, and in Germany where freight discrimi- 
 nations on the state-OTSTied railroads are practically un- 
 kno^ATi. It is, however, true that in the United States 
 both these factors have been of decisive importance in 
 building up certain powerful trusts. The conservative 
 report of the Industrial Commission states as follows: 
 
 There can be no doubt that in early times special favors from 
 railroads were a prominent factor, probably the most important 
 factor, in building up some of the largest combinations. The 
 receipt of discriminating favors from railroads has been con- 
 ceded repeatedly by representatives of the combinations them- 
 selves. 
 
 The Standard Oil, beef, coffee, steel, and other trusts 
 may be cited as illustrations. In the matter of the tariff 
 Mr. Havemeyer's statement that ''the mother of all 
 trusts is the customs tariff law" may be set down as the 
 rather peevish utterance of a disappointed beneficiary; 
 but there is no doubt that combination has been made 
 easier behind the tariff wall, for instance, the sugar trust 
 itself, the leather, steel, tin plate, and others. 
 
 Still other causes which have aided the trust movement 
 are such factors as patents, the T\^deniiig of the market, 
 and fluctuation in industry. That patents have aided 
 the formation of trusts is well illustrated in the telephone 
 business. All governmental privileges are apt to favor 
 the combination movement. Through the invention and 
 practical application of improvements in transportation, 
 refrigeration, communication, credit facilities, and so on, 
 not only have opportunities been created for the forma- 
 tion of trusts in these lines, but the markets of the world
 
 Trusts and Monopolies 
 
 71 
 
 t. VALUE OF PRODUCTS FOR LEADING INDUSTRIES: 1909 AND 1899 
 
 MILLIONS OF DOLLARS 
 ■00 rao 
 
 MCAT PAMIHO 
 
 rovmnt and MACHinc-aHOM 
 
 LUMSefl 
 
 eTCEU ROLLINO MILLS 
 
 FLOm-MILI,* 
 
 mmTINO AND Pt/BLI9HIN0 
 
 COTTON 60009 
 
 •LOTHINO, MEN * 
 
 BOOTS AND SH0C9 
 
 HVOOLEN 00009 
 
 TOOACCO 
 
 RArLROAO SHOPS 
 
 BAKERtES 
 
 BLAST FWRNACtS 
 
 CLOTHINO. WOMBN-S 
 
 COPPER »MCLTINa 
 
 ligUORS, MALT 
 
 LMTHen 
 
 (UOAR ANB WOLASSCS 
 
 BMTTBR AND CHtCSC 
 
 PAPER AND PULP 
 
 MITOMOeiLES 
 
 PVRWTURC 
 
 PETROLEUM. RCPININQ 
 
 ELECTRICAL APPAa*TU( 
 
 LIQUORS. DISTILLED 
 
 K|gT OOOOS 
 
 CBWSR. TIN. AND »««ETJROM 
 
 •ILK OOOOS 
 
 LBAO SMELTING AND RrPmiNQ 
 OAB. ILLUM.AND HEATINO 
 
 •ARRIAGES AND WA00N8 
 
 OANNINO AND PRE6ERVIN0 
 
 DAA6S AND BRONZE 
 
 OIL, COTTONSEED. AND CAKt 
 
 AGRICULTURAL IMPLEMENTS 
 
 PATENT MEDICINES 
 
 CONFECTIONERY 
 
 RUBBER GOODS 
 
 rOOO PREPARATIONS 
 
 MINT AND VARNISH 
 
 CADS, iTEAKMIAIUIOAO 
 
 CHEMIOALS 
 
 MARSLC AND tTant 
 
 soAr 
 
 eoFFtt AND emcM 
 
 LIATMIR OOOOS 
 rMTILlZMS 
 
 Fig. 8.— These Tables Show 
 
 tion 
 
 United States Census 
 the Relative Importance of Industries in Rela- 
 to the Trust Movement
 
 72 Business Economics 
 
 were opened and invited selling on a large scale. Mar- 
 keting often lends itself even better to centralized control 
 than production. For this reason the expansion of 
 the market must be counted as one of the factors in the 
 modern trust movement. 
 
 Fluctuations in industry usually aid combinations in 
 competitive businesses in two ways. In the first place 
 they are apt to force the weaker concerns to the wall, 
 while the stronger can best survive the irregularities in 
 supply and demand. Following the adjustment which 
 takes place after every fluctuation, the stronger busi- 
 nesses are better able to take advantage of new oppor- 
 tunities and thus increase their economic position. In 
 the next place fluctuations in industry encourage trusts 
 because only by widespread co-operation can the amount 
 of production be regularly adapted to the demand, and 
 the demoralizing effects of over-production avoided. In 
 this connection one should remember that the essence of 
 all monopoly is control over supply. 
 
 Economic Effects of Trusts 
 
 Let us now turn to some of the effects of industrial 
 combinations, which we may classify according as they 
 bear upon competitors and producers of raw materials, 
 labor, and consumers. As the number of competitors is 
 reduced, the fierceness of competition among those re- 
 maining in the field is greatly increased, for the value of 
 the prize to the successful enterprise is correspondingly 
 greater. It is not surprising therefore that at times this 
 rivalry should have assumed unethical if not actually il- 
 legal forms. The practice by some trusts of fixing prices 
 below cost at some strategic point in order to crush out a 
 troublesome competitor, and then correspondingly rais- 
 ing them elsewhere so as not to sustain any loss, is seri-
 
 Trusts and Monopolies 73 
 
 ous because so subtle. Professor John B. Clark regards 
 this as so serious an evil that he would have the Constitu- 
 tion amended in order that power might be given the 
 federal government to prevent it. 
 
 The producers of raw materials, such as cattlemen, 
 crude oil and coal producers, sugar and tobacco growers, 
 and others, complain that the prices at which they sell 
 their products are dictated to them by the trusts, which 
 are practically the sole purchasers of what they have 
 produced. They claim that prices are depressed to the 
 lowest point possible and that every gain from increase 
 of demand goes into the pockets of the trust managers. 
 It may of course be answered that the trust cannot de- 
 press prices below the point at which a living profit can 
 be secured by the producer of the raw material or he 
 will stop producing; but there is no doubt that the 
 monopoly power possessed by the trust in such cases will 
 sometimes be used to the disadvantage of those for whose 
 product it alone offers a market. 
 
 Trusts and Labor 
 
 The effects upon labor of the organization of capital 
 in combined industries and under centralized control are 
 more complex. As trusts have superseded single corpo- 
 rations because this mode of industrial organization was 
 more economical, we must expect to find that one of the 
 economies was the displacement of labor. The discharge 
 of traveling salesmen has already been spoken of; with 
 the consolidation of various plants under one control 
 other high-priced men were let go — managers, superin- 
 tendents, etc. The same thing was true at the other end 
 of the industrial scale and thousands of workmen, usually 
 the least efficient and capable, were deprived of work. 
 The natural consequences of these combinations and
 
 74 Business Economics 
 
 economies were not clearly apparent at the time, because 
 they were happily coincident with a period of business 
 expansion and prosperity which reabsorbed into the in- 
 dustrial organism most of the displaced workers. 
 
 Another phase of the relation between trusts and labor 
 is that of their effect upon wages. In general it may be 
 said that there are only two sources out of which an in- 
 crease of wages can be paid, and these are the profits of 
 the business organizer and manager or the increased 
 product of the business itself. Of these two only the 
 latter can serve as a permanent source of higher wages. 
 Now it is pretty evident that labor has not been in a 
 position to force the trust magnates to forego their prof- 
 its. On the other hand, wages in industries carried on 
 by industrial combinations have risen, and it must 
 therefore have been because there was more produced 
 and consequently more to be divided. If the inefficient 
 workers were discharged and only the best ones retained 
 by the trusts, here is one explanation of why they could 
 afford to pay high wages — they paid more because they 
 got more done. As yet labor has not admitted that it is 
 unable to cope with these industrial combinations ; it has 
 demanded, however, that it be allowed to combine on a 
 national scale and to bargain collectively with combined 
 capital on behalf of united labor. 
 
 Monopoly Control and Prices 
 
 The discussion of the effects of trusts upon the con- 
 sumer leads at once to the discussion of their effects upon 
 prices, for it is through the agency of price that the trust 
 touches the ordinary man. The advantages claimed by 
 trust organizers are economies of production and lowered 
 cost; but the ^n.tal question to the consumer is whether 
 lowered cost increases profits or reduces prices. On this
 
 Trusts and Monopolies 75 
 
 point the Industrial Commission reaches the following 
 conclusion : 
 
 In most cases the combination has exerted an appreciable 
 power over prices, and in practically all cases it has increased 
 the margin between raw materials and finished products. Since 
 there is reason to believe that the cost of production over a 
 period of years has lessened, the conclusion is inevitable that 
 the combinations have been able to increase their profits. 
 
 Moreover the power over prices was greatest during 
 certain periods when the control of the combinations 
 was greatest. The problem therefore resolves itself into 
 the question: Are trusts monopolies"? While a categori- 
 cal answer cannot be given to this, it may safely be af- 
 firmed that all trusts try to be monopolies. Nor is it 
 necessary to control absolutely the production, sale, or 
 purchase of a commodity in order to exercise monopoly 
 power ; the control of 50 or 60 per cent may suffice to se- 
 cure virtual monopoly. The purpose of a monopoly is so 
 to fix the price that it will obtain the maximmn net profit. 
 It is conceivable that this result may be attained by low- 
 ering the monopoly price below the point of the competi- 
 tive price, but this is unusual. In general a monopoly 
 price has meant a high price, and a high price has meant 
 a restriction of the output. Where that has been the re- 
 sult of trust control, society has been injured, for not only 
 has it not shared in the economies of production, but it 
 actually gets less and has to pay more than it would have 
 done under competition. 
 
 It may be said, however, that even in the case of the 
 greatest monopoly there is always the specter of poten- 
 tial competition threatening its profits, while the possibil- 
 ity of substituting some other commodity for the mo- 
 nopolized article protects the consumer from too great
 
 76 Business Economics 
 
 extortion and keeps the price within limits. Absolute 
 control over price is never exercised by any monopoly. 
 Nevertheless, we may fairly conclude, in the words of 
 Henry D. Lloyd, that '* monopoly is business at the end 
 of its journey"; control over prices is the object of 
 combination. 
 
 Monopoly and Indtviduax, Opportunity 
 
 There remains to be considered another charge of mo- 
 nopoly which has been brought against the trust, the mo- 
 nopoly of opportunity or the suppression of individual 
 initiative. It is no longer possible, it is claimed, for the 
 man of small means, even with good talents, to engage in 
 business for himself; he must accept some subordinate 
 position in a corporation where his individuality is 
 checked and his power of initiative does not find free 
 play. So far as this is true it would seem to be the result 
 not so much of the trust movement as of large-scale pro- 
 duction. We have seen that the tendency of machine pro- 
 duction is to enlarge the business unit and to call for the 
 investment of constantly larger amounts of capital in up- 
 to-date establishments. Some writers even, point out that 
 the average business man who engages in business on his 
 own account fails, and that he should therefore be grate- 
 ful if more efficient producers offer him a remunerative 
 and steady salaried position. Without insisting upon 
 this point, we may remark that there are still large fields 
 of enterprise lying outside the area of monopolistic 
 control. 
 
 Large-scale production is best adapted to articles that can be 
 turned out in large quantities according to uniform patterns 
 and standards; individual initiative is still free in those lines of 
 production that call for artistic ability or appeal to individual
 
 Trusts and Monopolies 77 
 
 tastes, or which, like agriculture, are dependent upon variable 
 conditions.^ 
 
 Monopoly Evils 
 
 There are, however, other evils connected with trust 
 organization and management that are more easily reme- 
 diable and that call for legislative regulation. *'Tbe 
 evils of combination, remedied by regulative legislation, ' ' 
 concludes the report of the Industrial Commission,^ 
 ''come chiefly from two sources: (1) the more or less 
 complete exercise of the power of monopoly; (2) decep- 
 tion of the public through secrecy or false information. ' ' 
 Various remedies have been suggested to meet the first 
 class of evils, those of monopoly, generally in the direc- 
 tion of strengthening the powers of the federal govern- 
 ment. We have however no lack of legislation on this 
 subject already. Thirty-four states and territories have 
 passed anti-trust laws, and the federal Anti-Tinist Law 
 of 1890 explicitly provides that "every contract, combi- 
 nation in the form of a trust or otherwise, or conspiracy 
 in restraint of trade or commerce among the several 
 states, or with foreign nations, is hereby declared il- 
 legal." The severe restrictive measures of the states 
 have been largely nullified by the loose legislation of 
 three or four ''charter-granting" states, in which 95 per 
 cent of all the trusts have accordingly been chartered, 
 while the federal enactments have been found very diffi- 
 cult to enforce. It is not easy to define or to prove mo- 
 nopoly or conspiracy in restraint of trade. 
 
 The second class of evils has been met by statutes re- 
 quiring publicity and more definitely fixing the responsi- 
 bility of corporation officials. Such measures of control 
 
 8 Bogart, Economic History of the United States, p. 412. 
 4 VoL XIX, p. 645.
 
 78 Business Economics 
 
 must be the first step toward intelligent regulation and 
 are to be commended as thoroughly reasonable. The es- 
 tablishment of the federal Bureau of Corporations with 
 power to ''investigate" industrial corporations engaged 
 in interstate commerce has already led to the publication 
 of some valuable reports. We must first proceed along 
 the lines of publicity and intelligent information before 
 we attempt more drastic remedies. The monopoly evils 
 of trusts will probably be controlled more and more by 
 state and national industrial commissions with powers 
 similar to those of the Interstate Commerce Commission. 
 The federal Trade Commission, organized in 1915, has 
 been created for this purpose. 
 
 TEST QUESTIONS 
 
 1. Account for the development of the combination movement 
 in modern industry. 
 
 2. Enumerate the phases through which combiaations for the 
 purpose of fixing prices have passed. 
 
 3. What have been some of the chief causes of the trust move- 
 ment ? 
 
 4. How does the combination movement bring about economies 
 in marketing? 
 
 5. What is meant by integration? What has been its influ- 
 ence upon the combination movement? 
 
 6. What are some of the benefits to be derived from the trust 
 movement? 
 
 7. How is the trust problem related to the labor problem? 
 
 8. What are the peculiar dangers which result from monop- 
 oly in industry? 
 
 9. How are governments attempting to control the mojiopoly 
 evil ? 
 
 10. What is a holding company? How is centralized control 
 secured through this device?
 
 CHAPTER VI 
 speculation and crises 
 
 Speculative Risks in Industey 
 
 An unavoidable element of risk enters into all modern 
 business. In the old handicraft stage of industry goods 
 were made upon order; demand preceded supply very 
 definitely, and there was little possibility of mistakes in 
 production. Nowadays, as we have seen, production is 
 for a distant and often uncertain market. It is carried 
 on by machine methods and roundabout processes ; some- 
 times the result is a very remote one and the uncertainty 
 of success is correspondingly great. Production is not 
 based upon order, but upon a forecast of the possible 
 demand, upon a future market. 
 
 Chance and change are inseparable from productive 
 enterprise — natural chances from the elements, political 
 changes, such as war or unfavorable legislation, indus- 
 trial mistakes, sickness or death of oneself or others, and 
 economic changes, like the invention of a new machine 
 or a change in fashion. These are the unavoidable inci- 
 dents in industry and are not under the control of the 
 individual business. Some of them, however, are so regu- 
 larly recurrent that they can be foretold on a large scale 
 for any industrial society and can be guarded against by 
 insurance. Everyone recognizes the desirability of hav- 
 ing such risks as those of fire, shipwreck, lightning, death, 
 etc, assumed by certain individuals or companies who 
 
 79
 
 •80 Business Economics 
 
 make a business of such risk-taking. A small premium is 
 paid by the individual for protection against anxiety due 
 to fear of mischance, and he is able to devote his whole 
 energies and capital to his business; the insurance com- 
 pany has specialized in this one department and by 
 equalizing the chances over a wide field has practically 
 eliminated them. In doing this it performs a service of 
 recognized and undoubted social value. 
 
 Function of the Speculator 
 
 There is another kind of risk-taking, the social utility 
 of which is not at first sight so clear. Among the chances 
 of productive enterprise are those due to the rise and fall 
 in the prices of the raw materials, the labor, and the fin- 
 ished product between the time when the process of pro- 
 duction is begun and the time when it is completed. 
 Every farmer, every manufacturer, every student even 
 who invests capital in his own education, is to some ex- 
 tent a speculator. Along certain lines he can protect him- 
 self by insurance, but that is not possible in all. Is there 
 no way, then, by which he can guard himself against price 
 fluctuations and assure himself of the legitimate gains of 
 his business? This, it may be answered, is the function 
 of the speculator in modern business, and in performing 
 this service he is benefiting society in much the same way 
 as the insurance company does. We must, however, 
 clearly distinguish between legitimate and illegitimate 
 speculation; we are discussing only the former. 
 
 Services of Stock and Produce Exchanges 
 
 One way in which the speculative risk attaching to 
 price fluctuations is reduced for the manufacturer and 
 assumed by the speculator is by the establishment of a 
 continuous open market, like the stock arid produce- ex-
 
 Speculation and Crises 81 
 
 changes. If a miller, for instance, engages to deliver 
 flour a year hence and expects to begin milling in six 
 months, he must know at what price he can buy his wheat 
 when he needs it, or his anticipated gain may be turned 
 into a loss by an unexpected rise in the price of wheat. 
 He is able, however, to buy a future in wheat on the pro- 
 duce exchange from some broker who makes a specialty 
 of this business. He buys his needed wheat now for de- 
 livery six months hence, and on the basis of this price is 
 able to accept an order for his flour a year from now, al- 
 lowing himself a fair profit as a miller but wholly elimi- 
 nating the speculative risk of price fluctuations. Or a 
 building contractor, before making an estimate of the 
 cost of erecting a structure, will secure options at definite 
 prices from dealers on the materials he will require. So, 
 too, in the iron and steel business it is customary for man- 
 ufacturers to contract in advance for materials at the 
 same time that they accept orders for the delivery of the 
 finished products. 
 
 In all these cases the business of dealing in futures 
 is assumed by a particular class of people who have de- 
 veloped a special skill and ability in forecasting price 
 variations and who can do so very accurately. It is not a 
 matter of luck or chance, but the result of wide knowl- 
 edge and careful study. ' ' To foretell the price of wheat 
 one must know the rainfall in India, the condition of the 
 crop in Argentina, must be in touch as nearly as possible 
 with every unit of supply that will come into the market. ' ' 
 Sometimes the speculators make mistakes, but they are 
 certainly less apt to do so than men who are without 
 their special talent and training. 
 
 Benefits of Speculation 
 
 The social value of this service lies in the equalization 
 of demand and supply between the present and future
 
 82 Business Economics 
 
 that is thereby effected. Let us take as an illustration the 
 case of the miller cited above. If the price of wheat is 
 high at the time he accepts the order for flour, he will be 
 inclined to charge a high price. But the wheat broker, 
 foreseeing that there is going to be an abundant crop six 
 months hence, engages to sell him his wheat for future 
 delivery at a low price, and he is thereby enabled to sell 
 his flour at a lower price. At the same time the price of 
 the wheat on hand at the present time, instead of being 
 held and sold at famine prices, is consumed for present 
 needs at moderate prices. 
 
 The operations of the wheat brokers in such a case 
 have a very steadying influence on prices, preventing the 
 oscillation between very high prices in times of scarcity 
 and very low prices in times of glut. It must be admitted 
 that dealings in futures are highly speculative; "but it 
 must be remembered that it is not merely the dealings in 
 futures, but the future itself, that is uncertain. If such 
 dealings can be confined to the men most competent to 
 make accurate predictions, their tendency will clearly be 
 to lessen the uncertainties of business." ^ 
 
 But closely connected with legitimate speculation or 
 risk-taking by a specialized and trained class, there is, as 
 our stock and produce exchanges are actually conducted, 
 a large amount of illegitimate speculation, and to this 
 we mav now turn for a brief consideration. 
 
 Illegitimate Speculation 
 
 The facilities offered by the open markets on the ex- 
 changes and the practice of dealing in futures are taken 
 advantage of by many who, without any special training 
 or opportunities of knowing the market, simply bet on the 
 
 1 Seager, Introduction to Economics, p. 176.
 
 Speculation and Crises 83 
 
 price movements. Brokers are willing to buy and sell 
 produce or stocks for their customers if the latter will 
 put up with them a margin of about 10 per cent to protect 
 them from loss. It is therefore possible for a person 
 with little capital and no knowledge to speculate on a 
 margin, buying what he does not want and selling what 
 he does not own. In practice it is impossible to distin- 
 guish between those dealings in which actual delivery is 
 intended (legitimate speculation) and those in which 
 no such delivery is contemplated (gambling), and conse- 
 quently most efforts to regulate transactions on the ex- 
 changes have failed to accomplish their purpose. The 
 purification of their methods would seem to lie with the 
 members of such exchanges themselves. 
 
 The contention has often been made that these fictitious 
 transactions in such commodities as wheat or corn or 
 cotton create an artificial reduction in prices, since the 
 professional gambler usually sells short or "bears" the 
 market, and that this injuriously affects the farmer. 
 This is manifestly untenable, since every fictitious sale 
 must be balanced by a fictitious purchase. What actually 
 takes place is simply a bet between the two parties to 
 such a transaction on the actual course of prices and of 
 itself does not affect prices, except in the unusual case 
 of a * 'corner." There is, however, great possibility of 
 evil in the presence of a crowd of uninformed speculators, 
 for they can greatly increase the power of an unscrupu- 
 lous operator who can persuade them to follow his lead. 
 Their presence, too, increases the temptation to such a 
 man to rig the market. Under present conditions the 
 abuses of speculation are more in evidence than the eco- 
 nomic advantages. How to confine speculation to the 
 small group of risk-takers who have special training and 
 aptitude for it, and to prevent gambling on the stock and
 
 84 Business Economics 
 
 produce exchanges is one of the economic problems of 
 the clay. 
 
 Ceises 
 
 One of the most striking phenomena of modem indus- 
 try is the frequent and violent convulsions of business 
 known as "crises." They are characteristic of all com- 
 mercially advanced countries and are generally most 
 marked in those countries which are most advanced. 
 They are a product of modern methods of capitalistic 
 production and are essentially a phenomenon of the nine- 
 teenth century. A crisis in its last analysis is the result 
 of a lack of adjustment between production and consump- 
 tion, due primarily to mistakes in production. It is sig- 
 nificant that crises usually occur in periods of business 
 prosperity, when credit is easy, prices high, and employ- 
 ment general. Such a period of business prosperity and 
 rising credit may have been begun by a series of good har- 
 vests. The demand for manufactured commodities in- 
 creases, prices rise, manufacturers enlarge their factories 
 or engage in new enterprises, Avages and profits go up. 
 Many speculators, seeing the rise and thinking it will 
 continue, borrow money to buy goods, with the expecta- 
 tion of selling again at a profit. Credit operations are 
 expanded to a dangerous extent, and when at last a shock 
 to confidence occurs the house of cards collapses and a 
 painful liquidation and readjustment of industry ensues. 
 The state of trade, in the words of Lord Overstone, "re- 
 volves apparently in an established cycle. First we find 
 it in a state of quiescence — next improvement, growing 
 confidence, prosperity, excitement, over-trading, convul- 
 sion, pressure, stagnation, distress, ending again in 
 quiescence."
 
 Speculation and Crises 85 
 
 ANALYSIS OF A CRISIS 
 
 The immediate occasion of a crisis is always a shock 
 to credit or confidence. Such a. shock, begun perhaps by 
 the failure of a bank or merchant, creates a demand for 
 ready money. No one is sure that his neighbor will re- 
 main solvent. Everyone accordingly tries to secure him- 
 self against loss by enlarging his cash reserve and thus 
 lessens the supply for others. Now modern industry is 
 carried on by means of credit. There is at no one time 
 enough money in the country to meet all obligations ex- 
 pressed in terms of money. Considerably over three- 
 fourths of the larger commercial transactions in the 
 United States are carried on by means of credit. If 
 everyone tries at the same time to get actual cash, there 
 is simply not enough money in the country to go around. 
 This increase of demand and diminution in the supply of 
 money force up the interest rate on short-time loans. 
 Money — actual cash — is needed by many people to meet 
 immediate engagements and they are willing to pay 
 almost any price for it. In the last panic the rates for 
 call money went up to over 100 per cent and in many 
 dties in the United States clearing-house certificates and 
 other substitutes for money were issued for use in ordi- 
 nary retail trade. 
 
 But even at these very high rates money can often 
 not be borrowed. Many merchants and manufacturers 
 are compelled to sell their goods at a sacrifice in order to 
 obtain it. Vast quantities of goods and securities are 
 thrown on the market just when investors and consum- 
 ers feel least able to purchase. The result is a fall in 
 prices. Such a fall in prices lowers profits. Enterprises 
 have been started and engagements made on the supposi- 
 tion that prices would continue at the old high level.
 
 86 Business Economics 
 
 When they fall it is impossible to pay interest out of cur- 
 rent earnings. Foreclosures and readjustments take 
 place. There is a general liquidation and reorganization 
 of industry. When interest contracts have been adjusted, 
 then the effect on wages begins to be felt. As long as a 
 manufacturer is struggling to maintain his credit he will 
 keep his factory going, but when he has failed and per- 
 haps been foreclosed, then the factory stops. Men are 
 thrown out of work, and wages — the price of labor — fall. 
 Labor troubles usually mark the end of such a period of 
 readjustment. 
 
 EECURRENCE OF CRISES 
 
 This stage marks the end of the crisis and the begin- 
 ning of a period of depression or *4iard times," which 
 continues for a longer or shorter period. The panic of 
 1893 was followed by a long-continued depression which 
 lasted until 1897, a period w^hich was marked by low 
 prices and slack work. In 1898 began a revival of busi- 
 ness and an era of marked prosperity set in which con- 
 tinued for almost ten years, interrupted only slightly by 
 a ''Wall Street panic" in 1903. In October, 1907, a severe 
 crisis occurred, recovery from which, however, was re- 
 markably rapid. The periodicity which has attended 
 crises in the past is so marked — occurring as they have 
 at intervals of about ten years — that many writers con- 
 sider them inevitable. As the easiest way to answer this 
 question we may take up three main theories as to the 
 causes of crises. 
 
 THE STJN-SPOT THEORY OF CRISES 
 
 A much quoted, but now generally discredited, theory 
 is that of W. S. Jevons, a noted English economist, who 
 ascribed crises to sun-spots. Every ten years and a f rac-
 
 Speculation and Crises 87 
 
 tion there occur outbursts of electrical and heat energy 
 on the sun, which we call sun-spots. These result in in- 
 creased heat waves, which affect the crops on the earth, 
 causing enlarged harvests in Europe and the United 
 States and drought and famine in India and the tropics. 
 The large harvests and good prices start a wave of pros- 
 perity and speculation, which culminates inevitably in a 
 panic and depression, until a recurrence of the heat phe- 
 nomenon starts the cycle again. The theory states some 
 undoubted facts, but no causal connection between sun- 
 spots and crises can be traced, as the latter are too irreg- 
 ular and the two do not always coincide. Were this the- 
 ory true, crises would be beyond human control. 
 
 THE OVEK-PRODUCTION THEORY OF CRISES 
 
 A second theory, or group of theories, is that which 
 attributes crises to over-production. Under modern con- 
 ditions of industry a small group of men direct industry 
 and determine what shall be produced. They try to esti- 
 mate future demand and to adjust production to con- 
 sumption, but they often make mistakes. They divert 
 capital into unproductive industries, they produce the 
 wrong things and create a comparative glut in certain 
 lines, and when they cannot sell their goods at a profit- 
 able price they fail and precipitate a crisis. Industry 
 must then be reorganized and frequently control be put 
 in the hands of other men. 
 
 A variation has been given this theory by the socialists, 
 under the leadership of Rodbertus, who insist that the 
 reason that there is over-production is because of the in- 
 stitution of private property. Since the capitalists own 
 all the tools of production they pay the laborers only 
 starvation wages. The latter cannot possibly buy all 
 that is produced and commodities consequently heap up
 
 88 Business Economics 
 
 in the warehouses until they are thrown upon the mar- 
 ket to be sold at any price. Then a panic occurs and a 
 readjustment of production takes place. 
 
 THE CREDIT THEORY OF CRISES 
 
 The last of these theories regards a crisis as essentially 
 due to a failure of credit. It is seen that a large part of 
 modern industry is carried on with borrowed capital, by 
 roundabout processes, and for a distant market and not 
 upon order. That is, the success of a business depends 
 upon its ability to sell its goods when produced. Now the 
 aggregate volume of transactions that can be carried on 
 in a year, so runs the theory, depends upon the efficiency 
 of the credit system — that is, in general, upon the freedom 
 with which banks are willing to loan money to people who 
 engage to repay it in the future out of their ventures. If 
 for any reason the banks reduce this accommodation the 
 amount of business that can be transacted upon borrowed 
 capital is lessened. Either some transactions must stop 
 or prices must fall. Either of these events causes com- 
 mercial disaster. The contraction of credit makes it im- 
 possible to get the goods into the right hands, and so we 
 have the phenomenon of over-production in a great many 
 lines. As exchange and transportation have developed 
 and markets mdened, crises have become more universal. 
 According to this theory, they are inseparably connected 
 with the use of credit and can be controlled only by a 
 more careful granting of credit by the banks to industrial 
 managers. 
 
 Another phase of the credit theory is presented by 
 those who insist that the cause of crises is the rh5i;hmic 
 over-estimation of the profits to be secured out of certain 
 lines of production, or their over-capitalization. The 
 new enterprises are financed by the banks on the basis of
 
 Speculation and Crises 89 
 
 this mistaken over-capitalization, their organizers en- 
 gage to pay rates of interest which they cannot earn, and 
 the crash inevitably follows. This is often called the 
 over-capitalization theory, and it is essentially psycholog- 
 ical in its character. 
 
 There is no doubt as to the truth contained in this 
 last theory. It helps to explain the rhythmic periodicity 
 of crises. After every period of business depression con- 
 fidence revives and hope is renewed; over-estimation of 
 the success of new ventures is inevitable. Then follows a 
 mistaken investment of capital in certain lines of pro- 
 duction, as in railroads in 1884, and a relative over-pro- 
 duction of certain commodities at profitable prices. The 
 true explanation seems to be found in a combination of 
 the over-production and over-capitalization theories. 
 
 CAN CRISES BE PREVENTED ? 
 
 The practical problem that presents itself in this con- 
 nection is the question as to whether it is possible to pre- 
 vent the recurrence of crises. In view of the explanation 
 just given it would seem that they must be regarded as 
 unpreventable as long as industry is carried on under the 
 competitive capitalistic system of production and the 
 modern credit system. Moreover crops differ in amount 
 from year to year and probably always will. Human pro- 
 duction and human genius are unequal. Crises may be 
 regarded as the price a progressive society pays for its 
 advance, and they may be expected to recur pretty regu- 
 larly at periodic inter^^als. Their disastrous effects may, 
 however, be greatly lessened by wise currency legislation, 
 by greater care in granting credit, and by greater Avisdom 
 in the direction of individual effort.
 
 90 Business Economics 
 
 TEST QUESTIONS 
 
 1. What are some of the factors that make chance and change 
 inseparable from modern industry? 
 
 2. How does the speculator reduce for the merchant the 
 speculative risk attached to price fluctuations? Illustrate. 
 
 3. How do stock and produce exchanges assist the speculator 
 in this function? 
 
 4. Explain the difference between legitimate speculation and 
 gambling. 
 
 5. What is meant by a crisis? 
 
 6. Discuss the immediate occasion of a crisis. 
 
 7. Account for the recurring features of crises. 
 
 8. What was Jevons' sun-spot theory of crises? 
 
 9. Explain the overproduction theory of crises. Suggest an 
 illustration from our own history that would seem to support 
 this theory. 
 
 10. What are the essential characteristics of the credit theory 
 of crises? 
 
 11. What theory of crises seems most reasonable to you? 
 
 12. What suggestions have you to make as to how crises may 
 be prevented?
 
 CHAPTER VII 
 the modern wage system 
 
 The Factory System and Labor 
 
 We have already characterized the modern system of 
 industry as capitalistic, that is, as involving the use of 
 expensive and complex machinery in factories under the 
 control of the capitalist managers of industry. As we 
 have seen, such a system has caused an enormous in- 
 crease in the production of wealth ; it has also raised the 
 general standard of comfort and the level of wages and 
 has relieved labor to a considerable extent of the deadly 
 strain of hard manual toil that was characteristic of pre- 
 ceding systems. 
 
 The factory system, under which capitalistic produc- 
 tion is now carried on, may also fairly be credited with 
 other beneficial results. As steadiness and punctuality 
 are essential, it has on the whole led to increased sobriety 
 and temperance; the work in general is healthier, being 
 performed under better sanitary conditions than under 
 the old domestic system; the intellectual status of the 
 workingman has been raised, as vastly more intelligence 
 is required of a skilled machine operator than of the old- 
 time hand laborer; and finally the general well-being of 
 the working class has been improved, as they have shared 
 in the larger production made possible by machine 
 methods. 
 
 91
 
 92 Business Economics 
 
 But, on the other hand, the new processes and methods 
 have been accompanied by great abuses, though never so 
 great in this country as in England. Long hours, the 
 employment of women and children, the weakened eco- 
 nomic position of the laborer, fluctuations in production, 
 liability to be without employment, industrial accidents, 
 the abolition of personal ties between employer and em- 
 ploye, the crowding of workmen into a small space to 
 work by day, and their concentration in city tenements 
 by night — these are some of the problems for which the 
 factory system must be held responsible. The condition 
 and position of labor have been vitally affected. So far 
 we have considered mainly the problems connected with 
 the organization and use of capital. We must now take 
 up the various questions connected with the relation of 
 labor to capital and to the capitalistic system of pro- 
 duction. 
 
 The Wage-Eaening Class 
 
 One of the most vital factors in the situation — which 
 we must frankly admit at the start — is the existence in 
 modern industrial society of a distinct wage-earning 
 class. It is perfectly obvious that under present condi- 
 tions of production great capital or great ability is nec- 
 essary in order to become the manager of an industrial 
 enterprise. Most laborers do not possess either the one or 
 the other of these, and although there are fortunate ex- 
 amples of industrial leaders who have risen from the 
 ranks, the general rule is, once a wage-earner, always a 
 wage-earner. 
 
 The number of those who can achieve industrial inde- 
 pendence is moreover growing smaller as business be- 
 comes more specialized and centralized. The laborer 
 therefore belongs to a class which'is rapidly developing
 
 Modern Wage System 93 
 
 what the German socialists call *' class-consciousness," 
 that is, the feeling that he belongs to a distinct industrial 
 group with interests different from and often antagonis- 
 tic to those of other groups or classes. In his struggles 
 with employers over wages this antagonism of immediate 
 aims obscures the deeper mutuality and interdependence 
 of their really complementary interests and not infre- 
 quently leads to a feeling of hostihty, finding expression 
 in strikes and labor agitation. 
 
 Dependence of the Wage-Eaener 
 
 In the transition to the factory system Mr. John A. 
 Hobson ^ points out that the position of the laborer 
 has been one of increasing dependence in the following 
 five important points: 
 
 First, ownership of material. At first the worker 
 owned this and made it into the finished product, but now 
 he has only a passing interest in a small part of the 
 process of working it up. 
 
 Second, ownership of tools. He retained these up to 
 the time of the introduction of machinery, but now sel- 
 dom owns them. 
 
 Third, control of productive power. With the displace- 
 ment of hand labor and muscular power by steam-driven 
 machinery, he no longer owns even this. 
 
 Fourth, relations between workers and employers. 
 They were formerly on an equality ; under the guild sys- 
 tem the master and the apprentice had the same social 
 position; now the laborer has sunk in the scale, or the 
 employer has risen, until the only bond between them 
 is, as Carlyle said, the ''cash nexus." A case was re- 
 cently instanced where a workingman who had been 
 
 1 Evolution of Modern Capitalism, p. 35.
 
 94 Business Economics 
 
 working in a factory met his employer for the first time 
 at the end of seventeen years. 
 
 Fifth, work-place. Until the establishment of the fac- 
 tory system this had always been the home ; now it is the 
 factory, and there is a complete divorcement between 
 work and the home. 
 
 The Wage System 
 
 Another characteristic of modern industry from the 
 labor point of view is the existence not merely of a wage- 
 earning class, but, more fundamental, of the wage sys- 
 tem. President Hadley, of Yale University, writes as 
 follows : ^ 
 
 It is characteristic of the modern industrial system that a 
 laborer who owns no capital, though nominally free to do what 
 he pleases, must actually find some property owner who will give 
 him enough to keep him alive during the period which must 
 elapse between the rendering of the labor and the sale of the 
 finished product. Under such circumstances, the laborer almost 
 inevitably submits to the direction of the property owner in 
 deciding how his labor shall be applied. Laborers without cap- 
 ital must necessarily work on this basis; even those who have 
 small amounts of capital habitually do so. Such advances of 
 capital are known as wages^ 
 
 Here we have the essence of the wage system in a nut 
 shell. The laborer sells his labor to an employer for a 
 stipulated wage. He has a conmiodity, his labor, consist- 
 ing of a certain amount of strength and skill, which he 
 is free to dispose of on the market to tlie best advantage, 
 as the owner of any other commodity might do. Legally, 
 labor is property. 
 
 2 Economics, p. 121.
 
 Modern Wage System 95 
 
 Owing, however, to the fact that all modern production 
 requires capital, the only buyer of his labor is a capi- 
 talist, who directs the way in which the labor shall be 
 applied. Such a condition, as well as some peculiarities 
 of the commodity — labor, leaves the laborer, indeed, only 
 nominally free. In theory the labor contract is a per- 
 fectly free contract, entered into voluntarily by both em- 
 ployer and wage-earner, and the courts have generally 
 insisted that this theoretical freedom must be main- 
 tained. In practice various modifications of the theory 
 have taken place. Legislation has been passed protect- 
 ing laborers from bargaining away their rights, and 
 trade unions have been formed to bargain collectively 
 for a group of laborers. In the last analysis, however, 
 the laborer must support himself by the sale of his labor ; 
 society guarantees him neither a living nor even the right 
 to work. He is a bargainer in a competitive industrial 
 world and he must assume the responsibility of providing 
 for himself and his family by securing w^ork. Just what 
 is involved in such a statement is perhaps best brought 
 out by comparing the modern wage system with pre- 
 vious systems of labor. 
 
 The Evolution of the Wage Contract 
 
 The first historical system of labor, aside from that in 
 the family, was that of slaves. In this case the labor was 
 forced and, being given under coercion, was prob- 
 ably very inefficient ; but the laborer was at least assured 
 of a minimum of food, clothes, and shelter. Slavery was 
 the main source of manual labor in the ancient world, 
 and did not disappear in England until the eleventh cen- 
 tury. The feudal system of the Middle Ages was char- 
 acterized by serfdom, according to which the laborer was 
 bound to the soil and was compelled to render his lord
 
 96 Business Economics 
 
 certain services. Gradually serfdom was broken down 
 and the wage system took its place, although remnants 
 of serfdom remained in England until the eighteenth 
 century. 
 
 Four centuries before this, however, the disintegration 
 of the feudal society had already begun, the serfdom of 
 the agricultural laborer was commut-ed into regular 
 money payments, and the artisan bought or otherwise 
 secured his freedom from feudal exactions. In the towns 
 industry was regulated by the guilds, and while at first 
 they were distinctly beneficial, in time they became mo- 
 nopolistic and oppressive. Power was lodged in the 
 hands of the wealthy traders and merchants and they leg- 
 islated in their own behalf against the growing class of 
 laborers, as did the wealthy landowners against the agri- 
 cultural laborers. The Statute of Laborers and other 
 acts sought to fix wages and to prevent the freedom of 
 the laborer in moving about or choosing his own occupa- 
 tion. Not indeed until the nineteenth century were the 
 last of these old regulative laws repealed and the mod- 
 ern labor contract recognized in law and practice as a 
 free contract. "The growth of labor," says Brentano, 
 **has been from the system of authority to the system of 
 contract." The system of authority, by which rates of 
 wages, length of apprenticeship, and other details of in- 
 dustry w^ere fixed by some superior authority, was found 
 to be restrictive, uneconomic, and unjust, and it gave way 
 to the principle of economic freedom. According to the 
 newer theory, first given effective voice in 1776 by Adam 
 Smith, the individual should be left to himself, as he 
 knows his own interest better than does the most enlight- 
 ened government. The freest scope was given to the 
 powers of individuals and each was to be the unlimited 
 master of himself and his possessions.
 
 Modern Wage System 97 
 
 Public Regulation op Labor Conditions 
 
 It has since been found necessary, however, to modify 
 both the theory and practice of this extreme individualism 
 in order to protect the interests of various classes of so- 
 ciety, especially the laborer. The legal theory still is that 
 "today the labor contract is perfectly free: either side 
 may make whatever contract he can get the other side to 
 sign. Not only this, but either side may freely combine 
 to demand any form of contract from the other side, as 
 mere combinations alone are now made perfectly legal. " ^ 
 In practice, however, this complete freedom has been 
 greatly modified by factory acts, acts restricting the 
 hours and conditions of employment of women and chil- 
 dren, anti-truck acts, laws providing for weekly pay- 
 ments, guarding of machinery, limiting the hours of la- 
 bor, and on the other hand prohibiting intimidation and 
 molesting. For the most part these laws have applied to 
 women and children, who are thought less capable of 
 guarding their own interests, and to a much less degree 
 to labor contracts made by men, who have been consid- 
 ered better able to make equal contracts with employers. 
 But concerning certain conditions of employment it has 
 been realized that even adult males are not capable of 
 securing equitable bargains, and along these lines the 
 nominal freedom of the labor contract has been decidedly 
 abridged. The attitude of the courts toward such legisla- 
 tion shows that they have declared many laws unconsti- 
 tutional on the ground that they infringe upon the right 
 of free contract, but in the long run seem inclined to up- 
 hold as much of this restrictive legislation as seems nec- 
 essary to obviate the undoubtedly evil results that flow 
 from this real inequality of employer and laborer. 
 
 3 Stimson, Labor in its Eelation to Law, p. 51
 
 98 Business Economics 
 
 It is a very vital and important practical economic 
 problem that presents itself in this connection. How far 
 shall we carry this regulative principle, or how far shall 
 we insist upon the principle of freedom? Many labor 
 leaders are again asking for an effectual control of the la- 
 bor contract, not by the action of trade unions, but by the 
 direct legislation of the state. What shall be our attitude 
 to this demand? Before we can fairly answer this ques- 
 tion we must consider somewhat more fully the character 
 of the bargain that takes place between an employer and 
 an individual workman and the nature of the commodity 
 that the laborer has to sell. 
 
 Labok's Bargaining Power 
 
 It has already been stated that the commodity which 
 the laborer brings upon the market is his labor, that is, 
 himself, his time, and his energies. But these wares are 
 peculiar and differ in several important respects from or- 
 dinary marketable commodities. In the first place labor 
 is like a perishable commodity which must be sold at once 
 if the owner is not to incur loss. The laborer has usuallv 
 little if any capital with which to support himself in case 
 he cannot find work, and he may be compelled to make a 
 forced sale of his labor, that is, to accept unduly low 
 wages. In this respect then he is at a disadvantage in 
 bargaining with his employer. A second peculiarity of 
 the sale of labor is that the laborer and his work are in- 
 separable. The seller of an ordinary commodity disposes 
 of it absolutely when he makes a sale. 
 
 It matters nothing to the seller of bricks whether they are to 
 be used in building a palace or a sewer; but it matters a great 
 deal to the seller of labor, who undertakes to perform a task of 
 given difficulty, whether or not the place in which it is to be
 
 Modern Wage System 99 
 
 done is a wholesome and a pleasant one, or whether or not his 
 associates will be such as he cares to have. 
 
 The person who buys this labor necessarily directs the 
 application of it to the task in hand, and thus controls 
 very largely the place, the sanitary and social conditions, 
 the hours, the character, and safety of the work. In the 
 third place the superior knowledge and intelligence of 
 the employers give them an advantage in bargaining 
 with their employes, while the reluctance of employers to 
 ''spoil the labor market" often prevents that freedom 
 of competition which is supposed to secure to the laborer 
 his full share of the product he helps to produce. 
 
 Necessity of Protective Legislation 
 
 In \dew of these facts we may fairly conclude that 
 workmen are inferior to employers as bargainers and 
 that protective legislation is necessary in order to put 
 them on a real equality. 
 
 When laborers have to make a forced sale of their labor, their 
 freedom of contract is more nominal than real. When women 
 and children stand individually before the manager of hundreds 
 of thousands of capital, it is possible that there may be little 
 freedom and less equality in the contract by which they sell 
 their services.^ 
 
 It is clear that between two parties of such unequal 
 knowledge, resources, and ability as a laborer and his 
 employer the labor contract cannot be entirely free and 
 equal. AVhile trade unions, by combining isolated work- 
 men into formidable and unified groups, have immeas- 
 urably increased their bargaining strength, yet legisla- 
 
 * Bullock, Introduction to the Study of Economics, p. 428.
 
 100 Business Economics 
 
 tion has also been found necessary to remedy the disad- 
 vantages already enumerated. It is realized that ** there 
 is no greater inequality than the equal treatment of un- 
 equals." 
 
 In the opening chapter of this book attention was 
 called to the fact that economic freedom or liberty was 
 one of the corner stones of our modern industrial society. 
 But freedom can best be secured by securing equality 
 and responsibility. Factory legislation and labor laAvs 
 are designed to correct the inequalities imposed by na- 
 ture or involved in the very nature of capitalistic pro- 
 duction. Direct interference by the state in the freedom 
 of contract is justified as leading to a more real and cer- 
 tain equality and liberty. But while we may thoroughly 
 approve the principle of labor legislation it is difficult to 
 know at what point we should stop. 
 
 A leading American authority on the law of labor has 
 stated ^ that "the industrial laborer at least is beginning 
 to be a privileged class in the law." On the other hand, 
 it was possible for Disraeli to say as late as 1875, after 
 the passage of the Employers and Workmen Act by the 
 British Parliament, that "for the first time in the history 
 of this country employer and employed sit under equal 
 laws." So recently were the legal disabilities removed 
 under which the English workmen had suffered up to 
 this time.'' The pendulum has SA\Ting so rapidly and so 
 far in labor's direction in the last generation that it is a 
 fair question how far it will, or should, continue to go. 
 
 5 Stimson, Labor in Its Eelation to Law, p. 71. 
 
 6 Euegg, Law of Employer and Workman in England, p. 99.
 
 Modern Wage System 101 
 
 TEST QUESTIONS 
 
 1. How is the modern wage system dependent upon the fac- 
 tory system in industry? 
 
 2. What do we mean by a distinct wage-earning class? To 
 what problems does it give rise? 
 
 3. Name five points which IMr. Hobson gives to show that in 
 the transition to the factor}^ system, the position of the laborer 
 has been one of increasing dependence. 
 
 4. What is President Iladley's explanation of the wage sys- 
 tem? 
 
 5. Why has the wage contract been subject to severe ques- 
 tioning during the last quarter of a century? 
 
 6. What does Brentano mean by the sentence, "The growth 
 of labor has been from the system of authority to the system 
 of contract"? 
 
 7. How has the extreme individualism of Adam Smith's 
 theory been modified? 
 
 8. What are the three peculiarities in the sale of labor? 
 
 9. Why has protective labor legislation become a necessity?
 
 CHAPTER VIII 
 labor organizations and collective bargaining 
 
 Causes of Labor Organizations 
 
 As modern capitalistic production caused the growth 
 of a distinct wage-earning class and brought about a 
 sharp separation between employers and laborers, and as 
 the latter were thrown upon their own resources under 
 the prevailing theories of free competition and free con- 
 tract, it was inevitable that they should organize to se- 
 cure their interests as a class. The growth of labor or- 
 ganizations has been greatest in those countries where 
 the laborer has been forced to depend mostly upon his 
 own efforts for protection and improvement, namely, in 
 England and the United States. On the continent of 
 Europe, on the other hand, where the individual has been 
 accustomed to look to the government for the redress of 
 industrial grievances, there has been a much less vigor- 
 ous and spontaneous development of such organizations. 
 They are a product of the nineteenth century and had 
 their origin in modern machine production. 
 
 Types of Labor Organizations 
 
 The growth of labor organizations in the United States 
 has proceeded hand in hand with the industrial develop- 
 ment of this country, and has been especially rapid since 
 the Civil War. Two distinct types of trade unions may 
 be noted: the local and the national (or international) 
 
 102
 
 Labor Organizations 103 
 
 unions. The former, whieli comprises members who live 
 and work in the same locality, is the primary unit, and 
 dates back to the beginning of the century. Each local 
 union, even when subordinate to a national organization, 
 is a self-governing unit and is absolutely democratic. Its 
 relation to the national body has been well compared to 
 that of one of our states to the United States. The first 
 national union was not formed until 1850, but now these 
 far surpass the locals in importance. Their government 
 is representative, as they are made up of local unions. 
 
 The great majority of the national trade unions are 
 bound together in the powerful federal organization, the 
 American Federation of Labor. The membership of this 
 body numbers about 1,800,000, while the railroad broth- 
 erhoods, which are not connected with it, claim about 
 335,000 more. Somewhat over 2,000,000 persons in the 
 United States belong to labor organizations. This is 
 about 10 per cent of the total working population or 
 about 15 per cent of those engaged in trade and trans- 
 portation, manufacturing, and mechanical pursuits. 
 While this does not seem a very large proportion and is 
 not as large as the membership of British trade unions, 
 yet it must be remembered that they constitute on the 
 whole the elite of the labor world and exercise an au- 
 thority and power out of proportion to their numbers. 
 Many other workmen who do not themselves belong to 
 the unions follow their lead and are directly affected 
 by their actions. 
 
 National. Organizations 
 
 Historically the two most important national organi- 
 zations in this country have been the Knights of Labor 
 and the American Federation of Labor, and they repre- 
 sent such different principles that it will be worth while
 
 104 Business Economics 
 
 to describe them. The Knights of Labor was organized 
 in 1869 as a local union of seven garment cutters and had 
 a meteoric career, counting a membership of 730,000 in 
 1886, the year of its greatest strength. It was a national 
 amalgamation of mixed local assemblies composed of 
 workers of all trades who lived in the same locality. It 
 held the theory that the interests of all members of the 
 laboring class are identical and must be cared for at the 
 same time, if possible, by political action, by co-operation, 
 and by education. In 1886, however, it entered upon a 
 series of disastrous strikes; later it came into conflict 
 with trade unions which had not joined its ranks and 
 were opposed to its policies; and finally it became en- 
 tangled in politics. 
 
 As it lost in influence and strength its place was taken 
 by the American Federation of Labor, which was its very 
 opposite in organization and government. This latter 
 body is a "confederation of trade and labor unions," 
 each trade being organized separately into local unions 
 which are given great autonomy, these unions alone be- 
 ing represented in the national body. Only matters of 
 general interest come before it, all local trade matters 
 being left to the local unions. 
 
 Objects and Methods of Labor Unions 
 
 More important than the history of labor organiza- 
 tions is a knowledge of their objects and methods. The 
 primary purpose is of course to control the conditions of 
 labor and to substitute the principle of collective bar- 
 gaining for individual contract. As one of the most ef- 
 fective ways to secure this result they aim at a more or 
 less complete monopoly of the labor market. This they 
 may do by bringing all workers in a trade within the 
 union or by preventing non-union men from working.
 
 Labor Organizations 
 
 105 
 
 Tig. 9. — Organization of the American Federation of Labor. From Eeport 
 
 of Executive Council
 
 106 Business Economics 
 
 The first of these is called the inclusive method/ and if 
 successful makes the union the sole seller of the kind of 
 labor controlled by its members. It is a monopoly of the 
 laborers against the employers and is sought to be en- 
 forced by inducing men to join the union either by per- 
 suasion or coercion, the latter finding expression in the 
 strikes against the employment of non-union men and 
 the insistence upon the "closed shop." 
 
 The other form of monopoly consists in the exclusion 
 of non-members from the trade and is a control of em- 
 ployment; this is a monopoly of a small group against 
 their fellow-workmen. It is enforced by regulating the 
 entrance to the trade, making it difficult or expensive, 
 or by limiting the number of apprentices. Sometimes, 
 as in the Chicago Building Trades in 1900, the workers 
 have united with their employers by means of "exclu- 
 sive agreements" to raise wages and prices of the fin- 
 ished products at the same time, and thus jointly to mulct 
 the public. Such efforts to monopolize the labor market 
 have their counterparts in the organization of capital, 
 as we have seen. In practice such a labor monopoly has 
 sometimes been used to improve and elevate conditions, 
 just as sometimes a capitalistic monopoly has reduced 
 prices below the competitive point. In general, however, 
 we must condemn monopoly on principle in the competi- 
 tive field and insist that freedom and opportunity be 
 given to all on as equal terms as possible. Of the two 
 forms of trade union monopoly, the former alone, which 
 endeavors to make it all-comprehensive and to enforce 
 union conditions generally, can be economically justified. 
 
 Standard Rate of Pay 
 
 "The establishment of a standard rate of wages may 
 perhaps be said to be the primary object of trade union 
 
 1 Export of Industrial Commission, Vol. XVII, p. 1.
 
 Labor Organizations 107 
 
 policy. Without the standard rate the trade union, such 
 as it is, could have no existence." - The purpose of the 
 union is to substitute collective bargaining for individ- 
 ual agreements and thereby to improve the condition of 
 its members. But if a single bargain is to determine the 
 pay of a large number of men, there must be a common 
 standard. In every employment on a large scale the 
 men are necessarily grouped together and their pay is 
 determined by a common rule. This is true even in non- 
 union shops. 
 
 It is generally assumed that the standard rate of labor 
 organizations means a uniform 'wage for each member, 
 but this is not the case ; it means rather a uniform rate of 
 pay to all for the same performance. In the case of 
 piecework, it could manifestly not mean anytliing else; 
 but a large number of labor leaders object to piecework. 
 They insist that a standard wage means a minimum 
 wage, and that by the establishment of such a minimum 
 the whole standard of efficiency and the plane of com- 
 petition are raised, as the employers cannot then afford 
 to hire any but competent workmen. 
 
 The question immediately presents itself: What is to 
 become of the older or partially disabled men who are no 
 longer able to earn the standard or minimum wage? In 
 England they are practically guaranteed a subsistence 
 by the union; in this country the union not infrequently 
 exempts them from the provisions as to the standard 
 wage. Wlien the rule is enforced there is certainly a real 
 hardship for these men. 
 
 But from the employers there comes the more serious 
 complaint that the effect of the standard wage is to re- 
 duce to a dead level the efficient and the inefficient; that 
 
 2 Eeport of Industrial Commission, Vol. XVII, p. xJii.
 
 108 Business Economics 
 
 it is a maximum wage and tliat the efficient and indus- 
 trious are prevented from earning more than a fixed 
 amount. There is undoubtedly a great deal of truth in 
 this charge; the man who hastens the pace is said to be 
 taking ''blood money," and sometimes a maximum wage 
 is set which the members are forbidden to exceed. On 
 the other hand it may fairly be said that while the union 
 regulation of wages does tend to produce greater uni- 
 formity, the union rate is usually higher than the com- 
 petitive rate would be, that is, wages are leveled up, not 
 down; and finally that territorial variations make the 
 local rate conform to local conditions. 
 
 Eeduction in Working Houes 
 
 A reduction in the hours of labor has been even more 
 strenuously urged by progressive labor leaders in the 
 United States than an increase in wages. ' ' Organize and 
 control your trade and shorten your hours," is their con- 
 tention, *'and wages mil take care of themselves." Their 
 arguments in favor of a general shortening of the work- 
 ing day are twofold. In the first place, owing to the in- 
 tensity and strain of work under modern machine meth- 
 ods, the worker cannot work efficiently more than eight 
 or nine hours a day. The work is too exacting and the 
 strain on the attention too great; it is a noticeable fact' 
 that most of the accidents in industrial establishments 
 occur in the last hour or two of the working day. Not 
 only that, but the laborer is entitled to his share of in- 
 dustrial progress in the form of more leisure, giving him 
 time for a better family and social life, affording oppor- 
 tunity for intellectual improvement, and permitting the 
 development of more rational and higher wants. With 
 the improvement in the condition of the laboring classes 
 will go the elevation of society as a whole.
 
 Labor Organizations 105 
 
 The second argument in favor of shorter hours put for- 
 ward by the trade unionist is economic rather than so- 
 cial. He argues that a ' ' reduction of hours will diminish 
 the supply of labor in the market, and so will raise its 
 price. It will make room for the unemployed, and so will 
 remove the depressing influence of their competition." 
 There is involved in this contention the familiar lump-of- 
 labor argument of the trade unionist: There is just so 
 much work to be done, and if some men do a little less 
 there will be more for others. By shortening everyone's 
 hours of labor, employment will be made more general 
 and the work will be better distributed. 
 
 Now the economists in general have supported the 
 trade unions in their demands for a shorter working day, 
 but they have done so because they believed that the 
 product of industry would not thereby be diminished. 
 They have seen that when the hours of labor were re- 
 duced the laborer was less rapidly worn out physically, 
 that he could work more rapidly for a short time, and 
 that his increased leisure and pay, if rationally used, 
 made him a more intelligent and efficient worker. In 
 other words, a reduction in the hours of labor from 15 a 
 day to 12, to 10, and even in some cases to 8, was not at- 
 tended by a parallel reduction in the output, but the 
 latter remained about the same. This is the great eco- 
 nomic justification of the shorter working day, and as 
 long as this can go on without materially affecting the 
 product of industry it must be approved. 
 
 If, however, the latter is decreased there will be less to 
 divide and then the relative disadvantages of a smaller 
 dividend must be weighed against the advantages of in- 
 creased leisure. Of course the point to which the num- 
 ber of hours can be reduced without lessening the product 
 can be determined only by experiment, and will differ in
 
 110 Business Econoynics 
 
 different trades, but it is inevitable that until this point 
 is reached the pressure of the trade unions for shorter 
 working days, or for more holidays or half -holidays, will 
 not be successfully resisted. 
 
 Turning now from theory to fact, we find that there 
 has been a great improvement in the condition of labor 
 in this respect. At the beginning of the nineteenth cen- 
 tury the almost universal working day was, as McMaster 
 tells us, from sun to sun. As factories grew up the hab- 
 its of agricultural labor were carried over into industrial 
 occupations, and working days of 16 and 18 hours were 
 not uncommon. In 1903 the average length of the work- 
 ing day in the United States was 9.6 hours. This great 
 reform may fairly be credited to the efforts of labor or- 
 ganizations themselves, for without their insistence and 
 struggles it is unlikely that it would have been volun- 
 tarily granted by employers. 
 
 Restriction of Output 
 
 The limitation of output results almost necessarily 
 from the above-mentioned practices of the unions. Re- 
 duction of hours, prohibition of piecework, and the stand- 
 ardization of wages all tend to restrict the output of the 
 individual worker. But some of the unions have gone 
 further and have directly limited the amount that could 
 be produced during a given period by the laborer. This 
 has been particularly true of British unions and is the 
 subject of common complaint by English employers and 
 writers, but illustrations may easily be found in the 
 United States. 
 
 In Chicago in 1900 the lathers limited a day's work to twenty- 
 five bundles of lath, for which they received $3; they had 
 formerly done thirty-five bundles for a daily wage of $1.75.
 
 Labor Organizations 111 
 
 Plasterers were limited to thirty square yards a day; the steam 
 fitters were permitted to lay only ninety feet of steam pipe per 
 day^ but the plumbers had the most objectionable rules and 
 restricted materially the amount of work that could be done 
 in a day. 3 
 
 These rules were defended by the unions on the ground 
 that they were necessary in order to secure careful work 
 and to prevent the "rusher" from setting the pace for a 
 fair day's work. 
 
 The practice has not been uncommon, especially in the 
 sweated trades, for an unscrupulous employer to pay a 
 few particularly able workmen to put extra speed into 
 their work and so set a pace that the other workmen 
 would be compelled to maintain. This was especially ob- 
 jected to by the unions in the case of team work. They 
 claimed that when all the workmen had come up to the 
 new standard, particularly in piecework, the wages were 
 reduced so that even by working at the higher rate of 
 speed they could only make a fair wage. One of the rules 
 of the Cliicago carpenters' union provided that "any 
 member guilty of excessive work or rushing on any job 
 shall be reported and shall be subject to a fine of $5." 
 
 Whatever the excuse it is clear that such limitations 
 cannot be economically justified. Not only does such 
 dawdling undermine the industrial efiiciency of the 
 worker, but it is unfair to the employer. If the latter 
 bargains for the union rate of wages and the normal 
 working day, he is entitled to a full return of the labor- 
 er's best efforts. Otherwise there is no fairness in col- 
 lective bargaining. "So far as labor leaders are con- 
 
 3 Bogart, The Chicago Building Trades Dispute (Political Science Quar- 
 terly), Vol. XVI., p. 134; Commons, Trade Unionism and Labor Prob- 
 lems, p. 107.
 
 112 Business Economics 
 
 cerned," said Mr. John Burns, the English trade union- 
 ist, "we are all strongly opposed to the restriction of pro- 
 duction; we are all in favor of better and more con- 
 scientious work." 
 
 Laboring men have never been quite able to divest 
 themselves of their old antipathy to labor-saving ma- 
 chinery. They generally regard the introduction of a 
 new machine as a displacer of men, a creator of unem- 
 ployment, a depresser of wages. Some unions have suc- 
 cessfully resisted the introduction of machinery into their 
 trades, as the stone cutters in Chicago,^ but in general 
 they have recognized the impossibility of this attitude. 
 They now demand that when machinery is introduced 
 it shall be operated by union men and their wages shall 
 be fixed so as to give the workers a share of the increased 
 production. 
 
 Fraternal Benefits of Labor Unions 
 
 The policies and methods of the trade unions thus far 
 discussed are those of a militant nature, but the fraternal 
 objects of these associations, though less conspicuous, 
 are none the less important. Labor organizations gen- 
 erally have insurance and benefit features, by which sick, 
 injured, or unemployed members are assisted. This is 
 particularly true of the English organizations, which 
 developed these features before the rise of the militant 
 new unionism. They often possess large funds and have 
 been rendered thereby more conservative and responsi- 
 ble. The educative effect of trade unionism among the 
 members is marked; some of them possess libraries and 
 all of them promote discussion and thought upon eco- 
 
 4 Bogart, The Chicago Building Trades Dispute (Political Science Quar- 
 terly), Vol. XVI, p. 137.
 
 Labor Organizations 113 
 
 nomic problems, while the administration of their affairs 
 often gives valuable training. The older unions did 
 much to encourage co-operation among their members, 
 but today the tendency is to limit their activities to the 
 essential one for which they are organized, namely, col- 
 lective bargaining. 
 
 Collective Bargaining 
 
 Intelligent unionists realize that tliey can secure the 
 various objects for which they strive only by substituting 
 collective bargaining for contracts between employers 
 and individual laborers. Where this plan is accepted by 
 employers, representatives of the two sides agree upon 
 wage scales, usually for a year; during this period the 
 chief task of union officials is to see that the agreement 
 is lived up to, and if possible to add to their membership 
 and strengthen the union. In the United States rela- 
 tively few trades have adopted this method as a general 
 practice, the employers still being able to dictate wages 
 and conditions of employment in most of them, while the 
 unions are still struggling for recognition, if not for ex- 
 istence. In refusing to make collective bargains with 
 the unions, employers insist that as they run all the risks, 
 they must be permitted to manage their business as they 
 see fit and without interference from the business agent 
 of the union. In reply the unions insist that hours, 
 wages, and conditions of employment are as much their 
 business as that of the employer. The latter also urges 
 that the trade unions as at present organized are too irre- 
 sponsible and that before they ask for collective bargain- 
 ing they should be incorporated, so that they could be 
 sued for breach of contract if guilty of such. As yet, 
 however, the unions have preferred their present position 
 of irresponsibility and immunity and have almost in-
 
 114 Business Economics 
 
 variably refused to be incorporated. President Hadley, 
 of Yale, writes : ^ 
 
 Steikes and Lockouts 
 
 In the minds of a large section of the public, labor unions are 
 chiefly associated with strikes. It is believed by many who 
 ought to know better, that such organizations exist for the pur- 
 pose of striking, and that if the organizations were suppressed, 
 industrial peace would be secured. The first of these ideas is 
 a distorted one; the second is wholly unfounded. 
 
 Strikes are, however, a necessary concomitant of col- 
 lective bargaining. If the representatives of a union can- 
 not come to terms with an employer, they may compel 
 their members to refuse to sell their commodity, labor; 
 such a concerted refusal to work is a strike. The right 
 to quit work has been regarded as a sacred one by trade 
 unionists, but it involves social consequences of great 
 importance. For the workingman, it means loss of wages 
 and demoralizing idleness ; to the employer, idle capital, 
 loss of profits, and depreciation of plant ; and to the con- 
 suming public, inconvenience and annoyance together 
 with curtailed production. Quite aside from all acts of 
 violence and lawlessness, by which they are too often 
 accompanied, there is involved an enormous money 
 waste. According to a report of the Department of La- 
 bor, losses from strikes and lockouts in the United States 
 from 1881 to 1900 amounted to $449,342,000, or an aver- 
 age loss per establishment of about $3,500. 
 
 ■ CoNCILIATIOlSr AND AitBITEATION 
 
 The public is awakening to the realization that it suf- 
 fers the greatest injury as the innocent third party to 
 
 5 Economics, p. 353.
 
 Labor Organizations 115 
 
 every industrial dispute, and it is insisting that ttie indus- 
 trial peace be kept or more reasonable methods of settling 
 differences be found than a strike or lockout. Such a 
 method is found in conciliation and arbitration. In the 
 older and more strongly organized unions strikes are in- 
 frequent and methods of joint discussion and agreement 
 are increasingly resorted to. Boards of conciliation are 
 often provided for, which endeavor by means of confer- 
 ence and concession to prevent a dispute from arising; 
 they succeed best where both employers and employes 
 are organized. Should the dispute come to a head, how- 
 ever, provision is usually made for its reference to a 
 board of arbitration, which may be selected by the dis- 
 putants themselves or may be created by the state ; in the 
 latter case the acceptance of the award may be voluntary 
 or compulsory. 
 
 In the United States most of the successful boards have 
 been those selected by the parties to the dispute ; the state 
 boards have usually the power only of investigating the 
 causes of the trouble, but this in itself has proved of con- 
 siderable value in more than one instance, notably in the 
 case of the Anthracite Coal Commission. Compulsory 
 arbitration is being given a thorough trial in Australasia 
 and seems to be meeting with success there. In this coun- 
 try, however, the trade unions are strongly opposed to 
 compulsory or enforced governmental arbitration. AVrit- 
 ing of Great Britain, Mr. and Mrs. Webb assert that the 
 principle of arbitration, having been found inconsistent 
 with collective bargaining, is fast going out of favor. It 
 would seem from the experience of both England and the 
 United States that the chief virtue in these methods lies 
 in the habit of joint conference of the representatives of 
 labor and capital and the resulting conciliation.
 
 116 Business Economics 
 
 TEST QUESTIONS 
 
 1. Why have labor organizations grown more rapidly in the 
 United States and England than on the continent of Europe ? 
 
 2. What are the two types of trade unions that prevail in 
 the United States? 
 
 3. What were the essential features of the Knights of Labor? 
 What caused the downfall of this organization? 
 
 4. What are the essential characteristics of the American 
 Federation of Labor? 
 
 5. By what methods do labor organizations attempt to control 
 the labor market ? 
 
 6. Why do labor leaders generally object to piece, premium, 
 and bonus systems of wage payment? 
 
 7. What arguments are put forth by the trade unionists in 
 favor of shorter hours? 
 
 8. Give illustrations showing where unions have directly 
 limited the amount of output. 
 
 9. What are some of the chief benefits which labor unions 
 attempt to secure for their members? 
 
 10. What is the attitude of a great many employers in the 
 United States toward collective bargaining? 
 
 11. For what reasons does labor occasionally resort to strikes 
 and lockouts? How can strikes and lockouts be prevented? 
 
 12. Describe the method of settling an industrial dispute by 
 conciliation.
 
 CHAPTER IX 
 woman and child labor 
 
 Eakly Origin 
 
 While women and children have always assisted in the 
 work of the home, it was not until the development of the 
 factory system that they began to work for wages out- 
 side of the family. From the earliest days the prepara- 
 tion of food, spinning and weaving and making up of 
 garments, and other branches of domestic economy had 
 been the peculiar tasks of the housewife. With the re- 
 moval of the textile industries from the home to the fac- 
 tory and the invention of light-running machinery, many 
 women followed them and employment was found also 
 for young children. Thus with the inception of the mod- 
 ern factory system and machine production there arose 
 the problem of woman and child labor. In England the 
 evils of the early factory system were incredibly bad. 
 Professor Walker wrote : ^ 
 
 The beginning of the present century found children of five, 
 and even of three years of age, in England, working in factories 
 and brickyards ; women working underground in mines, harnessed 
 with mules to carts, drawing heavy loads ; found the hours of 
 labor whatever the avarice of individual mill owners might ex- 
 act, were it thirteen, or fourteen, or fifteen ; found no guards 
 about machinery to protect life and limb ; found the air of the 
 factory fouler than language can describe, even could human 
 ears bear to hear the story, 
 
 1 Political Economy, p. 381. 
 
 117
 
 118 Business Economics 
 
 Conditions were never so bad in this country as in Eng- 
 land, owing to the later development of the system and 
 prompter legislation against its evils, and especially to 
 the scarcity of labor which compelled employers to make 
 the conditions of labor more attractive. 
 
 The Field of Employment 
 
 The field of emplojTnent for women has been a con- 
 stantly expanding one. "Wlien Miss Harriet Martineau 
 visited the United States in 1840 she found only seven, 
 occupations generally followed by women : teaching, nee- 
 dlework, keeping boarders, work in the cotton mills, type- 
 setting, bookbinding, and domestic service. Since that 
 time the area has widened until there is scarcely an oc- 
 cupation in which women are not found except those 
 closed to her by law or by physical inability. The num- 
 ber of females 10 years of age and over engaged in gain- 
 ful occupations was 2,647,000 in 1880, or 14.7 per cent 
 of the total female population; this number more than 
 trebled in the next thirty years, being 8,075,772 in 1910, 
 or 23.4 per cent of all. 
 
 The largest number employed was in domestic and 
 personal service, and next to that in manufacturing and 
 mechanical pursuits, though even in that branch they 
 were most numerous in the traditional branches of wom- 
 an's work, as dressmakers, seamstresses, etc. It is nev- 
 ertheless in the manufacturing industries that the most 
 serious evils connected w^ith woman and child labor are 
 found. The problems differ greatly in different sections 
 of the United States. In the Atlantic states the greatest 
 proportion of women as compared with men find employ- 
 ment and give rise to special problems of women's work; 
 in the South child labor is more conspicuous, while in
 
 Woman and Child Labor 119 
 
 the West both woman and child labor are of relatively 
 small importance. 
 
 Effect of Woman Labor upon the Occupations of Men 
 
 An interesting question suggests itself at this point: 
 Is the increase in the employment of women at the ex- 
 pense of men? Are the women crowding the men out of 
 their occupations and taking their places? At first in- 
 spection the statistics of occupations would seem to lead 
 to an affirmative answer, for the percentage of Avomen 
 breadwinners increased from 13.5 per cent in 1880 to 
 17.6 per cent in 1910, while that of the men fell from 80 
 to 76.8 per cent, and that of the children remained about 
 the same. The cause of the change in the proportion of 
 the sexes was not due, however, to any falling off in the 
 number of men, but to the great influx of women into the 
 ranks of wage-workers. In some lines of emplojinent, like 
 those of bookkeepers, stenographers, typewriters, clerks, 
 etc., there has undoubtedly been an encroachment and 
 men have been displaced. But on the other hand many 
 occupations have been opened to men during the last fiftj^ 
 years that were unknoA\Ti before, such as the expanding 
 fields of railroad construction and operation, the steel 
 industry, the utilization of electricity, and other similar 
 lines. In most of these the muscular effort involved or 
 the character of the work has kept women out, but in 
 other lines where special rapidity or lightness of touch 
 are required the women outnumber the men, as in the 
 manufacture of cotton goods, hosiery, hats and caps, etc. 
 
 The development and improvement of machinery has 
 of course favored the emplojTnent of women. Mr. John 
 A. Hobson - asserts that ''in modern machinery a larger 
 and larger amount of inventive skill is engaged in ad- 
 
 2 Evolution of Modern Capitalism, p. 297.
 
 120 Business Economics 
 
 justing macliine-tendmg to the physical and mental ca- 
 pacity of women and children." He concludes that if 
 the exploitation of these forms of cheap labor had not 
 been prevented by factory legislation and by public dis- 
 approval, *'tlie great mass of the textile factories of this 
 country [England] w^ould have been almost entirely 
 worked by women and children." As a matter of fact 
 one of the reasons for the great expansion of woman la- 
 bor in the United States as well as in England is because 
 it has been found cheaper than man's labor. We are 
 thus brought face to face with a fundamental question 
 in the discussion of the problem : Wliy are women paid 
 lower wages than men 1 
 
 Wages of Women 
 
 As to the fact there is no doubt ; one comparison taken 
 from the census of 1900 will be sufficient to illustrate it. 
 The annual average earnings of men in mechanical and 
 manufacturing industries were $490 and of women $272 
 per annum. The more important question is why this 
 difference exists. A number of reasons suggest them- 
 selves at once. In the first place women are less efficient 
 than men and produce less ; hence they are paid less. In 
 some industries, particularly those requiring physical 
 strength, women cannot compete successfully, and those 
 are usually the highest paid employments. Other well- 
 paid industries are regarded by men as essentially their 
 own and social pressure is applied to keep women out. 
 Then, too, woman's ambition to attain industrial ef- 
 ficiency is not so great, owing to her expectation of mar- 
 riage and release from industrial life. Women are more 
 often absent from work, owing to sickness and domestic 
 claims upon their time; this irregularity of employment 
 tends to reduce their efficiency. But even in employments
 
 Woman and Child Labor 121 
 
 where the efficiency of men and women is admittedly 
 equal, the women receive lower wages in the majority of 
 cases. According to a report of the Bureau of Labor, in 
 80 out of 100 cases where the women did the same work 
 as the men and did it as well, they received lower wages 
 than the men. This leads to the consideration of a second 
 group of causes, which have to do with woman's standard 
 of living. 
 
 One reason why she receives less is because she is able 
 and willing to live on less. Physiologically, Dr. Atwater 
 has said that man needs one-fifth more nutriment than 
 woman. Women's wages are less because of their some- 
 what lower cost of subsistence. But even aside from this 
 fact, the frequent partial dependence of women upon 
 other members of their family for support makes them 
 willing to accept less and consequently reduces their 
 wages. The average American working^voman is young, 
 only about twenty-two and a half years old, and after the 
 age of twenty-five is reached the number declines rapidly. 
 That is to say, working girls regard their employment 
 as a temporary affair, remaining only about five years, on 
 the average, in the store or factory ; during this time they 
 often live at home with their parents and are content to 
 receive a wage much smaller than a man would require 
 as head of a household. 
 
 The third reason is, however, the most important, be- 
 cause it explains at the same time the low economic posi- 
 tion which woman occupies in the industrial world. The 
 narrowing of the field within which women can readily 
 find employment has the effect of greatly intensifying 
 the competition within that field. There is also a great 
 reserve army of potential women wage-earners, whom a 
 slight increase of wages or force of circumstances — loss 
 of employment by the male members of the family — will
 
 122 Business Economics 
 
 bring into the field as competitors. There is, in other 
 words, a constant over-supply of labor in most women's 
 industries, which does not exist in any men's industries 
 except the most unskilled. 
 
 Women exhibit, furthermore, a comparative lack of 
 mobility from one industry to another, as well as from 
 one locality to another. According to Professor Smart, 
 women are so unready to leave home that their pay on 
 one side of narrow Scotland is 50 per cent lower than 
 that on the other side. 
 
 In the same way, the flow of labor from one occupation 
 to another, which tends to equalize the advantages and 
 rates of pay of different emplojnnents, is far feebler 
 among women than among men. 
 
 Finally, there is little organization among women. 
 Their individualistic, almost jealous, attitude to one an- 
 other prevents their combination and united action, while 
 their submissive acceptance of what is offered leads to 
 apathy. They have only infrequently formed unions and 
 endeavored to substitute collective bargaining for indi- 
 vidual action. Women are therefore industrially in much 
 the same situation as unskilled, unorganized male labor- 
 ers, and the remedy in both cases would seem to be the 
 same — education and organization. 
 
 The Effects of Woman Labor 
 
 The presence of a large supply of cheap woman labor 
 undoubtedly has a depressing effect upon men's wages, 
 and consequently upon the standard of life of the whole 
 laboring class. George Gunton ^ is authority for the 
 statement that ''in proportion as the wife and children 
 contribute to the support of the family the wages of the 
 
 3 Wealth and Progress, p. 171.
 
 Woman and Child Labor 123 
 
 father are reduced." The family wage tends to remain 
 the same whether it is earned by the father alone or by 
 the father with the assistance of his wife and children. 
 It is, however, not quite clear in most cases whether the 
 men's wages are low because the women and children 
 work, or whether the women and children work because 
 the men's wages are low. It niay fairly be concluded, 
 however, that the evil effects of low wages for women are 
 not confined to themselves but are felt by all with whom 
 they come in competition. 
 
 Readjustment of Woman's Work 
 
 What conclusion shall we draw, then, in view of all 
 these facts, as to the desirability of employing of wom- 
 en? The fact of their low wages and industrial depend- 
 ence is not sufficient to lead one to condemn it. These are 
 transitional phenomena and can be remedied. Women 
 have always worked — on the farm, in the home, and in 
 making household supplies. When this work was taken 
 over by the factory, woman became a wage-worker in 
 the modern sense. 
 
 The census records in respect to the labor of women, there- 
 fore, read iu the light of collateral facts, are a history of indus- 
 trial readjustment rather than a record of the relative extent 
 of the employment of women, and it is impossible to say, so far 
 as the census figures are concerned, whether a larger proportion 
 of women are actively engaged in labor today than formerly or 
 not. The one fact which is clear is that factory or sliop work 
 is displacing home work, and that this readjustment of indus- 
 trial conditions is leading to the employment of women outside 
 the home hi constantly increasing numbers.* 
 
 4 Report of Industrial Commission, Vol. XIX, p. 926.
 
 124 Business Economics 
 
 The effect of this readjustment has been to increase 
 greatly the production of wealtli. The production of 
 household supplies was removed from the family to the 
 factory when it was handed over to machinery and done 
 better and more cheaply. If the work of women thus 
 released were expended for no useful purpose, society 
 would gain only in the increased leisure of the women. 
 But if these then took up other new lines or set men free 
 from old employments so that they could turn to still 
 different ones, then the production of goods could be 
 greatly increased. Mr. George L. Bolen ^ writes on this 
 point as follows : 
 
 Without women's help their work in stores and offices would 
 be done by men taken from other employment. The latter 's 
 present Avork would have to be stopped to that extent, lessening 
 the quantity of goods produced by men. The effect would be 
 the same as if a farmer had to stop plowing two hours before 
 noon to go to the house and cook his dinner. * * * Women 
 behind the counter, and at the typewriter, release men for work 
 that women cannot do. 
 
 From the standpoint of woman herself, industrial in- 
 dependence must be regarded as a great gain. Set free 
 from the necessity of contracting marriage for the sake 
 of a home and of depending upon mere sex attraction to 
 attain that end, she will develop her capacities more fully 
 and when she does enter upon marriage will do so as a 
 result of mutual attraction. The entrance of women into 
 gainful occupations must be regarded as an essential step 
 in their own progress and the improvement of society. 
 
 C^iLD Labor 
 
 Quite different must be our attitude towards child la- 
 bor, which can only be condemned as a waste of labor 
 
 5 Getting a Living, p. 475.
 
 Woman and Child Labor 125 
 
 power and as stunting the development of the children. 
 The census of 1870 stated for the first time the number 
 of children at work in the United States; there were 
 739,164 between the ages of 10 and 15 years, of whom 
 114,628 were employed in manufactures. During the 
 next decade the number increased over 58 per cent to 
 1,118,356 children at work in all occupations. The dis- 
 closure of such an undesirable tendency called forth re- 
 strictive legislation in most of the states and the number 
 declined materially by 1890. Since 1890 however there 
 has been a reversal of this tendency back to the condi- 
 tions of 1880, owing chiefly to the industrial development 
 of the South, where almost no factory legislation exists 
 as yet. In 1910 there were 1,990,225 children at work 
 between the ages of 10 and 15 years, or almost one-fifth 
 of all the children of those ages. 
 
 In the South Atlantic states the proportion of cliildi-en 
 at work is especially high, reaching 58 per cent of the 
 boys and 45 per cent of the girls between 10 and 15 years 
 of age in South Carolina. 
 
 Evils of Child Labor 
 
 The evils connected with child labor are the long hours 
 — usually 11 or 12 hours a day where no restrictive legis- 
 lation exists — and the exhausting and often dangerous 
 work. The effect of monotonous and exhausting toil on 
 the health of the children before their muscles are set and 
 their frames knit is thoroughly bad; they are stunted 
 and deformed and prematurely aged. Many of the occu- 
 pations, too, in which child laborers are most numerous 
 are dangerous or injurious, as, for example, tin can fac- 
 tories, saw mills, paper box factories, type foundries, and 
 tobacco establishments. Second only to the physical 
 effects of child labor is the mental and moral injury suf-
 
 126 Business Economics 
 
 fered not merely by the child but also by society in de- 
 priving these youthful laborers of a thorough education. 
 ^Vliile it is well that children should be kept busy, there 
 is no compensating reward either in money wage or prep- 
 aration for adult life in such monotonous, profitless 
 drudgery. 
 
 The influence of the competition of children upon 
 wages is depressing, and their employment indicates 
 either a willingness on the part of employers and parents 
 to exploit this cheap and defenseless form of labor, or a 
 backward state of civilization. Such an evil can be cured 
 only by determined public opposition, by the passage of 
 laws forbidding all labor by children under a certain age, 
 say 15 (except possibly in agricultural work or house- 
 work), compelling school attendance, and providing for 
 careful inspection. Most of all is needed an aroused 
 public conscience. 
 
 Labor Legislation 
 
 Labor legislation is the most effective method of im- 
 proving the conditions of employment, and to a consider- 
 ation of this subject we must devote the remainder of this 
 section. We have already seen that the fundamental 
 principle of our modern wage system is freedom of con- 
 tract. This is guaranteed in our federal and state con- 
 stitutions as both a personal and a property right. As 
 a result of this fact the courts have generally declared 
 unconstitutional any legislation, designed to protect the 
 interests of labor, that seemed to abrogate this freedom 
 of contract or that savored of class legislation. Efforts 
 to improve the condition of labor by legislation have 
 therefore met with especial obstacles in this country. On 
 the whole, however, means have been discovered of evad- 
 ing these constitutional restrictions when it has seemed
 
 Woman and Child Labor 127 
 
 clearly demanded by the welfare of society, and the his- 
 tory of labor legislation in this country is one of fairly 
 steady progress. The early laws were practically con- 
 fined to imprisonment for debt, mechanics' liens, the 
 hours of education of children employed in factories, and 
 similar matters. Nothing noteworthy was accomplished 
 until 1866, when Massachusetts passed an eight-hour child 
 labor law for children under fourteen ; in 1874 she passed 
 a ten-hour law for w^omen and children under eighteen 
 engaged in manufacturing establishments, and in 1877 
 enacted the first factory inspection act, an idea which 
 has since been copied in most of the states and without 
 which mere legislation is of little avail. 
 
 Factoey Acts 
 
 The factory acts may be divided into two classes: (1) 
 those that endeavor to secure the safe or healthful man- 
 ner of conducting a business and (2) those that attempt 
 to limit the occupations, the hours, and the methods of 
 paying the workers. Under the first head come such 
 matters as fire protection, ventilation, guarding of ma- 
 chinery, inspection of boilers and mines, etc. Such legis- 
 lation and inspection have in many states been extended 
 to churches, school-houses, hotels, theaters, and public 
 buildings. 
 
 The second group includes those laws which are usually 
 meant when factory acts are referred to. In England 
 there has been a very steady development and extension 
 of such legislation, beginning in 1802, when Peel's Act 
 tried to limit the hours and time of work of pauper ap- 
 prentices in the cotton mills ; this was extended to all 
 young people in textile industries in 1833, to women in 
 1844, tlien to all large industries in 1864, and to smaller 
 ones in 1867, and finally in 1878 these various provisions
 
 128 Business Economics 
 
 were codified into a complete factory act regulating the 
 health and safety of the laboring people generally. 
 
 In the United States the movement was considerably 
 later and has not been so uninterrupted. But today laws 
 limiting the number of hours of labor to eight for all 
 those engaged on public works have been passed by the 
 federal government and by most of the states. Attempts 
 to fix the hours of labor of adult male workers have 
 usually been declared unconstitutional, for the reasons 
 stated above, except in especially dangerous or unhealth- 
 ful establishments, such as bakeries, mines, smelters, and 
 similar lines. Consequently the men have been forced to 
 rely largely upon their own efforts for the redress of 
 industrial grievances ; in this fact lies one explanation of 
 the growth and strength of labor organizations in this 
 country. 
 
 On the other hand legislation in behalf of women and 
 especially children— wards of the state — has usually 
 been held constitutional by the courts and has had a more 
 extended application. More than half of the states of the 
 Union have regulated the length of the working day for 
 women and children. The tendency now is to limit the 
 working day for women to eight hours, and that of chil- 
 dren to even less. Child labor laws limit the age below 
 which employment is illegal, usually between 10 and 14 
 years, but even as high as 16 years. Within these ages 
 employment may be allowed only in exceptional cases by 
 means of an employment certificate or permit. A few 
 states require a physical and mental examination of the 
 child before the permit will be issued. There is a ten- 
 dency to require compulsory schooling of some kind until 
 the age of 16, either in the regular schools or in continua- 
 tion schools. All this labor legislation in behalf of women 
 and children is based upon the biological and ethical
 
 Woman and Child Labor 129 
 
 principles of the conservation of human resources and 
 the perfection of the race. 
 
 Along with all other legislation in behalf of labor, there 
 is a tendency to regulate the periods of rest for working 
 people, both for their own welfare and the safety of 
 society. In railroad work and in other work, a maximum 
 period of continuous employment is prescribed and a 
 certain period of rest is required between work periods 
 to allow the workmen to recuperate. This movement is 
 still further emphasized by the organized efforts for one 
 day of rest in seven. Modern industrial organization 
 does not permit the faithful observance of the Sabbath 
 as a day when all regular toil shall cease. The one-day- 
 of-rest-in-seven laws are designed to give every work- 
 man at least one day of rest in each week, letting that day 
 come at such a time as industrial or personal convenience 
 will permit. 
 
 Minimum Wage Legislation 
 
 One of the most recent tendencies of labor legislation 
 is the movement in behalf of minimum wage laws for 
 women and children. The example for such a law, which 
 was set by Massachusetts in 1911, has been followed by 
 other states and bids fair to become general. These laws 
 vary somewhat in character. Usually they provide for a 
 central state board which has charge of the enforcement 
 of the law. This board, either alone or with the assistance 
 of a local board made up of representatives of employers, 
 employes, and the public, determines upon a fair min- 
 imum wage in each of the industries of a locality. Some 
 of the boards have merely advisory powers and depend 
 upon mediation, publicity, and public opinion to carry 
 out the findings of the commission, while others have 
 compulsory administrative powers to carry out their or-
 
 130 Business Economics 
 
 ders, with the aid of the courts if necessary. In at least 
 one case, a fixed minimum wage has been prescribed in 
 the statute. The tendency, however, seems to be to pro- 
 vide a board with large discretionary administrative 
 powers. 
 
 These minimum wage laws are based upon the prin- 
 ciple that an industrial worker is entitled to a fair living 
 wage. The justice of such a claim cannot be gainsaid. 
 The question of what shall be done with those incapable 
 of earning the minimum wage, either because of deficien- 
 cies in training or physical disabilities, is a serious one. 
 It can probably be solved by allowing exceptions to the 
 law and wise administrative discretion in its enforce- 
 ment. In general we may conclude that by the passage 
 of such legislation, society has definitely decided that 
 there are some conditions of employment which cannot 
 safely be left to free contract or to collective bargaining 
 between employer and employe, but must be regulated by 
 society itself on the broad grounds of social welfare. 
 
 TEST QUESTIONS 
 
 1. What were some of the early origins of woman and child 
 labor? 
 
 2. What evils were connected with the early factory system 
 in England? 
 
 3. Are the women crowding the men out of their occupations 
 and taking their places? 
 
 4. What are the most important reasons for woman's low 
 wages in modern industry? 
 
 5. How does Mr. Bolen justify the employment of women ? 
 
 6. What are the chief evils of child labor? 
 
 7. Into what two classes may the factory acts be divided? 
 
 8. Why has the movement for enlightened labor legislation 
 been slower in the United States than in most European coun- 
 tries?
 
 Woman and Child Labor 131 
 
 9. What are some of the most common features of child labor 
 legislation ? 
 
 10. What are the essential characteristics of the minimum 
 wage legislation for women? 
 
 11. What evidence may be cited in proof of the contention that 
 the modern woman labor problem is chiefly a matter of the read- 
 justment of woman's work? 
 
 12. What biological and social questions are involved in woman 
 labor? 
 
 13. Why have the courts been more liberal in the construction 
 of laws regulating the labor of women and children than in the 
 interpretation of the laws regulating the labor of men ? 
 
 14. What is the significance of the one-day-of-rest-in-seven 
 movement?
 
 CHAPTER X 
 unemployment and insurance 
 
 Extent of Unemployment 
 
 The greatest problem in modern industry, as well as 
 the greatest curse to the laboring classes, is unemploy- 
 ment. While unemployment has always existed under 
 all systems of labor, it assumed added significance when 
 the introduction of the wage system threw every worker 
 upon his own resources and made him responsible for 
 the care of himself and his family. Modern industry is 
 sensitive and unstable, and its delicate mechanism is 
 very likely to get out of order; credit and fashion, to 
 mention no others, are factors that make for instability, 
 and these are essentially modern. Professor Marshall is 
 of the opinion that the factory system has not increased 
 inconstancy of employment, but has simply rendered it 
 plainer by localizing it. But whether more or fewer than 
 in earlier times, the number of the unemployed in mod- 
 ern industry is appallingly great. 
 
 It is not easy to estimate correctly the extent and 
 amount of this evil and we accordingly find considerable 
 variations in the statistical presentations of fact. In 
 1885 two investigations of the amount of employment 
 were made, one by Carroll D. Wright, in his report as 
 United States Commissioner of Labor for 1886, and the 
 other by the Massachusetts Bureau of Labor in its re- 
 port for 1887. Mr. Wright defined the unemployed very 
 
 132
 
 Unemployment 133 
 
 narrowly as "those who under prosperous times would 
 be fully employed, and who, during the time mentioned, 
 were seeking employment"; using the term in this re- 
 stricted sense, he concluded that 71/0 per cent of the 
 working population engaged in manufacturing and me- 
 chanical pursuits and trade and transportation were idle 
 during the year, which moreover he considered one of 
 extreme depression. The Massachusetts statistics, on 
 the other hand, were presented as indicative of general 
 conditions in normal years and may safely be regarded 
 as such. According to this report, 30 per cent of the total 
 number of breadwinners in the state had been unem- 
 ployed at their principal occupations on an average of 
 4.11 months in the year covered; some of these, however, 
 found work at other or secondary occupations. But the 
 net result of the investigation was well put in the terse 
 statement of the report that ''about one-third of the 
 total persons engaged in remunerative labor were unem- 
 ployed at their principal occupation for about one-third 
 of the working time." At the lowest estimate the 
 whole working population lost on the average almost one- 
 tenth of their working time. The loss of such a propor- 
 tion of the community's productive force, with all the 
 demoralization attendant upon irregular or no labor, is 
 evidence of a problem of grave import. 
 
 Classification' of the Unemployed 
 
 Unemployment is such a broad term and covers so 
 many different ideas that it will be well to classify the 
 unemployed before proceeding further. They may be 
 logically divided as follows :
 
 134 Business Economics 
 
 I. The temporarily unemployed 
 
 a. Those certain of work again (efficient workmen tem- 
 
 porarily out of work, owing to seasonal variations, 
 shut-downs, etc.) 
 
 b. Those without such a prospect 
 
 1. Efficient and industrious workmen thrown out of work 
 
 by change in fashion, introduction of new ma- 
 chinery, foreign competition, prolonged depres- 
 sion, etc. 
 
 2. Those whose Avork is naturally fluctuating and casual 
 
 in its nature (casual day-laborers, charwomen, etc.) 
 II. The permanently unemployed 
 
 a. The "won't works" (like tramps) 
 
 b. The "can't works" (defectives in general) 
 
 Such a classification renders much easier the analysis 
 both of the causes and of the cure of unemployment. 
 
 Causes of Unemployment 
 
 The first question that presents itself in any discussion 
 of the causes of unemplojTiient is whether it is due pri- 
 marily to personal causes, such as inefficiency or intem- 
 perance, or to industrial causes over which the individual 
 has no control. 
 
 Personal causes are those mental, moral, and physical defects 
 which show themselves either in the inability and inefficiency of 
 the workman or in his unwillingness to work. Here are included 
 all the varieties of personal inaptitude, ranging from idiocy, in- 
 temperance, and vice, to old age, sickness, and accident.^ 
 
 Such a comprehensive definition includes many cases, 
 of course, where no blame can be attached to the indi- 
 vidual, and yet each one of these causes is personal, that 
 
 1 Eeport of Industrial Commission, Vol. XIX, p. 746.
 
 Unemployment 
 
 135 
 
 is, it does not affect at the same time a whole group, as 
 an industrial depression would do. Persons included in 
 this group are always on the margin of employment; in 
 bad times they are the first to be discharged and in good 
 times they are the last to be employed. Nor is the cause 
 of their lack of employment always easy to give ; it may 
 be itself the result of industrial accident or unhealthful 
 occupation, or the result of heredity, evil habits and as- 
 sociations, and defective education. We may present two 
 tables giving brieflj^ the causes of poverty and unemploy- 
 ment. The first gives the causes of poverty ascribed by 
 the charity organization societies of New York, Boston, 
 and Baltimore to applicants for relief : 
 
 Causes of Poverty 
 charity organization society records ^ 
 
 Cause 
 
 Per Cent 
 
 Drink 
 
 13.7 
 7.5 
 2.1 
 
 
 Shiftlessness and ineflSciency 
 
 
 Other moral defects 
 
 
 Total, Character 
 
 23.3 
 
 
 
 No male support 
 
 5.0 
 3.6 
 
 
 Lack of other normal support 
 
 
 Total, Support 
 
 8.6 
 
 
 
 Lack of employment 
 
 23.5 
 8.1 
 3.3 
 
 
 Insufficient employment 
 
 
 Poorly paid, etc 
 
 
 Total, Employment 
 
 34.9 
 
 
 
 2 "Warner, American Charities, Eev. Ed., p. 53.
 
 136 
 
 Business Economics 
 
 Catjse 
 
 Pbk Cent 
 
 Sickness and death in family 
 
 21.1 
 4.1 
 3.9 
 4.1 
 
 
 Insanity and physical defects 
 
 
 Old aee 
 
 
 Other incapacity 
 
 
 Total, Incapacity 
 
 33.2 
 
 
 100. 
 
 100. 
 
 The first group of causes indicates misconduct and the 
 last group indicates misfortune ; the other two shade off 
 into industrial causes, though lack of employment — the 
 largest single cause — may in turn be ascribed to any one 
 of several remoter causes according to the bias of the in- 
 vestigator. This table is a record of the causes of failure 
 on the part of those who have fallen behind or dropped 
 out altogether in the race of life. At the other end of the 
 scale stand the members of labor organizations, on the 
 whole, the elite of the labor world. The following table 
 gives the causes of unemployment of 31,339 cases at the 
 end of September, 1900, as reported to the New York Bu- 
 reau of Labor Statistics : 
 
 Causes op Idleness, Members op Trade Unions, 1900 
 
 Cause 
 
 Pek Cent 
 
 No work 
 
 75.5 
 
 T^ad weather 
 
 .5 
 
 Strike or lockout 
 
 13.0 
 
 Sickness 
 
 4.7 
 
 Sunerannuation 
 
 1.6 
 
 Other causes 
 
 4.7 
 
 
 
 Total 
 
 100.0 
 

 
 Unemployment 137 
 
 This table emphasizes very strongly the industrial 
 causes of unemployment, three-fourths of which is as- 
 cribed to lack of work. In some cases, as among the iron 
 and steel workers, where there is a regular two months' 
 shut-down to make repairs, and in the building trades, 
 where the inclemency of the weather usually prevents 
 work during the winter, the lack of employment may be 
 regarded as a vacation rather than a hardship, for the 
 rates of pay are high enough during the remaining 
 months to offset those of idleness. In other cases, how- 
 ever, as in coal-mining, there is a large reserve army of 
 workers on hand and employment is secured from only 
 one-half to two-thirds the time. In 1900, when the aver- 
 age number of days of employment was larger than it 
 had been in ten years, the bituminous miners were em- 
 ployed only 234 days and the anthracite miners only 166 
 days in the year. This indicates a very bad organization 
 of the industry. The same thing was formerly true of 
 the London dockyards, where there was a reserve army 
 of some 4,000 surplus workers. Of course the effect of 
 this is to depress wages. The clothing trade is subject 
 to seasonal fluctuations and the caprice of fashion, where- 
 fore it offers very irregular employment. 
 
 Machinery and improved processes were frequently 
 spoken of by witnesses before the Industrial Commission 
 as the leading cause of unerfiployment. If the general 
 conditions of business are good at the time of the first 
 introduction of machinery, the displaced laborer is re- 
 absorbed again and the hardship is not so noticeable. 
 But if it coincides with a period of business depression, 
 the introduction of machinery appears to be the cause of 
 a large displacement of labor, which might more truly be 
 ascribed to industrial depression. This last cause is re- 
 sponsible for enormous suffering among the laboring
 
 138 Business Economics 
 
 classes, for the method oftenest resorted to by industrial 
 enterprises to reduce expenses is the wholesale discharge 
 of laborers, who are thus made to bear the burden of in- 
 dustrial disorganization. This was well illustrated by 
 the economies effected by the railroads in the year 1908, 
 in their general reduction of the labor force and of wages. 
 But even in good years the inconstancy of employment 
 is startling. In the four years 1897-1900 the men in trade 
 unions in New York State lost 16.2 per cent of their time 
 from unemployment, which is almost exactly one day in 
 every week. And these, it must be remembered, were 
 skilled and efficient workers in organized trades. Finally 
 strikes are given as a cause of unemplojmient in the table ; 
 these are a peculiar feature of modern industry and do 
 not call for further discussion, except to point out that 
 they are not so important as they are often represented 
 to be. 
 
 Remedies for Unemployment 
 
 The foregoing analysis of the causes of unemployment 
 shows that they are deep-seated in the nature of modern 
 industry and that it would be unjust to the workingman 
 to attribute them in any large measure to his incapacity 
 or indisposition to labor. The care of the unemployable 
 must of course be undertaken by society in order that 
 such persons may be prevented as far as possible from 
 depressing the wages of competent labor by their com- 
 petition. Exceptional periods of distress may and should 
 be met by temporary relief measures. But what we may 
 call the normal unemployment in modern industry, which 
 amounts to from 2 to 2i/4 per cent of the labor force, can- 
 not be overcome by direct methods. The remedy for this 
 lies "in a better organization of employers and employes, 
 more steady expansion of trade, and greater stability of
 
 Unemployment 139 
 
 industry and of legislation affecting industry. These are 
 not directly problems of unemployment, but rather of 
 taxation, currency, monopoly, immigration, overproduc- 
 tion, and technical advances in industry. Their treat- 
 ment must be undertaken, not primarily as measures of 
 providing for the unemployed, but as measures for im- 
 proving the conditions of business."^ 
 
 The problem of unemployment would thus seem to be a 
 permanent one, bound up in the very nature of a dynamic 
 society ; it may be regarded as the price of progress. But 
 the question may fairly be raised as to whether the labor- 
 ing classes should foot the bill or whether the cost might 
 not fairly be borne by society as a whole. This has sug- 
 gested, as a solution of the problem, insurance of work- 
 ingmen against unemployment, a discussion of which, 
 however, must be deferred to the end of the section. 
 Some methods of alleviation, if not of abolition, of the 
 evils of unemployment may be suggested. Free public 
 employment bureaus and agencies, national in scope and 
 well integrated, would do much to secure a better adjust- 
 ment of demand and supply in the labor market, and se- 
 cure a better distribution of the labor force and greater 
 mobility of labor. To prevent the loss through strikes 
 and lockouts, better organization and mutual understand- 
 ing on the part of both employers and employes is needed. 
 And finally, improved industrial and technical education 
 is essential, whereby the loss in skill through the intro- 
 duction of new inventions and machinery may be min- 
 imized and the productivity of the laboring class in- 
 creased. 
 
 Among the measures of relief for unemployment due 
 to accident, sickness, and old age, none is more important 
 
 3 Report of Industrial Comniission, Vol. XIX, p. 757.
 
 140 Business Economics 
 
 or more deserving of a hearing in the United States than 
 that of insurance against these evils. The earnings of 
 the average male wage-earner are so small — half of the 
 number earn annually less than $436, and half of the 
 adult male factory workers earn less than $400 a year — 
 that the unemployment, sickness, disablement, or old age 
 of the breadwinner must throw a large proportion of 
 families so afflicted into a condition of periodic poverty. 
 Any remedies that will alleviate the miseries caused by 
 fluctuations in employment, industrial accidents, diseases 
 incident to industry, etc., deserve a respectful hearing. 
 
 Industeial, Accidents 
 
 No adequate statistics of industrial accidents exist in 
 the United States, but a recent estimate by F. L. Hoff- 
 man ^ gave the number of fatal accidents among occu- 
 pied males in 1908 as between 30,000 and 35,000. An an- 
 alysis of the reports of the New York Bureau of Labor 
 Statistics from 1901 to 1906 shows that of the total num- 
 ber (39,244) of industrial accidents reported in that state 
 a little over 2 per cent were fatal, almost 17 per cent re- 
 sulted in permanent disablement, and 81 per cent resulted 
 in temporary disablement. More than half of the acci- 
 dents in industry are the result of machinery in motion. 
 Mr. Hoif man calculates that ' * it should not be impossible 
 to save at least one-third or perhaps one-half by intelli- 
 gent and rational methods of factory inspection, legisla- 
 tion, and control." Prevention of accidents rather than 
 compensation to the workingman after they occur should 
 be the aim of society, in order to avoid the wasteful loss 
 of productive power, not to mention the suffering and 
 misery entailed by such accidents. "Immunity, not com- 
 
 4 Bulletin of United States Bureau of Labor, Sept., 1908, p. 418.
 
 Unemployment 141 
 
 pensation," has been the demand of the British trade 
 unions. Of first importance then is careful factory legis- 
 lation, safeguarding of machinery, and factory inspec- 
 tion. 
 
 Marked advances have been made along these lines as 
 a result of governmental regulations and greater co-oper- 
 ation among factory inspectors, employers, and em- 
 ployes, and as a result accident rates have been very much 
 reduced during the last few years. A strong educational 
 campaign has been carried on by state labor bureaus and 
 various local and national societies as well as by em- 
 ployers themselves for the purpose of acquainting all 
 concerned with the possibilities of safety devices until 
 ''safety first" has become a popular byword. In order 
 to make even greater systematic advances along this line, 
 the liability insurance companies in 1913 established an 
 Accident Prevention Bureau for the purpose of studying 
 scientifically the possibilities of accident prevention and 
 making this information available for all concerned. As 
 a result of these appeals, based on considerations of 
 humanity and economy, great strides have been made for 
 the prevention of industrial accidents. Industry regards 
 more the sacredness of human life, recognizes the waste 
 in crippling or killing its trained workmen, and feels the 
 heavy burden of accident insurance and liability awards. 
 
 Legally and judicially we have been interested pri- 
 marily in the question of responsibility and compensa- 
 tion. Until recently legislatures and the courts have 
 taken the position that the workingman was responsible 
 unless he could prove the employer responsible for his 
 injury. The impossibility of such proof and consequently 
 the untenability of such a position are clear from the fol- 
 lowing table, compiled by the German Government for 
 purposes of accident insurance :
 
 142 
 
 Business Economics 
 
 Accidents in German Industries Traceable to Different 
 
 Causes 
 
 Causes 
 
 Agbictti.tuek 
 
 (1891) 
 
 INDTTSTBT 
 
 (1887) 
 
 Mining 
 
 (1887) 
 
 Fault of employer 
 
 18.2 
 24.4 
 20.1 
 2.8 
 34.5 
 
 19.8 
 
 25.6 
 
 4.4 
 
 3.3 
 
 46.9 
 
 1.3 
 
 Fault of injured workman .... 
 Fault of both 
 
 29.8 
 
 Fault of third person 
 
 Unavoidable or indeterminable. 
 
 4.3 
 64.6 
 
 Total 
 
 100.0 
 
 100.0 
 
 100.0 
 
 
 
 Causes of Accidents 
 
 Statistics from both Germany and Austria show that a 
 full half or more of all industrial accidents are due to 
 causes for which neither employers, injured workmen, 
 nor fellow employes are responsible, but which are inci- 
 dental to the nature of the industry itself. But besides 
 the danger of injury from machinery, there are numer- 
 ous specially dangerous or injurious trades in which 
 injury by poisoning, disease, etc., is almost unavoidable 
 as trade processes are at present conducted. These have 
 been classified as follows : trades in which lead is a 
 poisonous element, trades which produce other chemical 
 poisons, trades in which lockjaw is an incident, trades in 
 which the danger arises from injurious particles in the 
 air or from dust, processes that require a sudden change 
 from heat to cold and vice versa, those that require arti- 
 ficial humidity, and trades in which accidents are so fre- 
 quent as to demand special legislation. Before we try to 
 decide who in justice should bear the cost of sickness or 
 injury arising from these causes, let us inquire as to the
 
 Unemployment 143 
 
 practice in the United States and in other countries, so 
 as to have the data necessary for a fair conclusion. 
 
 Employers' Liability 
 
 The original legal doctrine regarding liability for acci- 
 dent in England and America, which until recently was 
 practically unmodified in the latter country, was based 
 on the principle of individual responsibility for acts of 
 negligence. Briefly stated the common-law doctrine is 
 that an employer must provide reasonably safe condi- 
 tions of employment and that then the employe assumes 
 the risks incident to the occupation or arising from the 
 carelessness of fellow-servants; moreover even if the 
 employer has been remiss, the employe cannot collect 
 damages if he has been guilty of contributory negligence. 
 These three doctrines — assumption of risk, doctrine of 
 the fellow-servant, and contributory negligence — have 
 been used practically to free the employer from all re- 
 sponsibility in cases where injured employes have sought 
 to secure damages. Moreover, as has been shown above, 
 many cases exist where it is impossible to fix the blame 
 on either employer, employe, or a third party, and in 
 such cases no compensation could be secured for injnry 
 under the law. The full rigor of the common law, which 
 has worked out so unfairly for the workingman in mod- 
 ern machine production, has been modified in most of the 
 states by statutes defining more exactly the duties of the 
 employer and repealing the fellow-servant doctrine in 
 certain lines of employment, notably in railroad work. 
 
 Workmen 's Compensation 
 
 Under the common-law doctrine, compensation for in- 
 dustrial accidents had to be sought by injured workmen 
 through a suit for damages against the employer. Re-
 
 144 Business Economics 
 
 covery was very uncertain for the workman and what he 
 did recover was largely consumed in legal expenses. In 
 1906 and again in 1908 Congress passed a federal em- 
 ployer's liability act limited to common carriers, which 
 was still based upon the principle of negligence ; that is, 
 it proceeds upon the assumption that somebody is to 
 blame for every accident that occurs. 
 
 A number of states have recently enacted workmen's 
 compensation acts, which are based upon the principle 
 that accidents are as much factors in the cost of produc- 
 tion and distribution as labor or material, and that there- 
 fore the consumer ought to bear the charge. Under these 
 laws the injured workman or those dependent upon him 
 are entitled to a regular schedule of pay for accidents. 
 Indemnities may be paid either by the employer carrying 
 his own risks, by indemnity insurance companies in which 
 the premiums are usually paid by the employers, by em- 
 ployers' mutual companies, or from a state fund to which 
 eacli industry contributes in proportion to its schedule 
 as an accident risk. In some states the compensation sys- 
 tem is compulsory. In others it is voluntary. In the 
 latter case the employer is usually deprived of the com- 
 mon-law defenses if he chooses not to accept the pro- 
 visions of the law. Some state laws provide that the 
 employes shall contribute a small amount to the insur- 
 ance fund. 
 
 Germany was the first country to introduce the princi- 
 ple of compulsory accident insurance in 1884. Employ- 
 ers are there organized into associations and sections and 
 are compelled to bear the expense of granting compen- 
 sation to injured workingmen, which compensation 
 amounts to about two-thirds of their average wages. In 
 1897 England, by the passage of the Workmen's Com- 
 pensation Act, adopted the principle "that a workman
 
 Unemployment 145 
 
 is entitled for all accidents of occupation to a moderate 
 and reasonable compensation." Practically all the ad- 
 vanced industrial nations of the world have passed laws 
 to compensate sufferers for all accidents in industry, 
 thus placing the burden of industrial accidents upon the 
 industry as such and not upon the laborer. 
 
 Sickness, Old-Age, and Unemployment Insurance 
 
 As we have seen, sickness and old age are still more 
 usual causes of poverty and unemployment than accident. 
 All the arguments for compulsory insurance therefore 
 apply with peculiar force to these evils, Germany was 
 again the pioneer in the establishment of these forms of 
 insurance. In 1883 sickness insurance was organized, 
 being made compulsory for all persons with incomes un- 
 der $500; one-third the expense is borne by the workers 
 and two-thirds by employers, the main purpose being to 
 secure a sufficient relief — amounting to one-half the wage 
 — for a period of thirteen weeks. In 1889 invalidity and 
 old-age insurance was introduced for the same class; 
 contributions are made in equal proportion by employe 
 and employer, the state contributing about $12 a year to 
 each annuity. Pensions are granted after thirty years 
 of payment or to those over seventy. 
 
 In 1908 Great Britain passed a still more comprehen- 
 sive measure, providing for a pension for all citizens of 
 seventy years or over who have been residents for twenty 
 years, in accordance with a sliding scale based upon pri- 
 vate income, the pensions ranging from five shillings 
 weekly down to one shilling. Finally, insurance against 
 unemployment was tried in Switzerland in 1893 to 1897, 
 but was finally abolished, owing to abuses and difficulty 
 of administration. The question, however, continues to 
 be a live one for discussion and legislative proposals.
 
 146 Business Economics 
 
 Old- Age Pensions in the United States 
 
 Old-age pension systems have made their beginnings 
 in the United States through various private and public 
 schemes. Many cities have established pension systems 
 for their public school teachers, policemen, and firemen. 
 There is a widespread agitation in favor of pensioning 
 all civil service employes of the cities, states, and nation. 
 Logically this movement cannot stop short of including 
 all industrial toilers who are in need of such support. 
 
 Already a number of private concerns have established 
 elaborate pension systems for the benefit of their em- 
 ployes. The great railroad systems were among the first 
 to make these provisions and today old-age pensions are 
 found on most of the roads. In the steel business Andrew 
 Carnegie had set aside a fund of $4,000,000 for the bene- 
 fit of the employes in his works. Later the United States 
 Steel Corporation dedicated $8,000,000 for this purpose 
 and consolidated the two in the United States and Car- 
 negie Pension Funds. The International Harvester 
 Company has a very comprehensive old-age and disable- 
 ment pension system. The Western Union Telegraph 
 Company on January 1, 1913, set aside $1,000,000 for this 
 purpose. Butler Brothers' Wholesale Houses have long 
 had such a plan in operation, and many similar systems 
 are to be found in other industries. Mention should be 
 made of the Carnegie pension system for superannuated 
 college and university teachers. , 
 
 These old-age pension systems w^hich have been estab- 
 lished by private concerns are not receiving general ap- 
 proval and especially not from the most immediate bene- 
 ficiaries, the laborers. The great objection to them is 
 that the workmen do not receive these benefits of right. 
 These corporations cannot afford to provide these bene-
 
 Unemployment 147 
 
 fits as a system of charity distribution. They must re- 
 ceive some financial return for their outlay in the form of 
 steadier and more faithful emplo^nnent as well as greater 
 loyalty from their workmen. The pension relief plans 
 are usually beset with conditions which limit the freedom 
 of the laborer in his efforts for self-improvement. The 
 pension system often acts as a system of intimidation, 
 in that workmen must not ask for higher wages, shorter 
 hours, better working conditions, or even participate in 
 labor union activities, of which some of these firms dis- 
 approve, under penalty of arbitrary discharge from serv- 
 ice, even after long years of employment, and loss of 
 their pension privileges. For these reasons private pen- 
 sion schemes cannot satisfy the strong social demand for 
 old-age benefits. 
 
 There are probably no more important practical eco- 
 nomic problems than those connected with unemployment 
 and workingmen's insurance. Slowly the conviction has 
 spread that under present conditions of industry work- 
 ingmen cannot fairly be held responsible for industrial 
 accidents, and that with prevailing wages they cannot be 
 expected to save enough to maintain themselves in sick- 
 ness and old age. It therefore becomes the duty of so- 
 ciety so to organize industry and legislation that the 
 terrors of accidents, sickness, and old age shall be re- 
 duced to a minimum. 
 
 TEST QUESTIONS 
 
 1. How does Carroll D. Wright define unemployment? 
 
 2. According to Professor INIarshall, what has been the effect 
 of the factory system upon unemployment? 
 
 3. How may the unemployed be classified? 
 
 4. What are the chief causes of unemployment?
 
 148 Business Economics 
 
 5. How can the modern employer help to reduce unemploy- 
 ment among laborers? 
 
 6. What are some of the economic changes necessary to re- 
 duce unemployment? 
 
 7. Is there any educational problem connected with unem- 
 ployment ? 
 
 8. According to statistics, what are the chief causes of indus- 
 trial accidents? 
 
 9. What is meant by the doctrine of assumption of risk? 
 
 10. What is meant by the doctrine of the fellow-servant? 
 
 11. What is meant by the doctrine of contributory negligence? 
 
 12. Why are these three doctrines in their old common-law 
 form unjust to labor in modern business ? 
 
 13. How has the movement toward workmen's compensation 
 legislation remedied these evils? 
 
 14. To what extent are sickness, old age, and unemployment 
 cared for in Germany ? In England ? In the United States ?
 
 CHAPTER XI 
 machinery and industrial efficiency 
 
 Evils of Machinery 
 
 So far in the discussion of modern capitalistic produc- 
 tion and of the various labor problems to which it has 
 given rise we have not treated in detail the question of 
 machinery and its effects on labor. We cannot, however, 
 leave this subject without taking up this phase of it with 
 considerable care. The advantages of machinery have 
 been more often emphasized than the evils; so we may 
 profitably begin with the darker side of the picture. Pres- 
 ident Hadley ^ enumerates three evils which are charged 
 against machinery as now managed and operated : 
 
 1. That it displaces a large amount of human labor, thus tak- 
 ing income away from employes and giving it to employers. 2. 
 That when it does not actually drive human labor out of use, it 
 employs it in circumstances unfavorable to efficiency, health, 
 and morals. 3. That under the best conditions it deprives the 
 workman of independence, making him a specialized machine 
 instead of a broad-minded man. 
 
 We cannot do better than take up these points one by 
 one. 
 
 Displacement of Labor by Machinery 
 
 In answer to the first charge President Hadley flatly 
 denies that machinery has displaced labor, but insists that 
 
 1 Economics, p. 337. 
 
 149
 
 150 Business Economics 
 
 ''there has been a most conspicuous increase of employ- 
 ment in those lines where improvements in machinery 
 have been greatest," giving the expansion of railroads as 
 an illustration. But it is not possible to generalize from 
 this case without further analysis. The immediate effect 
 of improved machinery, especially if suddenly intro- 
 duced, is practically always to throw men out of employ- 
 ment. The extent to which this will occur depends on the 
 suddenness and extensiveness of the change, but fortu- 
 nately, as Professor Nicholson points out, new inven- 
 tions seldom come suddenly or are introduced all at once 
 on an extensive scale. It took almost a generation, for 
 example, for American machine methods to displace 
 Swiss hand labor in the making of watches. But when 
 such a change does occur it hits hardest the least efficient 
 and older men, those just on the margin of employment, 
 for a man past middle life can rarely learn a new trade. 
 The effect of displacement in causing suffering will 
 also depend somewhat (1) upon the mobility of labor, 
 (2) upon the knowledge of new opportunities and the 
 capital to make possible a change of location or industry, 
 and (3) upon improvements in the means of transporta- 
 tion. It can easily be shown that as a general principle 
 the lump-of-labor theory — namely, that there is just so 
 much work to be done and that if machinery is introduced 
 for this purpose there will be less work for men to do, is 
 erroneous. But there is this element of truth in it, that 
 the question whether or not men will be reabsorbed in 
 the same industry depends upon whether or not the mar- 
 ket for the goods produced by the new machine can be 
 expanded. If the demand is elastic, that is, can be largely 
 extended because of the fall in price brought about by 
 the cheaper production, as in the case of cotton goods, 
 then the displaced laborers will probably be re-employed
 
 Industrial Efficiency 
 
 151 
 
 to produce an enlarged supply. If, however, the demand 
 is inelastic, that is, will not be expanded by reason of a 
 fall in price, as in the case of salt or coffins, then the dis- 
 placed labor will not be reabsorbed in the same industry 
 but must look elsewhere for employment. 
 
 Is New Employment Created? 
 
 The elaborate investigation of the Department of La- 
 bor in 1898 regarding the relative merits of hand and 
 machine labor shows clearly the effect on the displace- 
 ment of labor by the introduction of machinery. A few 
 cases will serve as illustrations. 
 
 Hand and Machine Methods Compared 
 
 Year of 
 Produc- 
 tion 
 
 Articles 
 Produced 
 
 W H « 
 «<ip 
 
 fc a fe 
 
 
 Time Worked 
 
 Hours 
 
 Minutes 
 
 
 1829-30 
 1895-96 
 
 1859 
 1895 
 
 1850 
 1895 
 
 1891 
 1896 
 
 Wheat (hand) 
 
 Wheat (machine) 
 
 Boots (hand) 
 
 Boots (machine) 
 
 Carpet (hand) 
 
 Carpet (machine) 
 
 Loading ore (hand) 
 
 Loading ore (machine) . . . . 
 
 8 
 
 4 
 
 61 
 
 5 
 
 5 
 
 6 
 
 3 
 
 19 
 
 83 
 
 2 
 
 1436 
 
 40 
 
 122 
 
 113 
 
 154 
 
 5 
 
 15 
 
 18 
 
 4047 
 
 30 
 
 41 
 
 81 
 
 509 
 
 1 
 
 1 
 
 1 
 
 200 
 
 
 
 3 
 
 10 
 
 2 
 
 51 
 
 $3.55 
 .66 
 
 408.50 
 35.40 
 
 20.24: 
 .29 
 
 40.00 
 .55 
 
 These cases, chosen at random, all show an increase in 
 the number of different men employed and an immense 
 saving in time and in labor cost. Nothing is indicated 
 however as to the total amount of employment. Opti-
 
 152 Business Economics 
 
 mistic writers like Carroll D. Wright claim that if ma- 
 chinery has displaced labor in one direction it has created 
 more employment for them in others. He shows for in- 
 stance ^ that in 1830 the per capita consumption of cot- 
 ton in this country was 5.9 pounds, while in 1890 it was 
 19 pounds, and gives similar figures for iron and steel 
 and railroad traffic. It will be noticed that all of his 
 examples are chosen from industries in which the de- 
 mand is elastic. 
 
 Mr. J. A. Hobson, a more careful and conservative 
 writer, draws less optimistic conclusions from a study of 
 Great Britain. He says : 
 
 First, so far as the aggregate of manufactures is concerned, 
 the net result of the increased use of machinery has not been to 
 offer an increased demand for labor in those industries com- 
 mensurate with the growth of the working population. Second, 
 an increased proportion of the manufacturing population is 
 employed either in those branches of the large industries where 
 machinery is least used, or in the smaller manufactures which 
 are either subsidiary to the large industries, or are engaged in 
 providing miscellaneous comforts and luxuries.^ 
 
 It must be said, however, in modification of Mr. Hob- 
 son's inferences, that it may be accounted as a social gain 
 if the demand for manufactured commodities can be met 
 by the labor of a smaller proportion of the population, 
 since the energies of the rest are then set free for pro- 
 fessional or artistic or similar pursuits. A study of the 
 census reports of Great Britain seems to show that this 
 is what has happened in that country. 
 
 2 Industrial Evolution of the United States, chap. 28. 
 
 3 Evolution of Modern Capitalism, p. 229.
 
 Industrial Efficiency 153 
 
 Irregularity of Employment 
 
 The amount of labor is not the only factor to be con- 
 sidered; the regularity of employment, as we saw in the 
 last section, is of hardly less importance. Professor 
 Nicholson says : * 
 
 Another danger of an entirely opposite kind lurks in this 
 immense power of machinery, which is continually showing its 
 reality and remedies for which will, it is to be feared, be the 
 fruit of long years of tentative adaptation to the new environ- 
 ment. What all sensible workingmen desire, what the advo- 
 cates of the trade unions say is their chief object, is to get a 
 ''steady sufficient wage," but it has been proved inductively that 
 great fluctuations in price occur in those commodities which 
 require for their production a large proportion of tixed capital. 
 These fluctuations in price are accompanied by corresponding 
 fluctuations in wages and irregularity of employment. But 
 fluctuations in wages and discontinuities in employment are two 
 of the greatest evils which can befall the laboring classes. 
 
 We have already seen how modern capitalistic meth- 
 ods of production may lead to overproduction and to a 
 crisis. We now see how machine methods may cause un- 
 employment or irregular employment. The men dis- 
 placed directly by new machinery, those thrown out of 
 work by industrial depression resulting from over- 
 production in machine industries, and finally those irreg- 
 ularly employed in the new occupations supplying 
 luxuries — all of these may fairly attribute their suffer- 
 ing in large measure to machine methods. 
 
 Lowering of the Grade of Labor 
 
 The second great charge made against the factory system is 
 that it displaces a higher grade of labor by a lower grade ; some- 
 
 * The Effects of Machinery on Wages, p. 65.
 
 154 Business Economics 
 
 times substituting the work of women and children for that of 
 men; sometimes substituting work under conditions physically 
 or morally unhealthful, for work under healthful conditions; 
 sometimes substituting specialized and mechanical work for 
 diversified occupation which contributes to general intelligence. 
 
 The point as to the labor of women and children has 
 already been discussed. The charge that factory labor is 
 physically unhealthful may in general be denied. Mr. 
 Wright, in an elaborate defense of the factory system in 
 the Tenth Census, concluded that the conditions of work 
 in the modern factory are much more conducive to good 
 health than those under the preceding domestic system, 
 while morally they are far superior. The qualities de- 
 manded by the machine production of the modern factory 
 are punctuality, steadiness, reliability, and sobriety, and 
 it therefore makes against intemperance and immorality. 
 So far as these exist in factory towns, they are the result 
 of town life rather than of manufacturing. It must, 
 however, be said that while the factory system is not in- 
 herently unhealthful, the high pressure at which oper- 
 atives of steam-driven machinery are compelled to work^ 
 particularly in this country, may and often does wear 
 them out prematurely. This again is partially offset by a 
 shortening of the hours of labor. 
 
 MONOTON-y OF WOKK 
 
 The final charge against the factory system is monot- 
 ony of work. Many writers, from Adam Smith down, 
 take the view that it is more stupefying to make a small 
 part of an article, say the sixty-fourth part of a shoe, 
 than to make the whole article. Professor Marshall, who 
 has considered the subject carefully,^ concludes that while 
 
 5 Principles of Economics, Vol. I, p. 315.
 
 Industrial Efficiency ' 155 
 
 it takes away manual skill, it substitutes higher or more 
 intellectual forms of skill. "The more delicate the ma- 
 chine's power the greater is the judgment and careful- 
 ness which is called for from those who see after it." 
 But after all there is less danger from monotony of work 
 than from monotony of life, and the cure for this would 
 seem to be in an increase of machinery rather than in 
 its abolition. 
 
 Conclusions as to Machinery 
 
 Let us now try to summarize our conclusions on this 
 intricate question. The first effect of the introduction of 
 labor-saving machinery is to displace particular laborers; 
 these suffer real injury, though they are often reabsorbed 
 in the industrial organism. The social gain is undoubted, 
 for the improved methods lead to lower prices and thus 
 to an increase in the real wages of labor. To the im- 
 provement and wider use of machinery we must indeed 
 look for the ultimate relief of the human race from ex- 
 hausting toil. Says a socialist writer : 
 
 On mechanical slavery, on the slavery of the machine, the 
 future of the world depends. * * * j^w unintellectual 
 labor, all monotonous, dull labor, all bibor tliat deals with dread- 
 ful things, and involves unpleasant conditions, must be done by 
 machinery. Machinery must work for us in coal mines, and do 
 all sanitary services, and be the stoker of steamers, and clean the 
 streets, and run messages on wet daj^s, and do anj^lhing that is 
 tedious or distressing. 
 
 If labor today has a complaint to make against the use 
 of machinery, it is that labor has not shared sufficiently 
 in the improvements thus far effected. But the evil here 
 is connected with the inequitable distribution of wealth, 
 not with the methods of its production. In justice labor
 
 156 Business Economics 
 
 should share in the technical improvements which char- 
 acterized the nineteenth century and which w^ill revolu- 
 tionize to a still greater extent the industries of the twen- 
 tieth. The practical question in this connection is as to 
 the best method for labor to secure its claim to a share in 
 the increased production. One answer, to which we shall 
 turn next, is by increasing its efficiency through better 
 industrial education and training. 
 
 Industrial Education 
 
 The subject of industrial education has recently been 
 receiving considerable attention in the United States and 
 the needs and shortcomings of our country in this regard 
 have been described. Under modern methods of produc- 
 tion, with their extreme specialization of labor and ex- 
 tended use of machinery, it is practically impossible for 
 a worker to secure an adequate knowledge of a trade in 
 the actual practice of it. In former days boys acquired 
 training in their trades by the system of apprenticeship 
 under the immediate charge of a master of the craft. 
 The system of apprenticeship has today almost disap- 
 peared; boys are taken into shops as helpers, not as ap- 
 prentices, and receive practically no systematic instruc- 
 tion in their trade, especially in a large modern estab- 
 lishment. In consequence of these facts it is insisted that 
 school instruction should be given to make good the ab- 
 sence of shop practice; that a general system of indus- 
 trial education should be developed to give our working- 
 men systematic training in the various trades. The su- 
 periority of the opportunities for industrial education on 
 the continent of Europe, especially in Germany, has been 
 frequently emphasized, and Germany's industrial ad- 
 vance has been credited in large measure to this fact. 
 We can probably not approach 'the subject better than
 
 Industrial Efficiency 157 
 
 by explaining the systems in these other countries and 
 then comparing them with that of the United States. 
 
 INDUSTRIAL EDUCATION IN GERMANY 
 
 Beginning with Germany as the country in which in- 
 dustrial education has received the greatest attention, we 
 find there three different kinds of schools, which we may 
 call the lower, middle, and higher. The lower group in- 
 cludes artisan and specialized trade schools, and is in- 
 tended to be a substitute for the apprenticeship system. 
 While they have an important influence on the general 
 industrial eiSciency of the nation, they concern chiefly the 
 small handicrafts. The middle group comprises the trade 
 schools (Gewerbeschulen), of which the most famous are 
 the weaving and dyeing schools at Chemnitz; other 
 branches taught are soap-boiling, milling, building, pot- 
 tery, etc. These are the schools which provide technical 
 instruction for the large manufacturing industries, and 
 are consequently of great importance; they train the 
 foremen, superintendents, managers, and heads of estab- 
 lishments rather than the workingmen. The higher 
 group is formed of the technical high schools or tech- 
 nological institutes, where the scientific experts are 
 trained. The importance of the German system lies in 
 the development of the last tAvo groups rather than in 
 provision for the training of the workmen. Germany's 
 recent industrial advance must be credited to the train- 
 ing of the officers, not the rank and file, in the industrial 
 army, to the development of managerial ability rather 
 than of manual skill. The splendid systems of continu- 
 ation schools, which have been established in many cities, 
 are however endeavoring to raise the general standard of 
 intelligence and efficiency of the rank and file as well as 
 to prepare them for definite trade positions.
 
 158 Business Economics 
 
 INDUSTRIAL EDUCATION IN ENGLAND 
 
 In England the last twenty years have seen a mar- 
 velous development in industrial education, brought 
 about in part by the "made in Germany" agitation. The 
 English system of industrial education differs from the 
 German. It attempts to educate working-class boys, 
 while at work in the mill or at the forge, to be foreman, 
 managers, etc., mainly by means of evening classes in 
 trade or technical schools. The German system, on the 
 other hand, trains men who already have a superior gen- 
 eral education. These schools are regarded as stepping- 
 stones for the more ambitious and intelligent young 
 workingmen. They give a practical grasp of the sub- 
 jects, but do not teach actual processes of manufacture, 
 owing to trade union objections. They thus come be- 
 tween the lower and middle schools in Germany. The, 
 higher technical schools also exist and have recently been 
 greatly expanded. 
 
 INDUSTRIAL EDUCATION IN THE UNITED STATES 
 
 The system of industrial education in the United 
 States may be said to resemble that of Germany more 
 than that of England, as it supplies industries from above 
 rather than from below, but it is in a very chaotic state 
 as yet. The most important schools are institutes of 
 technology and the technical departments of the univer- 
 sities, but these train men only for the highest positions. 
 Along this same line, colleges and universities have es- 
 tablished courses, departments, and schools in business 
 administration for the purpose of training for the higher 
 administrative and industrial positions. Provisions for 
 the individual training of the workmen are gradually be- 
 ing made, notably in manufacturing centers. Thus there
 
 Industrial Efficiency 159 
 
 are a few trade schools resembling somewhat those in 
 the middle German group, as the textile schools at 
 Philadelphia, Lowell, and a few other cities. Lower 
 grade schools and industrial high schools are found in 
 nearly all large cities. Instruction in agriculture is 
 given in a great many states in the public schools and in 
 special agricultural schools. 
 
 A considerable beginning has therefore been made in 
 industrial education, but it is still inadequate to supply 
 the needs of the country. The work that is being given 
 has not reached its highest possibilities for usefulness 
 in that the contents of the courses are not always the best 
 and the methods of instruction are crude. There is a 
 great shortage of well-trained teachers as well as a want 
 of a clear perception of purposes and ends. That there 
 is a distinct need of and demand for instruction of this 
 character is shown by the enormous expansion of corre- 
 spondence schools, a peculiarly American institution, 
 which endeavor to give the training afforded by the Eng- 
 lish schools to the more ambitious young artisans. 
 
 Need of Better Training 
 
 So far in their industrial development the people of 
 the United States have been immensely aided by two fac- 
 tors: (1) the rich natural resources of the country and 
 (2) the high quality of the labor. But as we have already 
 seen, the natural resources are being either rapidly ex- 
 hausted or monopolized. As to the character of the sec- 
 ond factor, we may quote from the testimony of a recent 
 careful observer, Dr. A. Shadwell : ^ 
 
 The American method of work in the industrial sphere is 
 distinguished by the following features: enterprise, audacity, 
 
 c Industrial Efflciency, Vol. II, p. 451.
 
 160 Business Economics 
 
 push, restlessness, eagerness for novelty, inventiveness, emula- 
 tion, and cupidity. Employers and employed have exhibited 
 the same qualities in their degree. 
 
 But they suffer "from the national defect of want of 
 thoroughness, which arises from the craving for short 
 cuts." Now that American industries are entering the 
 markets of the world in international competition, it be- 
 comes important to correct any faults that will cause us 
 to fall behind. 
 
 The movement for better industrial education through 
 the establishment of trade schools has met two obstacles 
 in this country. The first is the hostility of the trade 
 unions, which fear to see their control of the labor mar- 
 ket disturbed by the annual turning out of hundreds or 
 thousands of workers from the trade schools without any 
 special sjmipathy with trade union methods or policies. 
 The other difficulty lies in the satisfaction with prevail- 
 ing methods, the belief that the American workman with- 
 out training possesses skill superior to that of his Euro- 
 pean competitors, and a naive national self-conceit in all 
 things American. Now that we are for almost the first 
 time in a hundred years measuring our industrial effi- 
 ciency in foreign markets against our European com- 
 petitors, we shall be compelled to take stock of all the 
 items that make for industrial supremacy. There seems 
 to be little doubt that when this is once fairly done, the 
 need of a better system of industrial education will be 
 reco2Tiized and met. 
 
 'o-" 
 
 TEST QUESTIONS 
 
 1. What three evils are often charged against machinery? 
 
 2. What three factors have an influence on the suffering that 
 is caused by displacement of labor when new machines are in- 
 troduced ?
 
 Industrial E-fficiency 161 
 
 3. According to the investigation of the Department of Labor, 
 what effect does the introduction of machinery have on the 
 displacement of labor? 
 
 4. How may machine methods cause irregularity in wages 
 and employment? 
 
 5. Does the introduction of labor-saving machinery lower the 
 grades of labor? Illustrate. 
 
 6. What can you say concerning the charge often made against 
 machinery, namely, that it makes labor monotonous? 
 
 7. Show the need of a system of industrial education in the 
 United States. 
 
 8. What is the system of industrial education which exists in 
 England ? 
 
 9. How does the German system of industrial education differ 
 from the English? 
 
 10. What is the situation with respect to industrial education 
 in the United States? 
 
 11. How does foreign competition compel us to pay attention 
 to the problem of industrial education?
 
 CHAPTER XII 
 profit-sharing and co-operation 
 
 The Nature of Profit-Shaeing 
 
 Among the reforms suggested for remedying some of 
 the evils incident to the modern wage system those of 
 profit-sharing and co-operation occupy a prominent 
 place. The separation of the community into capitalists 
 and laborers, classes different in conditions and ideals, 
 constitutes a menace to the peace and progress of-indus- 
 trial society. The wage system, moreover, is thought 
 by many to have broken down the former intimate rela- 
 tion of employer and worker, and some scheme is needed 
 to correlate their interests again and to bind them to- 
 gether. To secure this result profit-sharing is advocated. 
 
 As defined by the International Co-operative Congress 
 in 1897 this is "the agreement, freely entered into, by 
 which the employe receives a share, &xed in advance, of 
 the profits." It is not a change from the present wage 
 system, but simply a modification of that system, accord- 
 ing to which the laborer receives a share in the profits 
 in addition to his wages. The purpose is to identify the 
 interests of the employes with those of their employer 
 and thus give them some of the same motives for energy, 
 care, and thrift in the conduct of the business. Three 
 principal methods of profit-sharing may be mentioned, 
 though the variations are manifold. The favorite 
 method in England and the United States is the payment 
 
 162
 
 Profit-Sharing 163 
 
 of a cash bonus at the end of a fixed period, such as a 
 year. A second plan, which is the rule in France, is a 
 deferred participation by means of a savings bank de- 
 posit, provident fund, or annuity, for the purpose of 
 providing for old age and disability. The third plan, 
 which has recently grown in favor in this country, is the 
 payment in shares of stock of the company. 
 
 Advantages of Pkofit-Shaeing 
 
 The economic theory of profit-sharing is that by induc- 
 ing greater care and diligence on the part of the employe 
 he will himself create the fund from which he is paid. 
 It is claimed by its advocates that it increases both the 
 quantity and the quality of the product and that it pro- 
 motes greater care of implements and materials, thus re- 
 ducing the cost at the same time that it increases the out- 
 put. The classic example of this is the case of the origi- 
 nal profit-sharing scheme, the Maison Leclaire, in Paris : 
 the result of the first six years' experiment w^as a divi- 
 dend on wages of $3,753 a year, derived entirely from the 
 increased economy and care of the workers. 
 
 In some cases, however, the object of the employers is 
 to secure immunity from strikes and other labor disturb- 
 ances and a greater permanence of the labor force ; par- 
 ticipation in profits is conditioned upon the men's abstain- 
 ing from joining a trade union or upon uninterrupted 
 service. In these cases the deferred participation plan is 
 used. The advantages claimed for the system are not 
 merely the increase in product already spoken of and the 
 greatest efficiency of the worker, but also the improve- 
 ment in his material and moral standards and the promo- 
 tion of industrial peace by lessening discontent and fric- 
 tion. The main basis for the system, since it is economic
 
 164 Business Economics 
 
 and not philanthropic in its nature, must of course be 
 the increase in production brought about by its adoption. 
 
 Objections to Pkofit-Sharing 
 
 benefits uncertain 
 
 More weighty, however, appear the objections against 
 profit-sharing, which seem to have had sufficient force to 
 cause the failure of a number of ventures in this direc- 
 tion. In the first place the relation between the in- 
 creased effort of a single workman and the success of a 
 general business is so remote, especially in our compli- 
 cated modern industry, that it is unlikely to act as a very 
 powerful stimulus. Bjit even if it should, the savings 
 thus effected might be swept away by the poor business 
 management of the employer. 
 
 It is quite possible that the workman who, in the hope of 
 earning "bonus to labor," has done work 10 per cent in excess 
 of the normal standard, may, even under a liberal scheme, find 
 that, instead of receiving an addition to his normal wages of, 
 say, 7 per cent, the bad management of his employer has re- 
 duced his bonus to so low a level that he has to be content with 
 a supplement equivalent to only 2 per cent on his wages, or 
 that, as has been the case in a large proportion of the schemes 
 * * * no bonus whatever is forthcoming.^ 
 
 It is undesirable to make the earnings of the laborer 
 dependent in any way upon the fluctuations of business 
 or the ability of the employer. The ordinary wage sys- 
 tem has at least the merit that the reward of the laborer 
 is made dependent only on his own efforts. The lot of 
 the modern worker is too unstable and employment too 
 
 1 Schloss, Methods of Industrial Remuneration, p. 305.
 
 Profit-Sharing 165 
 
 unsteady to add a new element of uncertainty in wages. 
 If the laborer has really earned the premium, say labor 
 leaders, why not add it to his wages instead of adopting 
 this roundabout method? The sliding scale, or a system 
 of premiums or bonus payments for increased output, 
 would be better than profit-sharing, and is rapidly 
 spreading. 
 
 LIMITS FREEDOM OF LABOR 
 
 This leads to the second objection, namely, that profit- 
 sharing paralyzes the efforts of the laborers to better 
 their own conditions through trade unions, strikes, or 
 other methods. The trade union attitude was vigorously 
 stated by President Gompers, of the American Federa- 
 tion of Labor, in his testimony before the Industrial 
 Commission : ^ 
 
 There have been few, if any, of these concerns which have 
 been even comparatively fair to their employes. * * * They 
 made the work harder, longer hours, and when the employes 
 of other concerns in the same line of trade were enjoying in- 
 creased wages, shorter hours of labor, and other improvements, 
 tending to the material progress of the worker, the employes of 
 the concern where so-called profit-sharing was the system at 
 the end of the year found themselves receiving lower wages for 
 harder work than were those who were not under that beneficent 
 system. 
 
 As long as the system is viewed with suspicion by the 
 laborer or used as a weapon in industrial bargaining by 
 employers, the plan is foredoomed to failure. But even 
 were it managed in the proper spirit, it is after all appli- 
 cable to only a comparatively few industries, namely, 
 
 zEeport, Vol. VII, p. 644.
 
 166 Business Economics 
 
 those in which labor makes up the largest part of the cost 
 of production. In most modern industries capital plays 
 such an important role as compared with labor that the 
 field for this plan is comparatively limited. 
 
 Future of Profit-Sharing 
 
 In the actual practice of profit-sharing there have been 
 many interesting experiments and not a few failures. It 
 may be said to date from 1842, when M. Leclaire, a Pari- 
 sian painter and house decorator, introduced it into his 
 business. The practice has since spread over France 
 and England ; it has met with little success in the rest of 
 Europe. In the United States the movement has been 
 more recent and of smaller proportions. The reason for 
 this is suggested by President Hadley as follows : ^ 
 
 Where the laborers under the old wage system are not work- 
 ing up to a high standard of efficiency, there is more chance for 
 the success of profit-sharing. This seems to be the reason why 
 it works better on the Continent than in England, and better in 
 England than in America. 
 
 The United States Steel Corporation has adopted a 
 system of profit-sharing which benefits only managers 
 and those higher up in the service. This plan attempts to 
 encourage efficiency in production by increasing the in- 
 terest and efficiency of management. 
 
 The future of profit-sharing seems uncertain, A great 
 many of the schemes which have been tried at one time 
 or another have been abandoned. Labor will probably 
 continue to oppose profit-sharing schemes which do not 
 aim toward labor partnership in industry. Such a sj'^s- 
 tem has been adopted in the South Metropolitan Gas 
 
 3 Economics, p. 377,
 
 Profit-Sharing 167 
 
 Company, England, where the laborers are permitted to 
 elect three of the members of the board of directors. In 
 this direction, as a step to a full partnership of labor in 
 industry, there may be a greater future in profit-sharing. 
 
 Co-OPERATION 
 
 More far-reaching than profit-sharing, which involves 
 only a change in the method of payment of wages, is co- 
 operation, which involves a change of management as 
 well. Its final goal, in the minds of its advocates, is the 
 radical modification if not ultimate abolition of the pres- 
 ent wage system. While profit-sharing is paternalistic 
 and is directed to an increase of production, co-operation 
 may be said to be democratic and to aim at a more equit- 
 able distribution. Under this plan the laborers hope to 
 divert to themselves the large amount of profits which 
 they now see going into the possession of their employ- 
 ers. By eliminating the manager or enterpriser they 
 hope to save his profits for themselves. Three different 
 kinds of co-operation are usually distinguished: (1) dis- 
 tributive or consumers' co-operation, (2) producers' co- 
 operation, and (3) financial co-operation for credit, bank- 
 ing, etc. We may take these up in turn. 
 
 Consumers' Co-operation in England 
 
 Successful consumers' co-operation may be said to 
 have originated in Great Britain when twenty-eight 
 Rochdale workingmen founded their famous society of 
 Equitable Pioneers. The success and growth of this re- 
 markable experiment, starting in 1844 with a capital of 
 £28, to a system of 8,000 members, with a capital of £200,- 
 000 in 1874, is a most romantic story. It was largely imi- 
 tated and retail co-operative stores sprang up all over 
 England. It is estimated that at the present time about
 
 168 Business Economics 
 
 a third of the population of England is supplied through 
 co-operative stores, and that these stores return annually 
 about $60,000,000 into the pockets of the workingmen. 
 These savings are often used to build homes, and thus the 
 co-operators actually ''eat themselves into house and 
 home." These results are in accord with the ideals of 
 the pioneers of the movement, who were more than store- 
 keepers and penny-savers. They were noble-spirited 
 men who looked upon the co-operative system as a great 
 workingmen 's betterment movement. 
 
 English co-operative stores soon discovered their abso- 
 lute helplessness against the wholesaler and the jobber. 
 They were often discriminated against and always felt 
 that these distributors constituted another group of mid- 
 dlemen enterprisers that ought to be eliminated. In re- 
 sponse to these needs and feelings, the English Co-Oper- 
 ative Wholesale Society was organized in 1864, for the 
 purpose of joint purchase of supplies for the retail co- 
 operative stores. It effected large savings and was suc- 
 cessful from the beginning. In 1911 the English Co-oper- 
 ative Wholesale Societies reported a business of about 
 $250,000,000. The Scottish Wholesale Society was or- 
 ganized upon the same plan and has been equally suc- 
 cessful. 
 
 From buying, the society soon passed to making its 
 own goods and now manufactures a long list of commod- 
 ities, thus establishing its economic independence and 
 completing the industrial chain. The society already 
 owns and operates the largest flour mills and the largest 
 boot and shoe factories in England. These factories are 
 owned by the co-operative society as the enterpriser. 
 They are not conducted upon any system of co-operative 
 production, but work just as any other capitalistic plant
 
 Profit-Sharing 169 
 
 would. The profits go to the co-operators as consumers, 
 not as producers. 
 
 Experiments in the United States 
 
 In the United States experiments of this kind have in 
 general had only a brief existence thus far. It is impos- 
 sible to say how many such societies exist today, as no 
 adequate statistics on the subject exist. Trade union 
 stores in New England, the grange stores of the Patrons 
 of Husbandry, and later similar ones of the Sovereigns 
 of Industry show what has been attempted along one 
 line. Three distinct groups of consumers' co-operative 
 enterprises which have been more or less a success should 
 be mentioned. They are the Zion's Co-operative Mer- 
 cantile Institute, of Salt Lake City, Utah, which is both 
 a retail and wholesale society, under the control of the 
 Mormons; the Rochdale stores, of California, with the 
 Rochdale Wholesale Company, of San Francisco; and 
 stores established under the auspices of the Right Re- 
 lationship League in the upper Mississippi Valley states. 
 The reasons for the lack of success in this country are 
 not hard to find. Co-operation requires a willingness to 
 take considerable trouble for small economies, which 
 American workingmen, with their generally high wages, 
 have not yet been willing to do. It also requires a con- 
 siderable degree of homogeneity in thought and interests 
 on the part of a people, which is naturally less present in 
 the United States with its large admixture of foreign 
 population than in England or the countries of Europe. 
 
 Methods of Distribution 
 
 The methods of the Rochdale Society will serve as an 
 illustration of the way in which the savings effected by
 
 170 Business Economics 
 
 co-operation are distributed among the members. Any 
 one might become a member upon payment of one shil- 
 ling and was then entitled to trade at the store. The 
 prices charged were those current in the town, but purity 
 of goods was assured ; cash payments were an essential 
 feature. At the end of the year the profits were divided 
 among the members in proportion to the amount of their 
 purchases. On the other hand it may be noted that no 
 attempt was made to introduce profit-sharing with the 
 employes, who are paid ordinary, but good, wages only. 
 In general the plans laid down by this original society 
 have been followed by all successful consumers' co-oper- 
 ative stores in whatever place or country they may be lo- 
 cated. This sort of consumers' co-operation has met 
 with considerable success in continental Europe as well. 
 It has been estimated that about 50,000,000 people the 
 world over, equal to half the population of the entire 
 United States, are supplied by co-operative retail stores. 
 
 Producers' Co-operation 
 
 Producers' co-operation differs from that just de- 
 scribed in that it is a union on the part of laborers to do 
 away with the employer and to secure for themselves the 
 profits. The object of the first is to lower prices for the 
 co-operators as consumers; the object of the second is 
 rather to secure higher prices for themselves as pro- 
 ducers by eliminating the profits of the industrial man- 
 ager. They hope to perform his function by their col- 
 lective effort and to manage as well as to labor; indeed 
 by diminishing friction and strikes they even hope to 
 increase the profits. Examples of successful co-opera- 
 tion of this sort are not numerous, as it has great diffi- 
 culties with which to contend. Most of the experiments 
 have failed, though recently it would seem that the move-
 
 Profit-Sharing 171 
 
 ment is making substantial though slow progress, espe- 
 cially in France and England. Most of the successful 
 ventures in the latter country, however, seem to be of 
 simple industries, as agriculture and dairy-farming. 
 
 The most notable example of successful productive co- 
 operation in the United States has been furnished by the 
 coopers of Minneapolis, who organized a shop of their 
 own in 1868 and have steadily increased their business 
 since that time. Other instances often cited are the 
 wood-workers in St. Louis and boot and shoe companies 
 in Massachusetts. More recently there has been a con- 
 siderable extension of co-operative creameries, cheese 
 factories, and similar businesses of a simple kind. Pro- 
 ducers' Co-operative Marketing Societies are common in 
 agricultural regions. The grain-growing regions usually 
 have their co-operative elevators and storehouses and 
 frequently produce exchanges. The largest concern of 
 this kind is the California Fruit Growers Excliange, with 
 a membership of more than 6,000 producers and an an- 
 nual business of more than $20,000,000. 
 
 Financial Co-operation 
 
 In a system of credit co-operation, the co-operators de- 
 sire to benefit themselves by the use of their combined 
 capital and combined credit, which are used, as it were, 
 for the common good of all. The forms of co-operative 
 financial societies are those which undertake to supply 
 insurance or credit, like co-operative insurance compa- 
 nies, co-operative banks, co-operative credit societies, 
 and building and loan associations. Co-operative fire in- 
 surance companies and building and loan associations 
 have been quite successful in the United States, but credit 
 insurance has been neglected. The latter branch is re- 
 ceiving a great deal of attention at the present time, and
 
 172 Business Economics 
 
 we may look for progress along this line within the next 
 few years. The economic possibilities of such credit as- 
 sociations are well illustrated from some of the German 
 societies which have become strong enough to go into the 
 national money markets for their loans. Their securities 
 have often sold at better figures than government bonds. 
 These savings are secured for the benefit of the individ- 
 ual borrowers of the society. Such societies perhaps 
 cannot exist without special legislation in their behalf. 
 
 Advantages of Co-operation 
 
 The advantages of co-op'eration are summed up as fol- 
 lows by Professor Walker.^ From the laborer's point of 
 view: 
 
 First, to secure for the laboring class that large amount of 
 wealth, which * * * goes annually in profits to the em- 
 ployer. Second, to secure for the laborer the opportunity to 
 produce independently of the will of an employer. * * * in 
 addition to these, the political economist beholds in co-operation 
 three sources of advantage. First, co-operation would, by the 
 very terms of the case, do away with strikes. * * * Second, 
 the workman would be incited to greater industry and to great- 
 er carefulness in dealing with materials and with machinery. 
 Third, in no small degree frugality would be encouraged. 
 
 To these may be added other advantages, mostly real- 
 izable, however, in consumers' co-operation. Saving in 
 store-room, clerk hire, advertising, bookkeeping, etc., is 
 effected, while, above all, the practice of cash payments 
 saves all loss from bad debts. The initial success of the 
 Rochdale pioneers was due in large part to the economy 
 in this line, as a system of long credits burdened the re- 
 
 4 Political Economy, pp. 344, 345.
 
 Profit-Sharing 173 
 
 tail trade of England at the time they began. In this 
 country the large department stores have introduced 
 this system and have thus been able to give their cus- 
 tomers lower prices and to that extent have lessened the 
 motive for consumers' co-operation. The educative ef- 
 fect of successful co-operation upon the participators in 
 developing habits of thrift, careful management, and a 
 knowledge of business principles, is one of the chief ad- 
 vantages of the system. 
 
 The ultimate ideal of enthusiastic co-operators does 
 not, however, stop short at a mere saving in price. The 
 goal is stated as follows by the Right Relationship 
 League of America, which has several co-operative 
 stores in the Northwest: Consumers' co-operation is 
 merely the first step which * * will lead next to co-operative 
 production, next to public ownership of natural resources 
 and finally to complete industrial and economic equality, 
 social and political right relationship — the Kingdom of 
 God on Earth." 
 
 Disadvantages of Co-opeeation 
 
 The defects of co-operation have already been sug- 
 gested in the account of their failure. In the first place 
 the importance and need of intelligent and efficient man- 
 agement are usually underrated by workingmen. They 
 are unwilling to pay high salaries and as a consequence 
 lose the best men and secure inefficient service. Co-oper- 
 ation has therefore succeeded best in retail trade where 
 the processes are comparatively simple, or in those 
 branches of production where industry counts for most 
 and management for least. But even if it were possible 
 to secure an efficient and progressive manager for a co- 
 operative shop, it is found very difficult for a man chosen 
 by the workmen to enforce discipline among them. A
 
 174 Business Economics 
 
 second disadvantage is the difficulty of securing capital. 
 Where, as in many branches of large-scale manufactur- 
 ing today, the average investment of capital amounts to 
 more than $1,000 per employe, the impossibility of ob- 
 taining this by the contributions of the workers is ob- 
 vious. Nor are capitalists usually willing to lend to such 
 organizations, as the risks are too great. To meet this 
 difficulty Ferdinand Lassalle, a German socialist, pro- 
 posed that the state should advance the necessary capital 
 to associations of workmen. But the experience so far 
 with productive co-operation would seem to suggest that 
 the social benefits would not equal the waste of public 
 capital. There is danger also that if successful the co- 
 operative associations would tend to become monopolies ; 
 they are profit-seeking societies and would probably not 
 differ materially in their methods from ordinary joint 
 stock enterprises. 
 
 It seems impossible, therefore, to expect from co-oper- 
 ation a final solution of the labor problem, such as John 
 Stuart Mill, for instance, hoped for. Where successful, 
 however, it has succeeded in distributing profits among a 
 larger number of persons than would otherwise have re- 
 ceived them. Its educative and moral effects, too, in the 
 appeals which it makes to higher motives and to char- 
 acter, are of the highest value. But as an industrial sys- 
 tem of enterprise it cannot supplant the present system 
 so long as the manager of industry is needed. Today 
 he performs a useful social service and profits are his 
 pay therefor. If he is to be eliminated, society must first 
 be raised to a higher plane of efficiency, intelligence, and 
 morality. But just because it makes these high demands 
 upon the members of the laboring class, attempts at co- 
 operation should receive all reasonable encouragement.
 
 Profit-Sharing 175 
 
 TEST QUESTIONS 
 
 1. What is meant by profit-sharing? 
 
 2. What is the chief purpose of profit-sharing? 
 
 3. What are the three principal methods of profit-sharing? 
 
 4. What objections are raised against profit-sharing? 
 
 5. What is the system of profit-sharing used by the United 
 States Steel Corporation? 
 
 6. According to President Hadley, under what conditions 
 does profit-sharing have its greatest chances? 
 
 7. How does co-operation dilfer from profit-sharing? 
 
 8. To what extent has consumers' co-operation developed in 
 England ? 
 
 9. How are profits distributed under the Rochdale method of 
 consumers' co-operation? 
 
 10. To what extent does consumers' co-operation exist in the 
 United States? Give a few prominent examples. 
 
 11. What is meant by producers' co-operation? Give a few 
 examples. Why is producers' co-operation less successful than 
 consumers' co-operation? 
 
 12. To what extent has financial co-operation developed in 
 Germany? In the United States? Why are we backward? 
 
 13. What are the chief advantages and disadvantages of co- 
 operation ? 
 
 14. What is the ultimate ideal of enthusiastic co-operators?
 
 CHAPTER XIII 
 money and banking 
 
 Credit Economy 
 
 Probably on no subject' has there been such confused 
 thinking or have such widely varying views been held as 
 on that of money. There is, however, substantial una- 
 nimity of opinion on the important points among econo- 
 mists today, though in practice there still remain many 
 unsolved problems. The modern industrial system has 
 already been characterized as one of capitalistic produc- 
 tion, of large-scale enterprises with extended use of ma- 
 chinery. Not less fundamental are the processes of val- 
 uation and exchange made possible by the use of money 
 and credit ; and also by the machinery for the geograph- 
 ical distribution of goods by our railroads and steamship 
 lines. 
 
 The modern stage of economic development has been 
 described by Hildebrand as one of credit economy, as 
 opposed to those of barter and money economy which 
 preceded. It is inconceivable that the modern complex 
 system of exchange could be maintained without the ex- 
 tended use of money and credit. Without attempting to 
 define these terms or to trace their historical develop- 
 ment, we may proceed at once to state some of the prob- 
 lems to which they have given rise. 
 
 176
 
 Money and Banking 111 
 
 Value of Money 
 
 The first question that suggests itself is : Wliat deter- 
 mines the value of money? The generally accepted an- 
 swer may be briefly stated : The value of money de- 
 pends, other things remaining the same, upon its quan- 
 tity. According to the quantity theory an increase in the 
 supply of money will cause a fall in the value of each 
 unit, just as an increase in the supply of wheat or cotton 
 will cause a fall in the value of each bushel or bale. Con- 
 versely, a decrease in the quantity of money will cause 
 a rise in the value of money. It is simply an application 
 of the general law of value to money. The phrase ' ' other 
 things remaining the same" is an important one, for it 
 assumes that the amount of business and the methods by 
 which it is conducted will remain substantially un- 
 changed. Of course if an increase in the amount of money 
 is accompanied by an equivalent expansion of trade, the 
 one may offset the other and the value of money remain 
 unchanged. 
 
 Now inasmuch as the prices of all goods and services 
 are measured and expressed in terms of money, it is clear 
 that a fall in the value of money means a rise of general 
 prices ; the value of each commodity is now expressed in 
 terms of a larger number of less valuable units or dollars. 
 Prices will be high if the quantity of money in circulation 
 in a country is large; they will be low if the quantity is 
 small. Which is better for a country, high prices or low 
 prices? To this question it may be answered that it is a 
 matter of indifference, provided only that there is enough 
 money to do the work of exchange efficiently and that 
 fluctuations are prevented. Just how much constitutes 
 enough is, however, a matter of contention. In the unde- 
 veloped sections of our country, where capital is scarce
 
 178 Business Economics 
 
 and banking facilities undeveloped and where most of 
 the people are debtors, there has always been a demand 
 for cheap and abundant money. Capital and money have 
 been confused and the need of one has led to a demand for 
 the other. 
 
 Rising and Falling Prices 
 
 It is not a matter of indifference, however, whether 
 prices are rising or falling, that is, whether inflation or 
 contraction of the currency is taking place. A period of 
 falling prices means hardship and injustice to debtors 
 and producers of goods, such as farmers, manufacturers, 
 etc. Having contracted obligations and engaged in the 
 production of commodities with the expectation of a 
 given price, they find their goods worth less when ready 
 for the market and as a result they are confronted with 
 a loss instead of the anticipated profit. Under such 
 circumstances a contraction of the currency and falling 
 prices mean lessoned production of wealth. Consequently 
 manv writers, and even so good an economist as Presi- 
 dent Walker, have urged that a slow steady inflation of 
 the currency would promote trade and "give a fillip to 
 industry." The monetarv historv of the United States 
 is filled mth attempts to realize this in practice. Colo- 
 nial and revolutionary bills of credit were first issued; 
 when these were forbidden by the new Constitution re- 
 sort was had to issues by state banks. When the federal 
 government began the issue of greenbacks and restricted 
 the use of state bank notes, the inflationists looked to this 
 source for assistance. After the defeat of the Greenback 
 party, they turned finally to the coinage of silver, which 
 was now falling in price, and the question of bimetallism 
 in the United States was made a practical political issue.
 
 Money and Banking 179 
 
 Bimetallism 
 
 DowTi to 1870 practically all the nations of Europe and 
 America had the system of bimetallism at ratios of 15V2 
 or 16 to 1. About that date the great increase in the sup- 
 ply of gold and the fall in the value of silver led one 
 country after another to abandon, the latter and to adopt 
 the system of gold monometallism. This was vigorously 
 resisted by many persons and several fruitless efforts 
 were made to secure a system of international bimetal- 
 lism. Failing in that, the friends of silver in this country 
 endeavored to secure independent action by the United 
 States alone, and were ultimately successful in obtaining 
 the purchase by the federal government, for coinage pur- 
 poses, of practically the entire silver output of the coun- 
 try during the years 1878-1893. 
 
 The arguments in favor "of bimetallism are as various 
 as the motives of its advocates, but two or three of the 
 more important ones may be briefly stated. It is urged 
 because it would give a more stable measure of value than 
 either silver or gold alone could do; and the evil effects 
 of fluctuations in the value of gold since 1873 are pointed 
 out to illustrate this contention. Monometallists answer 
 this by asserting that most of the price changes can be 
 accounted for by improvements in production ; that even 
 if they were caused by a contraction of the currency, this 
 was simply one of the risks of business ; and finally that 
 the evil effects of falling prices are offset by a corre- 
 sponding reduction in interest rates. 
 
 A second argument of the bimetallists was the alleged 
 insufficiency of gold on which to do the Avorld's business. 
 As this has been practically met by the phenomenal in- 
 crease in gold production in the last decade, especially 
 since the gold discoveries in Alaska, it is not necessary
 
 180 Business Economics 
 
 to dwell upon this argument. On January 2, 1915, the per 
 capita circulation of money in the United States reached 
 $35.50, the highest point in our history. A final argument 
 of the bimetallists concerns foreign trade. Bimetallism 
 would facilitate this by establishing a fixed par-of-ex- 
 change between all countries. While the weight of this 
 may be admitted, it has been practically deprived of all 
 force because of the adoption of the gold standard by 
 virtually all the industrially developed nations of the 
 world. This last fact shows that the question has now 
 been actually settled by the logic of events and today the 
 issue of bimetallism has only an academic interest. 
 
 Government Paper Money 
 
 Another problem connected with money which has been 
 removed from the arena of oratory to that of calm dis- 
 cussion is that of government paper money. It is urged, 
 with much truth, that if a nation issued paper money 
 instead of gold or silver, it would save all tlie expense of 
 mining these metals. It would resemble, as Adam Smith 
 said, the discovery of wagon roads through the air in 
 the realm of transportation. 
 
 Another argument advanced in favor of government 
 paper money is that it would be possible by a scientific 
 adjustment of the issues to regulate the amount of money 
 in circulation and so to prevent all fluctuations in prices. 
 Both contraction and inflation w^ould be prevented and a 
 cheap and yet ideal system of money would exist. Still 
 others see in this form of money an instrument for the 
 creation of wealth; this last argument simply results 
 from a confusion of ideas and need not be dealt with. 
 
 A sufficient answer to the other two is an appeal to the 
 lesson of history. No government w^hich has embarked 
 upon the issue of paper money has ever been able to
 
 Money and Banking 181 
 
 restrict the issues within reasonable limits; often it has 
 led to national bankruptcy and the repudiation of the 
 entire issues. The experience of the United States with 
 the greenbacks has been more fortunate than that of 
 many countries, but does not tempt to further experi- 
 ment. 
 
 Kinds of Money in the United States 
 
 The monetary situation in the United States today 
 may be regarded as fairly well settled. Although we have 
 a very heterogeneous assortment of different kinds of 
 money, a fairly distinct sphere is allotted to each, and as 
 the basis for all, the gold standard has been definitely 
 established by law. Money of large denominations con- 
 sists of gold and gold certificates (lowest denomination, 
 $10), of Federal Reserve notes, of greenbacks and na- 
 tional bank notes (lowest denomination, $10, though one- 
 third of bank notes may be $5) ; the needs of retail trade 
 are met by the issue of silver certificates and silver dol- 
 lars, and of fractional currency. The system would be 
 much simplified by the retirement and destruction of the 
 $346,000,000 in greenbacks, but as there is now 50 per cent 
 reserve in gold back of them, little danger need be appre- 
 hended from their presence. Many people have regarded 
 the existence of some $500,000,000 worth of silver dollars 
 as a menace to the goodness of our money supply, but as 
 the amount of gold in circulation increases, the silver will 
 form a constantly smaller percentage of the whole. It is 
 a cumbersome and not very valuable asset of the nation, 
 but is now almost pow^erless for good or ill. 
 
 The Function of Credit 
 
 Important as is the subject of money and essential as 
 is the need of a standard of undoubted goodness, it is
 
 182 Business Economics 
 
 overshadowed in practical significance by the problems of 
 banking and credit. An investigation by the Comptroller 
 of the Currency some years ago showed that over 90 per 
 cent of the receipts of the national banks consisted of 
 credit instruments, while probably 60 per cent of the 
 trade of the country was carried on by credit rather than 
 by cash transactions. A credit transaction is a transfer 
 of goods or money for a future equivalent ; the element of 
 time is introduced. This makes possible an enormous in- 
 crease in the number of exchanges and obviates the ne- 
 cessity, to a large extent, of using money. Most of us 
 enjoy personal credit, which is limited only by our ability 
 to persuade other people to trust in us. But this power 
 of purchasing things without immediate payment must 
 be made readily available if the ordinary business man is 
 to make use of it. This is done through the medium of 
 a bank, whose business it is to discount the notes of its 
 customers, which in turn is based upon (Confidence in their 
 prospective earnings. The bank credit thus obtained 
 may be transferred by means of checks to other persons 
 and to other banks. It is the most fluid and volatile 
 means of payment yet devised, and is subject to dangers 
 and abuses. In the last analysis business based upon 
 such a system of credit rests upon confidence in the hon- 
 esty of individuals and in the enforcement of the law 
 governing contracts, and also in the ability of those who 
 have pledged themselves to future payment to make good 
 their obligations. In times of panic credit fails and re- 
 sort is had to money. 
 
 Banks 
 
 The fundamental institution in our credit economy is 
 the bank, and it is therefore essential that it be thor- 
 oughly safe and responsive to the needs of the business
 
 Money mid Banking 183 
 
 world. A bank may furnish its customers with the ready 
 means of payment they need in exchange for their future 
 promises either in the form of bank notes or bank credit. 
 The former are more largelj^ used on the continent of 
 Europe and in rural districts in this country, the latter 
 by England and the United States, especially in the 
 cities. The preference for one or the other seems to be 
 a matter of geography. 
 
 Elasticity of Currency 
 
 The issue of bank notes, which Avas confined to the na- 
 tional banks, has always been very carefully safeguarded 
 since the establishment of the national banking system in 
 1863. Under this system every national bank, upon its 
 organization, was compelled to buy government bonds 
 and was then permitted to issue bank notes up to the par 
 value of these bonds. These notes were consequently ab- 
 solutely safe, but they lacked one essential quality of 
 good bank money in that they were quite inelastic. That 
 is to say, the amount of bank notes did not vary according 
 to the needs of business, increasing to meet an increased 
 demand, as at crop-moving time, and then declining again 
 when the demand had passed ; but being based upon gov- 
 ernment bonds, they varied with the amount of the na- 
 tion's indebtedness, and even then only very slowly. 
 There was no immediate connection between the volume 
 of bank notes and of business needs. 
 
 The main practical problem connected with our bank- 
 ing system therefore seemed to be the finding of some 
 other basis for the issue of bank notes. Various plans 
 were suggested, as the establishment of a central bank 
 with sole power of issue, like the government banks in 
 European countries or the Canadian system of branch 
 banking, but Congress could not agree upon a measure.
 
 184 Business Ecoyiomics 
 
 In 1908 however a step forward was taken by permit- 
 ting national banks to issue additional notes upon de- 
 posit of approved bonds and securities other than govern- 
 ment bonds. This gave some elasticity to the system but 
 was avowedly only a compromise measure and will ex- 
 pire on June 30, 1915. Finally by act of December 23, 
 1913, an entirely new system of banking was introduced 
 under the name of the Federal Eeserve System. It went 
 into effect on November 16, 1914. The main features of 
 the new system are set forth in the following paragraphs. 
 
 The Federal Reserve System 
 
 The country is divided into twelve regions in the prin- 
 cipal cities of which regional reserve banks are to be 
 established. These regional reserve banks are aptly desig- 
 nated ''bankers' banks." Their capital will be supplied 
 for the most part by the member banks, which are all the 
 national banks in each district, and such state and other 
 banks as may care to join the system. These reserve 
 banks will do business only with the member banks, per- 
 forming various services for them, which marks a new 
 departure in our banking practice. One of these is redis- 
 counting notes and acceptances held by the member banks 
 which are based upon commercial transactions, import 
 and export business, and to a limited extent upon real 
 estate. Another is the keeping of fixed percentages of 
 the legal cash reserves of the member banks. Under the 
 old national banking svstem these reserves tended to be 
 concentrated in New York City and in that city in about 
 twenty banks. This massing of reserves stimulated stock 
 exchange speculation, as much of it was loaned to spe6u- 
 lators on call, and made it difficult for the country banks 
 to recall their reserves in time of panic or special need. 
 Under the new system the cash reserves of the 7,500 na-
 
 Money and Banking 185 
 
 tional banks are distributed in twelve regional reserve 
 banks scattered widely over the whole country. 
 
 Asset Currency 
 
 The most important change introduced is the creation 
 of an asset currency instead of a bond-secured currency. 
 Federal Reserve notes are to be issued to member banks, 
 secured by an equal amount of commercial paper ac- 
 cepted for rediscount. The volume of such notes out- 
 standing will consequently vary with the amount of bank 
 loans, that is, with the needs of business. Against these 
 notes the banks must keep a 40 per cent reserve in gold 
 for purposes of redemption. Provision is also made for 
 the gradual retirement of the old bond-secured national 
 bank notes. Finally, strict governmental control is pro- 
 vided for through the establishment of a Federal Eeserve 
 Board, made up of the Secretary of the Treasury, the 
 Comptroller of the Currency, and five others to be ap- 
 pointed by the President. 
 
 Savings Banks 
 
 So far we have been discussing commercial banks, but 
 there is another kind of institution which goes by the 
 same name but serves quite a different purpose, namely, 
 the savings bank. The essential and almost the only re- 
 quirement of such an institution is safety. As we have 
 seen, it is not only desirable, for personal reasons, to in- 
 culcate habits of saving and thrift in individuals, but it 
 is also necessary to secure the accumulation of capital 
 needed in modern industry. It is therefore important 
 that such institutions should be widespread, accessible, 
 and thoroughly tmsted. These requirements are well 
 fulfilled by postal savings banks now in operation in all 
 the leading countries. Such banks accept very small
 
 186 Business Economics 
 
 savings accounts, and often do not carry any large single 
 items. But due to the fact that they possess the confi- 
 dence of the people and appeal to millions of small 
 savers, they have led to a great increase in savings and 
 deposits wherever they have been established. On Sep- 
 tember 12, 1914, the deposits in the postal savings banks 
 amounted to about $28,000,000. 
 
 TEST QUESTIONS 
 
 1. What is meant by the establishment of modern business 
 on a credit basis? 
 
 2. What determines the value of money? 
 
 3. What is the effect of an increased supply of money on the 
 prices of commodities? Of a decreased supply of money? 
 
 4. Why does a new community usually clamor for cheap 
 money, while an old and established community prefers a scarcity 
 of money? 
 
 5. What effect does a period of falling prices have upon 
 debtors ? Why ? 
 
 6. Why did the agricultural people of the western states 
 strongly favor bimetallism during the years 1890-1896? 
 
 7. Would it be possible for our government to resort entirely 
 to a paper money basis? Why? 
 
 8. What are the chief kinds of money now used in the United 
 States? 
 
 9. What are the principal functions of a bank in our present 
 system of credit economy? 
 
 10. What is meant by elasticity of the currency? How may 
 'it be secured? 
 
 11. What is meant by asset currency? 
 
 12. Explain the currency system established under the Fed- 
 eral Reserve plan.
 
 CHAPTER XIV 
 transportation and communication 
 
 Monopolistic Nature of Transportation Service 
 
 Almost as important for the conduct of modern indus- 
 try as machine methods and credit are the rapid means 
 of transportation and communication furnished by our 
 railroad, steamship, express, post-office, telegraph, and 
 telephone systems. Indeed the development of industry 
 on a national scale and its integration under centralized 
 control have been made possible only by these improve- 
 ments. 
 
 But not only have these businesses rendered the cen- 
 tralization of industry possible ; they themselves exhibit, 
 on a national scale, concentration of control. They are 
 all industries of increasing returns and lend themselves 
 naturally to monopolistic control. At the very beginning 
 of railroad construction one of the most far-sighted man- 
 agers enunciated the doctrine that "where combination 
 is possible competition is impossible." For years com- 
 petition was regarded as the regulator of rates, pooling 
 between railroads was forbidden, and canals were advo- 
 cated as competitors. By every possible device it was 
 sought to stimulate competition. We are at last begin- 
 ning to recognize the monopoly character of the railroad 
 industry and to regulate it accordingly. 
 
 187
 
 188 Business Economics 
 
 Railroad Consolidation 
 
 Consolidation in the railroad world is not a new phe- 
 nomenon nor is it confined to that industry, but it has 
 proceeded further there than in any other line of busi- 
 ness. The first form which combination took was that of 
 pooling, according to which the traffic was pooled and the 
 earnings then divided among the companies entering into 
 the pool according to some previous agreement. This 
 was forbidden by the Interstate Commerce Act in 1887 
 and even more stringently by the Anti-Trust Act of 1890, 
 and accordingly railroad managers next resorted to ac- 
 tual consolidation of competing lines. Where this has 
 not been possible or desirable, virtual combination has 
 been secured by the so-called "community of interests" 
 arrangements, based on the acquisition by one road of 
 enough stock in competing lines to secure representation 
 on their boards of directors. 
 
 Today some five or six groups of capitalists control 
 over two-thirds of the railway mileage of the United 
 States. The late Mr. E. H. Harriman was credited with 
 controlling, directly or indirectly, a system aggregating 
 over 67,000 miles. These great consolidations have fol- 
 lowed mainly the territorial groupings of railroads; the 
 United States has now been districted out by a few large 
 transportation companies, much as France, Italy, Eng- 
 land, and other European countries had previously been 
 divided up. Consolidation has in many instances resulted 
 in increased convenience to the public and in economies 
 in management and operation, but it places a dangerous 
 amount of power in the hands of a few men, which has 
 not infrequently been abused and should clearly be under 
 strict government control.
 
 Transportation 189 
 
 Railroad Eates 
 
 The primary economic problem connected witli rail- 
 ways is always the question of rates. This has been 
 called in a recent book "the heart of the railroad prob- 
 lem. ' ' The first fact that strikes the student of the sub- 
 ject is the great reduction in rates and fares in the past 
 twenty-five years, especially in freight rates. From 1.24 
 cents in 1882 the average revenue per ton mile received 
 by railroads in the United States has decreased to .733 
 cents in 1914. Freight rates, especially through rates for 
 bulky traffic, are considerably lower in this country and 
 passenger fares are somewhat higher than those in effect 
 in Europe. 
 
 But the vital problem connected with rates is not as 
 to their relative cheapness or extortionateness ; it con- 
 cerns rather the granting of discriminating rates. Dis- 
 criminations may be of three kinds: (1) those between 
 different classes of goods, (2) those between localities, 
 and (3) those between persons. 
 
 The first group is based upon the classification of 
 freight and rests upon differences in cost of shipment, in 
 bulk, in risk, etc. If reasonably employed, this kind of 
 discrimination is justifiable. Local discriminations, that 
 is, charging different rates to different localities for sub- 
 stantially the same service, are not only unwarranted in 
 most cases, but are shortsighted as well. Where superior 
 facilities or especially keen competition exists, lower 
 rates may be permitted for favored localities, but the ar- 
 bitrary exercise of such powers by railway officials is 
 thoroughly unjustifiable. Even less defensible is the 
 practice, now happily less frequent, of granting discrim- 
 inatory rates to favored individuals or corporations. 
 They have been given by means of secret rates and re-
 
 190 Business Economics 
 
 bates, by under-billing and under-classification, by free 
 passes, etc. Both of these latter evils have been forbid- 
 den or greatly restricted by the passage of the Interstate 
 Commerce Act in 1887 and by subsequent legislation. 
 
 Governmental Regulation of Railroads 
 
 The public nature of railroads is now fairly well recog- 
 nized in our law and is beginning to be understood by the 
 people at large. Railroads enjoy peculiar privileges in 
 the grant of corporate franchises and charters, in the 
 right of eminent domain, and in enormous grants of land 
 and money which have been made to them in this country. 
 Moreover,. the social character of their duties is empha- 
 sized in the functions they perform, and they are under 
 the necessity of maintaining a constant service open to 
 all. Though they are owned by private investors and 
 managed as private enterprises, they are essentially pub- 
 lic enterprises as to their privileges, functions, and du- 
 ties. Consequently most of the states have now under- 
 taken, through commissions, to regulate the railroads in 
 the public interest. These state commissions differ in 
 power. Some have mandatory powers, that is, powers to 
 prescribe and enforce maximum rates, while others have 
 only supervisory powers of investigation and report. 
 Some act only upon complaint, while others act both upon 
 complaint and upon their own initiative. In many states 
 this power has been given to a state public utility com- 
 mission, which has control over all public utilities within 
 the state. 
 
 While the state commissions have done and are doing 
 valuable service, it is clear that the growth of giant rail- 
 road combinations which traverse several states necessi- 
 tates federal control. The appointment of the Interstate 
 Commerce Commission in 1887 established the principle
 
 Transportation 191 
 
 of federal regulation, which has been slowly extended, 
 until today the commission has extensive powers over 
 railroads, including the control of rates. 
 
 Public Ownership 
 
 Owing to the individualistic character of our institu- 
 tions and law, public ownership of railroads does not 
 exist in the United States, which thus forms, together 
 with England, almost the sole important exception to the 
 world's practice in this regard. On the continent of Eu- 
 rope government ownership is the rule. Public control 
 through either o^\^lership or regulation by commission 
 is essential in order to secure an equitable adjustment of 
 public and private rights and to prevent the abuse of 
 monopoly power inherent in the very nature of railroads. 
 Public ownership has many advantages and has given 
 satisfactory results in Europe. But for the United States 
 the principle of private ownership ^\dth stricter govern- 
 mental regulation has been definitely laid down ; the prob- 
 lem of the future is simply how far that control shall go. 
 
 Other Transportation Agencies 
 
 The discussion of our steam railroads does not exhaust 
 the subject of transportation. A recent and important 
 development is the growth of electric interurban rail- 
 ways, which are opening up districts untouched by the 
 more expensive steam roads and exercising a marked in- 
 fluence in rural districts upon business and social life. 
 
 A more significant problem, both because of its close 
 relations to the railroads and its monopoly character, is 
 offered by the express companies. Organized at a time 
 when railroads were new and undeveloped, they took 
 over the safe and expeditious delivery of small and val- 
 uable articles. They have since grown in importance and
 
 192 Business Economics 
 
 power; three large companies now control most of the 
 business. Since they are generally in the form of part- 
 nerships and not of corporations it has not been possible 
 to bring them under legal control, and their rates are ex- 
 tremely high — three or four times as much as freight 
 rates. In some cases the railroads, in order to gain the 
 profits from these high rates, have organized express 
 companies to operate over their lines. Even where that 
 is not done, the express companies are performing a 
 service which could as well be performed by the rail- 
 roads themselves and at lower rates. 
 
 These facts, as well as the successful examples of par- 
 cel post systems in England and Europe, finally led the 
 govermnent to establish a parcel post system in this 
 country in 1911. From the very beginning it proved a 
 success, and the scope of its usefulness has gradually in- 
 creased. The parcel post system at once necessitated the 
 adjustment and lowering of express rates and caused the 
 express business of the country to fall off appreciably. 
 
 Telephone and Telegraph 
 
 The importance of the telephone and telegraph in our 
 modern industrial life cannot be overestimated. As 
 means of transmitting intelligence they have served to 
 bring the most distant parts of the world into almost in- 
 stant touch and have made possible the modern centrali- 
 zation of business. Both offer the same problems of 
 monopoly that we have seen exist in other parts of this 
 field, the telegraph business being completely monopo- 
 lized by two large companies, the telephone business by 
 one, all strongly entrenched behind patents. The de- 
 sirability of public ownership of these utilities rests 
 upon stronger grounds than in the case of railroads and 
 is strongly urged by many conservative writers.
 
 Transportation 193 
 
 Water Transportation 
 
 Although attention has usually been centered upon the 
 railroads in any discussion of the transportation ques- 
 tion in the United States, there are important practical 
 problems connected with both the inland and the ocean 
 water transportation. The questions of constructing ar- 
 tificial inland waterways and of subsidizing our foreign 
 merchant marine are vital political and industrial issues. 
 The United States is probably better provided with in- 
 ternal navigable natural waterways than any other coun- 
 try. Its navigable rivers comprise some 18,000 miles, af- 
 fording access to the very heart of the continent botli 
 from the Atlantic coast and from the Gulf. They form 
 a cheap and convenient means of transportation, espe- 
 cially for bulky and cheap articles ; 30,000,000 tons a year 
 are carried on the streams of the Mississippi Valley 
 alone, though much of the former traffic has been di- 
 verted to the railroads. On the northern border of the 
 country the Great Lakes form an unrivaled series of in- 
 land seas. The traffic on these lakes shows a great in- 
 crease every year, amounting now to over 60,000,000 
 tons annually. The federal government has performed 
 useful service in improving the conditions of navigation 
 along these natural waterways, and it is now considering 
 a comprehensive scheme for their further improvement. 
 
 Canals 
 
 A very different problem is offered by our canal sys- 
 tem. During the period 1820-1840 many canals were con- 
 structed by the states to connect existing waterways and 
 to provide an outlet for produce from the interior. The 
 best examples of these were the Erie jmd tlio Ohio canals. 
 After the development of the railway, however, traffic be-
 
 194 Business Economics 
 
 gan to be steadily and then rapidly diverted from the 
 canals to these quicker avenues of transportation. Many 
 of the canals were bought up by their rivals and per- 
 mitted to fall into disuse, while those retained by the 
 state governments remained mere shallow ditches, unim- 
 proved and ill-adapted to modern needs. The construc- 
 tion of the Panama Canal by the federal government and 
 the recent expenditure by the people of New York State 
 of over $100,000,000 for the improvement of the Erie 
 Canal have brought the question of the rehabilitation of 
 our neglected canal system to the front again. It seems 
 wasteful not to connect the separate links in the mag- 
 nificent system of natural waterways already provided 
 by nature, and this will probably be the next step taken. 
 And indeed a beginning has already been made by the 
 construction of the Hennepin Canal, the Des Plaines 
 Canal, and the Cape Cod Canal. 
 
 It must however be borne in mind that there are two 
 distinct types of canal: (1) those w^hich are simply short 
 connecting links between navigable waterways and which 
 permit the passage of vessels used on those waters ; and 
 (2) those canals which are shallow, have extensive lock- 
 age, and permit the use of only small boats, thus neces- 
 sitating the transshipment of freight. One might well 
 advocate the construction and enlargement of the first 
 type, and yet hesitate to approve of the second. As yet, 
 however, owing in part to the opposition and clamor of 
 railroad interests, the question of canals has not received 
 the attention it deserves in the United States. 
 
 The American Merchant Marine 
 
 The ocean merchant marine comprises two widely dif- 
 ferent branches, the coastwise and the foreign trade. 
 The former is open only to vessels flying the American
 
 Transportation 195 
 
 flag, and has shown a very steady growth ; five-sixths of 
 our ocean merchant marine today is engaged in this 
 branch of commerce. Coal, lumber, cotton, and similar 
 bulky commodities constitute the chief items entering 
 into the coastwise trade. The tonnage of American ves- 
 sels engaged in the foreign trade, on the other hand, has 
 shown a steady decline ever since the outbreak of the 
 Civil War. Foreign vessels today carry fully 90 per cent 
 of the foreign commerce of the United States. The 
 causes of this decline are economic rather than political, 
 for American legislation has on the whole been very lib- 
 eral to the shipping interests. 
 
 At the time the western part of our country began to 
 be opened up and its great resources exploited, our mer- 
 chant marine was one of the best in the world. But now 
 the other opportunities for the investment of capital were 
 so profitable and alluring, and the need of it so great, 
 that all the available labor and capital of the American 
 people began to be devoted to the development of their 
 internal resources. A nation cannot do everything with 
 equal advantage at the same time any more than an indi- 
 vidual can. Accordingly we began to withdraw our cap- 
 ital from shipping and to devote it to agriculture, min- 
 ing, manufacturing, transportation, and similar more 
 profitable enterprises. Foreigners could build vessels 
 and run them more cheaply than we could and it paid us 
 to hire them to do it. Lately, however, and especially 
 since the recent awakening of a national consciousness 
 after the Spanish-American War, the patriotism of many 
 individuals has been hurt by the thought that we had to 
 depend upon foreign vessels for the carriage of our for- 
 eign commerce, while in the minds of others a compre- 
 hensive naval program demanded the building up of a 
 native merchant marine.
 
 196 Business Economics 
 
 Two questions suggest themselves here : Do we wish to 
 stimulate this growth artificially? And, if we do, what 
 means shall we adopt? On the second point the Mer- 
 chant Marine Commission of 1904 recommended for the 
 United States a general bounty on all shipping, such as 
 France has, and the subvention of certain lines of steam- 
 ers over ten specified routes, following the example of 
 Great Britain, Germany, and Japan. Without commit- 
 ting ourselves on this point, it may be suggested that on 
 political, geographical, and economic grounds we may 
 expect in the near future to see the natural development 
 of an American merchant marine. The recent removal 
 of registry restrictions may be expected to encourage its 
 up-building. 
 
 With the growth of our foreign trade, the accumulation 
 of capital at home, and the building up of a strong navy, 
 the conditions for American shipbuilding and shipping 
 will become steadily more favorable, and we may expect 
 to see American enterprise engage in this as in other 
 lines of industry. Eventually we are destined to become 
 a maritime nation. 
 
 TEST QUESTIONS 
 
 1. Explain why transportation service is of a monopolistic 
 character. 
 
 2. To what extent has railroad consolidation progressed in 
 this country? What are the main systems? 
 
 3. What are the three chief kinds of discrimination? 
 
 4. What are the main problems involved in the regulation of 
 transportation companies? 
 
 5. What developments and changes have taken place in the 
 express business during the pas-t few years? 
 
 6. What can you say concerning the possibilities of internal 
 waterways for the United States?
 
 Transportation 197 
 
 7. Show why the causes for the decline in tonnage of Amer- 
 ican vessels are economic rather than political. 
 
 8. What recent changes in the shipping policy of the United 
 States Government are tending to build up a merchant marine ? 
 
 9. What has been the history of express companies in the de- 
 velopment of American transportation? 
 
 10. What effect has the parcel-post system had upon the dis- 
 tribution of goods from place to place? 
 
 11. What two distinct types of canals are to be distinguished ? 
 
 12. Summarize the chief transportation problems confronting 
 the people of the United States.
 
 CHAPTER XV 
 problems of distribution 
 
 Natuke of the Peoblem 
 
 So far we have discussed for the most part those eco- 
 nomic problems that center round the production of 
 wealth, such as the use of natural resources, large-scale 
 production, trusts and monopolies, labor organizations, 
 unemployment, industrial education, and co-operation. 
 Now we shall consider briefly a few of the problems which 
 are connected with the distribution of wealth. 
 
 Professor Blackmar ^ says that the three great prob- 
 lems of economic society are: ''First, how to create the 
 largest amount of utilities or wealth ; second, how justly 
 to divide this amount; and third, how to make the prod- 
 uct minister to the permanent rather than to the tran- 
 sient well-being of society." The first problem we have 
 already discussed; the second forms the subject of the 
 present chapter; and the third will be taken up in the 
 next chapter. 
 
 Within the last century the center of interest in the 
 practical application of economic principles has decidedly 
 shifted from production to distribution. The earlier 
 writers on economics, as evidenced by the mercantilists 
 of the seventeenth and eighteenth centuries, even Adam 
 Smith, were chiefly interested in methods of increasing 
 
 1 Economics, p. 133. 
 
 198
 
 Distribution 199 
 
 a nation's wealth. With the introduction of the factory 
 system and the opening up of vast natural resources by 
 improvements in mining and transportation, the produc- 
 tion of wealth has enormously increased, and now the 
 question of the method of its distribution or division is 
 felt to be more pressing. 
 
 Kinds of Distribution 
 
 Under the term '* distribution" two different processes 
 are included, which should be distinguished before going 
 further. The first is called "functional distribution" 
 and concerns the distribution of the product of industry 
 or the income of society among the different factors of 
 production. That is to say, land, labor, capital, and man- 
 agerial ability have contributed in varying degrees to the 
 production of a certain amount of current wealth, and 
 the problem of functional distribution is to ascertain how 
 the net product resulting from these joint efforts is di- 
 vided — (1) how much goes to rent, (2) how much to 
 wages, (3) how much to interest, and (4) how much to 
 profits. 
 
 The second kind of distribution is the division of the 
 wealth of society among individuals or families; this is 
 personal distribution and raises the question of poverty 
 and great wealth. In discussing these problems, how- 
 ever, we must remember that wealth production and dis- 
 tribution take place in modern society under conditions 
 imposed by the social order in which we live ; these were 
 defined as competition, private property, and personal 
 liberty. If any modifications of the processes of distri- 
 bution were desired, it would undoubtedly be necessary 
 to alter these fundament-al institutions.
 
 200 Business Economics 
 
 Importance of Distribution 
 
 John Stuart Mill held that production was governed 
 by natural laws, which could be ascertained and stated, 
 but that distribution was artificial and hence that it was 
 not possible to discover constant and certain laws gov- 
 erning it. Beginning mainly with Mill, the ethical ques- 
 tion has been more and more asked as to what share each 
 factor in production ought to get, not merely what it does 
 receive. 
 
 Hence the question is rising more and more as to what should 
 be the basis of division, and many proposals have been made. 
 It is proposed that laborers combine to get a larger share. 
 Hence we have trade unions. Knights of Labor, etc. It is pro- 
 posed that capitalists and landlords give a larger proportion of 
 the produce to the laborers than they are able to secure by mere 
 private struggle. Hence we have proposals for profit-sharing 
 and various charities. It is proposed that laborers combine to 
 be their own capitalists and landlords; hence we have all sorts 
 of co-operative and communistic experiments. It is asserted 
 that the wealthy classes have so much power in their hands 
 that private co-operation cannot succeed in competing against 
 them, and hence it is proposed that all the people, through 
 government (municipal, state, and national) secure all the 
 means of production (capital and land, so far at least as land is 
 used for production), and operate them collectively for the 
 equitable good of all, the people thus being their own employers, 
 capitalists, and landlords. Hence Ave have municipalism, nation- 
 alism, socialism. It is claimed that capitalists and landlords 
 have been able to secure, and are today able to maintain, their 
 large share in distribution, only through the favoritism of the 
 Government. Hence we have proposals for free trade, the single 
 tax, * * * i\yQ extreme proposals of the very great mini- 
 mizing of the state in individualism, or the abolition of the 
 Government in anarchism. ^ 
 
 2 Bliss, Encyclopedia of Social Reform, article "Distribution," p. 501.
 
 Distribution 201 
 
 In view of this very imperfect list it is not too mucli 
 to say that most of the economic probk^ms that are stir- 
 ring society today are connected with the distribution of 
 wealth. 
 
 Bases for Distribution 
 
 The first question that suggests itself in the discussion 
 of functional distribution is as to whether it is actually 
 governed by so-called natural law. It is observable that 
 the amounts which go to rent, wages, interest, and profits 
 are regularly quite constant. What determines this? 
 The socialists contend that "natural distribution" is the 
 only just method and insist that the state should regu- 
 late this just distribution ; they are not clear, however, as 
 to what this natural method is. Henry George uses the 
 same phrase when he says: "The just distribution of 
 wealth is manifestly a natural distribution of wealth, and 
 this is that which gives to him who makes it and secures 
 to him who saves it." 
 
 All such statements beg the question, for they all turn 
 on the use of the word "natural." Many modern econ- 
 omists are inclined to assert that the question of dis- 
 tribution is not an ethical one, not a question of what 
 ought to be but of what is. Thus Professor Fetter says : ^ 
 "Distribution in economics is the reasoned explanation 
 of the way in which the total product of a society is di- 
 vided among its members. It is a logical question and 
 not an ethical one." And Professor Clark writes: 
 "There is, in short, a deep-acting natural law at work 
 amid the confusing struggles of the labor market." It 
 will not be possible, in the brief limits of this chapter, 
 to take up all the theories as to the way in which this dis- 
 tribution is effected among the claimants to a share of 
 
 3 Economics, p. 360.
 
 202 Business Economics 
 
 the product, but a few of the more important practical 
 results may be stated. We shall take up the four differ- 
 ent factors in turn. 
 
 Rent 
 
 The word ' ' rent ' ' is used with two very different mean- 
 ings. In the economic sense, the word "rent" refers to 
 the return for the use of some natural objects and agen- 
 cies, especially land. In the popular sense, the word 
 "rent" is used to designate the amount paid to an owner 
 for the use of land, houses, stores, boats, or anything 
 else. The distinction will become clearer by illustration. 
 In many of our cities the ground and building values are 
 stated separately in the valuations that are made for the 
 purposes of taxation. Many buildings are constructed 
 upon land that is rented for long terms. What has given 
 land alone this value? Evidently in all of these cases 
 the person who pays rent, in the common use of the 
 term, for a house or an office, pays for two factors, a 
 ground value and a building value. 
 
 If land were unlimited in quantity and of equal value 
 for use everywhere, no such thing as economic rent could 
 exist. A person would simply refuse to pay land rent 
 and would get on a piece of free land to carry on his busi- 
 ness or build his house. Land, however, is limited in 
 quantity, and most of the free land has been taken up. 
 This fact accounts for the constantly increasing value of 
 land, as a result of which Henry George argued that most 
 of the future income of society will be absorbed by the 
 landlords. 
 
 Land can be put to various uses, but some land is more 
 useful or is more favorably located for some purposes 
 than other land. Therefore some land is more valuable 
 tiian other land. It is evident that good wheat-growing
 
 Distribution 203 
 
 land yields more per acre for a given application of labor 
 than poor land does. If sufficient of the good land could 
 be secured to grow all the wheat that is needed for con- 
 sumption, none of the poorer lands would be used. But 
 good wheat land is scarce and therefore the wheat- 
 grower will cultivate poorer and poorer grades of land 
 as the demand for wheat grows, until a certain point is 
 reached at which the land will be valueless for wheat- 
 growing; that is, it would cost more to grow wheat on 
 the poorest or marginal land at the existing prices and 
 demands for wheat than the land would return. 
 
 It is the advantage which the better land enjoys over 
 this marginal land that gives the former value, and the 
 more advantages it possesses, the more valuable it 
 becomes. This advantage gives rise to rent. The holder 
 of the better land can capitalize the excess value of his 
 land over the marginal land for whatever purposes land 
 is used, whether it be a building site on Broadway or 
 wheat lands in the Red River Valley. Economic rent 
 appears as a competitive premium paid for fertility or 
 location. It is an excess over and above the total ex- 
 penses of the more fortunate producers. It forms no 
 part of the expenses of production and does not deter- 
 mine prices; in fact economic rent is a result of prices. 
 It is due to the comparatively high price which must be 
 paid to bring out the total and necessary product through 
 the resort to poorer lands. 
 
 Such is the nature of economic rent as one of tlie fac- 
 tors which shares in distribution. It is evident that the 
 owners of land are the beneficiaries in all social and in- 
 dustrial progress that is made. The practical problem 
 that suggests itself is: Do wo want private property in 
 land? The socialists answer "No," but the individual- 
 ists insist that the best use has been and can be made of
 
 204 Business Economics 
 
 land only by reducing it to private ownership. Between 
 these two extremes there seems to be a tendency to de- 
 mand for society a part of these social gains by means 
 of various single tax schemes and taxes on the unearned 
 increment of land. The whole problem of land taxation 
 is involved in this question of rent. 
 
 Interest 
 
 All through Biblical history, Grecian history, Roman 
 history, and the Middle Ages, interest was a favorite ob- 
 ject of attack by statesmen and church leaders. Money- 
 lending was looked upon as a disgraceful occupation and 
 interest as usury, and therefore wrong. This early at- 
 titude of society toward interest was perhaps justifiable, 
 because money then was borrowed chiefly to pay living 
 expenses. In this sense it was regarded, perhaps rightly, 
 as a sign of incompetency. There were in those days 
 practically no opportunities for the use of money as pro- 
 ductive capital. There is a vital distinction between bor- 
 rowing for a productive purpose and borrowing to pay 
 living expenses. The latter is undoubtedly bad practice 
 and cannot be justified except in extreme cases. But to 
 borrow for a genuinely productive purpose, for a pur- 
 pose which will bring in more than enough to pay off the 
 principal and interest, shows business sagacity. 
 
 Interest is the price paid for the use of capital. The 
 interest appears as the result of an act of exchange. The 
 question may fairly be asked: What is the equivalent? 
 Why is $1 now worth $1.06 a year hence? A great many 
 theories have been advanced to explain the facts, but they 
 all seem to come to the conclusion that present goods 
 are worth more than future goods. The lapse of time 
 from the date at wiiich a loan is made until it is paid 
 creates a difference in value. The holder of a dollar has
 
 Distribution 205 
 
 his choice. He may spend it now or he imxy save it for 
 future use. The present value of a dollar is worth so 
 much more to him that if he is to defer using it for one 
 year he will want not $1, but $1.06 at that time. Thus 
 interest is primarily a time value. 
 
 These time-value theories explain why lenders demand 
 interest, but do not make clear the reason why borrowers 
 can afford to pay interest. They can do this because the 
 capital they borrow is used for productive purposes, and 
 with it they produce during the year not merely the 
 equivalent of the interest paid but enough more to afford 
 a profit to the borrower and to replace the capital fund 
 when it is used up. Capital is usually spoken of as so 
 much money, and is borrowed of a bank in the form of 
 money or a credit deposit, but in actual business pro- 
 ductive capital is embodied in the form of buildings, 
 machinery, agricultural implements, mercantile stocks, 
 railways, etc. By the help of these a man can produce 
 much more than without their use, so that he can afford 
 to pay interest for them or for the money that gives him 
 command over them. According to this producti\'ity 
 theory, interest is thus credited to capital as its reward 
 in the functional distribution of wealth. 
 
 Socialists are attacking interest because it is the out- 
 come of private property. Their claim is that it is based 
 upon inequality and perpetuates inequality. Part of this 
 contention is granted by most of the modern individual- 
 ists of today. They believe with John Stuart Mill that 
 private property should exist because it is the most ex- 
 pedient method yet devised for encouraging thrift, but 
 that the institution of inheritance should be changed. In 
 response to this feeling, the inheritance taxes are being 
 used to break up largo fortunes. In this way society 
 periodically shares in these gains of individuals and pre-
 
 206 Business Economics 
 
 vents the perpetuation of the social and economic in- 
 equalities which capital and interest tend to create. 
 
 Peofits 
 
 Profits are the reward which the manager of a business 
 receives for his services in organizing and superintend- 
 ing the business. This share of the social income was the 
 last to be recognized by economists, and its rightfulness 
 is even yet denied by the socialists. They insist that 
 profits are really the earnings of labor which have been 
 withheld from the laborer by the superior skill and eco- 
 nomic strength of the capitalist manager ; they are insti- 
 tutional robbery, the exploitation of labor. It is not 
 possible to take up the arguments on this point, but it 
 may be said in a word that the manager of business con- 
 tributes a needed service to the work of society just as 
 truly as the laborer does, and receives his earned reward 
 in the form of profits. 
 
 The analogy of profits to rent made by Professor Fran- 
 cis A. Walker is valuable for some purposes. He be- 
 lieved that profits are the result of exceptional ability 
 or exceptional opportunity, just as rent is due to fertility 
 of the soil or location of the land. There could be no 
 profits if all men Avere equally able and if enough work 
 could be found for all. In all industries there is a no- 
 profits class of employers. The price of production is 
 apt to be determined by the portion of the supply which 
 is produced at the greatest disadvantage; that is, the 
 cost of steel will probably be determined by the cost of 
 production in the least economically managed plant that 
 can continue to operate to supply the demand. Such a 
 plant makes no profits, but only expenses. All plants 
 that manufacture more economically than this marginal
 
 Distribution 207 
 
 plant make a profit, and thus they gain an increasing ad- 
 vantage over the less fortunate producers. 
 
 If this conception of profits is taken, then profits can- 
 not in any sense come out of wages. Wages could not be 
 higher in those plants operating on a margin, or they 
 would be forced out of business by the increased cost of 
 production. Since these least efficient plants set the 
 standards of wages for the entire industry, it can hardly 
 be claimed that profits are taken out of wages. Profits 
 are an inevitable element in private ownership produc- 
 tion, just as rent follows inevitably from private owner- 
 ship of land. Perhaps society as a whole has the same 
 sort of claim upon profits as upon rent. This would 
 seem to be one of the theories upon which a graduated 
 income tax could be justified. Such a tax is similar to 
 the tax on the unearned increment of land. 
 
 Wages 
 
 Wages are the reward of labor. It is often assumed 
 that wages are lower than they should be, that the la- 
 borer in some way is deprived of a portion of what he has 
 rightfully earned. It is worth while to inquire briefly into 
 how the share of labor in the distribution of the social 
 income is determined. Various theories have been de- 
 veloped to explain the distributive process, of which we 
 may notice three. 
 
 IRON LAW or WAGES THEORY 
 
 The oldest in point of time and the most pessimistic 
 theory held that wages were fixed by competition and 
 the growth of population at the bare subsistence mini- 
 mum, a bare starvation level. If by some happy chance 
 wages were raised above this point, then the population 
 would speedily multiply and the increased competition
 
 208 , Business Economics 
 
 thus brought about among the laborers would depress 
 wages again to the lowest amount sufficient to support a 
 family. This theory of population is known as the Mal- 
 thusian theory, named after its formulator. Under the 
 name of the "iron law of wages," this theory is still put 
 forth by the socialists, together with the institution of 
 private property, as the explanation of wages. 
 
 THE PRODUCTIVITY THEORY 
 
 Historically, however, the Malthusian theory has been 
 proved untrue, as the advance in the standard of living 
 among the working class during the past century testi- 
 fies. It has now been almost wholly superseded by the 
 so-called ' ' productivity theory, ' ' ^ which asserts that 
 wages depend upon the productivity of labor; that the 
 laborer gets what he produces ; and that this share is as- 
 sured him by the working out of the competitive process 
 under free competition. If this theory is true, there can 
 be no ethical question raised; if labor is dissatisfied with 
 its share, then it must increase its productive efficiency. 
 As a matter of fact wages have always been high in the 
 United States because labor has been relatively scarce 
 compared with land and capital, and consequently its 
 marginal productivity has been high. 
 
 THE BARGAIN THEORY 
 
 The third theory says that wages are a result of bar- 
 gaining, of competition in the labor market, a question 
 of supply and demand. Under these circumstances it is 
 largely a question of economic strength between labor 
 and capital, and if labor is well-organized, alert, and able 
 to drive a good bargain, then wages will be high ; other- 
 
 *More truly, the marginal productivity theory.
 
 Distribution 209 
 
 wise they will be low. While there is an element of truth 
 in the last theory, the second one seems the truest expla- 
 nation of general wages; certain it is that no monopoly 
 power of labor, however great, could permanently main- 
 tain wages at a level higher than the actual produce of 
 labor. The element of truth in the first theory is that 
 wages can never, for any length of time, fall below the 
 cost of living. 
 
 Inequality in Earning Power 
 
 The economist is interested in the problem of functional 
 distribution, but to the individual worker that of his own 
 share in the social income is of greater importance. Why 
 is it that some men receive so much more than other men? 
 What are the causes that make for differences in earning 
 power of different individuals'? In answering this ques- 
 tion we may first distinguish between racial and individ- 
 ual characteristics. 
 
 Differences in productive efficiency due apparently to 
 racial and national variations have often been noted. 
 For instance, Americans have been particularly efficient 
 in the invention of labor-saving devices and the use of 
 complicated machinery; the Germans in lines of work 
 requiring patient, untiring industry; the French in 
 branches where artistic design was of importance; and 
 the Japanese in whatever called for deftness of touch. 
 These peculiarities are not fixed or permanent, however, 
 and the tendency is for these national differences to dis- 
 appear with migration of labor and the development of 
 technical training. 
 
 The differences between individuals of the same race 
 or nation are even more marked than those between dif- 
 ferent nationalities. These are partly inborn and partly
 
 210 Busmess Economics 
 
 the result of training. We may classify the factors that 
 make for variation as follows : 
 
 (1) Objective physical conditions, such as plentiful 
 national resources, improved machinery and capital to 
 work with, and good and sufficient food, clothing, and 
 shelter to maintain efficiency at a high level ; if the worker 
 is well equipped in all these ways, he will be able to pro- 
 duce more than another man who is less well provided 
 for. This is one of the explanations of high wages in the 
 United States. 
 
 (2) A favorable political and social environment, which 
 affords security of life and property, freedom from the 
 burdens of militarism, honesty and commercial morality, 
 social ideals which hold labor in respect and call forth 
 the best efforts in each man — all of these favor the 
 development of efficiency in the case of the worker, and 
 the absence of any one of them handicaps him decidedly. 
 In this group may also be included the organization and 
 division of labor; where these are highly and skilfully 
 developed by able managers the productive capacity of the 
 individual worker may be greatly increased. 
 
 (3) Many of these factors lie apparently beyond the 
 control of the individual, but we now come to a group 
 which the individual worker may influence. His bodily 
 strength and vigor may be increased and maintained by 
 right living, the avoidance of dissipation and vicious 
 habits, and the proper observance of the laws of health. 
 But even more important in our modern industrial society 
 with its constant demands upon the intellectual capacity 
 of the worker, is education, and in this connection espe- 
 cially technical education. Every child starts life equally 
 incapable and ignorant; the extent of the progress that 
 he makes toward the goal of success will depend almost 
 entirely upon the degree to which his faculties are trained
 
 Distribution 211 
 
 and sharpened. The importance of education of the right 
 sort can scarcely be overestimated. 
 
 Distribution of Fortunes 
 
 Of practical and growing interest in this connection 
 are such problems as the increase of large fortunes, the 
 causes of poverty, and similar questions. The boast of 
 our Republic has long been that here opportunity was 
 open to all, that wealth was widely diffused, and that such 
 inequalities of fortune as characterized the nations of the 
 Old World were happily lacking. In the fifty-five years, 
 1850-1904, the per capita value of all property in the 
 United States exactly quadrupled; how has this increase 
 been distributed? Unfortunately we have no complete 
 statistics on this point, yet reliable estimates by authorita- 
 tive writers all tell the same story — of great concentra- 
 tion of wealth in the possession of a comparatively few 
 rich families. In 1893 Mr. George K. Holmes concluded 
 from a study of the statistics of farm and home owner- 
 ship in the United States that ''91 per cent of the families 
 of the country own no more than about 29 per cent of the 
 wealtli, and 9 per cent of the families own about 71 per 
 cent of the wealth." A more accurate and satisfactory 
 statement can be drawn from the income-tax returns for 
 Prussia, which tells almost the same story with regard 
 to income. The following table is condensed from an ar- 
 ticle by Professor A. Wagner. 
 
 Distribution op Income in Prussia, 1902 
 
 Income 
 
 Per Cent 
 OF Persons 
 
 Per Cent 
 OF Income 
 
 Below $214 
 
 70.7 
 
 25.8 
 
 3.5 
 
 3.S 
 
 $214 to $714 
 
 34 9 
 
 Over $714 
 
 3^ 1 
 

 
 212 Business Economics 
 
 According to these figures over two-thirds of the per- 
 sons — heads of families or single adults — had only one- 
 third of the income, while 31/2 per cent had another third. 
 Another striking fact shown by the table is the large pro- 
 portion of persons receiving incomes of less than $214 a 
 year, the minimum taxable income. It shows the poverty 
 of the mass of the people as well as the concentration of 
 wealth among the few rich. In the United States, where 
 the natural resources have been so much richer than in 
 Germany, a similar table would probably show a much 
 smaller proportion under the Prussian minimum, but on 
 the other hand it would probably show a greater concen- 
 tration of income in the hands of a few. Europe has as 
 yet no billionaire. 
 
 Causes of Fortunes in the United States 
 
 The great fortunes of the United States have been made 
 possible by the unrivaled opportunities for the exploita- 
 tion of rich natural resources, the appropriation of natu- 
 ral monopolies, and by special privileges and opportuni- 
 ties in manufactures and transportation. The importance 
 of monopoly privileges in the distribution of wealth is 
 well shown by the results of an investigation made in 
 1892 by the New York Tribune into the sources of the 
 fortunes of millionaires. It was undertaken to show that 
 protection was not the main cause; but while it proved 
 this, it showed clearly that most of them were built up 
 on monopoly. 
 
 Of the 4,047 millionaires reported, only 1,125, or 28 per cent, 
 obtained their fortunes in protected industries. * * * About 
 78 per cent of the fortunes were derived from permanent 
 monopoly privileges, and only 22 per cent from competitive in- 
 dustries unaided by natural and artificial monopolies. * * *
 
 Distribution 213 
 
 Furthermore, if the size of fortunes is taken into account it 
 will be found that perhaps 95 per cent of the total values repre- 
 sented by these millionaire fortunes is due to those investments 
 classed as land values and natural monopolies, and to competitive 
 industries aided by such monopolies.'^ 
 
 It is essential to the stability of our democratic insti- 
 tutions that all special privileges be absolutely prohib- 
 ited and that monopoly be brought under strict govern- 
 ment control and regulation. Improper methods of 
 wealth accumulation should certainly be prevented. 
 
 Tendencies 
 
 The opposite question of poverty has already been dis- 
 cussed and some of the causes of poverty pointed out. It 
 will be sufficient here to try to answer the question which 
 has often been asked : Are the rich growing richer and 
 the poor, poorer"? Though the first part of the question 
 has just been affirmed, the second part may be denied. 
 
 The nineteenth century has witnessed a vast improve- 
 ment in the condition of the laboring man, who has shared 
 in the increasing wealth which he has helped to produce. 
 Wages have steadily increased, the hours of labor have 
 been reduced, and the material well-being of the wage- 
 earner is greater today than it has ever been before. It 
 has more than once been pointed out by writers on this 
 subject that with an equal distribution of wealth no one 
 would be rich, while many others insist that inequality in 
 itself is a desirable thing. 
 
 Greater diffusion of wealth can come about only by 
 very slow processes, and permanent plenty can be se- 
 cured only by a great increase in the accumulations of 
 
 8 Commons, The Distribution of Wealth, p. 252.
 
 214 Business Economics 
 
 capital and the efficiency of each worker. Any suggested 
 reform, therefore, that would weaken the motives to 
 thrift and industry must be rejected. 
 
 TEST QUESTIONS 
 
 1. What are the three great problems of economic society? 
 
 2. What is meant by functional distribution? What four 
 factors enter into functional distribution? 
 
 3. What is meant by personal distribution? What problems 
 are involved? 
 
 4. Are the different factors of distribution governed by nat- 
 ural law? Illustrate, 
 
 5. What are the two different meanings given to the word 
 "rent"? 
 
 6. What factors determine economic rent? What is the con- 
 tention of the Socialists with respect to economic rent? 
 
 7. Why did the statesmen and church leaders in former times 
 oppose interest? 
 
 8. Distinguish between borrowing for a productive purpose 
 and borrowing to pay livmg expenses. 
 
 9. Just exactly what is the nature of interest? 
 
 10. What is meant by profits? What is Walker's theory con- 
 cerning profits? 
 
 11. Do profits ever come out of wages? Explain. 
 
 12. What is meant by wages? What three theories are held 
 concerning wages? Which seems most reasonable? 
 
 13. Name the factors that cause the economic powers of differ- 
 ent individuals to differ from one another. 
 
 14. Explain the distribution of fortunes within the United 
 States. What problems does it raise?
 
 CHAPTER XVI 
 saving and spending 
 
 The Rational Use of Wealth 
 
 The goal and purpose of all economic activities is the 
 satisfaction of human wants. The object of production 
 is consumption. We work because we desire and need 
 various things which we can get only if we produce them 
 or earn the money to buy them. In this chapter we take 
 up some of the problems connected with the rational use 
 or consumption of the wealth which is continually being 
 produced. We have seen something of the conditions 
 under which it is produced and the manner in which it 
 is distributed ; we must now study the not less important 
 subject of its application to human needs and desires. 
 
 The practical importance of this subject of business 
 management is well known. Industry caters to wants. 
 Economic activities are motivated by this fundamental 
 principle. The steel industry, for example, has reached 
 its present magnitude because of the enlarged demands 
 for steel in machinery, structural work, ships, rails, steel 
 cars, war supplies, etc. The infinite variety and amount 
 of human desires account for the endless diversity and 
 increasing struggle of our modern industrial society. 
 Considered from the standpoint of consumption, this 
 problem resolves itself into the great question : How can 
 we get the largest and most rational return for a given 
 expenditure ? 
 
 215
 
 216 
 
 Business Economics 
 
 Before trying to answer this question, it will be helpful 
 to present a summary statement of actual expenditures 
 in different places. 
 
 Expenditures for Different Purposes 
 
 Items 
 
 United 
 
 States 
 
 190a 
 
 New 
 
 YOKK 
 
 City 
 
 Great 
 Britain 
 
 Prussia 
 
 Average 
 
 Food 
 
 43.1 
 13.0 
 18.1 
 5.7 
 20.1 
 
 43.4 
 10.6 
 19.4 
 5.1 
 21.5 
 
 51.4 
 18.1 
 13.5 
 3.5 
 13.5 
 
 55.0 
 18.0 
 12.0 
 5.0 
 10.0 
 
 48.2 
 
 Clothing 
 
 14.9 
 
 Kent 
 
 15.8 
 
 Fuel and light 
 
 Miscellaneous .... 
 
 4.8 
 16.3 
 
 Total 
 
 100.0 
 
 100.0 
 
 100.0 
 
 100.0 
 
 100.0 
 
 From this table it is seen that practically half of the 
 income of average w^orking-class families is expended for 
 food and five-sixths of it goes for the bare necessaries. 
 It is therefore of the utmost importance that this be spent 
 wisely. The remaining one-sixth, included here under the 
 head "miscellaneous," comprises such items as educa- 
 tion, care of health, comfort, mental and bodily recrea- 
 tion, etc. It is manifest that this group can be expanded 
 in only one of two ways : either by enlarging the total in- 
 come or by economizing on the other items by a wiser and 
 better-ordered expenditure. The former question has 
 already been discussed ; here we are concerned only with 
 the latter. 
 
 Dr. Frederick Engel, a Prussian statistician, laid down 
 certain laws with regard to consumption. As the income 
 of a family increases a smaller percentage is spent for 
 food and a larger percentage for education, health, recre-
 
 Saving and Spending 
 
 217 
 
 ation, etc., while the percentage spent for clothing, rent, 
 fuel, and light remains approximately the same. A 
 higher civilization and culture for the mass of the people 
 can be secured only by expanding the group of culture 
 expenditures. As long as these remain unsatisfied for the 
 ordinary family we cannot claim to have attained our 
 economic goal. The author of a recent study of condi- 
 
 The Survey 
 Fig. 10. — Distribution of a Family Income, $900 to $1,000 
 
 tions in New York City, where the cost of living is high, 
 concludes that a ''fair living wage for a workingman's 
 family in New York City should be at least $728 a year, 
 or a steady income of $14 a week. ' ' ^ The actual average 
 earnings are certainly below this figure. 
 
 The table on the following page shows the average in- 
 come and expenditure of a number of families in New 
 York City as determined by actual investigation. 
 
 1 More, Wage-earners ' Budgets, p. 269.
 
 218 
 
 Business Economics 
 
 Income and Expenditure 2 
 
 Items of Expenditure 
 
 Group I 
 
 Income, 
 
 $600- $699; 
 
 Average, 
 
 $650 
 
 Group II 
 
 Income, 
 
 $700-$79»; 
 
 Average, 
 
 $748 
 
 Group III 
 Income, 
 
 $800- $899: 
 
 Average, 
 
 $846 
 
 Eent 
 
 $154 
 
 11 
 
 38 
 
 6 
 
 13 
 
 279 
 
 11 
 
 83 
 
 14 
 
 8 
 
 3 
 
 5 
 
 25 
 
 $650 
 
 $161 
 
 10 
 
 37 
 
 8 
 
 18 
 
 314 
 
 22 
 
 99 
 
 14 
 
 9 
 
 6 
 
 5 
 
 32 
 
 $735 
 
 $168 
 
 Car fare 
 
 16 
 
 Fuel and light 
 
 41 
 
 Furniture 
 
 7 
 
 Insurance 
 
 18 
 
 Food 
 
 341 
 
 Meals eaten away from home. . . . 
 Clothing 
 
 18 
 114 
 
 Health 
 
 22 
 
 Taxes, dues, and contributions . . . 
 
 Eecreation and amusement 
 
 Education 
 
 11 
 
 7 
 7 
 
 Miscellaneous 
 
 41 
 
 Totals 
 
 $811 
 
 
 In this connection the factors that influence and deter- 
 mine the cost of living may be briefly summarized : 
 
 FACTORS THAT DETERMINE THE COST OF LIVING ^ 
 
 I. Cost of living includes: 
 
 1. Economic expenditures, or such as contribute to effi- 
 ciency 
 
 a. Eent 
 
 b. Food ^--^_^ 
 
 c. Clothing 
 
 d. Fuel and light 
 
 e. Sundries, including outlay for health, recreation, 
 
 amusement, education, religion, and government 
 
 2 Eeport of Special Committee on Standard of Living in New York City. 
 
 3 Adapted from the Eeport of the (Massachusetts) Commission on the 
 Cost of Living (1910).
 
 Saving and Spending 219 
 
 2. Uneconomic expenditures, or such as do not contribute 
 to efficiency 
 
 A. Individual wastage 
 
 a. Drink 
 
 b. Luxury 
 
 c. Amusement 
 
 d. Domestic waste 
 
 B, Social wastage 
 
 a. War 
 
 b. Governmental extravagance 
 
 c. Crime, pauperism, insanity, accident, disease, un- 
 
 employment, and the like 
 II. The cost of living should be considered not only absolutely, 
 as above, but relatively, as shown by proportion of ex- 
 penditures to incomes: 
 
 1. Wages 
 
 2. Salaries 
 
 3. Profits 
 
 4. Interest 
 
 5. Leisure 
 
 6. Idleness 
 
 III. The prices of commodities and services which constitute 
 the items of expenditure classified above, are determined 
 by supply, by demand, and by value of money, as fol- 
 lows: 
 1. Supply depends on expenses of production 
 
 a. Natural resources and marginal productivity of land 
 
 b. Ordinary competitive expenses 
 
 (1) Interest on capital 
 
 (2) Profits of management 
 
 (3) Cost of labor, as determined by wages, hours, 
 
 and efficiency 
 
 c. Effects of legislation 
 
 (1) Sanitary laws 
 
 (2) Pure food laws 
 
 (3) Labor laws 
 
 (4) Tariff laws
 
 220 Business Economics 
 
 d. Effects of combination 
 
 (1) Capital — trusts 
 
 (2) Labor — unions 
 
 e. Effects of wastage 
 
 (1) Public and private extravagance 
 
 (2) Planless and wasteful methods of production 
 
 and distribution 
 
 f. Effects of improvements and inventions 
 
 2. Demand depends on 
 
 a. Size and growth of population, as governed by birth 
 
 rate, death rate, and immigration 
 
 b. Amount of incomes 
 
 c. Standard of living, as influenced by advance of cul- 
 
 ture, growth of cities, custom and fashion, habits 
 of spending and saving 
 
 3. Value of money depends on 
 
 a. Supply of gold 
 
 b. Currency system 
 
 c. Use of credit 
 
 Economy in Consumption 
 
 These facts emphasize the importance of economy in 
 consumption. It is said that an American family will 
 waste enough food for a French family to live on. The 
 farmer who leaves his implements out in the rain or his 
 cattle without proper shelter, is guilty of waste. We all 
 waste clothing by frequent changes in fashion. Such 
 waste is due as much to a lack of knowledge and training 
 as to carelessness. The single example of the consump- 
 tion of food will illustrate this point. 
 
 If we place the average income of an American family at 
 $500 — and it will not greatly exceed that figure — then nearly 
 $250 of this amount is expended each year for food. Waste 
 occurs in any or all of the following ways: (1) needlessly ex-
 
 Saving and Spending 221 
 
 pensive foods containing little real nutriment are used; (2) 
 there is a failure to select the foods best suited to the needs of 
 the family; (3) a great deal is thrown away which ought to be 
 utilized; (4) bad preparation of the food causes it to lose much 
 of the nutriment which it does contain; (5) badly constructed 
 ovens diffuse heat, instead of confining it, and cause enormous 
 loss of fuel. We shall state less than the truth if we estimate 
 that fully one-fifth of the money expended for food is absolutely 
 wasted, while the excessive expenditure often fails to provide 
 adequate nutrition.*^ 
 
 The remedy for such a waste as this clearly lies in the 
 teaching of domestic science in our public schools to the 
 daughters and future wives of the workingTQen. As the 
 ordinary household expenses, as shown above, absorb 
 from 80 to 90 per cent of the ordinary income, the train- 
 ing of the housewife, under whose control they fail, is 
 almost as imperative as that of the wage-earner. 
 
 The Relation of Consumption to Productive 
 
 Efficiency 
 
 The economic evils of intemperance will be more fully 
 stated below in the objections to luxury. There is, 
 however, one additional objection to the excessive use of 
 intoxicating liquor which is not true of most indulgences, 
 and that is the fact that it diminishes a man's productive 
 powers. It is harmful in its effects both upon consump- 
 tion and upon production. 
 
 Other items of consumption appear, however, not so 
 clearly under the immediate control of the consumer. 
 The housing accommodations in many of our large cities 
 have often been unsanitary and unworthy of being called 
 homes. Legislation has been necessary to compel the 
 
 6 Bullock, Introduction to Study of Economics, p. 106.
 
 222 Business Economics 
 
 erection of better tenements and to prevent the exploita- 
 tion of helpless people. So too it has been found neces- 
 sary to legislate against loan-sharks, in order to protect 
 people against their own improvidence and ignorance. 
 In addition to legislation against positive evils, we must 
 of course look to education as the great remedy of waste 
 in consumption. 
 
 There is one other phase of the su])ject of consumption 
 that may well be mentioned before leaving this subject. 
 Owing to the constant pressure of the consuming public 
 for cheap goods, many articles are produced under con- 
 ditions dangerous to the health, morality, and well-being 
 of the operatives, as in the case of the ' ' sweated ' ' trades. 
 To remedy these evils consumers' leagues have been 
 started in many places, the members of which pledge 
 themselves not to buy goods or to trade in stores where 
 the conditions of work are not up to certain prescribed 
 standards. They realize that as consumers they owe a 
 duty to other members of society not to exploit them. 
 While this method has proved a fairly effective method 
 of protest in some cases, it cannot be looked to as a com- 
 plete solution of this evil. But it emphasizes the fact that 
 the interests of all members of society as producers and 
 consumers are closely interdependent and that the prog- 
 ress of society requires the improvement of the condition 
 of all. 
 
 The Nature of Saving and Spending 
 
 One of the problems which has often proved very puz- 
 zling is the relation between saving and spending. At 
 what point should one stop spending in order to save 1 If 
 the satisfaction of our wants is the object of production, 
 why should we save at all? This is the point urged by the 
 author of a specious little book entitled The Fallacy of
 
 Saving and Spending 223 
 
 Saving. The problem can be most easily solved by a 
 more careful analysis of terms. In the popular view, 
 saving involves the withdrawal of goods or money from 
 use, while spending means putting them to immediate use. 
 The spendthrift is proverbially popular. '*If the rich 
 do not spend, the poor die of hunger," said Montesquieu. 
 Saving may take the form of hoarding, or witlidrawing 
 things from use, but nowadays this is practiced only by 
 misers; saving ordinarily takes the form of investment 
 in some productive enterprise, either directly or through 
 a bank. In this way a demand is created for goods just 
 as truly as though the money had been spent for a dinner 
 or a suit of clothes. Saving is spending, but it is spend- 
 ing for the future rather than for the present ; it usually 
 causes the production of permanent material goods 
 rather than transient or immaterial pleasures. 
 
 Another cause of the confusion of ideas on this sub- 
 ject is that we always speak of money and thus lose sight 
 of the acts of production and consumption that lie back 
 of the money transfer. We see that money is transferred 
 by spending and think that it increases trade. Conse- 
 quently when a prodigal spends his money foolishly, it is 
 excused on the ground that it makes employment and 
 puts money in circulation. We forget that it would have 
 been put in circulation just as effectively if he had not 
 spent it, but had placed it in a bank. If we look back of 
 the money transfer, we see that usually there has been 
 a foolish or wasteful expenditure, sometimes an absolute 
 destruction of wealth. A fire which burns down valuable 
 buildings is an absolute social loss, even though employ- 
 ment be given to masons and carpenters in putting them 
 up again.
 
 224 Business Economics 
 
 The Fallacy of Making Work 
 
 A third confusion of ideas that exists in the popular 
 mind is due to an over-emphasis of the desirability of 
 work for its own sake. The man who "makes work" is 
 thought to be doing a desirable thing, even though this re- 
 sults from the unnecessary destruction of useful things. 
 Now the real goal of all rational economic endeavor is not 
 production for its own sake, but consumption ; not work, 
 but the gratification of wants. Every destruction of du- 
 rable commodities which lessens the power to gratify 
 wants is a loss to a community and no juggling with words 
 can make it anything else. If it gives employment to la- 
 bor, this means that the labor has been diverted from the 
 production of other things to which it would have been de- 
 voted. Every year fires destroy property in the United 
 States to the value of $250,000,000. That workmen are 
 employed to reproduce the buildings, etc., can surely 
 not be reckoned as a social gain. There is great danger 
 in a commercial age like ours of forgetting that work is 
 not an end in itself but simply a means to an end. 
 
 But it may be argued that unless these men had been 
 given employment of this sort, they would have starved. 
 It is conceivable that during or after a revolution, indus- 
 try would be so interrupted that ordinary employments 
 would not be open. But in ordinary times such a state- 
 ment is simply an assertion of the fallacious lump-of- 
 labor theory, that there is just so much work to be done 
 and no more. As a matter of fact new wants are contin- 
 ually pressing for satisfaction, waiting only for the prior 
 ones to be satisfied before they urge their claims. So 
 soon as the old ones are satisfied, additional employment 
 is provided in meeting the newer desires. The aim 
 of society is to expand continually the circle of gratified
 
 Saving and Spending 225 
 
 desires. As durable goods and agents are accumulated by 
 the process of saving, this becomes increasingly possible 
 in every progressive society. Useless destruction in- 
 volves sheer waste and cannot be justified on any 
 grounds. 
 
 Useful, Savings 
 
 On the other hand saving is socially necessary in every 
 industrially developed community in order to furnish the 
 requisite capital for the continued production of wealth. 
 Professor Marshall has estimated that every year one- 
 fifth of the wealth of a nation is used up in the processes 
 of manufacture and production; just to keep machines, 
 factories, railroads, and other instruments of production 
 up to the point of efficiency and to restore loss and de- 
 preciation would therefore require considerable saving. 
 If the nation is to grow wealtliier and is to accumulate 
 additional capital, manifestly still more must be saved. 
 This is done in all progressive countries. 
 
 Saving is carried on by individuals, however, and not 
 by nations, and the motives that lead to it are personal. 
 The most important is probably the desire to provide for 
 wife and children or other relatives; next to that is the 
 wish to lay by sufficient for one's old age. In our indi- 
 vidualistic society, where each family forms an independ- 
 ent unit and is assumed to be self-supporting, it is very 
 desirable that habits of thrift and saving be developed. 
 Both from a social and a personal point of view therefore 
 saving must be approved, though it is undesirable that 
 it should proceed so far as to prevent spending for the 
 gratification of essential present needs. 
 
 The Waste of Luxueies 
 
 But what shall we say about expenditures for luxuries 1 
 Here the spending is for the gratification of a want,
 
 226 Business Economics 
 
 though it may be out of proportion to the results. What 
 shall be our attitude to it? This question is not so easy 
 to answer as the other. Three different schools have 
 given as many answers to the problem of luxury. The 
 first condemns it utterly; the second approves it wholly; 
 and the third takes an intermediate position. 
 
 Luxury is condemned by the first school of thinkers 
 from three points of view: (1) As a question of individ- 
 ual morals it is regarded as debasing and enervating, 
 thus preventing the highest development of the human 
 faculties; (2) as a question of economics it is condemned 
 as wasteful; and (3) as a question of right and justice it 
 is incompatible with an equitable distribution of wealth. 
 It is upon this last point that the opponents of luxury 
 lay the greatest emphasis. As the quantity of existing 
 wealth is insufficient to satisfy even the primal wants of 
 the large majority of our fellow-creatures, we should en- 
 deavor to increase this available store as much as we can 
 and should refrain from drawing upon it in a reckless 
 manner in order to gratify superfluous wants. Further- 
 more the productive powers that we can use are, as a 
 matter of fact, limited; and therefore if the wealthy 
 classes divert a portion of these forces toward the pro- 
 duction of articles of luxury, there will be so much the 
 less available for the production of those staple articles 
 that the masses require for their consumption. 
 
 In the case of a Robinson Crusoe this would be clear. 
 If he devoted several months to the polishing of a dia- 
 mond for ornament, he would have to go without a house 
 or other improvements he might have made in that time. 
 Or if he forced his man Friday to spend half his time pol- 
 ishing diamonds for him, Friday might be compelled to 
 go without sufficient clothing or food or housing. The 
 same thing is true of organized society, only the truth is
 
 Saving and Spending Til 
 
 hidden by the phenomena of exchange. It has been esti- 
 mated ^ that the annual consumption of wealth in the 
 United States is divided somewhat as follows: necessa- 
 ries, six billion dollars; luxuries, three and one-half bil- 
 lion (of which nine hundred million dollars go for liquor 
 and five hundred million dollars for tobacco) ; capitalistic 
 uses, three and three-quarter billion. It is manifest that 
 if the expenditure for luxuries were curtailed or aban- 
 doned, there would be more to devote to the other 
 categories. 
 
 The Need of Luxuries 
 
 The opposite school replies to these arguments that 
 luxury is an indispensable stimulus to progress; that 
 really all economic progress is first manifested in the 
 form of a need of luxury, and that luxuiy therefore is a 
 necessary phase of its development. Since luxury is 
 wholly relative, every want or need is, on its first appear- 
 ance in the world, regarded as superfluous (1) because 
 no one has hitherto wanted it, and (2) because its produc- 
 tion probably requires a considerable amount of labor, 
 on account of man's experience and the inevitable grop- 
 ings in the dark that attend all beginnings. The decen- 
 cies of life today and even the necessities were once re- 
 garded as luxuries — chimneys in houses, shoes, forks and 
 knives, linen for the body, bath tubs, etc. If all luxury 
 had always been sternly suppressed when it made its ap- 
 pearance, all the needs that constitute civilization would 
 have been nipped in the bud, and we should still be in the 
 condition of our ancestors of the Stone Age. Civilization 
 depends on the multiplication of wants. Economic prog- 
 
 * Gide, Political Economy, Rev. Ed., p. 663.
 
 228 Business Economics 
 
 ress is a process of converting superfluities into conven- 
 iences and conveniences into necessities. 
 
 The Inteemediate View 
 
 The attitude taken by practically all economists today 
 is intermediate between these two extremes. Moderate 
 luxury is justified, but lavish and indiscriminate luxury 
 is disapproved. This justification of luxury rests upon 
 purely economic grounds. In so far as personal con- 
 sumption is the objective point of production, the pro- 
 hibition of luxury would act as an impediment to enter- 
 prise. If the desire to enjoy luxuries stimulates the 
 productive powers of economically important members 
 of society, it is justifiable as a necessary motive force. 
 
 The introduction of luxuries and the consequent raising 
 of the standard of living seem often the only way to se- 
 cure progress. If the mass of the people live on the 
 minimum of cheap food, multiply as long as cheap food is 
 to be had, and spend little for comforts and luxuries, 
 then most of the labor of such a community must be spent 
 in obtaining food for the masses. Such is the condition 
 in India and China. But if a large part of the community 
 has a higher standard of living, it will exercise self-re- 
 straint in the increase of its numbers, and the whole level 
 of intelligence and comfort will be raised, as is the case 
 in France, Switzerland, and New England. 
 
 On the other hand, it is urged that ''failure on the part 
 of any family to secure the necessaries of life is injurious, 
 not only to it, but to the whole conununity. Under-con- 
 sumption means under-nutrition and loss in industrial 
 efficiency. If permitted to continue it must inevitably 
 undermine the standards which make a family self-sup- 
 porting and self-sufficient and reduce its members to 
 dependency. The general interest requires, therefore,
 
 Saving and Spending 229 
 
 acceptance of the maxim: the consumption of luxuries 
 should be deferred until all are provided with neces- 
 saries. * * * This suggests that no one is justified 
 in spending income for a luxury for himself or his family 
 that will afford less happiness than would the same in- 
 come spent for someone else."^ 
 
 The Socialization of Wealth 
 
 But the difficult question at once suggests itself : How 
 can the surplus incomes of the rich be used so as to pro- 
 vide for the needs of the poor, without undermining their 
 independence or permanently lowering their earning 
 power? It has been suggested that there should be a so- 
 cialization of luxury ; that the rich should use their wealth 
 for the constructijon of public art galleries, libraries, 
 parks, baths, etc., which would thus gratify as great a 
 number as possible. The feeling is growing in the United 
 States and in the world that wealth is a social trust and 
 that the ownership of wealth imposes upon a person cer- 
 tain moral obligations. While every man has a legal 
 right to spend his surplus income as he pleases, he is 
 morally bound to spend it in such a way as to increase 
 the welfare of the whole community. 
 
 TEST QUESTIONS 
 
 1. What is the main purpose of all economic activities? 
 
 2. In their order of importance, what are the chief items in 
 the expenditure of family incomes? How do these proportions 
 vary with different incomes? 
 
 3. What are the chief economic expenditures in the cost-of- 
 living problem? What are the chief uneconomic expenditures? 
 
 4. What three factors determine the prices of commodities ? 
 
 5 Seager, Principles of Economics, p. 80.
 
 230 Business Economics 
 
 5. Which factor has been most influential in determining the 
 rising cost of living in the United States during the years 
 1895-1910? Explain. 
 
 6. "What is meant by saving? How does it differ from hoard- 
 ing? 
 
 7. What is the economic fallacy in the making-work argu- 
 ment? 
 
 8. About how much of the wealth of a country is annually 
 destroyed in the processes of manufacture and production? 
 How is it replaced? 
 
 9. Mention some desirable economies in consumption. 
 
 10. What is the relation of consumption to productive effi- 
 ciency ? 
 
 11. What arguments are put forth condemning luxury? 
 
 12. What arguments are advanced to show that luxury is an 
 indispensable stimulus to progress? 
 
 13. What is the rational attitude toward luxuries?
 
 CHAPTER XVII 
 taxation and tariff 
 
 The Nature of Taxes 
 
 In no way does the state affect the interests of its citi- 
 zens more vitally than in the sphere of taxation. The 
 state in modern society is the people organized for cer- 
 tain collective purposes, as for the public defense, the 
 preservation of domestic peace, and the furtherance of 
 social and industrial welfare. To carry out these objects 
 money is needed and the state has therefore to collect 
 from its citizens sufficient revenue to defray its expendi- 
 tures. John Fiske has tersely defined taxes as '* portions 
 of private property taken for public purposes." Taxa- 
 tion thus implies a certain degree of compulsion; by it 
 the government interferes with the free choice of the in- 
 dividual and expends a part at least of his income for 
 him in ways that he himself might not have chosen. The 
 social and industrial consequences of a system of taxation 
 may also be far-reaching and important. As Professor 
 R. T. Ely says : 
 
 m 
 
 Taxation may create monopolies, or it may prevent them ; it 
 may diffuse wealth, or it may control it; it may promote labor 
 or equality of rights, or it may tend to the establishment of 
 tyranny and despotism; it may be used to bring about reform, 
 or it may be used to aggravate existing grievances and foster 
 dissensions between classes. 
 
 231
 
 232 Business Economics 
 
 It is evident therefore that the utmost care should be 
 exercised in framing a system of taxation. 
 
 EuLES OF Taxation 
 
 Certain canons or rules of taxation were laid down by 
 Adam Smith over a hundred years ago and have been 
 generally endorsed by economists ever since. One was 
 that taxes ought to be certain and not arbitrary as to 
 amount, time, and manner of payment ; another was that 
 taxes ought to be levied in the manner most convenient 
 to the tax-payer ; and a third, that taxes ought to take as 
 little as possible out of the pockets of the tax-payer over 
 and above what is paid into the public treasury. These 
 three maxims — certainty, convenience, and economy — 
 have been generally accepted, but less general agreement 
 exists in regard to the fourth, which states that the sub- 
 jects of every state ought to contribute to the support 
 of the government as nearly as possible in proportion to 
 their respective abilities. 
 
 This rule has given rise to two problems : Is ability the 
 most just basis of taxation? If so, how is ability to be 
 measured? The theory of justice generally accepted by 
 legal writers and by the American courts is expressed in 
 the maxim that taxes should be proportioned to benefits 
 received. The benefit theory affords a good rule in the 
 assessment of local property taxes, but fails utterly in 
 the domain of national and state affairs. Who can meas- 
 ure the benefits to each individual of an appropriation 
 for a new warship or for a state penitentiary or for the 
 public school system? 
 
 Probably the benefits are in inverse proportion to the 
 income or wealth of the individual, and the heaviest taxes 
 would then have to be apportioned to those least able to 
 pay. Most economists today agree that taxes should be
 
 Taxation and Tariff 233 
 
 apportioned according to '^faculty" or ability to pay. It 
 satisfies better our sense of fairness and is more readily 
 applicable than the benefit theory. In the last analysis, 
 of course, it may be said that taxation in general must 
 confer real benefits upon society or it will not be tol- 
 erated. Here, however, we are concerned with a rule of 
 apportionment. 
 
 Bases of Taxation 
 
 The second practical problem encountered is when we 
 attempt to apply the faculty principle in practice. How 
 is ability to be measured? Three measures have been 
 suggested: expenditure, income, and property. Taxa- 
 tion on expenditure is open to the objection that it would 
 place an unduly large proportion of the tax burdens on 
 the poor, whose expenditures are larger in proportion to 
 their means than those of other classes of society. To 
 make property the sole base of taxation is objectionable 
 because large classes of society, including professional 
 men with large incomes, would then escape taxation 
 largely or altogether. Income, on the surface, seems the 
 fairest measure of ability, but is objectionable because 
 the incomes of different individuals, both on account of 
 source and size, really indicate unequal and dissimilar 
 abilities. In practice, however, all three methods are em- 
 ployed in all advanced states; so it is not necessary to 
 decide which is theoretically the fairest. 
 
 Progressive Taxes 
 
 Still another practical question confronts us after we 
 adopt the ability theory : Shall the rate of taxation be the 
 same no matter what the amount of the property 
 or income, or shall it increase as the amount grows 
 larger? In other words, shall taxation be proportional
 
 234 Business Economics 
 
 or progressive? In general the advocates of the ability 
 theory also support progression, though there are many 
 exceptions to this statement. Three main arguments 
 have been urged in support of this method. 
 
 First, progression is advocated in order to secure 
 equality of sacrifice; it is argued that each dollar of a 
 $10,000 income affords less gratification to the owner 
 than each dollar of a $1,000 income, and that conse- 
 quently in order to equalize the sacrifices of the two in- 
 dividuals a larger proportion of the first income should 
 be taken than of the second. However, the objection to 
 this is that wants expand even more rapidly than in- 
 comes and therefore the initial assumption is untrue. 
 
 Progression is urged, in the second place, by those who 
 desire to use taxation as a method of introducing social 
 reforms or of bringing about a more equitable distribu- 
 tion of wealth, as by the breaking up of large fortunes. 
 It seems inadvisable, however, to use the machinery of 
 taxation for such purposes. 
 
 Other writers urge that the ability to earn or produce 
 wealth increases at an accelerating rate, and that taxa- 
 tion should therefore keep pace with it. ''It is the first 
 thousand that counts." The objection is made here that 
 it would penalize ability and energy. 
 
 In general, while tlie arguments are not conclusive, 
 progression certainly secures a nearer approach to the 
 ideal of the ability theory than does proportional taxa- 
 tion. The practical application, after we accept it, is still 
 a difficult matter. It should be applied to the revenue 
 system as a whole by the careful selection of special taxes. 
 As a matter of fact we have just the opposite system in 
 the United States, for the poor man undoubtedly pays 
 out a larger proportion of his income in taxes — princi- 
 pally on articles of consumption — than do his wealthy
 
 Taxation and Tariff" 235 
 
 neighbors. This condition has been somewhat modified 
 by the use of the income tax. 
 
 Direct and Indieect Taxes 
 
 In the main there has been a clear division in the 
 United States between the sources of income of the fed- 
 eral government on the one hand and those of the state 
 and local governments on the other. The federal treas- 
 ury has derived its revenue almost entirely from indirect 
 taxes — excise and customs, while the other governments 
 have depended chiefly upon direct taxes upon persons, 
 property, business, corporations, and inheritances. The 
 division rests upon the constitutional allotment of 
 powers, but it also corresponds very closely to the in- 
 dustrial and political functions of each in their relations 
 to the individual citizens. The chief duty of the federal 
 government is that of national defense and foreign inter- 
 course, relations which are national in extent but which 
 affect the individual only remotely; so, too, its taxing 
 area is national and its exactions are felt only distantly. 
 Few persons, it has been said, taste the tax in their tea 
 or their whisky, yet over one-third of all the taxes col- 
 lected in the United States are derived from either cus- 
 toms »or excise duties. Whisky and tobacco contribute 
 most of the internal revenue, while import duties are 
 levied on practically everything brought into the coun- 
 try which could compete with any home product. These 
 two sources yield over $600,000,000 a year to the federal 
 treasury. 
 
 During the Civil War the sources of revenue of the 
 country were supplemented by a Federal Income Tax, 
 which remained in operation until 1872. Such a law^ was 
 again passed in 1893, but was declared unconstitutional 
 by the Supreme Court. The constitution has since been
 
 236 Business Economics 
 
 amended to grant the federal government the power 
 to levy an income tax and such a tax has been established 
 to supplement the revenue derived from indirect sources. 
 An income tax is generally approved of by taxing au- 
 thorities, because it is an elastic tax. The rates can eas- 
 ily be modified to meet the financial needs of the govern- 
 ment without upsetting business in the same manner as 
 would be done by a revision of the tariff rates to meet the 
 demands of the treasury. It is generally admitted that a 
 tariff and an excise tax are too fluctuating to be depend- 
 able. A shock to business will result in an enormous de- 
 crease in revenue. To attempt to adjust the tariff rates 
 accordingly at such a time would only add to the con- 
 fusion. The effect of a slight change in the rate of an in- 
 come tax does not have this far-reaching effect upon busi- 
 ness and at the same time keeps the revenues of the gov- 
 ernment steadier. 
 
 The General Property Tax 
 
 The main reliance of the state and local governments 
 in this country is the general property tax, which 
 amounted in 1902 to over $700,000,000, or almost half of 
 all the taxes collected. This really consists of two very 
 distinct parts, which present quite different problems, 
 namely, the tax on real estate and that on personal prop- 
 erty. Under our peculiar system by which property is 
 assessed locally and upon the basis of that assessment its 
 share of the state taxes apportioned to each locality, there 
 is every incentive offered to the local assessor to under- 
 value the land in his jurisdiction, thereby escaping part 
 of the state burdens. This evil of inequality between lo- 
 calities could be obviated by the simple expedient of 
 exempting real estate from all state taxes and lea^dng it 
 solely to the counties and cities for purposes of taxation.
 
 Taxation and Tariff 237 
 
 In the case of personal property the great evil is eva- 
 sion. Much of our modern wealth exists in the form of 
 securities, stocks, bonds, mortgages, etc., and this is prac- 
 tically undiscoverable by assessors, except by the volun- 
 tary declaration of the tax-payer. This is truthfully 
 made only by trustees and a few conscientious persons. 
 Most of our laws have been directed to the discovery of 
 this intangible property as it is called, but without avail. 
 In a few of the most progressive states the effort has at 
 last been recognized as futile, and the attempt is now be- 
 ing made to reach these sources of income indirectly, by 
 taxes on corporations, on business, franchises, and other 
 tangible evidences of wealth. 
 
 Inheritance Taxes 
 
 Not only are corporation, business, license, and similar 
 taxes being developed, but increasing resort is had to in- 
 heritance taxes, over thirty states now making use of this 
 form of taxation. They usually fall more heavily on col- 
 lateral than on direct inheritances, and in many states 
 are progressive both as to amount and as to nearness of 
 relationship. Thus in Wisconsin the rates advance from 
 1 per cent for bequests under $25,000 to husband, wife, 
 or lineal relation, to 15 per cent for sums over $500,000 to 
 very distant relatives or strangers. These various forms 
 of taxation are necessary to secure the needed revenues 
 for the state governments, especially if these forego fur- 
 ther resort to taxation of realty. 
 
 The tendency is now sufficiently marked to make it pos- 
 sible to indicate with some certainty the future of taxa- 
 tion in this country. To a certain extent, however, this 
 must be regarded as the expression of an ideal rather 
 than the description of an existing system. The federal 
 government should have customs and excise duties, sup-
 
 238 Business Economics 
 
 plemented by an income tax. The state governments 
 should have corporation and inheritance taxes. The 
 cities and minor civil divisions should have taxes on 
 realty, with license and franchise taxes. Such a division 
 is logical and avoids duplication of taxation of the same 
 source by two or more grades of government. 
 
 Growth of Public Debts 
 
 Other problems connected with finance are suggested 
 in connection with the universal tendency to increase 
 governmental expenditures and public debts. The for- 
 mer is an expression of the growth and expansion of 
 state functions, which will be discussed in the next chap- 
 ter. The latter is due in part to this same fact, in part 
 also to the development of credit and the creation of a 
 market for the sale of public and other securities, and 
 finally to the growth of constitutional government, which 
 has made the people w^illing to entrust their capital to a 
 government which they themselves as citizens really 
 control. 
 
 The Tariff 
 
 The question of tariff involves such important eco- 
 nomic as well as financial consideration that it seems best 
 to discuss this form of taxation somewhat more fully. It 
 has been used not merely as a means of raising revenue 
 but also as an instrument to develop particular industries 
 and to prevent foreign competition. Any detailed discus- 
 sion of this subject therefore involves a statement of the 
 pros and cons of protection and free trade. It should be 
 said, however, in advance that the real issue is not free 
 trade, for that is demanded by only a few doctrinaires, 
 but freer trade through intelligent adjustments of the 
 tariff. The system of protection has prevailed in the
 
 Taxation and Tariff 239 
 
 United States for virtually one hundred years, and could 
 not be suddenly changed and abolished if desired. From 
 the financial standpoint, too, import duties are absolutely 
 essential to the support of our federal government; the 
 question here is not absolutely free trade, but the choice 
 of articles for revenue purposes. Shall they be those 
 which are not produced in this country or those which 
 enter into competition with domestic products'? If finan- 
 cial considerations alone prevailed, the former would un- 
 doubtedly be selected as the more convenient, certain, and 
 economical. But in the determination of the tariff poli- 
 cies of the United States economic considerations have 
 been paramount and to an examination of these we must 
 now turn. 
 
 ARGUMENTS FOR PROTECTION 
 
 Historically the following arguments have played the 
 main role in support of protection at different times in 
 the United States. The infant industries argument was 
 advanced by Hamilton in his celebrated Report on Manu- 
 factures in 1791 and has always been important until re- 
 cently, when the infants had grown to be so lusty that evi- 
 dently more valid reasons for protecting them must 
 be discovered. This was found in the plea for diversified 
 production, which was necessary for a well-rounded eco- 
 nomic development; the need of creating a strong na- 
 tional government and national spirit also played its 
 part. In order to win over the farmers the home market 
 argument was early urged ; this has taken various forms. 
 In the first place it was argued that the building up of 
 manufacturing centers and the consequent increase in 
 population would give the farmers a better market than 
 the fluctuating foreign one. As set forth by Carey, it 
 would keep within the country the elements taken from the
 
 240 Business Economics 
 
 soil. It would also save the freights on the transportation 
 of goods back and forth across the ocean. Each of these 
 arguments has lost force with the development of the 
 country and the decrease in the cost of transportation. 
 
 More important today is the wages argument; at first 
 protection was urged because wages were high in the 
 United States and the manufacturer needed to be pro- 
 tected against his foreign competitor who employed 
 cheap labor. Today it is argued that protection has 
 raised wages and must be continued in order to protect 
 the laborer against the pauper labor of Europe. Curi- 
 ously enough, in France protection is urged for French 
 workmen against the highly paid and efficient American. 
 The effect of the tariff on wages has been greatly exag- 
 gerated ; w^ages are high in the United States because the 
 productivity of labor is high. Indeed so far as the tariff 
 raises prices it may be argued that the real wages of 
 labor are lowered. 
 
 More generally accepted as defensible grounds for pro- 
 tection are the political arguments that a nation should 
 be able to produce its own military armaments and sup- 
 plies, and that it should be able to use the tariff as a re- 
 taliatory measure. Recently this latter has received con- 
 siderable force from the practice of ' ' dumping, ' ' by which 
 is meant the occasional sale of products abroad at prices 
 lower than those charged at home. Domestic manufac- 
 turers in the country thus treated are of course seriously 
 injured and have insisted upon protection against this 
 procedure, which has been authorized in Canada. 
 
 AEGUMENTS AGAINST PROTECTION 
 
 In answer to these various arguments the free traders, 
 or those desiring a modification of present high rates, 
 make their main appeal to the doctrine of comparative
 
 Taxation and Tariff 241 
 
 costs. Briefly stated this asserts that nations, like indi- 
 viduals, can do some things better than others. Like the 
 individual lawyer therefore who pays to have his boots 
 blacked while he devotes himself to the law, the nation 
 should produce the things it is best fitted for and pay oth- 
 ers to produce other things which it can do less well. In 
 this way each will obtain the largest possible return. 
 Protection, which interferes with this natural interna- 
 tional division of labor, simply diverts labor and capital 
 from more profitable industries. Practically, this purely 
 abstract economic argument has had little influence on 
 the commercial policy of nations, which have been moved 
 more by political and industrial considerations. Today, 
 however, there is no question but that the freer movement 
 of capital and industry throughout the world would be 
 advantageous. 
 
 In answer to the home market argument it is pointed 
 out that with the growth of large-scale production the 
 profitable area of manufacture has greatly widened and 
 now in many cases transcends national boundaries. As 
 home producers seek foreign markets, which they are be- 
 ginning to do, they themselves will demand a reduction 
 of the tariff, especially in the matter of raw materials. 
 Free traders also deny the need of artificially diversify- 
 ing industry in a country as large and varied as the 
 United States, or of building up infant industries. In- 
 deed on the latter point they urge that many of our trusts 
 are the result of the tariff, and that the attempt to grant 
 legislative favors has resulted only in wholesale demor- 
 alization and a debauching of our national politics. 
 
 Conclusion 
 
 In conclusion it may be said that under certain condi- 
 tions the policy of protection is relatively defensible;
 
 242 Business Economics 
 
 that it has undoubtedly hastened the industrial develop- 
 ment of the United States, though it has not caused it; 
 and that, on the other hand, it is responsible for not a 
 few evils in our political and industrial life. The strug- 
 gle of particular interests during the framing of the 
 Payne bill shows the impossibility of deciding this issue 
 upon academic grounds. It may be prophesied, however, 
 that as our manufacturers reach out more seriously after 
 the foreign markets, the tariff will be modified so as to 
 make this possible. 
 
 TEST QUESTIONS 
 
 1. What is John Fiske's definition of a tax? 
 
 2. What limits are there to the power of taxation which a 
 government possesses? 
 
 3. What are three maxims according to which taxes should 
 be levied? 
 
 4. Why should taxes be levied according to the ability to pay ? 
 Illustrate. 
 
 5. What three means are usually used in determining ability 
 to pay? 
 
 6. What are the arguments supporting progressive taxation? 
 
 7. What is the distinction between direct and indirect taxes? 
 Give an example of each. 
 
 8. From what sources does the federal government derive its 
 revenue ? 
 
 9. What are the chief difficulties with the personal property 
 tax? 
 
 10. What are the leading characteristics and uses of the in- 
 heritance tax? 
 
 11. What are the leading arguments for a protective tariff? 
 
 12. What are the leading arguments against protection? 
 
 13. What are the chief points in favor of an income tax for 
 federal taxation?
 
 CHAPTER XVIII 
 the functions of government 
 
 The Peimary Functions of the State 
 
 In the course of the preceding pages we have repeat- 
 edly referred to the necessity or desirability of govern- 
 mental action, and have emphasized the important part 
 which it plays in our economic life today. Every practi- 
 cal economic problem that confronts us calls in some de- 
 gree for the exercise of state activity. It is necessary for 
 us then, if we are to render sound judgment on these ques- 
 tions, to have a clear opinion as to the proper sphere of 
 government action, as to how far the state should inter- 
 fere in the economic activities of private individuals. 
 We cannot do better than to state first the main func- 
 tions of a modern state. 
 
 The modern industrial system, as we saw in the first 
 chapter, is based upon certain fundamental institutions — 
 personal liberty, competition, and private property. The 
 first function of government is to guarantee to every 
 individual the rights of freedom, property, and con- 
 tract; this involves the maintenance of peace and order. 
 These are often spoken of as ''natural rights"; rather 
 they are rational rights, based upon expediency and hu- 
 man welfare and created and maintained by society. 
 Without the constant support and intervention of gov- 
 ernment they would possess little reality or significance. 
 But in addition to guaranteeing these fundamental insti- 
 
 243
 
 244 Business Economics 
 
 tutions, modern governments grant individuals certain 
 privileges, as patents, copyrights, trade-marks, fran- 
 chises, etc., designed to stimulate the economic activity 
 of individuals. 
 
 The Regulative Functions of the State 
 
 A second group of functions undertaken by the modern 
 state is regulative. As we have seen, laws are made reg- 
 ulating the freedom of contract, the conditions of labor, 
 the conduct of business, methods of banking and trans- 
 portation, etc. The terms under which competitive busi- 
 ness may be conducted are laid down, and while freedom 
 of industry prevails for every indi\ddual it is only on 
 condition that he conforms to the rules of the game thus 
 prescribed. But the conditions are not merely restric- 
 tive ; sometimes they are designed to promote enterprise, 
 as in the case of gifts, subsidies, protective duties, etc. 
 In all these ways the state interferes with the action of 
 perfectly free competition for the purpose of securing 
 better or more equitable conditions. 
 
 The Economic Functions of the State 
 
 A third group of functions embraces the direct par- 
 ticipation in industry by the government itself, as the 
 post-ofifice, gas, electric, waterworks, canals, roads, 
 sewers, parks, etc. In other countries, where the functions 
 of government are more extended than in the United 
 States, it conducts railroads, telegraph and telephone sys- 
 tems, tenements, pawnshops, theaters, industrial insur- 
 ance, and various other activities. The line which di- 
 vides public from private enterprise varies greatly in 
 different countries.
 
 Functions of Government 245 
 
 Limits of State Action 
 
 This raises the general question: How far is it desir- 
 able that the economic functions of government should 
 extend? As to the necessity of state activity in some 
 form there can be no doubt. Production, exchange, dis- 
 tribution, and, to a smaller extent, consumption are all 
 social processes ; they concern the whole of society and 
 must be brought under social control. In the middle of 
 the eighteenth century Montesquieu laid down the prop- 
 osition that taxes invariably increase with the growth 
 of liberty. Historically this has been verified. The de- 
 velopment of freedom in government and industry has 
 meant the realization of self-restraint by the imposition 
 of regulative law. But the modern state has gone fur- 
 ther than this. It has realized the necessity of taking 
 an active part in modern industrial life, for the equaliza- 
 tion of the terms of competition, the redress of griev- 
 ances and the furnishing of utilities, either because it 
 could do it better or because it was the only agency capa- 
 ble of acting. 
 
 The standpoint of this treatise has been one of mod- 
 erate individualism, believing in free competition and in- 
 dividual initiative, but not frightened off by the bogey of 
 socialism, if at any point the interference of government 
 seemed desirable or necessary. To present the matter 
 clearly it will be well to state briefly the main theories 
 that have been held as to the proper function of govern- 
 ment, arranging them in their logical, though not in their 
 historical, order. 
 
 Anakchism 
 
 At one extreme stands anarchism, which must be 
 thought of not as anarchy and riot, but as a philosophi-
 
 246 Business Economics 
 
 cal theory of society. Scientific anarchism contemplates 
 an ideal state of perfect freedom, in which tlie state, the 
 coercive exercise of authority by man over man, would 
 not exist. According to this theory only the individual 
 has rights; there is no more divinity of right in a ma- 
 jority than there is in kings. Government is an invasion 
 of the right of the indi^ddual to do as he pleases, and 
 should be abolished; with its abolition would vanish the 
 various moral, social, and industrial evils to which it has 
 given rise, and human society would develop on a higher 
 plane. Stated in its extreme form anarchism is evidently 
 too ideal for frail human nature as at present constituted. 
 
 Extreme Individualism 
 
 Of more practical importance has been the theory of 
 extreme individualism as set forth by Herbert Spencer — 
 a view designated by Huxley as the night-watchman 
 theory of the state. According to this the functions of 
 government should be limited to the protection of life and 
 property and the enforcement of contracts, but should 
 not include such things as education, regulation of indus- 
 try, local improvements, charities, coinage, etc. Private 
 initiative and competition are trusted to supply these 
 things, while the economic harmony of the interests of 
 each individual with those of society will prevent any 
 wrong from being done. The keynote of the whole theory 
 lies in the view that government is an evil, though a nec- 
 essary one, and should consequently be restricted. Adam 
 Smith's system of natural liberty went somewhat fur- 
 ther, as it added to the three functions named above, 
 the construction of public works and buildings, etc. ; but 
 it excluded such activities as education and the civil 
 courts, which we regard as most suited to government 
 management. This theory had its origin in the reaction'
 
 Functions of Government 247 
 
 against the undue interference ^\dth industry by the gov- 
 ernment under mercantilism and had thus a historic jus- 
 tification and value. 
 
 Modified Individualism 
 
 The theory most generally held by economists and 
 writers in the United States is probably the modified in- 
 dividualism set forth by John Stuart Mill. According to 
 him, freedom of industry ''should be the general prac- 
 tice; every departure from it, unless required by some 
 great good, is a certain evil." Industry, he said, should 
 be left to individuals and the government should never 
 interfere unless there is an antagonism between social 
 and private interests. Individuals following their own 
 interests will alwavs conduct business better than the 
 government, which is inefficient, corrupt, and can fall 
 back on taxation to cover its mistakes. Individualism 
 should therefore be the rule and governmental action 
 should be the exception. But Mill himself admitted that 
 there was no theoretical limit to the extension of govern- 
 mental functions, and in so doing is said to have opened 
 the door to socialism. Nevertheless the basic idea is 
 still that government is an evil and an extension of its 
 activities is on the whole undesirable. 
 
 The Culture State Theory 
 
 Opposed to this view is the culture state theory, enun- 
 ciated by Roscher and very generally held in Germany, 
 which regards the state as a beneficent, positive, and con- 
 structive force in our industrial life. The advocates of 
 this theory point out that the functions of the government 
 change with progress, and that in our complex modern in- 
 dustrial life it should seek to improve conditions posi- 
 tively and not leave the people to the mercies of a blind
 
 248 Business Economics 
 
 competitive struggle; practically, it should regulate in- 
 dustry, conditions of work, housing, etc., and should man- 
 age all public utilities which affect the life or well-being 
 of the citizens, as railroads, telegraphs, industrial insur- 
 ance, etc. 
 
 Still further in the same direction goes the view known 
 as state socialism, of which the best-know^n advocate is 
 Professor Adolph Wagner. This advocates individual- 
 ism, but insists that it is responsible for many injustices 
 and evils, which it is consequently the duty of the state to 
 redress. For instance the state should correct the in- 
 equalities of wealth brought about by the distribution of 
 the social income under the present competitive system ; 
 this should be done by the progressive taxation of inherit- 
 ances and incomes, the limitation of inheritance and be- 
 quest, the government ownership of public utilities, as 
 railroads, telegraphs, telephones, coal mines, etc. 
 
 This theory stops just short of socialism, but enlarges 
 the functions of the state to the largest degree compatible 
 with individualism. Beyond this, and at the farthest ex- 
 treme from anarchism, stands socialism, which, however, 
 demands a more careful examination than the other 
 views have received, because of its present prominence. 
 
 Socialism 
 
 Socialism may be briefly defined in the words of Pro- 
 fessor Ely ^ as ''that contemplated system of industrial 
 society which proposes the abolition of private property 
 in the great material instruments of production, and the 
 substitution therefor of collective property; and advo- 
 cates the collective management of production, together 
 with the distribution of social income by society, and pri- 
 
 1 Socialism and Social 'Reform, p. 19.
 
 Functions of Government 249 
 
 vate property in the larger proportion of this social in- 
 come. " Four features are involved in this definition, 
 namely, (1) common ownership, (2) production, (3) dis- 
 tribution, and (4) private incomes. 
 
 The cardinal and distinctive element in socialism is 
 the collective or social ownership of the means of produc- 
 tion, that is, of the land and capital. Instead of being 
 owned privately as today, they would be owned by the 
 people as a whole, by the state, and used by it for 
 production. Socialists do not oppose capital, as is often 
 said, but only the private ownership of capital. But 
 under such a system private business as we know it to- 
 day, individual enterprise for the sake of profit, could not 
 exist. It is often urged that socialism means a ''grand 
 divide, ' ' and that in such an event the shrewder and more 
 thrifty would shortly have the wealth of the idle or stupid 
 members of society. But just that is guarded against 
 under socialism, for there would be no private ownership 
 of capital, and hence no one could get his neighbor's 
 share; it would all be held under collective ownership. 
 With the abolition of private capital, there would disap- 
 pear of course all the economic institutions that have 
 grown up around it, as credit, banking, lease, hire, the 
 stock and produce exchanges, etc. 
 
 COLLECTIVE MANAGEMENT OF PRODUCTION 
 
 Socialism also means the collective or social organiza- 
 tion and management of industry. Socialists criticize 
 severely our present methods of production, which they 
 call planless and wasteful. They point to the constant re- 
 currence of crises as an evidence of mistakes of the com- 
 petitive system, which they say could be obviated under a 
 well-organized comprehensive scheme. They also urge 
 the wastes of modern capitalism in the duplication of
 
 250 Business Economics 
 
 plants, advertising (which amounts to more than $500,- 
 000,000 a year in the United States), traveling salesmen, 
 multiplication of small stores, etc. Finally, an artificial 
 disharmony between the interests of society and private 
 individuals is promoted by our system of private prop- 
 erty and profit. A coal trust limits the supply, farmers 
 rejoice over small crops, and planters used to burn part 
 of their cotton, in short the bounty of nature is regarded 
 as a calamity. 
 
 Some truth may be admitted in these criticisms, but 
 in answer it may be said that some of them are being 
 corrected under individualism, while as to those that 
 remain the remedy offered is w^orse than the disease. 
 The first and fundamental question is the effect of social- 
 ism on the amount produced, for, as we have seen, any 
 diminution would mean a worse economic condition of 
 society, even though it were offset by a more equal dis- 
 tribution. Under individualism the appeal to industry 
 and thrift is the self-interest of the individual, and under 
 the stimulus of this motive the production of wealth has 
 been increased enormously. It is doubtful whether the 
 motives of altruism, desire for social approbation, and 
 similar ones suggested by the socialists would promote 
 industrial activity as efficiently as the individualistic de- 
 sire for pecuniary gain. 
 
 DIFFICULTIES OF COLLECTIVE MANAGEMENT 
 
 Moreover the difficulties of organizing and managing 
 all industries would be enormous. According to the so- 
 cialist plan, statistics of consumption would be gathered 
 in advance, the idle changes of fashion would of course 
 disappear, and production could be accurately calculated. 
 But aside from the problem of securing an honest and ef- 
 ficient administration, the work of organizing industry
 
 Functions of Government 251 
 
 from a centralized bureau would probably prove insur- 
 mountable. The distribution of the labor force among 
 various employments suggests another difficulty. Under 
 individualism the necessary distribution takes place 
 through the agency of wage pajTnents and the choice of 
 an occupation is left free to the individual. As the wage 
 system would disappear with the abolition of private 
 capital, some other means would have to be devised, as 
 allotment by the government. But more important 
 would be the selection of the managers of industry ; com- 
 petition provides a process whereby the inefficient are 
 eliminated and the able put in charge. As socialism 
 would be an industrial democracy the selection of the 
 captains of industry under that system would probably 
 be made by election. Is it likely that the voters would 
 place over themselves the ablest, that is the strictest, 
 most economical, and most energetic man? Taking men 
 as we find them today, this may well be doubted. 
 
 SOCIALISM AS A SCHEME OF DISTBIBUTION 
 
 But it is as a scheme of distribution that socialism has 
 been most warmly urged. The inequalities and injus- 
 tices of present methods are pointed -out and a more just 
 system demanded. Socialists themselves, however, are not 
 agreed as to what constitutes justice. Needs and merits 
 have both been urged as bases of distribution, but they 
 suffer from vagueness and difficulty in administration; 
 most socialists today agree that equality of income would 
 best meet the requirements of justice. They claim that 
 talented persons have been endowed by nature with their 
 abilities and should use them as a trust for society and 
 not expect greater rewards than their less talented broth- 
 ers. To this individualists answer that the practical 
 question is how to secure the greatest exercise of these
 
 252 Business Economics 
 
 gifts, and that is now done by appealing to the motive of 
 self-interest. Some writers go even further and assert 
 that the desire for inequality'' is the chief stimulus to in- 
 vention and enterprise. 
 
 A crucial point in every socialistic scheme is the deter- 
 mination of value under such a system; most socialists 
 follow Marx and say that this should be determined by 
 the ''socially necessary labor time" required for the pro- 
 duction of an article. Such a measure leaves out of ac- 
 count entirely the aspect of utility or demand, and would 
 clearly be inadequate. Prices would be fixed by the state 
 and calculated in labor time — most probably represented 
 by labor checks, which would constitute the medium of 
 exchange in the socialistic society. 
 
 SOCIALISM PEKMITS PEIVATE INCOMES 
 
 Finally, in the definition given above, it was stated 
 that private property would exist in the larger propor- 
 tion of the social income after it was divided. There is 
 no reason why this should not be true, for, though private 
 capital would be abolished, the state would not interfere 
 with the individual in the use of his income after it w^as 
 earned. If one man preferred fine clothes and another 
 pictures and books, it would be possible for the latter per- 
 son to accumulate such articles of enjoyment or consump- 
 tion. He could even have tools for private carpentering 
 or a horse for riding, but under no circumstances would 
 he be permitted to use these for production or as instru- 
 ments of private gain. Socialism must stand or fall as a 
 system of production and distribution ; it is not necessary 
 to criticise minor points. On these broad grounds it must 
 be rejected, although it may fairly be admitted that so- 
 cialists have often proved themselves keen and useful 
 critics of existing institutions.
 
 Functions of Government 253 
 
 The Single Tax 
 
 Many persons in this and other countries, who do not 
 approve of socialism, nevertheless believe in the exten- 
 sion of state ownership or activity along particular lines. 
 Thus Henry George, though in other respects an individ- 
 ualist, did not believe in the private ownership of land. 
 Land is limited in quantity and yields, because of its 
 monopoly character, an "unearned increment" or rent, 
 quite apart from the return due the owner for improve- 
 ments. He proposed that the government should confis- 
 cate this unearned increment by levying a single tax 
 on all land equal to it. He thought that this would pro- 
 vide revenue sufificient for all government needs without 
 resorting to other forms of taxation; in this he was un- 
 doubtedly mistaken, but the main interest in the scheme 
 for us is economic, and not financial. The reason for the 
 scheme was that land, being a limited monopoly, would 
 be increasingly in demand as society progressed, and that 
 consequently the landlords would absorb in their in- 
 creased rents most of the enlarged production of the fu- 
 ture. This assumes that rents always increase and never 
 decrease, which is historically untrue. Nor does the 
 growth and progress of society necessarily increase the 
 demand for land ; it may be directed to other things, while 
 improvements in the art of agriculture may actually de- 
 crease this demand. We must, however, admit that there 
 are many instances of unearned increments, not only in 
 the case of ground rents, but also of monopoly profits 
 from various sources; these might very properly be se- 
 cured to society by means of special and heavy taxes. 
 
 Public Ownership 
 
 The nationalization of the railroads and telegraph and 
 the municipalization of local public utilities have been
 
 254 Business Economics 
 
 advocated by many persons who are not socialists, ex- 
 cept in so far as they desire an extension of governmental 
 activity along these lines. They urge this because the 
 utilities in question — gas, water, electricity, telephone, 
 street railways, etc. — are by their very nature monopo- 
 lies, and because under private control they are often in- 
 efficiently or dishonestly managed. A less drastic rem- 
 edy for these abuses might of course be found in regula- 
 tion. Unrestricted private control of municipal monopo- 
 lies is advocated by few; the real issue is between public 
 regulation and public management. And this issue will 
 depend in the last analysis upon the question as to which 
 can give the best results to society. 
 
 TEST QUESTIONS 
 
 1. What are the primary functions of a state? 
 
 2. How do the regulative functions of a state differ from the 
 primary? Give some examples of the regulative functions. 
 
 3. Wliat is meant by the economic functions of the state? 
 Mention some of them. 
 
 4. What is the theory of anarchism? What does it hope to 
 accomplish ? 
 
 5. What is meant by the theory of individualism ? 
 
 6. What political doctrines of today may be considered a part 
 of the individualistic school? Name some of them. 
 
 7. What is meant by the culture state theory ? 
 
 8. What is meant by socialism? 
 
 9. What are four features involved in socialism? 
 
 10. Enumerate the socialists' criticisms of our present system 
 of industrial organization. 
 
 11. Does socialism permit private incomes? Explain. 
 
 12. Give the essentials of the single tax theory. 
 
 13. To what extent has public ownership advanced in indus- 
 trial affairs? 
 
 14. What factors ultimately determine the kind of industrial 
 organization that is to prevail?
 
 CHAPTER XIX 
 economic progress 
 
 Pkogeess in the Field of Laboe 
 
 At the conclusion of a study of this character we' are 
 inevitably led to summarize our deductions and to try 
 to answer the question as to what the lessons of the past 
 have taught us. In what direction are the forces of eco- 
 nomic life taking us? The conclusion of this book is that 
 they are making for economic progress, and it will be 
 worth while to justify as far as possible this belief. It 
 is, however, impossible to do this except in very general 
 terms, for definite data for measuring this improvement 
 do not exist, and economic progress itself is a somewhat 
 vague conception. 
 
 Even such comparatively simple facts as the rate of 
 wages or the hours of labor can be stated only very gen- 
 erally. But both of these show a decided improvement 
 in the condition of the working class. A careful investi- 
 gation for Great Britain by Mr. A. L. Bowley ^ shows 
 that if wages for the decade 1890-1900 be represented as 
 100, then the course of wages during the nineteenth cen- 
 tury would have run somewhat as follows : 
 
 1 Wages in the United Kingdom in the Nineteenth Century. 
 
 255
 
 256 
 
 Business Economics 
 
 Decade 
 
 Relative 
 Wages 
 
 Decade 
 
 Relative 
 Wages 
 
 1800-10 
 
 55-65 
 
 1850-60 
 
 65 
 
 1810-20 
 
 65-70 
 
 1860-70 
 
 75 
 
 1820-30 
 
 65 
 
 1870-80 
 
 95 
 
 1830-40 
 
 60 
 
 1880-90 
 
 90 
 
 1840-50 
 
 60 
 
 1890-1900 
 
 100 
 
 Without investigating the vaHdity of the figures too 
 closely, it may safely be affirmed that the movement of 
 wages has been distinctly upward and that the rise was 
 certainly not less than 50 per cent. For the United States 
 the increase has not been so great, probably because 
 wages started at a higher level. According to the Aldrich 
 report, if wages and prices in 1860 in the United States 
 be taken as 100, relative wages in 1840 were 82.5 and 
 relative prices 98.5; in 1880 they were respectively 143 
 and 103.4; in 1903 they were 187 and 103. That is to say, 
 relative wages showed a marked advance and real wages, 
 owing to the fact that general prices remained almost 
 stationary, an even greater improvement. So, too, the 
 hours of labor appear to have been shortened in Great 
 Britain about two hours a day (from ten to fourteen 
 hours to from eight to twelve), and in the United States 
 probably as much, the average length of the working day 
 in certain employments decreasing from 10.3 hours in 
 1880 to 9.6 hours in 1903. 
 
 Progkess in Peoduction 
 
 In the field of production the most dramatic and strik- 
 ing advances have been achieved. The application of 
 steam and more recently of electricity as the motive 
 power for the newly invented and constantly improved
 
 Economic Progress 257 
 
 machinery has permitted an enormous expansion of pro- 
 duction. This has been made still greater by the opening 
 up of new mines and new lands and improvements in the 
 machinery of transportation and exchange and in the or- 
 ganization of business. Especially in the United States, 
 where the natural resources were unusually rich and the 
 people energetic and ingenious, has the growth of wealth 
 been marvelous. And yet almost a century after the be- 
 ginning of the Industrial Revolution in England, Mill 
 alleged that labor-saving inventions had not lightened 
 the toil of any human being; they had only enabled a 
 greater number to live the same life of drudgery and im- 
 prisonment. What answer can we make to this indict- 
 ment today? Why is it that the working class still has 
 so little of this vast increase of wealth and still lives so 
 close to the border line of poverty? 
 
 Problems in Distribution 
 
 To answer this question thoroughly would require an 
 analysis of the subject of distribution, but a few reasons 
 may be briefly suggested.^ While the social income has 
 been greatly increased by these improvements the 
 amount paid in rent to owners of land, water powers, etc., 
 has also grown. If we approve of private property in 
 land as best adapted to stimulate its use for society, then 
 we must admit the justice of rent and of its payment to 
 present landowners. Similarly, too, the payment of in- 
 terest to the OAvners of capital has absorbed a large part 
 of the increased income of society, though the proportion 
 going to this factor is probably growing smaller because 
 of the fall in the rate of interest. 
 
 2 Acknowledgment should be made at this point of indebtedness to the 
 excellent final chapter in Prof. Seager's Introduction to Economics.
 
 258 Business Economics 
 
 ! 
 
 But as we have seen, modern industry is essentially 
 capitalistic, that is, it depends upon the use of capital for 
 its operations. Since we allow private property in cap- 
 ital and believe that to be the best method yet devised 
 for securing its accumulation, we must justify interest. 
 Profits in general are fairly earned by industrial or- 
 ganizers and others who manage our businesses and are 
 necessary to enlist their services. Probably in most 
 cases society does not overpay these leaders of indus- 
 try. But some forms of profit, such as those derived 
 solely from monopoly, especially from the monopoly of 
 limited natural resources, are both too large and socially 
 unearned. Clearly these should be controlled and ab- 
 sorbed by society. 
 
 Distribution of the Social Income 
 
 One reason then why labor has not profited more by 
 the great increase in wealth is that the other factors in 
 production have laid claim to their shares also. There 
 is good reason for believing, however, that the share of 
 labor has been steadily growing greater all the time, and 
 that today it gets a larger proportion of the social income 
 than ever before. This fact is obscured by the great 
 growth in population, which has more than doubled in 
 the last hundred years in Europe and has shown a twen- 
 tyfold increase in the United States. The larger income 
 is divided among more people, and though each today 
 gets more than his grandfather, there is not yet enough 
 produced to make all rich. Indeed if the wealth of the 
 United States were divided equally, it would not provide 
 a competence for anybody. The difficulty is not merely 
 that there is inequality in distribution, but that the need 
 of a much greater production of wealth must also be met. 
 Inequalities may be adjusted by such measures as pro-
 
 Economic Progress 259 
 
 gressive inheritance taxes, but resort to this or similar 
 methods must not be so severe as to weaken the motives 
 for the accumulation of capital. This must form one of 
 the strongest reasons for rejecting the drastic proposals 
 of socialism. 
 
 Increased Command over Comforts 
 
 Improvements in production have, however, not 
 merely increased the total output; they have greatly re- 
 duced the cost of many articles and have brought within 
 the reach of the poorest consumers others which a cen- 
 tury ago would have been unattainable. Improvements 
 in transportation have served to bring an ever-increasing 
 variety of products to market. The material progress of 
 a people can be gaged fairly well by their consumption of 
 certain semi-luxuries, such as tea, coffee, sugar, tobacco, 
 beer, etc.; these show a steady increase during the past 
 century. 
 
 Thus in the United States between 1871 and 1903 inclusive, 
 the per capita consumption of coffee increased from 7.91 to 
 10.79 pounds, that of sugar from 36.2 pounds to 71.1 pounds, 
 that of malt liquors from 6.1 gallons to 18.04 gallons, that of 
 wheat and flour from 4.69 bushels to 5.81 bushels.^ 
 
 A similar investigation for Great Britain shows an 
 average increase of 40 per cent in a considerably larger 
 list of the same character between 1860-64 and 1895-96. It 
 must be admitted that there is much lack of economy in 
 present consumption; there is often wasteful and posi- 
 tively injurious consumption, an illustration of which 
 would be found by many persons in the increased con- 
 sumption of malt liquors cited above. From a purely 
 
 3 Adams and Sumner, Labor Problems, p. 523,
 
 260 Business Economics 
 
 economic standpoint the enormous waste of war and the 
 burdensome cost of military and naval armament must 
 also be condemned. 
 
 The Futtjee 
 
 The task of prophecy is usually a fruitless one, but at 
 least it is now possible for us to indicate some of the lines 
 along which reform is needed and the goal towards which 
 the future of economic progress will probably move. 
 The natural resources of the nation must be more care- 
 fully conserved and reckless destruction prevented; at 
 the same time the monopolization of limited resources by 
 private individuals or corporations must be rigidly re- 
 stricted. The growth of trusts seems but the last step 
 in a steady growth in size of the business unit and may be 
 accepted as an economical method of industrial organiza- 
 tion, but the evils of corporate financial management 
 must be carefully guarded against. 
 
 The growth of labor organizations, on the other hand, 
 must be admitted to be equally logical and desirable. 
 While they often display monopolistic tendencies, yet 
 our main reliance must be placed upon these agencies to 
 secure bargains for laborers on terms of equality with 
 their employers. But on behalf of wage-earners not eas- 
 ily organized we must resort to state intervention by 
 means of factory and labor legislation in order to secure 
 equitable labor contracts. Free competition w^hich ex- 
 poses women and children to the greed of unscrupulous 
 employers is defended by no one today, and it is clearly 
 recognized that legislation along these lines must be fur- 
 ther extended, as for instance in the direction of indus- 
 trial insurance, old-age pensions, adequate care for the 
 unemployable, etc.
 
 Economic Progress 261 
 
 Improvements in our banking and currency system, 
 an extension of banking facilities to the farming and ar- 
 tisan classes, the more careful regulation of railroad 
 rates and reforms in methods of taxation — all are called 
 for by the development and readjustment of industry. 
 On the other hand, much remains to be done in the educa- 
 tion of the mass of the people to habits of rational living 
 and enjoyment. In the great cities housing conditions 
 should be effectively regulated, sweat shops suppressed, 
 intemperance discouraged, and where possible a love of 
 art and outdoor life promoted. A more rational use of 
 income would increase considerably the material well- 
 being of the people. 
 
 Problems of distribution are still more insistent. No 
 one who has the welfare of the laboring classes or of our 
 democratic society at heart can view with approval the 
 existence of widely separated classes, with dispropor- 
 tionate political and economic power. Greater equality 
 in fortunes — a leveling up of incomes — must certainly 
 be regarded as a sound social ideal. On the other hand, 
 we have seen reason to reject the drastic remedies of 
 socialism as a cure for the injustices of present methods 
 of distribution or production. Improvement must come 
 by conservative reform along the lines of our past de- 
 velopment. In the last analysis all attempts to improve 
 conditions permanently depend upon the character and 
 capacity of the individual. Because of this fact educa- 
 tion assumes great importance — education not merely 
 in the art of production but also in that supreme art, the 
 art of living.
 
 262 Business Economics 
 
 TEST QUESTIONS 
 
 1. What improvement has been made since 1800 in the con- 
 dition of the working class in the United States? 
 
 2. Along what lines has the progress in labor affairs taken 
 place ? 
 
 3. What progress has been made in the field of production? 
 To what factors has this been due? 
 
 4. Has labor received its fair share of the benefits due to 
 improved production? 
 
 5. Why has the institution of private property been continued 
 in modern industrial society? 
 
 6. Why has society seen fit to place checks upon monopoly ? 
 
 7. From the economic standpoint are military and war ex- 
 penses justifiable ? 
 
 8. What is the probable future tendency of development in 
 corporate organizations? In labor organizations? 
 
 9. In the last analysis what factors determine true economic 
 progress ?
 
 INDEX 
 
 Accident : insurance, 141, 144 ; liability 
 for, 143 ; Prevention Bureau, 141 ; 
 industrial, 135, 140. 145, 147. 
 
 Accidents : causes of, in German indus- 
 tries. 142 ; fatal, 140 ; statistics of, 
 142. 
 
 Act, the Englisli Employers and Work- 
 men, 100. 
 
 Act, Peel's, 127. 
 
 Acts : anij-truck, 07 ; compensation, 
 144 ; fac"tory, 127. 
 
 Administration, business, schools of, 
 158. 
 
 Agencies, employment, free, 139. 
 
 Agricultural : colleges, 11, 20 ; LK-part- 
 ment, 20 ; implements, 60 ; labor, 90, 
 110; resources, 10, 48; schools, 159. 
 
 Agriculture, importance of, 18. 
 
 Alabama, 34, 36. 
 
 Alaska, value of fisheries in, 26. 
 
 Aldrich report, 256. 
 
 American express companies, 62. 
 
 American Federation of Laljor, 103, 
 104, 165. 
 
 American Merchant Marine, 104-196. 
 
 American Steel and Wire Company, 
 savings of cross-freights, 68. 
 
 Anarchism, 200, 245, 246, 248. 
 
 Annuity, 3 63. 
 
 Anthracite Coal Commission, 115. 
 
 Anti-trust laws, 77, 188. 
 
 Appalachian coal field, 34. 
 
 Apprentices : early economic position. 
 93 ; limitation of number, 100 ; pau- 
 per, 127. 
 
 Apprenticeship, 96, 156. 
 
 Arbitration of lalwr disputes, 114, 115. 
 
 Arizona, copper production In. 39. 
 
 Assessment of taxes, 236. 
 
 Asset currency, 185. 
 
 Associations : building and loan, 171 ; 
 credit, 172. 
 
 Assumption of risk, 143. 
 
 Australia, compulsory arbitration in, 
 115. 
 
 Austria, industrial accidents in, 142. 
 
 Average earnings of men, 120. 
 
 Baltimore, oyster-canning in, 52. 
 Banking, new system of, 184. 
 Bank-notes : as credit, 183 ; national, 
 
 181. 
 Banking trust, 66. 
 Banks, regional reserve, 185. 
 Bargain theory of labor, 208. 
 
 Bargaining, collective, 102, 104, 107, 
 111, 113, 115, 122, 130. 
 
 Bargaining power, labor's, !)8. 
 
 Barter, Industrial stage of, 176. 
 
 Beef trust. 70. 
 
 Beer, consumption of, 259. 
 
 Benefit theory of taxes, 233. 
 
 Benefits, fraternal, of labor unions, 
 112. 
 
 Bills of credit, 178. 
 
 Bimetallism, 178-180. 
 
 Birth-rate, 220. 
 
 Blaine, James G., on free trade and 
 protection, 48. 
 
 Blast furnaces, 36. 
 
 Board : Federal Reserve, 185 ; of arbi- 
 tration, 115. 
 
 Boards of conciliation, 115. 
 
 Bogart, B. L. : Economic Uwtorji of the 
 United States. 77 ; The Chicauo 
 Buildinu Trades Dispute, 111. 
 
 Bond-secured currency, 185. 
 
 Bonds, government, 172, 183, 184. 
 
 Bonus to labor, 164. 
 
 Boot and shoe factories, 168. 
 
 Bounty on shipping, 196. 
 
 Bowley, A. L., Wayes in the United 
 Kinydom in the Nineteenth Centura, 
 255. 
 
 Brentano, on labor contracts, 96. 
 
 Bridgenmkers, English, 60. 
 
 British : Parliament, 100 ; trade unions, 
 103, 110, 141. 
 
 Brotherhoods, the railroad. 103. 
 
 Building : and loan associations, 171 ; 
 Trades, the Chicago, 106. 
 
 Bureau : of Corporations. 78 ; of Labor, 
 121 ; of Labor Statistics, the New 
 York, 136, 140 ; of Lalx)r, the Massa- 
 chusetts, 132; of Labor, U. S.. Bul- 
 letin of. 140. 
 
 Burns, John, on collective bargaining, 
 112. 
 
 Business : administration, schools of, 
 158 ; depression. 137. 
 
 Butler Bros', system of old-age pen- 
 sions, 146. 
 
 Butter factories, 22, 53. 
 
 By-products, utilization of, 57. 
 
 California : Rochdale stores in, 169 ; 
 
 Fruit Growers Exchange. 171. 
 Qanadn, anti-dumping provisions in 
 
 tariff of, 240. 
 Canal, the Panama, 46. 
 
 263
 
 264 
 
 Index 
 
 Canals, 187, 193, 244. 
 
 Cape Cod Canal, 194. 
 
 Capitalism, 48, 249. 
 
 Capitalistic : metliods of production, 
 59, 153, 176 ; production, progress 
 In, 47. 
 
 Carnegie pensions for superannuated 
 college and university teachers, 146. 
 
 Carpenters' union, the Clilcago, 111. 
 
 Carriages, manufacture of, 50. 
 
 Causes of unemployment, 134. 
 
 Census: report (1910) on manufac- 
 tures, 65 ; Thirteenth, of U. S., 50. 
 
 Central bank, 183. 
 
 Centralization of industry. 187. 
 
 Centralized management. 62. 
 
 Cereals, 20. 
 
 Certiflcates : clearing-house, 85 ; silver, 
 181 ; trust. 63. 
 
 Charities, 246. 
 
 Charity, organization societies, records 
 of, 135. 
 
 Charter-granting states, 77. 
 
 Cheese : production of, 22 ; factories, 
 53. 171. 
 
 Cliemlcal poisons, 142. 
 
 Chicago : Building Trades, 106 ; car- 
 penters' union, 111. 
 
 Child labor : early origin, 117 ; in the 
 West, 119 ; the evils of. 125. 
 
 Child-labor law, eight-hour, 127. 
 
 Child-labor laws, l28. 
 
 Children : competition of, 126 ; employ- 
 ment of, 92, 97. 
 
 China, coal deposits in. 34. 
 
 Circulation of money, per capita, 180. 
 
 Civil service employes, pensions for, 
 146. 
 
 Claris, John B., on trusts, 73. 
 
 Class : the laboring, 104 ; legislation, 
 126. 
 
 Class-consciousness, 93. 
 
 Clearing-house certificates, 85. 
 
 Closed shop, 106. 
 
 Clothing : ready-made, 60 ; trade. 137. 
 
 Coal : an exhaustible resource, 29 ; in 
 U. S., 32-34 ; in coast-wise trade, 
 195 ; Commission Anthracite, 115 ; 
 mines, 41. 248 ; mining, 137 ; oil, 34 ; 
 supplies. 30 ; trust, 250. 
 
 Coffee : consumption of, 259 ; trust. 70. 
 
 Coke, 52. 
 
 Coking coal, 36. 
 
 Collars and cuffs, 52. 
 
 Collective l>argaining. 102. 104, 107, 
 111, 113, 114. 115, 122, 130. 
 
 Colorado, precious metals in, 38. 
 
 Combination movement. 62. 
 
 Combinations : industrial, 72 ; railroad. 
 190. 
 
 Commerce : foreign. 195 ; interstate, 
 78. 
 
 Commission : Anthracite Coal. 115 ; In- 
 dustrial, 56, 70, 75, 77. 137, 165; 
 Industrial, Report of, 123, 134, 139 ; 
 Interstate Commerce, 78 ; Merchant 
 Marine. 196 : National Conservation. 
 31 ; Trade, 78. 
 
 Commons. J. R. : on division of latwr, 
 50 ; Trade Unionism and Labor Prob- 
 lems, 111. 
 
 Communism. 4. 
 
 Community of interests. 188. 
 
 Compensation acts, 144. 
 
 Compti'oller of the Currency, 182, 185. 
 
 Compulsory : accident insurance, 144 : 
 arbitration. 115; education, 49, 128; 
 insurance, 145. 
 
 Concentration, industrial, effects of, 59. 
 
 Conservation : a rational policy of, 31 ; 
 of human resources, 129. 
 
 Consumers' : co-operation, 167, 170 ; 
 leagues, 222. 
 
 Consumption : the relation of, to pro- 
 ductive efficiency, 221 ; of wealth in 
 the United States, 227. 
 
 Continuation schools, 128, 157. 
 
 Contract : freedom of, 126. 244 ; labor, 
 95. 97, 98. 
 
 Contraction of the currency, 178. 
 
 Contributory negligence, 143. 
 
 Co-operation : as a system of produc- 
 tion, 167 ; the advantages of. 172 ; 
 consumers', 170 ; disadvantages of, 
 173 ; financial, 171 ; producers', 170. 
 
 Co-operative Wholesale Society, the 
 English, 168. 
 
 Coopers, productive co-operation of, in 
 Minneapolis, 171. 
 
 Corporate franchises, 190. 
 
 Corporations : Bureau of, 78 ; holding, 
 63. 
 
 Cost of living, factors of, 218-20.'"" 
 
 Cotton : the consumption of, 152 ; man- 
 ufacturers, 53. 
 
 Country Life, Commission on, 31. 
 
 Credit : bills of. 178 : economy, 176 
 182 ; facilities, 70 ; function of, 181 
 insurance. 171 ; theory of crises, 88 
 use of, 220. 
 
 Crises : credit theory of, 88 ; overpro- 
 duction theory of. 87 ; recurrence of, 
 86 : sun-spt>t theory of, 86. 
 
 Crisis, analysis of, 85. 
 
 Culture state theory. 247. 
 
 Currency : bond-Becured, 185 ; contrac- 
 tion and inflation of. 178; elasticity 
 of, 183 ; fractional, 181. 
 
 Dairy products in U. S.. 18. 
 
 Department : of Labor, 114 ; stores, 58, 
 173. 
 
 Depression, industrial, 135, 137. 
 
 Diminishing returns, law of. 27. 
 
 Discrimination in rates, 1S9. 
 
 Distribution : bases for, 201 ; of for- 
 tunes, 211; Importance of, 200; of 
 interest. 204-6 ; kinds of, 199 ; prob- 
 lems, 198 ; of profits. 206-7 ; of rent. 
 202-4 ; of wages, 207-8 ; of wealth, 
 234. 
 
 Division of labor. 51. 57. 
 
 Domain, public, 10. 
 
 Drink, a cause of poverty, 135. 
 
 Earnings, average, of men, 120. 
 
 Economy in consumption, 220. 
 
 Economic functions of the government, 
 244. 
 
 Economic laws. 26. 
 
 Economies : in integration, 68 ; of large- 
 scale production, 56. 
 
 Education : industrial, 156. l.")9. 160, 
 198 ; industrial, in England. 158 ; 
 industrial, in Germany, 157 ; indus- 
 trial, in U. S., 158 ; technical, 210. 
 211.
 
 Index 
 
 265 
 
 Eiglit-hour chlkl-laboi- law, 127. 
 
 Elasticity of the currency, 183. 
 
 Electric : interurbaa railways, liJl ; 
 railway, 59. 
 
 Ely, R. T. ; on taxation, 231 ; on so- 
 cialism, 248. 
 
 Eminent domain, the right of, 190. 
 
 Employer's liability act, a federal, 144. 
 
 Employers and ^^'orkmen Act, the Eng- 
 lish, 100. 
 
 Employment : bureaus, free, 139 ; ir- 
 regularity of. 153 ; of women, 119 ; 
 of women and children, 97. 
 
 England, industrial education in, 158. 
 
 English Co-operative Wholesale So- 
 ciety, 168. 
 
 Equitable Pioneers, 167. 
 
 Exchange, California Pruit Growers', 
 171. 
 
 Exchanges : produce, 171 ; stock and 
 produce. 80, 249. 
 
 Experiment : Station Act, 20 ; stations, 
 20, 21. 
 
 Express : rates, 192 ; system, 187. 
 
 Factoi-ies : boot and shoe, 168 ; tex- 
 tile, 120 ; tin can and paper box, 125. 
 
 Factory : acts, 97, 127 ; detinition of, 
 49 ; inspection, 140, 141. 
 
 Fallacy of making work, 224. 
 
 Farming, extensive and intensive, 19. 
 
 Farm : products, 18 ; tenure, 16. 
 
 Farms, size of, 14. 
 
 Federal : employer's liability act, 144 ; 
 Income Tax, 235 ; Reserve Board, 
 185 ; Reserve notes, 181, 185 ; Re- 
 serve Banking System, 184 ; treas- 
 ury, 235. 
 
 Federation of Labor, the American, 
 103, 104, 165. 
 
 Fellow-servant, doctrine of, 143. 
 
 Feudal society, 96. 
 
 Financial co-operation, 171. 
 
 Fire: insurance companies, 171; pro- 
 tection, 1,27. 
 
 Fisheries, value of, 25, 29. 
 
 Fluctuations, seasonal, 137. 
 
 Foreign commerce, 160, 195, 242. 
 
 Forest Reserves, National, 25. 
 
 Fortunes : large, breaking up of, 234 ; 
 in U. S.. causes of. 212 ; size of. 213. 
 
 Franchises : and regulative powers of 
 the state, 244 ; corporate, 190. 
 
 Free employment bureaus, 139. 
 
 Free trade. 48, 200, 238, 239. 
 
 Freight : discriminations, 70 ; rates,- 
 189. 
 
 Fruit Growers' Exchange, California, 
 171. 
 
 Functions, of government, 243. 
 
 Futures, 81, 82. 
 
 Gas Company, South Metropolitan, and 
 
 labor, 166. 
 Geological Survey, U. S., 32. 
 George, Henry, on distribution, 201, 
 
 202 ; on single tax, 253. 
 German : industries, causes of accidents 
 
 in, 142 : group of, trade schools. 159 ; 
 
 socialists, 93. 
 Gold : supplies of, 38 ; and money, 179- 
 
 80 ; certificates, 181 ; -mining, 38 ; 
 
 standard, 180. 
 
 Gompers, Samuel, rrosideut of Amer- 
 ican Federation of Ijibor, 165. 
 
 Government : functions of, 243 ; paper 
 money, 180. 
 
 Governmental regulation of railroads, 
 190. 
 
 Greenback party, 178. 
 
 Greenbacks, 178, 181. 
 
 Guild system, 93. 
 
 Half-holidays, 110. 
 
 Harvester Company, International, 146. 
 
 High schools, industrial, 159. 
 
 Holding corporations, 63. 
 
 Homesteads and land distribution, 11. 
 
 Human resources, conservation of, 129. 
 
 Husbandry, pati'ons of, 169. 
 
 Idleness, causes of, 136. 
 
 Immigration and unemployment, 139. 
 
 Improved land, percentage of, in states, 
 12. 
 
 Incomes, 220, 229, 249, 252. 
 
 Income tax : justification of, 207 ; as 
 a source of revenue, 238 ; Federal, 
 235 ; returns, 211. 
 
 Increasing returns, law of, 26. 
 
 Increment, the unearned, 204, 253. 
 
 Indemnity insurance companies, 144. 
 
 Individualism : as state action, 245 ; 
 modified, 247. 
 
 Industrial : accidents, 140, 147 ; con- 
 centration, effects of. 59 ; develop- 
 ment of the South, 125 ; education 
 and training, 156 ; progress, causes 
 of, 48 ; Revolution, 6, 257. 
 
 Industries: of Increasing returns, 187; 
 infant, 239 241. 
 
 Inflation of the currency, 178. 
 
 Inheritance taxes, 237, 238, 259. 
 
 Inheritances, 248. 
 
 Inland Waterways Commission of, 31. 
 
 Institute, Zion's Co-operative Mercan- 
 tile, 169. 
 
 Insurance : accident, 141 ; against sick- 
 ness, old age, and unemployment, 
 145 ; against unemployment, 139 ; 
 compulsory accident, 144 ; working- 
 men's and unemployment, 147. 
 
 Intensive cultivation, 59. 
 
 Interchangeable parts, 59, 60. 
 
 Interest, a factor in distribution, 204-6. 
 
 Interstate Commerce Act, 190. 
 
 Iron law of wages theory, 207, 208. 
 
 Irrigation, 11, 14, 134. 
 
 Joint-stock enterprises, 174. 
 Journal of Commerce, New York, sta- 
 tistics on trusts of, 66. 
 
 Knights of Labor. 103, 200. 
 
 Labor : agricultural, 110 ; American 
 Federation of, 103, 104, 165 ; bar- 
 gaining power of, 98 ; bonus to, 164 ; 
 Bureau of, 121, 141 ; child, 124 ; 
 conditions of, 244 ; conditions, public 
 regulation of, 97 ; contract, 95, 97, 
 98 ; cost of. 219 ; Department of, 
 114 ; disturbances, 163 ; division of, 
 49, .50, 5il. 57 : freedom of, 165 ; 
 hours of, 127, 165; Knights of, 103, 
 104 ; market, 99. 104, 106, 139 ; 
 Massachusetts Bureau of, 132 ; mi-
 
 266 
 
 Index 
 
 gratlon of, 209 ; of women, 123 ; 
 orsanizatlons, 102. 110, 128, 136; 
 pauper, 240 : -saving devices. 209 ; 
 -saving machinery. 48, 49. 52, 112, 
 155 ; statistics. New York Bureau of, 
 136, 140. 
 
 Laborers, Statute of, 96. 
 
 Land : grants of, to railroads, 190 ; 
 policy of U. S., 10 ; unearned incre- 
 ment of, 207 ; values, 213. 
 
 Lands, public, 11. 
 
 Large-scale production, economies of, 
 56. 
 
 Law of diminishing returns, 27. 
 
 Law of increasing returns. 26. 
 
 Laws : anti-trust, 77 ; child-labor, 127 ; 
 economic, 26; labor, 100; minimum 
 wage, 130 ; sanitary, 219. 
 
 League, Right Relationship, 109, 173. 
 
 Leagues, Consumers', 222. 
 
 Leclaire, Maison, protit-sharing plans 
 of, 163, 166. 
 
 Legislation : currency, 89 ; factory, 
 100, 125 ; protective, the necessity 
 of, 99 ; restrictive, 125 ; special, 172. 
 
 Leisure, 219. 
 
 Liability act. employer's, federal. 144. 
 
 Liability insurance companies, 141. 
 
 Liens, mechanics', 127. 
 
 Liquor, expenditure for, U. S., annu- 
 ally, 227. 
 
 Living, cost of. 217 ; standard of, 220, 
 228 ; woman's standard of, 121. 
 
 Loan. l)uilding and, associations, 171. 
 
 Loan-sharks, 222. 
 
 Lump-of-labor theory, 224. 
 
 Machine production. 76. 102, 117, 143. 
 
 Machinery : automatic, 60 ; labor-sav- 
 ing, 52, 112. 
 
 Making work, the fallacy of, 224. 
 
 Malthusian theory, 208. 
 
 Management : centralized. 62 ; collect- 
 ive. 250. 
 
 Manufactures: census report on (1910), 
 65; growth of, in 19th Century, 47. 
 
 Manufacturing, large-scale, 174. 
 
 Margin trading, 83. 
 
 Marine, American Merchant. 194. 
 
 Massachusetts Bureau of Labor, 132. 
 
 Meat-packing Industry, 50, 57. 
 
 Mercantilism, 247. 
 
 Mechanics' liens. 127. 
 
 Merchant marine : the American, 194 ; 
 Commission, 196. 
 
 Metals, precious, 38. 
 
 Metropolitan Gas Company, South, 
 166. 
 
 Mineral resources of U. S., 29. 
 
 Minimum wage laws, 130. 
 
 Money : kinds of. In U. S.. 181 ; per 
 capita circulation of, 180; value of, 
 
 176. ; 
 
 Monometallism, 179. 
 
 Monopoly : control. 74 ; evils, 78 ; 
 power" of labor, 209 ; power of rail- 
 roads, 191. 
 
 Municipalization, 253. 
 
 National : bank-notes. 181 ; bonks, 182- 
 84 ; Conservation Commission, 31 ; 
 Forest Reserves, 25 ; resources. 210. 
 
 Natural : gas, 36 ; monopolies, 43 ; re- 
 sources, 26, 173. 
 
 Negligence : acts of, 143 ; contributory, 
 
 143. 
 New York : Bureau of Labor Statistics, 
 
 136, 140 ; Journal of Commerce, 66. 
 Non-union shops. 107. 
 Notes, Federal Reserve. 181, 185. 
 
 Occupations : classified index of, 50 ; 
 followed by women, 118; of men, 
 effect of woman labor upon, 119 ; 
 statistics of, 119 ; unhealthful. 128, 
 135. 
 
 Oil-refining industry, 57. 
 
 Old age : insurance. 145 ; pensions, 
 260 ; pensions in U. S., 146. 
 
 Organization, individual and partner- 
 ship, 64. 
 
 Output, restriction of, 110. 
 
 Overproduction theory of crises, 87. 
 
 Ownership 1 : communal, 4 ; private, 3; 
 public, 173, 253; state, 253. 
 
 Panic : analysis of, ba ; theories of, 86 ; 
 Wall Street, 86. 
 
 Paper money, government, 180. 
 
 Parcel post system, 192. 
 
 Partnership organization. 64. 
 
 Patrons of husbandry, 169. 
 
 Pauperism, 219. 
 
 Pauper labor, 240. 
 
 Pensions : Carnegie, for superannuated 
 college and university teachers, 146 ; 
 old-age, 260; old-age, in U. S., 146. 
 
 Pensions systems, private, objections 
 to, 146. 
 
 Personal property, tax on, 236. 
 
 Piecework and labor unions, 107, 111. 
 
 Pioneers, Equitable, 167. 
 
 Poisoning, Industrial, 142. 
 
 Pooling, among railroads, 187, 188. 
 
 Pools, industrial, 63. 
 
 Population, growth of, 207, 208. 
 
 Postal savings-banks. 185. 
 
 Poverty, 135, 140, 145, 199, 218. 257. 
 
 Premium wage systems, 165. 
 
 Prices : monopoly control and, 74 ; and 
 values, 177 ; determined by the state, 
 252 ; rising and falling, 178. 
 
 Problem, labor, 174. 
 
 Produce exchanges. 80. 171. 
 
 Producers' co-operation, 167, 170. 
 
 Producers' co-operative marketing so- 
 cieties. 171. 
 
 Production : capitalistic, 7, 45, 46, 100, 
 102, 153, 176; progress in, 47. 
 
 Productivity theory of wages. 208. 
 
 Profits, 206-207. 
 
 Profit-sharing : advantages of, 163 ; fu- 
 ture of, 1C6; nature of, 162-67; ob- 
 .iections to, 164. 
 
 Property, personal, tax on, 236. 
 
 Property tax. general, 236. 
 
 Protection : and free trade, 238-41 ; 
 and monopoly, 212 ; relation to In- 
 dustrial progress. 48. 
 
 Public : debts. 238 ; domain, 10 ; own- 
 ership of railroads, 191 ; ownership 
 of telegraph and telephone, 192. 
 
 Pure food laws, 219. 
 
 Railroad : brotherhoods. 103 ; combina- 
 tions, 187, 190; rates, 189, 261; 
 steam, 59 ; traflBc, 152.
 
 Index 
 
 267 
 
 Railroad?? : the governmental regulation 
 of. 190; tlie public ownership of, 
 191. 
 
 Railway : electric, 59 ; pool, 03. 
 
 Railways : electric Interurban, 191 ; 
 French, 62 ; steam, 56 ; street, 254. 
 
 Rate of wa^es : standard, lOG; union, 
 111. 
 
 Rates, railroad, 189. 261. 
 
 Real estate, tax on, 236. 
 
 Recreation, 216-18. 
 
 Reduction of working hours, 108. 
 
 Regional reserve banks, 185. 
 
 Regulation : of labor conditions, 97 ; 
 of railroads, governmental, 190. 
 
 Relationship I.*agiie, Right. 169. 
 
 Remedies for unemployment, 138. 
 
 Rent : nature of, 202-4 ; and cost of 
 living, 216-18 : and single tax, 253. 
 
 Reserve banks, regional, 185. 
 
 Resources : agricultural, 48 ; agricul- 
 tural, of U. S., 10 ; human, conserva- 
 tion of, 129; national, 210; natural. 
 29, 173. 
 
 Rest : one day of, In seven, 129 ; pe- 
 riods of, 129. 
 
 Restriction of output, 110. 
 
 Right : of eminent domain, 190 ; per- 
 sonal and property, 126 ; Relation- 
 ship League of America, 169, 173. 
 
 Risk, assumption of, 143. 
 
 Rochdale : stores, 169 ; Wholesale Com- 
 pany, 169. 
 
 Rotation of crops, 22. 
 
 Safety devices, 141. 
 
 Sanitary : conditions, 99 : laws, 219. 
 
 Saving and spending, 222. 
 
 Savings, useful. 225. 
 
 School attendance, 126. 
 
 Schooling, compulsory, 128. 
 
 Schools : agricultural, 159 ; business 
 administration, 158 ;■ continuation, 
 128, 157 ; correspondence. 159 ; in 
 Germany. 157 ; trade. 160. 
 
 School-teachers, pensions for, 146. 
 
 Scottish Wholesale Society, 168. 
 
 Serfdom, 5, 95, 96. 
 
 Sexes, proportion of, 119. 
 
 Shut-downs. 134. 137. 
 
 Sickness: and unemployment, 134, 136, 
 139 ; Insurance. 145, 147. 
 
 Silver: certificates. 181; coinage of, 
 178 ; dollars. 181 : -mining, 38. 
 
 Single tax 200, 253. 
 
 Sllding-scale of wage payment,- 165. 
 
 Socialism, 248-53. 
 
 Socialization of wealth, 229. 
 
 Societies : financial, 171 ; producers' 
 co-operative marketing, 171. 
 
 Society : the EJnglish Co-operative 
 Wholesale, 168 ; feudal, 96 ; im- 
 provement of, 124 ; manorial, 2 ; 
 Rochdale, 169 ; Scottish Wholesale. 
 168 ; welfare of, 127. 
 
 South : Industrial development of. 125 : 
 Metropolitan Gas Company, 166. 
 
 Specialization of labor, 156. 
 
 Speculation, stock exchange, 184. 
 
 Spending, 215, 220, 222. 
 
 Standardization : In Industry. 59 ; of 
 wages, 110. 
 
 Standard of living, 122, 228. 
 
 Standard Oil Trust. 63. 65, 70. 
 
 Standard wage, 107. 
 
 State : functions of, 243 ; night-watch- 
 man theory of, 246 ; regulative func- 
 tions of, 244. 
 
 Statistics : of accidents, 142 ; of farm 
 tenure, 16 ; of industrial accidents, 
 140 ; of occupations, 119. 
 
 Statute of Laborers, the, 96. 
 
 Steel : business, pensions in, 146 ; Cor- 
 poration, U. S., 68, 146. 166; and 
 Wire Company. American, 68. 
 
 Stock-exchange speculation, 184. 
 
 .Stock exchanges, 80. 
 
 Stores : consumers' co-operative, 170 ; 
 department, 173; Rochdale, 169. 
 
 Sun-spot theory of crises, 86. 
 
 Superannuation, 136. 
 
 Supply and demand, 208. 
 
 Sweated trades, 111, 222. 
 
 Tariff : laws, 219 ; rates, 236. 
 
 Tax : Federal Income, 235 ; general 
 property, 236 ; single, 200, 253. 
 
 Taxation, bases of, 233. 
 
 Taxes : defined. 231 ; direct and indi- 
 rect, 235 ; inheritance, 205. 237, 238. 
 259; nature of, 231; progressive, 
 233. 
 
 Tenantry, 16. 
 
 Tenements. 222, 244. 
 
 Theory : credit, of crises. 88 ; over- 
 production, of crises, 87 ; sun-spot, 
 of crises, 86. 
 
 Tobacco. eri)enditure for, in U. S. an- 
 nually, 227. 
 
 Trade: expansion of, 138, 177; foreign, 
 195, 196 ; free. 48, 200 : -marks, 244 ; 
 restraint of, 77 ; schools, 157, 159, 
 160 ; union methods and policies, 
 160. 
 
 Transportation : companies, 188; facili- 
 ties, 48 ; water, 193. 
 
 Trust : and capitalistic production, 6 ; 
 certificates, 63 ; organization. 76 ; 
 problem, 53 ; promotion, 69 ; Stand- 
 ard Oil, 63. 
 
 Trusts, causes of, 66. 
 
 Dnder-nutrltion, 228. 
 
 Unearned increment. 204. 207, 253. 
 
 Unemployed, classification of. 133. 
 
 Unemployment : causes of, 134 ; Insur- 
 ance, 145, 147 ; remedies for. 138. 
 
 Unhealthful occupations. 128, 135. 
 
 Union wages. 111. 
 
 Unions, trade and lalxir, 104. 
 
 United States : consumption of wealth 
 In. 227 : Geological Survey. 32 ; in- 
 dustrial education in. 158 ; mineral 
 resources of, 29 ; Steel Corporation, 
 68, 146, 166. 
 
 Universities, technical departments of, 
 158. 
 
 Value : Marxian theory of, 252 ; of 
 
 money. 177. 
 Vice, l34. 
 
 Wage : contract, evolution of. 95 ; 
 -earners, 260 ; -earners, women, 121 ; 
 -earning class, 92, 102 ; minimum, 
 laws, 130; minimum, legislation, 
 129; scales. 113; system, modern. 
 91, 126.
 
 268 
 
 Index 
 
 VVages : and distribution, 207-8 : liigh 
 In U. S., 210 ; men's. 122 ; women's, 
 120, 123; standardization of, 110; 
 union rate of. 111. 
 
 Wall Street panic, 86. 
 
 Waste : of luniries, 225 ; products, 57. 
 
 Water-power, 20, 40, 41. 
 
 Water-power trust, 43. 
 
 Waterwa.vs : and canals, 194 ; inland, 
 48, 193. 
 
 Wealth : accumulation, improper meth- 
 ods of, 213 ; consumption of, in U. S., 
 227 ; distribution of, 198, 205, 226. 
 234 : ine<3ultable distribution of, 155 ; 
 of nations, 47 ; production of, 124, 
 178, 198, 225 ; rational use of, 215 ; 
 socialization of, 229. 
 
 Welfare, social and industrial. 231. 
 
 Whisky : pool, 63 ; tax on, 235 ; trust, 
 67. 
 
 Wholesale Society : English Co-opera- 
 tive, 168; Scottish, 168. 
 
 Wholesaler, 168. 
 
 Woman : ambition of, 120 ; economic 
 position of, in the world. 121 ; effi- 
 ciency of, 120 ; expectation of mar- 
 riagre of, 120; labor. 117, 118, 120- 
 labor, effects of, 122 ; labor, effect 
 of, on occupations of men, 119 ; lower 
 wages of, 120. 
 
 Women : employment of, 92. 97, 119 ; 
 field of employment for, 118; indus- 
 tries of, 122; occupations followed 
 by, 118; wages of, 120. 121; wage- 
 earners, 121 ; work of, 124. 
 
 Work : the fallacy of "making," 224 • 
 monotony of, 154 ; specialized, 154. 
 
 Working day: length of. 110; length 
 of, for women and children. 128. 
 
 Workingmen's insurance, 147. 
 
 Workmen's compensation : and em- 
 ployers' liability, 143 ; act. 144. 
 
 Zion's Co-operative Mercantile Insti- 
 tute, 169. 
 
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