DEMOCRACY AND BUSINESS ADDRESS BY J. LAURENCE LAUGHLIN PROFESSOR OF POLITICAL ECONOMY UNIVERSITY OF CHICAGO DELIVERED AT THE NINETEENTH ANNUAL MEETING OF THE CENTRAL SUPPLY ASSOCIATION HELD AT THE HOTEL SHERMAN, CHICAGO OCTOBER 22, 1913 u"5 £ cU yij <£ X 2E ADDRESS by PROFESSOR J. LAURENCE LAUGHLIN Mr. President and Gentlemen of the Central Supply Association : I can see a certain fitness in asking me as an economist to come here with the avowed intention of fitting demand to supply, but the tremendous impetus that you have given to supply is something that I shall not hope to overtake by aca- demic discussion of the demand. There are, however, gentle- men, some very serious and grave questions lying before you as business men in particular, and before the community as a whole, which cause you and all of us much doubt. I make no apology, therefore, for discussing seriously several important problems. You know from your own busi- ness experience that many important forms of the social fabric are now ‘fin the melting pot.” You know that new proposals, political and economic, are legion in number. Opinion gathers quickly. It gathers quickly behind any taking novelty, and conditions are such that it spreads by some lateral absorption like water in a lump of sugar. Industrial democracy is receptive and expectant of change, even if only for the sake of change. Currents of ambition flood with Daytonian ruin the old established bulwarks of society. Old landmarks are submerged by this flood. Rever- ence for the authority of age and experience and even of law is slight. The independence of a strongly individualistic com- munity is feeling the pride of opinion and delights in its power without very much thought of consequences. Representative government, the one great product of Anglo-Saxon civilization, the one great product of the strug- gle for constitutional liberty, seems to be fighting against the rising tide of the initiative and referendum. The return of the government to th.e people becomes synonymous, perhaps, with the transformation from sobriety and reflection to hot- headed ambition and rashness. Now, if this rising tide has lifted our anchors, whither are we drifting? Are we throwing aside compass and quad- rant, and sailing towards unknown harbors in a fog? On all sides we hear of social unrest, of socialism, of sabotage, and the Industrial Workers of the World. What is going on? Is there an internal fire eating out the vitals of the Republic while we are huddled like the passengers of the helpless Volturno on th.e deck fearing some ruinous cataclysm, and uncertain whether there may be any escape for us or not? Like practical men of common sense, let us together face some of these fundamental problems, and allow me to discuss them with you. Whether we like it or not, we must face the fact that large groups of men — and women, too — have found in democracy an opportunity and occasion to give expression to a raw, untrained pride of opinion on the most difficult questions of government and economics. Respect for author- ity, for those who have achieved something important, for experience and knowledge, have seemingly disappeared. Crass ignorance reigns in the market place ; and that man who loves to plow his own ground and bases his claim on merit, is too often lost in the crowd. We have democracy growing rank, settling policies for America, not according to careful study and insight of their merits, but according to its effect in catching votes. An un- trained, uneducated constituency, no matter how honest, is the paradise for a demagogue. The confidence of conceit and passion is generally in direct ratio to its ignorance. Why is it that the son today has more assurance than the father? “Cheek,” brazen effrontery and cocksureness and unwilling- ness to listen to criticism are the mark of men who guide other men of less force. These, then, I conceive are some of the evident results of democracy; but do you realize that they are as old as Socrates ? The same characteristics showed them- selves in Athens. The same things that trouble us today ; and yet the world has progressed since the time of Athens. Nev- ertheless, many facts and opinions are changing shape. Some things are certainly going by the board. Crews mutiny against 4 officers; but you have noticed that officers and discipline are still the rule of the sea. We may have eruptions of ignorance and passion, but sooner or later the shallow and the criminal give way before the inevitable permanent facts of right and progress. Democracy in its old significance bore on political rela- tions and equality of treatment by the government. Now, we hear of industrial democracy and economic equality. That is, there is some assumption that not only is one man’s vote as good as another’s, but that one man’s wages should be as good as another’s. Right there, gentlemen, is the break with logic and with human nature. All men never were born equal in industrial capacity. (Applause.) In fact, the whole dis- tributive system of wages and wealth is based on the fact that some men are more efficient in productive industry than others. A few years ago that would have been taken as axiomatic; but there is a further assumption connected with industrial democracy. It is assumed that the existing system of industry supplied by private capital and managed by individuals is un- just; that men are not getting “social” and economic justice; that there are men whose large fortunes must have been unjustly accumulated. Consequently we are made aware that when laborers in any field having formerly received, say, three dollars a day have by virtue of strikes and struggles got five dollars or six dollars a day, and possibly for a less number of hours in a day, they are not satisfied. They have no inten- tion of stopping the campaign for higher wages. If they have already doubled their wages, why not set to work and double them again? If they have gained five dollars a day in the course of the last few decades, why should they not keep on until they get fifty dollars a day? What is to prevent that consummation ? Gentlemen, these are facts and conditions that we must face. As long as employers have palatial homes, fine horses and automobiles, and dine at tables of Levi, why should they not keep on demanding? In fact, industrial democracy assumes that wealth is unjustly distributed, and its avowed end is a new and different distribution of wealth, which those with capital invested in their business must face. It is a purpose of growing numbers in our community; and these increasing 5 numbers having votes expect to use the state and national legislation to aid in forcing their system on society. Those who seek high office and wish to secure these votes, are clev- erly bidding for followers under the standard of “social jus- tice.” They have trimmed th.eir sails to catch that particular slant of wind to gain their object. The reason that some men are rich and some are poor has nothing to do with their goodness. A good man may be stupid, or he may have an artistic temperament without any practical business sense; while another man just as honest may have foresight, good judgment, a cool head, executive ability and great business capacity. The former is likely to remain poor while the latter may amass a large fortune. The former may be a great artist and on the side of culture he may be a more valuable member of society than the latter. It all de- pends on how we look regarding the accumulation of wealth. Many have gained wealth who have done nothing for the well being of others in society. Now, without attempting to grade th.e pursuits of men we are compelled to face certain prac- tical problems. It is purely a material question. It concern’s a man’s capacity to get material rewards. To some people — fortunately not all — that is the sole aim. And let it be ob- served here in passing that socialism is a purely material phi- losophy. Its objective is to overturn an existing privately owned industry in order to attain for the workers more ma- terial wealth to consume. They may not get it; but that is their aim. It is not, mark you, th.eir aim to establish goodness. By having more to spend possibly they may expect to grow in grace. By unthinking persons all discriminations are thrown to the wind. If there is one rich man who is evil, all rich men are evil. Without any careful examination and analysis, it is assumed that if a man is rich, it could only be because he got rich at the expense of others, and especially of his laborers. Hence the theory already alluded to that workmen are right in pressing for higher wages until all are equally rich. That is, in a nutshell, the hope, the underlying hope of industrial democracy. Now let us face that assumption, let us be practical. “All the fools are not dead yet,” it is true; but it is equally true 6 that th.e saving grace of common sense is still a characteristic of the American people. Let me give you a concrete case which I am personally cognizant of, which, after all, is only typical of a legion of other cases. One of the cowboys on a southwestern ranch was a quiet, silent fellow of eighteen. He rode well and knew the nature of a cow, and that is a good deal. If they played a joke on him he took it good naturedly and said nothing. At the end of the month the bunch of boys went into town and “blew in” their month’s wages in the saloons. Our young man in this case in a lone- some sort of way stayed on the ranch. He took of course the usual jibes of the other fellows when they came back, grinned and said nothing. He was fed and found on the ranch, and at the end of the year he had $360 to his credit. That went on for three or four years. Suddenly he was known to have preempted 160 acres of the best land in that region. He built his shack and stocked his farm with his savings. He was a good judge of horses and cattle and he worked indefatigably on that new farm, which was, in the words of the old adage, truly his savings bank. In one year h.is wheat sold for $3,500 and his stand of alfalfa was as good as that of anyone else in the whole region. He needed more help and he employed some of the old boys he had known on the ranch, and he paid them more than they had been paid in the saddle. Then, after having paid for his farm, he soon had enough to buy the adjoining farm of 160 acres for cash.. He had a rapidly increasing herd on the open range. There was then an open range. In a very few years he be- came the owner of 1,200 acres of alfalfa in Texas, quite apart from his other farms and herds. His income at one time some years ago I knew was over $10,000 per annum. That he invested in more land, he bought bank stock and he helped build railroads through the southwest and in very recent years he was popularly known as a millionaire. Now, did this man gain his fortune at the expense of others, I ask you? Any other one of those mad riding, reck- less, frivolous cowboys could have done the same of they had had the same qualities which industrial success demands. There was the rub. Industrial success, gentlemen, is personal, not social. (Applause.) Society today or yesterday is not, and 7 has not been, holding any man at the bottom. It is the personal deficiencies of the man that are holding him there. Industrial success can always be won at a price, and that price is an observance of the inevitable rules of the game, namely, sobriety, industry, saving, avoidance of speculation, knowledge of human nature, good judgment, common sense, persistence, intelligence and integrity. (Applause.) No social system ever kept down a man who had those qualities. Now, after all this talk about unrest, isn’t it about time that the world found out that industrial success can be won only by the possessor of these qualities? Isn’t it worth while to have the practical operation of life in this world forced upon us as it exists if we want to win success? Is it “social justice” then to proclaim to the frivolous or the careless that the social system is responsible for their scanty means, and that they should claim a share in th.e wealth of our rich and successful cowboy? They say he should be made to divide. The cry is on with “social justice” and down with the plutocrat! Now I hear someone say, possibly, these conclusions are very obvious ; but how about the great “malefactors of wealth?” In the first place, size is no crime. If a business legitimately carried on becomes very large, that is a mark of success, and a mark of phenomenal opportunities of a new country abounding in great natural resources and inhabited by a rapidly growing population. Great fortunes honestly won are just as possible as small fortunes honestly won. If I had time I should like to describe more fully certain typical for- tunes. I will only briefly refer to a few. You no doubt have heard of the Baron Hirsch Founda- tion which has assisted so many of the poor of the Hebrew race. Baron Hirsch made an enormous fortune by his success in introducing means of transportation in the southeastern part of Europe in the region covered by the activities of the recent Balkan War. Before he did anything, before he put at stake all his capital, all the funds that he could accumulate, in transportation in that region, those people lived a primi- tive, uncultured, unsatisfied life. The means of existence were scanty. They had little of the conveniences of society. He carried railways and transportation into the remotest part of those regions around the Danube; provided a market for the 8 products of many of those countries ; caused an impetus to production; and enormously increased the productive capacity of those countries by carrying their products to markets at small tolls for transportation. He accumulated an enormous fortune and yet he practically civilized them (if you can speak of civilization in countries where such a war has taken place) by obtaining markets for the products of that great region. That has enriched it by hundreds of millions of dollars, taking the country as a whole, and for which he recieved only a frac- tion of those large gains. Take the case of George Peabody. George Peabody was a youth who marched out of the little village of Danvers as a poor boy. He went into business, and in a highly honorable and characterful way accumulated a large fortune. When he died that fortune was left to the Peabody Foundations, which have done so much to build up education in the earlier decades among the negroes of the South. Here and there and every- where there are large Peabody foundations. Not only was there a fortune honestly made, but it was honestly spent. Let me illustrate — and I will not bore you by too many cases — let me illustrate by another fortune. When Howe in- vented the sewing machine, he invented a labor-saving device for society. The enormous saving of production made possible by the sewing machine allowed hundreds of millions to be created that would not have been created without it. The small fortune that came to Howe and the early manufacturers of the sewing machine were but a fraction of the enormous ben- efits that were conferred upon society by that sort of a device. Let me take one other case, that of J. J. Hill. J. J. Hill was a Canadian who came to this country without any funds. He began life on the upper Mississippi as a stevedore unload- ing freight from steamers ; almost immediately his qualities showed in his being put at the head of a gang. He had the quality of leadership. Very soon he mastered in his own mind the whole problem of freight transportation in that country. Light across to the west, in order to get from the Mississippi to the Red River of the North, there was a point where freight was loaded upon steamers to be carried to the north ; and 9 there was a sort of inefficient, unfinished railroad whose bonds were in the hands of Holland bondholders. He got over there on the Red River and began to run competition with another owner of a steamer up that river. Next they united. Then he and his friends got hold of that railroad and paid the price that the bondholders were willing to sell their bonds for. Then he began to see it was more de- sirable to run his railroad north and south through the length of the fertile valley than to run it across the different valleys which stretched to the west. He began to build out of the earnings of his railroad certain sections. That was in the last of the ’70s and the early years of the ’80s. He put a low tariff on carrying farmers’ supplies and material and household ef- fects into the interior, and charged the ordinary normal price for the carrying out of their products. The result was that they rapidly populated the valleys as they built northward, and after they had paid for that section, they built another section, until the time came when they had built up an enormously profit- able transportation machine without having capitalized it with one cent of bonds. Now I think anyone who investigates that case — I am speaking now of the early formation of that sys- tem. I am not cognizant of the details of its present manage- ment — must know that it was perfectly possible and legitimate even in railway finance to plan, to build and to organize an effective transportation system, aiding and assisting the com- munity in which it existed, without taking one cent away from the others. I give you those cases as an illustration. But someone says; “Yes; but look at the big rascals in high finance.” Now let us face that point directly. It seems to me that here is the place now to insist upon a very significant distinction. Robbery, cheating, stealing, false- hood, dishonesty, are today under the ban of the law. The laws of the land are intended to convict any perpetrators of these wrongs. If there is a breach, we are all agreed that we should insist on the enforcement of the law; but on the other hand, if I am poor and B is very rich, am I justified in declar- ing that B is thereby a malefactor of great wealth? That assumes the economic proposition that no man could become very rich except at the expense of others, or by unfair meth- 10 ods of procedure. That proposition cannot be admitted for a moment. We may readily admit that some men may have become rich by rascality, by cheating others, and by different devices for esccaping the letter of the law, which are dishonest and unmoral ; but it is stupid to say that that is true of every rich man. It is a mark of the untrained mind that it can make no distinctions. We are living today in such, an hysterical age that no discriminating judgment seems to be popular. So I say the business world must face the fact that half-baked teachings of demagogues, and appeals to prejudice, have made the masses of the people believe today that if a man is very rich, he is necessarily a bad man, who has gained riches at the expense of others. It is assumed, therefore, that no man ought to accumulate more than a certain amount, and in one of the pieces of legis- lation proposed in the United States Senate, I personally heard myself the originator of that law insist that there should be a limit placed upon the amount of wealth that any man could accumulate. What is the corollary? There follows the corollary that the masses of voters being poor, should force the rich by pro- gressive taxes to pay a greater proportion of the expense of government. Such a policy has no economic basis. It is one of the developments of industrial democracy. A counting of noses settles that question, not a counting of economic argu- ments. As soon as economic questions then are settled, not by expert advice, but by universal suffrage and a counting of noses, there is no help for the business world but the educa- tion of the voter. The quality of political democracy is, as I have said, by facile logic easily transferred over to industrial democracy; but those two realms of human action are founded on rad- ically different basis and conditions. What is true of the one is not true of the other. All men have or should have equal rights before the law. Each should have equal protection to life and property. But if A is sober and thrifty, and saves up $10,000, and if B is never sober and perhaps owns only his horse, then the state owes A the same protection over his 11 $10,000 that it owes to B over his horse ; and the principle is the same whether A has $10,000 or $100,000,000, provided — note that proviso — provided he does not violate the rights of others. In industrial democracy B has no more righ.t over A’s $10,000 than he has over my overcoat. (Applause.) Unless that is founded in adamant and fought for, what protection ’has B for his horse against the influential rich man? (Ap- plause.) The middle ages is the answer to that. That was the situation in the middle ages. The poor man had no protection. We have developed out of that. Are we going back to it? Industrial democracy practically opposes this system of property and this theory of justice. It is sometimes forgotten that the development of individual private property since about 600 A. D. has been a large and important part of the growth cf civil liberty and the freedom and equality of the individual. It was not forced on the race by any great conqueror. Like all permanent laws and institutions, it is the expression of the wishes and desires of the race. Our rights in property today are what they are because the race is what it is. Now comes socialism in all its various forms, and proposes to put the control of capital and industry in the hands of the state. If in open competition of man with man in business, B is surpassed by A, B seems to accept his failure, but asks the state to make A share in the results of his skill with B. That is the essence of socialism ; it is the philosophy of failure. It. is not likely to succeed in the ultimate end, but it is color- ing industrial democracy through and through in many minor ways. Its practical form today is governmental interference with industry in the cases of public utilities; and many times there is a reason for that sort of interference ; but it is not the socialistic point; and government supervision has come to stay. Yet by standing on the rock of social and religious lib- erty we must fight every attempt to restrict the freedom of initiative and industrial life ; provided that it does not infringe upon the rights of others. (Applause.) There is today a nebulous area in human activities in which legislation and courts are being urged to interfere with capital on the ground that the state knows better than the indivdual what is good for it ; that you can make men better 12 by legislation, and prevent ‘'social power” from running to waste. On the other hand, while carefully restricting the indi- vidual from any act which may prejudice or injure another, let that individual feel that what he gets must be the result of his own force and his own ability, and then we shall be putting the only real stimulus we have behind the character and efficiency of every worker in the industrial world, high, or low. There is one other point I should like to present. This vague area in which increased action by the state is urged, is a paradise for dreamers, sentimentalists and revolutionists. If I am not mistaken, one of the side shows of industrial democ- racy is the “return of the government to the people.” If any wrong is being done and the law is silent, then the sooner a law is made to meet the situation, the better. We are alj agreed upon that. However, the face of the business world is chang- ing. New methods of doing business are superseding old ones. Centers of trade are shifting, distances are increasing, inter- national relations affect our daily transactions. The regulation of the rights of individuals in these new relations is a very delicate and a very serious matter. For instance, the develop- ment of irrigation and water power has forced the creation of a new body of law. Also the very form of our government, with state and federal laws applying over the same territory, raises a whole series of new problems as to interstate com- merce and the regulation of monopoly. And these new prob- lems are legion. They are at once new and difficult. Now with the history of the growth of civil liberty behind us, and with the experience of centuries to warn us, to what kind of persons and in what way should we entrust the solution of these problems? The finest flower of Anglo-Saxon civilization, as I said, its gift to the rest of the world, is representative government. What is implied in that? Simply that difficult matters of law- making should not be left to the untrained body of all citizens, but that the whole body should freely pick out the best trained, best qualified, and tell them to devote their whole time to this expert service ; since the average citizen busy at his industry has no time or capacity for specialized study. That, gentlemen, is practical, intelligent government for 13 the people and by the people. It is the application of the old doctrine of a proper division of labor. Now, on what ground is it advisable to take away the initiative in legislation from representatives of all the peo- ple, and refer it to the people themselves? On the ground that representatives do not represent? Then what is the difficulty in selecting those who do? If we say that the whole body of voters cannot do this, then, mark you, we are effectively indicting the intelligence and motives of the gen- eral body of voters ; and if you accept that, then they are cer- tainly unfit to pass on legislation which requires specialized expertness. To my mind there is no satisfactory answer to that argument. Obviously the remedy for poor legislation is greater alertness and responsibility in choosing our represent- atives. The remedy is there. That in my judgment is the pith of the whole matter that is raised by the initiative and refer- endum. Now, popular voting on technical questions of money, banking, labor, price regulation and monopolies is the height of absurdity. If you have an attack of appendicitis you do not call in the first stranger you meet on the street. Why don’t we get experts in legislation affecting industry as well as in surgery? We are most truly returning the government to the people when we are placing the government in the hands of honest and intelligent representatives, and taking it away from the bigot and the ignorant. Gentlemen, I have probably talked to you longer than you care to hear, but I have tried in the brief time to touch upon some of the salient characteristics of the recent thinking known as industrial democracy. Whither are we drifting? What is the meaning to business of this so-called “new thought?” By business, of course, I mean legitimate business, thoughtful and honestly carried on. It is obvious that business in this sense is threatened with very serious misconceptions and with wide- spread delusions that have no economic justification. It is not to the point to say that these are illogical and must be mis- taken. Saying so does not change the facts. Fantastic pro- posals affecting your business are being urged upon legisla- tors in order to give the effect of law to some passing wave of sentiment; and you must remember, too, that a very large 14 part of these proposals come from enthusiastic and entirely honest radicals. Attacks are being made on established insti- tutions ; nothing is taken for granted; and the justification for established institutions has got to be given anew. In short, we can hold to the forms of constitutional government only by fighting for them. Democracy gives an open forum for all kinds of opinion from conservatism to radicalism and even worse ; and that is as it should be. If established institutions are the best, they will survive without question; but we are undoubtedly in for a hot debate on fundamentals. For one, I welcome that dis- cussion, for after full and free discussion the American people have never gone far wrong. A state is dead that cannot bear free discussion; but the situation calls for serious and alert action to watch that the rights of legitimate business are well defended and not weakened. Attacks are not to be regarded as a basis for discouragement, but rather as a stimulus for virile thinking and activity. A dead fish can float down stream, but only a live fish can swim up stream. There is no disguising the fact of a tendency in modern industrial democracy to an exaggerated doctrine of equality. By that I mean a tendency to regard all men as having a right to an equal share of wealth, independent of the God-given dif- ferences of mind and body. Dissatisfaction with existing shares as now distributed is general, and few there are who are trained to explain why rewards are what they are today. If dissatisfaction is general, if economic honesty and training are rare, you have an inevitable field for agitation. It would be strange if you did not have it. Educating the public in intelligence, however, is the obvious remedy ; but such a spread of education in economics is a very slow process. Meanwhile, gusts of public opinion, no matter how wrong, are certain to arise. The kind of legislators we have are likely to respond to public opinion in order to retain office. As to the final result, there cannot be any doubt. The light-headed agitator and his party, buoyed up by the inflated gas of passion, may have a brief day of triumph, a brief swing of glory in the sky, but it is sure to be followed by a destruc- tive fall to cold facts. In the process of educating the public, both conservatives and radicals are going to suffer; but the 15 Dll 2 061884661 whole history of the race shows that the true wisdom of com- mon sense lying in between the extremes of both sides is cer- tain to return, and then extremes will be diminished only to the extent of the education of the public. Now let me say one final word. As a general rule I think I am correct in saying that all of us wish to further equality in industry in the sense that those of equal capacity should have as nearly as possible equal rewards. In the actual whirl of the operation of daily business, that will not always be so. It may be well for all our business men to see that there is no cause of complaint on this score on the ground of a desire to profit at the expense of another human being. There are generally two sides to every grievance, and the rich -and successful owe a moral obligation to the poor and unsuccessful to give them a hearing and aid them, even though they may be sometimes bitter and unreasonable. Phillips Brooks once said: “A man does not have a right to all his rights and a kindly and intelligent employer can do very much to help his working people, to regard them not as ma- chines made to earn a profit for him; but to regard them as human beings whom he would like to see obtain greater com- fort and more happiness. If those things can be tactfully com- prehended and accepted, radicalism and its extremes must give place before the wisdom that lies between the two extremes of thought and action; and it lies in the hands of you gentlemen to ameliorate the struggle and avoid damage. It is an old saying that what a lion eats becomes lion, and if you introduce into the industrial struggle a fine feeling of sympathy and interest, you are sure to generate the same and get the like in return. (Applause.) 16