V. Trusts And Monopolies.
Editor: Walter D. Moody
Contributor: Oscar P. Austin
Ernest L. Bogart
Editor: Samuel MacClintock
BUSINESS ADMINISTRATION
TEXT BOOKS
Business Economics.
Business Organization and Management.
Advertising and Salesmanship.
Trade and Commerce.
Transportation.
Money, Banking and Insurance.
Investments and Speculation.
Accounting.
Auditing and Cost Accounting.
Business Law and Legal Forms.
BUSINESS ADMINISTRATION
THEORY, PRACTICE AND APPLICATION
Editor-In-Chief
Walter D. Moody
General Manager, the Chicago Association of Commerce,
Author, “Men Who Sell Things.”
Managing Editor
Samuel MacClintock, Ph. D.
Editorial and Educational Director,
La Salle Extension University
This work is especially designed to meet the practical every-day needs of the
active business man, and contains the fundamental and basic principles
upon which a successful business is founded, conducted and
maintained. To those looking forward to a business
career, this work forms the basis for a
practical and systematic course in
“Business Administration”
This work is especially designed to meet the practical every-day needs of the active business man, and contains the fundamental and basic principles upon which a successful business is founded, conducted and maintained. To those looking forward to a business career, this work forms the basis for a practical and systematic course in “Business Administration”
PUBLISHED BY
LA SALLE EXTENSION UNIVERSITY
CHICAGO
Copyright, 1910,
LASALLE EXTENSION UNIVERSITY.
BUSINESS ECONOMICS
¶ This treatise has been especially prepared by E. L. Bogart, Ph. D., Associate Professor of Economics, University of Illinois, and Author of Economic History of the United States; Hon. O. P. Austin, Chief of Bureau of Statistics, Department of Commerce and Labor; and John Bascom, D. D., LL. D., former President University of Wisconsin. It is supplemented by the writings of recognized experts in the production, preservation and distribution of wealth. The treatment is modern, popular and authoritative. The volume contains many timely and practical suggestions which can be applied with profit to any business. It is also arranged to serve as a quick reference work, and includes a complete table of contents, a comprehensive index and test questions.
Walter D. Moody,
Editor-in-Chief.
INTRODUCTION TO BUSINESS ADMINISTRATION.
BY WALTER D. MOODY.
General Manager, The Chicago Association of Commerce.
Author of “Men Who Sell Things.”
“The recipe for perpetual ignorance is: Be satisfied with your own
opinion and content with your knowledge.”
Business a contest of wits
This is an era of the greatest commercial activity the world has ever known. The development of business is one of the marvels of the new century. A few years ago science, as a factor in commerce, was little known and less appreciated. The amazing advantages to business of intellectual attainments were utterly without recognition. Today, however, business has become a contest in which the quickest perception wins, thus transforming the counting room into a battle ground upon which brain matches brain for supremacy and success.
Success—educated enthusiasm
Ah, that enchanting word, S-U-C-C-E-S-S. It does not require a magic key to unlock the door to business efficiency. There is nothing mystic, nothing mysterious in the applied method of the really resourceful men in this day of great successes, of marvelous achievements in business enterprise. The sum total is contained in two words, words that electrify, nevertheless. EDUCATED ENTHUSIASM.
Changing conditions make opportunities
The most formidable barrier to progress has always been the senseless opposition of those to whom it would be of the greatest benefit. Changing conditions are the order of the day, for enlightenment has worked wonders. In olden times, a man of affairs was obliged to guard his property and his loved ones by building a moat around his house and posting sentinels in and around his estate. The time is not long past when, because of prejudice, perversity or ignorance, many men believed that opportunity knocked only once at any man’s door. Today, thanks to deeper insight, most men believe that life itself is opportunity; that the very air we breathe is opportunity; that each new day presents broader opportunities for accomplishing more because of better directed energy. This is not alone the accepted dogma of the man who is making his way in the world. It is the creed, doctrine, tenet or religion, whichever you may care to term it, of the great captains of industry everywhere.
New ideas count
The more successful the man, the more does he think, study, plan, as a part of his daily occupation in the development of the affairs in which he is interested. Newer and better ways to get things done is the business standard employed today by successful men in all lines. Only yesterday if a man of genius advanced a new idea, he found himself ridiculed and his innovation opposed on all sides because it was a new idea. Today, it is different. The man of ideas counts in the trend of affairs as he has never counted before.
Must keep step with changing times
Everything has a subjective reason. Progress is acting as a mighty dynamic force in changing men’s viewpoint of life and things. Suppose the stroke oar on a varsity crew, while in a race against an opposing crew from a competitive institution, should suddenly stop rowing in harmony with his associates and begin to row backwards—that crew would not get very far without trouble. Suppose a lawn mower should be reversed and forced to run backwards—there would not be much progress made in cutting grass on that lawn. Varsity crews and lawn mowers must move forward. Business men must advance with the times.
A great merchant in Chicago tells a good story of his youth. He was a member of a state regiment of militia. On a certain occasion, his company was sent out on dress parade. An old maiden aunt, with considerable colonial blood in her veins, took much pride in her nephew and his company. While reviewing the parade, she was suddenly heard to exclaim: “Why, every single man in that company is out of step excepting my nephew.” Most men who fail to get on in the world do not realize that success lies in keeping step—in making progress with changing conditions. They generally make the mistake of thinking that the world and everything in it is out of harmony with themselves.
New ideas worth searching for
A business man of successful experience realizes that ideas—newer and better principles of conducting business—are of the greatest value, and he also knows that it pays him to search for them. The same old way of doing things cannot longer be successfully employed month after month and year after year as under the old regime. The business man must be modern, up-to-date. The physician or lawyer finds that to compete successfully he is compelled to search without ceasing in order that he may comprehend the advancement in treatments or procedures. “To the man who fails belong the excuses.”
Demand for trained men
President James, of the University of Illinois, was asked if there was any demand from business houses for college-bred men. His reply was: “The demand has been far in excess of the supply since courses in business administration were established in our institution seven years ago. Each year has brought many more requests than we have men to recommend.” Ten years ago President James would have been ridiculed for advancing this new idea for the establishment of a school of commerce in connection with a university. Today, commercial schools are a part of the regularly established courses of nearly all of the great universities of our country. Men trained in the theory, practice and administration of business will always occupy the best positions and will always command the greatest salaries.
Value of new ideas in business emergencies
All men fail at times in the accomplishment of satisfactory results in the various enterprises in which they are engaged, without being able to give an explanation. The principles that have been applied successfully for many years seem apparently to have counted for nothing. It is frequently evident that in such cases a very insignificant thing, a mere oversight perchance, has been the direct cause of the failure. To be able to put the finger on the precise cause of the lack of success in one’s method would locate the cause of the disaster. Then it is that a real appreciation of new ideas is fully realized.
Men paid for what they know—not for what they do
Failure is more often chargeable to a refusal to learn by mistakes how to avoid them than it is in making them. Experience is a good teacher, but who can deny the value to be gained in learning from the experience of others, for we cannot all have the same experience or the same view of similar experiences. There are many pathways to success, but the road of individual experience is narrow and rugged. It is a commonly accepted fact that for every ten dollars a high-salaried man draws, he receives nine dollars for what he knows and one dollar for what he does. On the same basis the successful business man, employing a large force of other men, realizes that his own greatest worth, as applied to his affairs, lies not so much in what he can do himself as how much he can encourage his employes to do. In either case, his own personal knowledge is the power behind the throne.
Knowledge in excess of present needs necessary
The man who would secure the largest net return from his individual effort in the field of endeavor, and he who would realize the greatest possible advantage from the efforts of those under his command must, of necessity, possess knowledge—indispensable perception far in excess of the needs of the moment. Discernment, like a bank account, soon runs out if it is overdrawn or if it is not continually replenished. In business the “checking system” of knowledge is the sort of account that pays best—not the “savings account system.” Knowledge that is simply corked up and allowed to accumulate cobwebs and rust can avail nothing. The sharpest vinegar is procured by constantly replenishing the old stock with new.
90% failures vs. 10% moneymakers
Reliable statistics prove that only about ten per cent of all people who engage in business are successful and make money; the other ninety per cent become insolvent and fail. That is, they do not actually encounter the sheriff, or go into the hands of a receiver, but they fail nevertheless to succeed in the sense of making money, and what other possible reason can anyone have for engaging in business if not to accumulate money?
Failures due to lack of intellectual capacity
Why do so many fail? Ask any credit man and he will tell you that it is not because of the lack of capital, or other material resources, but it is due primarily to a lack of intellectual capacity, the sort of brains that dig and work and sweat until they find a way to accomplish things; brains that go to the bottom of things; brains that are always looking for better results; brains that never abandon a problem until they have found a way to solve it. A friend once told me that he inquired of the manager of a house employing some three hundred traveling men how many salesmen they had. The manager replied, “Three.” My friend asked, “How’s that? I am told your force of traveling men numbers nearly three hundred.” “Ah, that is quite different,” replied the manager; “we have two hundred and ninety-seven traveling men, but only three salesmen.” Quite likely that manager’s estimate was intended to be taken figuratively rather than literally, but it serves to illustrate the fact that in this great United States there are millions of men, young, middle-aged and old, who are content to plod along in a mediocre sort of way, heedless or unmindful of the fact that opportunity, knowledge, possibilities, are calling, calling, calling to them to come up higher. There are hundreds of thousands of other men engaged in business who sit idly by while their trade, like the sands in the hour glass, slowly ebbs away, and eventually is absorbed by their more progressive business neighbors.
Moneymaking and business literature
There is still another vast army of business men—salesmen, clerks and wage-earners of all classes—who are beginning to catch a glimpse of the dawning of a new business era, the greatest the world has ever known, an era impregnated with possibilities and opportunities for those who are ready with wicks trimmed and oil in their lamps. To the earnest latter class which is really desirous of profiting by the experience of others, there is no need of elaborating the possibilities embodied in this course of reading in Business Administration. This set of books, containing valuable business data on many subjects, thousands of pages telling the story of success illustrated by trained men whose names are respected everywhere, is intended to reach all classes. There is absolutely nothing in print that can even approach or can begin to compare with it in value as a reference library for business men or excel it as a complete course of instruction for any man desirous of making the best of his possibilities and opportunities in the kaleidoscopic age through which the business world is now moving.
Practical ideas best
The more practical the ideas, the better the basis for good work. Not long since, business men generally pooh-poohed the idea of employing in the conduct of their business anything new, which was taken from the writings and experience of others, such as is contained in this remarkable series, contributed to by some of the brightest minds in the business world today. There is, however, in these days unmistakably a hungering and thirsting for just this new sort of literature. It fills a long-felt need—fills it exactly, completely, satisfactorily. Being the author of a work on salesmanship which has had a countrywide circulation, I have been literally besieged by business men everywhere asking me to recommend books treating of successful business methods, and have been chagrined to find how limited was the supply. The man who formerly was prejudiced against such sources of information must now step aside and make way for progress or unite with the popular demand for more education and better methods.
Cannot afford vs. can afford
Show me the man who says he has no patience for such things, and I will show you a man, like the stroke oar and the lawn mower, who does not believe in moving forward in progress. Show me the man who says he has no time to read of new methods and principles, and I will show you the one who utterly fails to perceive that familiarity with business literature of this kind means pecuniary advancement. Show me the man who says he cannot afford to invest in such a set of books, and I will show you one who apparently CAN afford to waste his energy in misdirected effort—that energy and effort which are to every wage-earner and tradesman both his stock in trade and his invested capital.
Failures unnecessary
Someone has said, “There are three kinds of people in the world—the Can’ts, the Won’ts and the Wills. The first fail at everything; the second oppose everything; the third succeed at everything.” I would add a fourth kind—the largest class of all—the Don’t Trys, the “Oh-what’s-the-use,” “It-doesn’t-interest-me” sort of people. Their name is legion; their fault is lack of confidence. Knowledge is the greatest inspiration of confidence to be found on earth. You may not personally be held in the hope-paralyzing bondage that produces the “Oh-what’s-the-use,” or “I’m-not-interested” germ, but if you are not, you are exceptional. Most people are, and that is the reason that such persons are just about what luck, good fortune or chance make them, succeeding if fortune favors them, failing if they are left to depend upon their own resources. Result: Nine fail where one succeeds.
It is very fortunate, indeed, for most men that so much of their happiness depends upon success. There is nothing on earth quite so terrible to think of as failure, especially that due to lack of effort, unless possibly it be the failure of a man who lacks the courage or initiative to try to make the most of himself, and thus lets his best opportunities escape him. And this last is really the most pitiful thing that can befall a man. It is well enough to plan opportunities, but if we had the wisdom to take advantage of such opportunities as naturally come to us, results would more often be found in the balance on the right side of the ledger. And so I am of the opinion that a clear explanation of why a very large class of people do not succeed is found in some of these expressions—“I don’t care,” “I can’t,” “It doesn’t interest me,” or “Oh, what’s the use.”
Basis of all business success
One of the great objects set forth in this Business Administration series is to supply the positive energy which begets courage, confidence, initiative and success. We want to make you feel the necessity of doing some reading, a little plain thinking, and to make as clear as possible the important things that are involved in the serious but very fine game of business.
With business becoming with each succeeding day more and more of a science, it is high time to understand what is essential to it. Speaking of the subject of “Organized Business,” a great authority recently said, “It is time even for business men to understand business.” Again, the purpose of this course in Business Administration is, if possible, to measure the power and principles of business, to trace their ramifications, define their elements, get hold of their vital fundamentals, and so comprehend them, both in technical detail and as a mighty unit. And I am confident we have done all this. I find that at the foundation, the machinery of business is simple, but whether it is plain or complicated, all who would succeed must make every effort to comprehend it thoroughly. All I care to emphasize at present is the great truth that knowledge, established and classified, is the basis of all business success. This is clearly established in this course of reading, and I am trying to incite your imagination in writing of its merits just as I would endeavor to enable you to realize it if I could talk to you personally right across my desk. The observant man can see clearly the things I am talking about, but to most men the mind’s eye perceives not by observation, but only when the imagination is stimulated. So I would stir all men to look earnestly into these things, with a view to their personal betterment.
Business axioms simple to understand
Business is far more than business as it is commonly understood. It is a science, and it is the eager, practical minds of business men that we shall endeavor to convince first of that fact, and our reasons for addressing those principally concerned are especially good. Why? I have found that in writing about business whenever I was able to make the principles so plain that business men understood them, everybody else did, so it is to be expected that if business axioms can be made simple enough for business men to understand them, everyone will apprehend them. Everybody. And it is everybody that we are attempting to reach.
Knowledge is power
For nearly thirty centuries men have recognized the concrete wisdom of Solomon’s proverb: “A wise man is strong; yea, a man of knowledge increaseth in strength.” Yet we have been slow in making its application universal to the race. But we are beginning to understand that the power inherent in knowledge applies as well to commercial and industrial as to scholastic, political and social life, as well to the counting room as to the pulpit, as well to the shop as to the university, as well to the farm as to the bar. Knowledge is power and is the only source of real intellectual sovereignty that the Creator has ever entrusted to men.
In conclusion, I would say that these words are addressed to the business men of America, and this designation includes the banker and his clerks, the farmer and his sons, the lawyer and the law student, the financier and the man who sells bonds and stocks, the merchant and his clerk, the accountant and the bookkeeper, the manager and his assistants—the ambitious young men of the Twentieth Century type, contemplating the pursuit of any business, trade or occupation.
CONTENTS
PRACTICAL ECONOMICS.
BY ERNEST LUDLOW BOGART, Ph. D.
[Born Yonkers, N. Y., 1870; A. B., A. M., Princeton University, 1890, 1896; Ph. D., University of Halle, 1897; Graduate Student, University of Halle, 1894, 1896-7, University of Berlin, 1894-5, Princeton University (Fellow), 1895-6, Columbia University, 1897-8. Assistant Professor Economics and Social Science, Indiana University, 1898-1900; Professor Economics and Sociology, Oberlin College, 1900-1905; Assistant Professor Economics, History and Politics, Princeton University, 1905-9; Associate Professor Economics, University of Illinois, 1909. Author of Economic History of the United States (Longmans Green & Co., 3rd edition, 1909), and several monographs and periodical articles.]
INTRODUCTION.
In the preparation of this text the author has endeavored to apply the principles of economic science to some of the more important problems of the modern industrial world, and especially those now confronting the people of the United States. He has attempted in doing this above all to make the text practical. The student or teacher of economics will recognize at once that the sections are arranged into groups corresponding with the traditional divisions of economic text-books into production and distribution (land, capital and organization, and labor), consumption, exchange, and the relation of the government to the individual. It is hoped that the text may not be without profit and interest to the general reader as well as the students of the La Salle Extension University.
I. THE MODERN INDUSTRIAL SYSTEM.
We shall probably get the clearest idea of the complexity 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 a purely agricultural country, and the whole country was divided into manors, of which the lord was regarded as the owner, under feudal conditions, while those who cultivated 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 cultivated 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 elaborate 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 containing a portion of the scattered strips of the lord and every tenant, was planted with wheat, a second field comprising another third of the cultivated land was planted with barley or oats, while the third field was left fallow. The second year saw the second 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-sufficient, 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 things 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. Secondly, 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 individual could cultivate his land differently from his neighbors. 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 absolutely by custom, and no opportunity was given for the development of the inventiveness or initiative of the progressive individual. Thirdly, 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 familiar 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.
The institution of private property is so familiar to us and so fundamental in modern economic life, that we commonly regard it as a natural right. Nevertheless, private property, like most other economic institutions, is the result of a long evolution. Primitive man can 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 however that, when each cultivator was permitted to fence in his holding and to call it his own, he cultivated it much more carefully and produced much more. Inclosure 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 commercial ownership yet tried. But there are not wanting objectors who contend that limits should be placed upon this institution, and that the right of use, of bequest, and possibly 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.
Competition is defined as “the act of seeking or endeavoring to gain what another is endeavoring to gain at the same time.” But competition in modern 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 production, 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. “Competition,” so runs the proverb, “is the soul of trade.” There 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 ultimate 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 the mediaeval method of regulation by custom, or resort to combination and monopoly. We are now witnessing experiments in both directions, but competition still remains 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 competition.
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. Consequently, in our modern industrial society, a man is given not only social and religious liberty, but is free to move, to choose his occupation, to produce and to trade, to associate with his fellows, and to expend his income as he will. But here again, while the prevailing rule is liberty, society has found it necessary to lay restrictions upon the 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 secure the best results.
The term “industrial society” has already been frequently used and needs a somewhat fuller explanation. 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 textile and then of other goods. Manufactures were removed from the home, where they had hitherto been carried 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 industrial society has been attended by the minute division of labor, by a growing separation of classes, by concentration 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 the enormous increase of production, and by the growing concentration of wealth.
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 combined plants. The business unit has grown increasingly larger, and the need and power of capital have become increasingly important. Capital has played a role of growing 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 momentum, capital is often thought of as intensely selfish and even cruel. Abuses which have arisen in the development of modern capitalistic industry must be remedied, but attacks upon capital itself are misguided and rest upon a mistaken analysis of methods of production.
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 motive 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, 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 fellows into trade unions. These seek to meet the monopolistic 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 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 enforced. 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.
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 interference 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 enterprises; but socialism is as yet a protest rather than a constructive force. In the last analysis the state is the regulator of all industrial 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 a decided tendency at present to a strengthening of the regulative power of the state for the protection of the weaker classes of society. And yet on the whole the institution 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 enormously increased, and human progress has been greatly advanced, many abuses and evils still remain. Many practical economic problems still await solution. Some of these have already been suggested in the preceding 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 industrial life the principles of economic science, and to endeavor to reach fair and just conclusions on controverted points.
II. THE AGRICULTURAL RESOURCES 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 840,000 square miles, or a little more than one-fourth, still remains in the possession of the Federal Government and constitutes the public domain. The rest 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. The policy of the Government in the disposition of the public domain has, on the whole, been to place it as rapidly 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 railroads the land was practically worthless, as it was too far removed from any navigable waterway to have access to 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 instead 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 establishment of our state agricultural colleges.
The unique and characteristic feature of the land policy 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 “homestead,” 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 cultivators. The newer public land states are peopled by proprietors, and there has never grown up in the United States a large class of rich land owners whose land is cultivated by a tenant peasant class, such as exists in England and parts of Europe. For this we must thank not only our land policy, but also the vast extent of unoccupied land that might be had almost for the asking.
Now, however, the public lands available for agriculture 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 about 100,000,000 acres of choice land in Indian reservations, and as a consequence of the pressure upon this resource and also because of the unwisdom 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.
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 region 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 is well illustrated by the development which has taken place there. The first effort at the solution 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 1900, according to the census, 7,539,545 acres were under irrigation. While most of the work up to that time had been done by private initiative, a demand arose for irrigation at government expense, in response to which Congress in 1902 provided for the building of irrigation works out of the proceeds of the sales of public lands. Regulation and conservation of the limited water supply by governmental authority, either state or national, is indeed essential to the success of irrigation and will probably be the policy of the future.
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 regions. Carefully selected seeds and plants of crops especially adapted to these climatic conditions are used, and then a very careful and intensive method of tillage is followed. The soil is plowed deep and thoroughly pulverized so that the roots can strike down to the deeper levels and absorb all the moisture available. Extraordinary results 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 in the country.
That part of the area of the United States which has already been reduced to private ownership is divided into 5,700,000 farms. As almost half of the land in these farms is uncultivated, being forest, waste land, or pasture, it is evident that there is still room for a great increase in the agricultural production of the United States without bringing additional land into the field. The average size of these farms is 146 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 of course due to the difference in the methods of agriculture and the character of the crops, the European conditions demanding intensive cultivation while our methods are still largely extensive.
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 gratifying 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 64.7 per cent in 1900, and alarm has been expressed that our democratic conditions of land ownership are giving way to a system of tenantry, that the ownership 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 manufacturer and retailer in other fields. Correctly interpreted, 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 independent farmers rather than the fall of former owners to the rank of tenants. The great majority of the young 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’ children, 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.
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 proportion 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 development to a highly organized manufacturing and commercial stage. From 86.3 per cent of the population in 1820 the percentage of those engaged in agriculture fell steadily until it reached 35.7 per cent in 1900. Many persons have thought that such a movement indicated the desertion 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 improvement in the arts of agriculture, whereby one person today, working with improved machinery and better knowledge, 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 contain one-third of our population as compared with one-thirtieth 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 to do other things must certainly be counted again, though the conditions under which work in the factory and life in the city are at present constructed leave much to be desired.
Writing about 1865 an eminent English traveler, Sir S. Morton Pets, apologized for calling the United States an agricultural country; today he would be spared this worry, for the Census of 1900 gave the net value of products of the farm as $3,764,000,000 and of pure manufactures as $5,981,000,000. 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. Nevertheless the value and amount of the agricultural products are stupendous; 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 world’s trade come from her forests and fields.
While the territory of the United States is well adapted by nature to the cultivation of a great variety of agricultural products, as a matter of fact only four branches of agriculture showed a total product in 1900 of more than one million dollars. These were the raising of live stock, and the production of hay and grain, cotton, and dairy produce. The regional distribution of these products was fairly well marked, over half of the live stock and of the hay and grain farms being situated in the North Central States, nearly half of the dairy farms being located in the North Atlantic division, while 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. Iowa and Illinois lead as agricultural states.
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 cheap this is the most economical method for the farmer; and, although European critics have severely criticized our system of “earth butchery,” whereby the fertility of the soil has been exhausted by constant cropping, with no effort to restore the exhausted properties by fertilizing, the practice has been justified by the conditions which produced it. Already the practical exhaustion of the free public domain has had the effect of raising the price of lands in the Middle 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 those of Europe more closely, we may expect our agricultural methods to do so also. One of the most serious practical problems now confronting the American farmer is the change from the old, wasteful, extensive methods to the new, careful, intensive methods of farming. Those who cannot make the change will complain of the unprofitableness 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.
It has been said that the year 1887 marked the beginning of a new stage of development in American agriculture—that of reorganization—because in that year Congress passed the Experiment Station Act. This marked the application of the principles of experimental science to agriculture on a more comprehensive and systematic scale than had ever been attempted before. Stimulated by the increased activity of the government experiment stations, the agricultural colleges have expanded their work. They are offering practical courses to the farmers, and in co-operation with the railroads, some of them have recently been sending out special lecturers, with moving laboratories, to bring the teachings of science as close home to the producers as possible. Finally, the wonderful work being done by Burbank and others in selecting and crossing, by travelers for the federal Agricultural Department in securing plants from all over the world suited to our varied climatic conditions, and by the experiment stations and agricultural colleges in spreading 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 writer has said, a learned profession.
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 railroads, by which the western territory was given access to a market, the progress of cereal production has been extremely rapid, nor does there seem to be any observable slackening. With the introduction of improved varieties of spring wheat, cereal production is being pushed further up into British Canada and our own Northwest. The center of cereal production has moved steadily westward, from eastern Indiana in 1860 to eastern Iowa in 1900. 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 improvements 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 maintain his supremacy in the world’s markets is being nobly and successfully met by the agricultural experiment stations. They are teaching the farmer how to increase his yield of wheat, for example, by scientific seed selection and more careful methods of tillage, from an average of 12.5 bushels per acre for the whole country in 1900 to treble that amount.
Of the separate crops corn is by far the most important, representing 60 per cent of the total value of all cereals produced in 1900. 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 enterprise of the American farmer and food manufacturer.
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 be reclaimed for agriculture only at considerable expense, 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 demanding a knowledge of market conditions and business methods is 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 practically all of the cheese is now made in factories instead of on the farm, so that it is a question whether the latter at least should not be classified as a product of manufacture rather than of agriculture.
Of the last of the four important branches of agriculture, 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 before the Civil War in the South have been largely corrected, and the tendency to sterility of the soil has been met by the increased use of fertilizers. 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. A peculiar and interesting feature about cotton production 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 improvident 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, though 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-growing 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 increasing quantities of cotton fabrics.
Hand in hand with the heedless extensive methods of agriculture in the past went wasteful use and even destruction of our forest resources. The annual cut of lumber in the United States is today about forty billion feet board measure; at this rate of consumption it is estimated that the present available supply will last only 35 to 50 years. It will doubtless surprise most readers to learn that about three-quarters of the annual wood cut is consumed as fuel, probably half of our population 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 the question of forest preservation to the front as a practical 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 bankrupt. 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 forest reserves, embracing over 60,000,000 acres, was put under the control of the Forest Service. Over 150 trained foresters are employed, who manage the forests on the public lands and co-operate with private owners in the introduction of scientific forestry. Several states have taken up the movement, and there is every indication that scientific methods of culture such as prevail in Prussia and other European states, will supplant our destructive denudation of the land. That it is high time to devote attention to the better conservation of this natural resource is made evident by the high and increasing price of lumber.
There is one other natural resource the conditions of whose supply resemble those of forestry and of agriculture in general; this is the fisheries. With careful use, providing for depreciation, and restoring the elements destroyed, all of these should prove inexhaustible and should continue to furnish man with food and lumber for all time. But as in the case of the other two industries, so with the fisheries, we have been using up our capital and declaring enormous dividends at the expense of the future. The value of the annual catch of fish is $40,000,000, which is exceeded only by that of Great Britain. 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 stringent fish and game laws have also been passed by most of the states, designed to prevent the extermination of the supply.
III. THE MINERAL RESOURCES OF THE UNITED STATES.
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 which can be restored again; and on the other, resources which, 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 second head belong coal, petroleum, natural gas, and all the minerals; man may discover substitutes, he may economize in the use of these substances, but he can never augment their supply. In the previous section we considered some of the problems 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.
We can distinguish two contrasting answers to this problem, one careless and optimistic, and the other pessimistic 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 inexhaustible 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 will never crumble and fall.
The other school has sounded a louder note of alarm. At the present rate of consumption the coal and iron deposits of Europe and America must soon be exhausted. The supplies of copper, lead, and other metals in favorable 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 we are dissipating our fortunes. To treat these exhaustible sources of supply as permanent sources of income, without regard for the future, is based upon unsound theory and must lead to reckless practice.
As so often in opposing counsels, there is an element of truth in each of these contrasting points of view. But the safer plan is not to wait until we have exhausted our natural resources before remedying the evil, but to heed the warnings now. A long step in this direction was taken in May, 1908, when a conference of the governors of all the states, together with college and railroad presidents, business men and others, was held at the White House upon invitation of President Roosevelt. As a result of this gathering a National Conservation Commission was appointed, which will make an exhaustive investigation into the amount and rate of consumption of the natural resources of the country and suggest measures for their better utilization and preservation through national, state, and local action. In line with this movement two other commissions have been established, one on inland waterways and one on country life. 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 where possible of exhausted elements, 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 consideration of the separate items in our inventory of national wealth.
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, 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. According to the United States Geological Survey there are 335,000 square miles of coal-bearing strata in this country, but the larger part of it is too thin or 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 of 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 350,000,000 tons in 1905—it has been estimated that the anthracite coal deposits will last for only fifty years longer, while we have only enough bituminous 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 character 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 production, 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 rate of mining are threatened with exhaustion at no distant date. It has been estimated that there are in China 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 rather 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 industries most of the coal is coked, as it is better for blast-furnace use in this form, giving greater heat and containing 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, Alabama, etc.
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 comforts of living. In its production the United States ranks first, being closely followed by Russia; 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 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. Finally, the construction of light and convenient gasoline motors has given it great importance as a source of motive 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.
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 value is so evident 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 accordingly of great significance, whether in making strong machinery, as the shafts of ocean 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 domestic 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 remarkably uniform beds of good ore occur in such a position that water transportation to the market is possible. Where these conditions do not exist, iron-mining is feasible 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, where five ranges or lines of hills contain immense deposits. These lie so near the surface 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-quarters of the iron ore produced in the United States is mined in this district. Its proximity to the lake ports makes possible its transportation 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 buckets 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 Leroy-Beaulieu, a friendly but keen critic of our industrial development, “relying on the constant good-will of nature, are confident that they will discover either new and productive ranges in this district, or rich deposits in other districts.”
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 of importance both in the arts and especially because of their use 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 history proceeded spasmodically, and a speculative spirit has usually been present. More recently, however, scientific geological knowledge and improved metallurgical methods are removing the industry of gold and silver mining from a gambling venture to a legitimate industry. The practical problem at present confronting American gold-mining companies is to reduce expenses, some of the principal bearings having for some years shown 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 present 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 Montana.
Among the other metals copper is by far the most important. In primitive civilizations, before the art of smelting iron had been discovered, copper was indispensable as 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 has greatly increased the demand for this metal and has 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 second 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. It is far from being monopolized, however, as petroleum is, for new and rich supplies lie just on the margin of profitable working and will always be brought into the market whenever the price is artificially raised. One reason for American pre-eminence, aside from the rich stores of the metal, lies in the progress made in the art of refining it by the electrolytic process, considerable foreign ore being brought here to be treated by this method.
Nature has not blessed the United States so abundantly with the minor metals, lead, zinc, and aluminum, while almost all the tin used here has to be imported.
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 wonderfully well equipped with the material means of civilization. Minerals and metals are remarkably abundant and accessible. The wonderful material progress of the United States during the nineteenth century is abundantly 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 industrial supremacy of the American nation seems well assured, founded on such a stable material basis. 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 we do not waste our heritage, but hand it on as nearly undiminished as possible to our children.
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 future—and that is our water power. In colonial days, before the invention of the steam engine and the use of coal, this was of prime importance and determined the location of many a town, most of them being located at the “fall line” of the rivers, where water power was obtainable. With the invention of the steam engine and the use of steam as a motive power, industry became less 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 electricity 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 valuable than those of all other lands put together.” The total amount of direct water power used by manufacturing establishments in 1900 was 1,727,000 horsepower.
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 use of electricity 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 water powers, 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, while the existence of enormous opportunities on the Atlantic seaboard give brilliant promise for the future of manufacturing 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 individuals before the general public awakes to a realization of their importance. It has recently been asserted in a reputable magazine that there is a “water power 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 exclusively the task of developing its wonderful natural resources, that we have grown careless of our common rights and have permitted the monopolization by private individuals of a number of limited resources of this character. One of the great practical problems of the future is that of securing the growing value of these natural monopolies to the whole people, without at the same time retarding the energy and industrial development of the American people.
IV. CAPITALISTIC PRODUCTION.
Modern production is usually called capitalistic because 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 roundabout methods of producing goods, involving 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 multiplies the processes of production he also enormously increases 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 conditions, 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 rhythmic recurrence of speculative periods and industrial crises, the relations of labor and capital, and others similar in character.
The most striking phenomenon of the nineteenth century was the great industrial progress of the more developed nations; this is best shown in a table taken from Mulhall’s “Industries and Wealth of Nations,” which follows:
Growth of Manufactures in the Nineteenth Century.
Countries
Millions of Dollars.
1820
1840
1860
1894
United Kingdom
France
Germany
Austria
Other States
Europe
United States
Total
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 1900 the population and the products of agriculture both trebled; but the value of manufactured products increased twelvefold and that of capital invested in manufactures nineteenfold The United States, though politically younger than the countries of Europe, is industrially one of the most advanced The application of labor-saving machinery and of improved and economical methods of production and distribution has probably proceeded further here than in any other place Nowhere can we study to better advantage, therefore, than in America the problems that have grown out of this advanced capitalism
The causes of this rapid industrial development are enumerated by the census report as five in number: the agricultural resources of the country, the mineral resources, the highly developed transportation facilities, the freedom of trade between states and territories, and the absence of inherited and over-conservative ideas We have already considered the wonderful agricultural and mineral resources of the country, and have seen how greatly the American people are indebted for their industrial prosperity to the bounty of nature. The magnificent system of inland waterways, 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 in 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 freedom 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 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, inventiveness, and ingenuity, which, aided by a universal system of compulsory free education, have contributed greatly to the material progress of the people.
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 establishment where several workmen are collected for the purpose 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 localization of industry, and the concentration of production in fewer and larger establishments with consequent increase of product and reduction of cost.
The division of labor may mean either the separation of occupation or the division of a process into minute parts. An illustration of separation of occupations may be found in the manufacture of a carriage: one factory produces hubs, another wheels, a third axles, a fourth the body, a fifth manufactures upholstery, a sixth the hardware, and a seventh (the carriage factory, so-called) 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 machinery is not involved. “It would be difficult,” writes Professor Commons, “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 axe in splitting the backbone (splitter) and, wherever a less skilled man can be slipped in at 18 cents, 18½ cents, 20 cents, 21 cents, 22½ 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 22½-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.”
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 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, therefore, 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 production, and man becomes a machine tender rather than an independent producer. There are practical benefits and disadvantages connected with this system. Many writers insist that the effect on the worker is narrowing in the extreme, but Professor Marshall points out that his labor as tender of a machine demands a higher order of intellectual development than that of a handicraftsman, and that he has more leisure, while the product of the present system is immeasurably 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 growth of the machine trades, which supply the equipment of the new 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 Connellsville, Pa.; 48 per cent of the brassware in Waterbury, Conn.; and 46 per cent of the carpets in Philadelphia. While there are undoubted advantages in such localization and specialization in a particular industry, such as reputation, growth of special skill, etc., there are also offsetting disadvantages, as the complete prostration of the whole community if the particular trade upon which it depends is disastrously affected by trade depression or by a shifting of the industry to some other locality.
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 individuals. Without entering into the discussion, as yet, 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 abatement at this time. In the case of the iron and steel industries, cotton manufactures, and leather goods, the movement is positively startling, an actual decrease in the number of establishments having occurred in the half century. This is most marked in the monopolized industries. At the same time there has gone on an enormous increase 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 essentially 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 tendency has been manifest in the countries of Europe, though there a system of well-developed and fairly vigorous hand trades has resisted the movement and made the development in this respect much less rapid than in this country.
Large-scale production is more profitable than production on a small scale in all industries which are subject to increasing returns. By this is meant that the return in product for each additional dollar’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 undersell the little enterprises and eventually to drive them out of business. This is true not only in the competitive industries, 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 consolidation. Before drawing any conclusions as to the desirability of such a movement, let us examine some of the economies of large-scale production. The most striking and the most important is the economy in fixed capital. Concentration is a result of machine production. As machinery becomes more expensive, the breaking up of the processes of manufacture into small parts requires more complex and detailed machinery; 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 $858,000 in 1900. The head of a steel company in Pittsburg recently testified before the Industrial Commission that to build and equip a plant for the manufacture of iron and steel under modern conditions would call for an investment of from $20,000,000 to $30,000,000. It is clear that under such conditions 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 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 minute 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 concerns. This has been carried furthest in the oil-refining and meat-packing industries; a recent statement of Swift and Co., for instance, alleged that the dividends on the stock were paid out of the by-products, such as neatsfoot 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 may be mentioned that can be secured by a large business, namely, carrying on allied or subsidiary processes. Thus the Standard Oil Company builds its own pipe lines, makes its own barrels, tin cans, pumps, tanks, sulphuric acid, etc.
Such an extension in the size of the single establishment would of course not have been possible if improvements 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 afford to send its goods over only a limited territory there was of course a fixed limit to the expansion of that industry. Now, however, when markets are often world-wide and the demand for goods has so enormously increased, while the modern railway and steamship can transport goods cheaply and quickly half around the globe, enterprises can be expanded and carried on on a scale commensurate 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 increasing returns it is absolutely inevitable.
But not only in manufacturing is this movement observable. More recently concentration in large establishments has revolutionized the retail trade. Department stores have supplanted the small shops because they can buy on better terms, get transportation cheaper, offer a greater variety to the customer at a lower price, and save time and trouble to the customer. 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 along the movement. There are limits to such a movement, for small tradesmen will always hold the repairing trades, and the sale of perishable goods; thus there are no businesses so scattered as the small stores of the “butchers and grocers.” But on the whole we may safely conclude that the small storekeeper 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 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 personal service, where the very nature of the business prevents it, is there little or no development in the direction of large-scale methods.
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 readjustments have consequently been made with comparative ease, and the labor set free by the invention of new machines has been reabsorbed in the same or other industries. Consequently the social effects have not been so marked as to call for special emphasis; as the same question presents itself, however, in connection with the more recent trust movement we may profitably defer its discussion to the next section.
There is one other characteristic feature of modern capitalistic machine industry which deserves special mention, especially as its development has been carried furthest in the United States. Reference is made to the system of standardization and of interchangeable parts. In no single feature is the contrast between modern machine 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 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 bridgemakers, 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 for 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.”
Standardization was followed by the system of interchangeable parts, according to which each part of an intricate 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 materially in foreign lands. It was recently reported in the newspapers that Mr. E. H. Harriman had expended $65,000,000 in standardizing the equipment on his railroad systems; while this sum is enormous, it will undoubtedly be justified by the increased economy of repairs and operation.
V. TRUSTS AND MONOPOLIES.
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 production 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 concentration 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 combinations have passed through several phases. The earliest 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 combination 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 difficulty 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, receiving 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 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 the stock of a number of individual corporations, which 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 another 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 company is simply an extension of the principle of the corporation, and to a consideration of this we must therefore turn.
There are three classes of establishments by which industry is carried on—those that are the property of an individual, those which belong to partnerships or firms of unlimited liability, and those belonging to corporations of limited liability. The usefulness of the individual 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 agriculture, in the small retail trade, and in the repairing industries. The partnership is a joint undertaking by two or more individuals, and makes larger enterprises possible, but as each individual is liable for all obligations of the firm or his partners his personal liability is greatly increased. While it is well adapted to certain undertakings, as moderate mercantile establishments and professional firms, owing to a certain elasticity in the contractual relations of its members, it is not suited to large industrial ventures, both because of the excessive personal liability, and because of the necessity of dissolving the partnership upon the death, withdrawal, or insolvency of any member. 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 enterprise because it permits the summation of large amounts of capital from a number of small savers and centralizes the use of this capital in the most economical manner. There may thus be concentration of management without concentration of ownership. The federal census of manufactures in 1905 showed that, although less than one-quarter of the manufacturing establishments were organized as corporations, yet they produced three-quarters of the total manufactures in money value. In the field of transportation, corporations are in almost exclusive control, most banks and insurance companies are organized under this form, while mercantile and industrial undertakings are being more and more generally organized as corporations. Not merely are most of our business enterprises being conducted under corporate form and organization, but most recently, as has been already pointed out, there has been a movement to combine individual 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.
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, as the recent floating of the Dry Goods Trust indicates. A few figures from reliable authorities will make clear the extent of the movement. According to the New York Journal of Commerce, industrial (i.e., manufacturing and commercial) 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 accompanying table.
Another more recent list by John Moody gives the number of “industrial” trusts organized down to Jan. 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. For it was not confined to the United States, but was equally observable in such industrial diverse countries as England, France, Germany, Russia, and other European nations.
Decade.
1860-69
1870-79
1880-89
1890-99
Total, 40 years
The most important and general cause was the desire to secure the legitimate economies of large-scale production. A combined or federated industry may secure even 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 nearest 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.”
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 efficient mode of organization than mere concentration of industry in single large establishments. 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. When the whisky trust was formed only twelve of the eight distilleries entering 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 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 and 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. 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 latter combination is an example not only of consolidation, but of the integration of industry, that is, the grouping together under one control of a whole series of industries. From the mining of the ore and coal, through the processes of carrying 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 organization, and illustrate the magnitude and scope of its operations:
Iron and Bessemer ore properties
Plants, mills, machinery, etc.
Coal and coke fields
Railroads, ships, etc.
Blast furnaces
Natural gas fields
Limestone properties
Cash and cash assets
Total
$1,400,281,000
In addition to economies due to improvements in methods of organization, production and marketing, another cause for the sudden and vigorous outburst of trust promotion 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 undoubted 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 premature is evident from the financial results: of the 183 industrial combinations enumerated 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 successful trust promoter may be cited the testimony given before 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.
Other causes have sometimes been adduced to explain the growth of combinations, such as the tariff and railroad freight discriminations, 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 discriminations on the state-owned railroads are practically unknown. It is, however, true that in the United States both these factors have been of decisive importance in building up certain powerful trusts. “There can be no doubt,” said the conservative report of the Industrial Commission, “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 conceded repeatedly by representatives of the combinations themselves.” 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. Instance the sugar trust itself, the leather, steel, tin plate, and others.
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 remaining 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 illegal 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 raising them elsewhere so as not to sustain any loss, is serious because so subtle. Prof. John B. Clark regards this as so serious an evil that he would have the Constitution amended in order that power might be given the Federal Government to prevent it. The producers of raw materials, 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 depress 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 but that the monopoly power possessed by the trust in such cases will sometimes be used to the disadvantage of those whose product it alone buys.
The effects upon labor of the organization of capital in combined industries and under centralized control are more complex. As trusts have superseded single corporations 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, superintendents, 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 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 industrial 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 increase of wages can be paid, and these are the profits of the business organizer and manager or the increased product of the business itself, and 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 profits. 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 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 however demanded that it be allowed to combine on a national scale and to bargain collectively for united labor with combined capital.
The discussion of the effects of trusts upon the consumer 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 vital question to the consumer is whether lowered cost increases profits or reduces prices. On this point the Industrial Commission reaches the following conclusion: “that 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 categorical answer cannot be given to this, it may safely be affirmed that all trusts try to be monopolies. Nor is it necessary to control the production, sale, or purchase of a commodity absolutely in order to exercise monopoly power; the control of 50 or 60 per cent may suffice to secure virtual monopoly. The purpose of a monopoly is so to fix the price that it will obtain the maximum net profit. It is conceivable that this result may be attained by lowering the monopoly price below the point of the competitive 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 result 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 potential competition threatening its profits, while the possibility of substituting some other commodity for the monopolized article protects the consumer from too great 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.
There remains to be considered another charge of monopoly which has been brought against the trust, the monopoly 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 production. We have seen that the tendency of machine production 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 grateful if more efficient producers offer him a remunerative and steady salaried position. Without insisting upon this point it may still fairly be noted that there are large fields of enterprise that lie 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 tastes, or which, like agriculture, are dependent upon variable conditions.”
There are, however, other evils connected with trust organization and management that are more easily remediable and that call for legislative regulation. “The 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) deception 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 direction of strengthening the powers of the Federal Government. 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-Trust Law of 1890 explicitly provides that “every contract, combination 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 illegal.” 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 difficult to enforce. It is not easy to define or to prove monopoly or conspiracy in restraint of trade. The second class of evils has been met by statutes requiring publicity and more definitely fixing the responsibility of corporation officials. Such measures of control must be the first step toward intelligent regulation, and are to be commended as thoroughly reasonable. The establishment 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.