Modern Economic Problems Part 37

In view of these several features, which are so closely related that they form a common character, more or less fully shared by various industries, and especially in view of the necessity for the formal granting to them of peculiar privileges in the form of a public franchise, the public, in order to protect the general interest, is forced to undertake an exceptional control of these industries.

-- 9. #Various policies toward local public service industries#.

Several courses are open to the public, acting in its political capacity, to retain those monopolistic advantages for the general welfare. (a) It may do nothing, trusting vainly to compet.i.tion to regulate the rate, or consciously leaving the result to be worked out by the monopoly principle; this is what in most cases has been done in the past in America. (b) It may attempt, in granting the franchise, to fix near cost the charge for the service or product, so that the franchise will be worth little as private property. (c) It may leave the rate to be fixed by the monopoly principle, but charge for the franchise so much that the value of the monopoly is appropriated into the public treasury. (d) It may have public officials carry on the business, either selling the product at cost or making monopoly profits that go into the public treasury. Various combinations of these plans are followed in practice, the most common plan being the fixing of maximum rates which, with improved methods, generally become ineffective. It is difficult to fix a uniform rate that is equitable, because conditions change, and, further, because a uniform rate must be applied to all parts of the town, altho the cost of service varies greatly. It is difficult because of the limited number of competent bidders, to sell the franchise for what it is worth. There remains the policy of public owners.h.i.+p to secure the profits of monopoly to the public, either directly or in a diffused manner. There is no doubt that the general trend of munic.i.p.al policy everywhere is toward public owners.h.i.+p of this type of local public service industries.

-- 10. #State owners.h.i.+p of various kinds#. The movement toward public owners.h.i.+p by the American states has been much less marked than that by the munic.i.p.alities. The commonwealths have retired from some fields where once they were engaged in industry. Students of American history know that between the years 1830 and 1840 some states engaged largely, even wildly, in ca.n.a.l building, railroad construction, banking and in other enterprises. The undertaking of these industries was determined often by political and by selfish local interests, and their operation often was wasteful. A few enterprises succeeded, the most notable of these being the Erie Ca.n.a.l in New York. The unsuccessful ones remained worthless property in the hands of the state or were sold to private companies, as in the case of the Pennsylvania Railroad. This reckless state enterprise was a bitter lesson in public owners.h.i.+p, and continued for three quarters of a century to have such an effect on public opinion, that few proposals for public owners.h.i.+p could have a fair hearing in America, But railroads and ca.n.a.ls are publicly owned, and more or less successfully operated, by many foreign states, as in Prussia and other German states, in Switzerland, and in the new states of Australia, and this policy is rapidly extending to other countries and to varied industries.

There has been recently a greatly increased interest in forestry shown by the American states. This is especially likely to be a state enterprise wherever the forest tracts are entirely within the limits of the state, as is the case in New York and Pennsylvania which have been foremost in this work. At present at least 32 states have forestry departments. Most of the forests in Germany are either communal or state-owned. The schools, a great industry for turning out a product of public utility, are largely conducted by the American states and by local units rather than by the nation or by private enterprise. The state encourages researches in the arts and sciences, and gives technical training. A variety of minor enterprises have been undertaken by states to supply salt, phosphate, banking facilities, even some manufactures. One after another the states are adopting the "state use" system of labor in the prisons and public inst.i.tutions, engaging in agriculture and manufacturing on a large scale, and using the products, amounting to millions of dollars annually, almost entirely for public purposes.

-- 11. #National owners.h.i.+p#. The national governments everywhere appear to be enlarging the field of their owners.h.i.+p. This policy has its roots far in the past. Some industries grow out of the political needs of government. Established as a means of communication with military outposts, the post became a convenient means of communication for merchants and other citizens and grew into a great economic inst.i.tution. In most countries the telegraph is publicly owned and has been annexed to the post, to which it is very closely related in purpose. National owners.h.i.+p of railroads is the rule, and our policy of private owners.h.i.+p the great exception in the world to-day.

Many persons, even some in railroad circles, believe that national owners.h.i.+p of railroads is sure to develop out of our present policy of regulation.

The national improvements connected with rivers and harbors were first political--that is, they were for the use of the government's navy; they became, secondly, commercial--for the free use of all citizens engaged in trade; and they continue to unite these two characters.

Forestry is most largely undertaken in this country by the national government, partly because some forest areas in the West extend over state boundaries, and largely because large tracts of public forest lands were still unsold at the time public attention was attracted to the subject. Since 1890, the policy of reserving great areas for forests, and picturesque districts for national parks, has developed greatly in the United States. The national forest area contained in the various forests in 20 states (not including Alaska and Porto Rico), now covers about 225,000 square miles, equal in area to five states of the size of Pennsylvania. There are, besides, fourteen large national parks, ranging in size from a few hundred acres up to over 2,140,000 acres (the area of the Yellowstone National Park), and aggregating 4,600,000 acres, nearly the size of Ma.s.sachusetts or of New Jersey, besides numerous other national reservations for monuments and antiquities.

In some countries mines are thought to be peculiarly fitted for national owners.h.i.+p and control. In the German Empire the several states own coal, salt, and other mines. Coinage and banking are everywhere looked upon as functions of sovereignty, and yet it is no more necessary for a nation to own its own mint in order to control the monetary system than for it to print the banknotes in order to regulate their issue. The American government has its own printing office. The fish commission, and the various branches of the department, cooperate with private industry in many ways. This brief survey suggests that the industries undertaken by government are both varied in nature and large in extent, altho small in proportion to the ma.s.s of private industry.

-- 12. #Economic basis of public owners.h.i.+p#. The question as to the proper limits of public owners.h.i.+p is one most actively debated. The movement is progressing in accordance with the principle that public owners.h.i.+p is economically justified wherever it secures a product or service of widespread use that would otherwise be impossible, or insures the public a better quality or a lower price. The question of public owners.h.i.+p is not exclusively an economic question. There are incidental problems, such as its effects on enterprise and on political integrity, with which it is not possible here to deal. In the main, however, public owners.h.i.+p is simply a business policy which must be justified by its economic results. In the case of a general social benefit not to be secured without public owners.h.i.+p (as popular education or the climatic effect of forests), the only question to answer is whether the utility is worth the cost. In the case of industries already in private hands, as waterworks, gas and electric lighting, there is needed, to make a wise decision possible, a knowledge of the effect a change to public owners.h.i.+p will have upon cost and service. If public officials can furnish some goods cheaper than they are furnished by private enterprise, it is because of the wide margin of monopoly profit, not because there is any magic in public owners.h.i.+p. The same general items of cost must be met. The first cost of the plant and the annual interest payments are much the same. Experience shows that, because of political influence and of public opinion, wages are likely to be higher under public owners.h.i.+p, but salaries for management lower. Public collection of dues along with taxes is an advantage not enjoyed by private companies. Several public officials sometimes share the same office and thus reduce expenses. In small towns the public electric lighting and waterworks have been operated more economically under one roof. Some items of cost may be less under public management, but on the whole, public industry probably has no advantage in these respects. Public industry does not have to meet the costs of lobbying and blackmail which are often forced upon private companies. But the greatest source of saving in public owners.h.i.+p is the value of monopoly privileges that, under private management, go into private pockets.

The temptation of political corruption may be more insistent when a large force of men is constantly employed, and when large supplies are constantly purchased, by public officials, but the temptation is not so strong or so centralized as it is in the granting of franchises to wealthy corporations. Public industry is weakened by the absence of certain motives to excellence that are present in private business.

The income of public officials not being dependent on the economy of management, the spur and motives of compet.i.tive industry are lacking.

No social discovery has made individual honesty and civic virtue useless to good government.

The decision in any specific case is one dependent on local conditions, and the exact limits of public owners.h.i.+p are not fixed.

Industry is changing so rapidly that new adjustments are made every year. The main outlines of public owners.h.i.+p, however, are now in large part determined. Some industries do well, others ill, under public management, and between these lie many debatable cases. Waterworks and probably electric lighting, because of the comparative simplicity of their operation, are more suitable for public owners.h.i.+p than are gas works. No absolute line divides the one group from the other. But whatever the changes, the fact can not be ignored that the increase of public owners.h.i.+p is altering in manifold ways the organization of industry, and is reacting upon the production of wealth, and the distribution of incomes.

[Footnote 1: See above, ch. 16, sec. 5.]

[Footnote 2: See above, ch. 16, sec. 2, on the police function.]

[Footnote 3: See ch. 16, secs. 3 and 4.]

[Footnote 4: See above, ch. 16, sec. 5, statistics of receipts from public service enterprises.]

CHAPTER 31

SOME ASPECTS OF SOCIALISM

-- 1. The distribution of incomes. -- 2. Distribution by force and by status. -- 3. Social effects of the right to transmit property. -- 4.

Effects of the right to inherit property. -- 5. Broader social effects of inheritance. -- 6. Limitations upon intestate inheritance. -- 7. Some merits of compet.i.tion. -- 8. Wide acceptance of compet.i.tion. -- 9.

"Economic harmonies" and discords. -- 10. Compet.i.tion modified by charitable distribution. -- 11. Compet.i.tion modified by authoritative distribution. -- 12. Meanings of socialism. -- 13. Philosophic socialism.

-- 14. Socialism in action. -- 15. Origin of the radical socialist party.

-- 16. The two pillars of "scientific" socialism. -- 17. Aspects of the materialistic philosophy of history. -- 18. Utopian nature of "scientific"

socialism. -- 19. Its unreal and negative character. -- 20. Revisionism and opportunism in the socialist party. -- 21. Alluring claims of party-socialism. -- 22. Growth and nature of the socialist vote. -- 23.

Economic legislation and the political parties.

-- 1. #The distribution of incomes#. The great economic progress of the past two centuries has been mainly in lines of technical production.

The developing natural sciences and mechanic arts have given men a marvelously increased control over forces and materials. This has multiplied the quant.i.ties of goods of most kinds at the disposal of men, collectively considered. All men, with rare exceptions, have been gainers; but the increased production has been very unequally distributed among the members of the community. More and more insistently the plea and the demand have been made for better methods of distribution that will give to the ma.s.ses of the people a larger share of the goods produced. Production is largely a problem of the technical arts; distribution is a problem of social economy.

Two aspects of distribution may be distinguished: functional distribution is the attribution of value (yields) to wealth and labor considered impersonally, as groups of productive agents; and personal distribution is the actual movement of incomes into the control of persons.[1] Personal incomes, whether monetary, real, or psychic, are the sum of a number of elements. Some parts are due to services performed by the person himself. When one combs his own hair he is performing for himself a service that is a part of his income.

Benjamin Franklin said it was better to teach a boy to shave himself than to give him a thousand dollars with which to pay barbers for a life-time. Other parts of income are the uses and fruits of legally controlled wealth; chance finds, as gifts of value or lost and abandoned goods; goods a.s.signed to one by authority; wealth inherited; illegal gains by robbery; goods secured on credit; gifts either of things or of services. The many methods by which incomes are distributed to the persons making up a society may be grouped in the following five general cla.s.ses: force, status, charity, compet.i.tion, and authority. These will be discussed in due order.

-- 2. #Distribution by force and by status.# Distribution by force is the most primitive mode of distribution. The stronger takes from the weaker. Forceful distribution still persists in the form of crime, and if we include fraud within the term it still affects an enormous amount of income. The lawless take whatever they can, and the supporters and officers of the law do what they can to check the acts.

Slavery is distribution by force, as is the levying of war indemnities from a conquered people.

Distribution may be by status, or set rules and customs. In this case men receive incomes that are independent of their efforts and outside of their control. Distribution by status is guided neither by the personal merit of the recipients nor by the value of their direct services, but the merits and acts of men not living. Feudal society was built on status. Men were born to certain privileges and positions; they inherited property which could neither be bought nor sold; they followed trades which could rarely be entered by any outside of favored families. Caste in India and in other Oriental countries regulates a large part of the life of the people.

This method still prevails to a greater extent in our society than is usually recognized.[2] By public opinion and by prejudice, status is still maintained in respect to the choice of occupations even where the law has formally abolished it, as is seen in modern race problems, in western countries to-day inheritance of property is the main legal form of status and it shades off into other forms of distribution.

Private property must find its justification in social expediency.[3]

There is no feature of it that is more questioned than is the right of inheritance.

-- 3. #Social effects of the right to transmit property.# The right to transmit property by inheritance or by bequest may be judged with reference to its effects upon the giver, upon the receiver, and upon society at large. It is well to take these three points of view.

The right to dispose of property either during life or at death has undoubtedly in many ways a good effect upon the character of men.

It stimulates the husband and father to provide for his wife and children, and spurs others to continued economic activity. There is a joy in giving, a joy in the power to bestow one's wealth upon those one loves, or as one pleases. Much of the existing wealth probably never would have been created if men had not had this right. But there is a limit to the working of this motive, and other motives often are more effective. Many a man after gaining a competence continues to work for love of wealth and power in his own lifetime, as the miser continues to toil for love of gold. When men without families die wealthy, when men not having the slightest interest in their nearest relatives labor till their dying days to ama.s.s wealth, it is evident that the right to bequeath property has little to do with their efforts. Love of acc.u.mulation and love of power in these cases supply the motives. A more limited liberty to dispose of property at death might still suffice, therefore, to call out the greater part of the efforts now made to acc.u.mulate property.

-- 4. #Effects of the right to inherit property#. That the effects upon the receiver of the property are good is somewhat more doubtful. It is true that children reared in families of large incomes would be great sufferers if plunged into poverty at the death of their parents. There is much social justification for permitting families to maintain an accustomed standard of comfort. Few would deny that provision by parents to provide education and opportunity for their children is commendable and desirable. But the evil effects of waiting for dead men's shoes are proverbial. Many a boy's greatest curse has been his father's fortune. Many a man of native ability waits idly for fortune to come and lets opportunities for self-help slip by unheeded. The world often exclaims over the failure of the sons of noted men to achieve great things, for, despite confusing evidence, men still have faith in biologic heredity. A too easy fortune saps ambition and relaxes energy; and thus rich men's sons, if not most carefully and wisely trained, are often made paupers in spirit, while the self-made fathers think their boys have better opportunities than they themselves enjoyed. The greater social loss is not the dissipated fortunes, but the ruined characters. Andrew Carnegie said that it would be a good thing if every boy had to start in poverty and make his own way. Cecil Rhodes recorded in his will his contempt for the idle, expectant heir.

-- 5. #Broader social effects of inheritance#. Inheritance has good effects for the community insofar as it helps to secure efficient management of wealth. If the son or relative has been in business with the deceased, there is a reason that he should inherit the property, and his succession to it makes the least disturbance to existing business conditions. This consideration, however, has less weight as the corporate form of organization becomes well nigh universal in "big business." Every profligate son, every incompetent heir, is an argument against the inheritance of property. It is to society's interest that no able-bodied member should stand idle. Every child should have presented to him the motive to use his powers in useful ways. Moreover, many feel that the great fortunes now acc.u.mulating through successive generations in the hands of a few families are a danger to our free society, even if these fortunes should continue to be well administered. There is a widespread feeling that the heredity of great wealth is, like the heredity of political power, out of harmony with the democratic spirit. Democracy wishes to see men and individuals put to the test, not profiting forever by the deeds of their forebears. This feeling is shared by those who cannot be charged with radical prejudices. It was startling when a conservative body of lawyers meeting in their state a.s.sociation in Illinois, pa.s.sed a resolution favoring moderate limits to inherited fortunes. Almost every year sees bills of this purport introduced in the legislatures and in Congress. Probably no one of many current radical proposals is more widely favored than this, among men of otherwise conservative social views. Tho sum most often mentioned as the proper limit is $1,000,000, but in every case it is a sum larger than the fortune of the person speaking.[4]

-- 6. #Limitations upon intestate inheritance#. A proposal less crude and with strong reasons of social expediency in its favor is to limit the right of intestate inheritance to persons that have been in essential economic and social relations with the deceased. The foregoing considerations show that the case for the right of gift in the lifetime of the giver is strongest; that for the right of bequest comes next. The man who has acquired wealth may usually be trusted to decide who bear to him close social or personal relations, and to say whose lives have in a measure furnished the motives of his activity.

But the right of intestate inheritance by distant relatives is one that stands on weak social foundations. It is a survival from more patriarchal conditions when, in the large family, or clan, the bond of unity was very strong. A truer test to-day of the proper limits for intestate inheritance is whether the wish to provide for these heirs has furnished the motive for the producing and preserving of the wealth. The claims of those nearest in blood and closest in personal relations are strongest. Family affection and friends.h.i.+p form the strongest of social ties, and it is socially expedient to cultivate them. Motives for abstinence and industry must be strengthened. But the same test shows that the zealous regard of the American law for the rights of distant kinsmen in foreign lands, or in distant quarters of this country, is irrational, and is unjust to the community where the fortune was made. Public opinion tends strongly toward this idea.

Property rights as they exist are clearly seen not to be a product of pure reason. They are the result of social evolution, of historical accidents, of cla.s.s legislation, and in many cases, of selfish interests. Changing social conditions and ideas are bringing many changes in law, and further changes must be expected to come, which will reduce the influence of inheritance of property in fostering status in distribution. Especially important are the increasing application of the progressive principle to incomes and inheritance,[5] and the development of insurance to put family savings into the form of terminable annuities instead of capital sums.[6]

-- 7. #Some merits of compet.i.tion#. The dominant method of distribution to-day is that of compet.i.tion.[7] This is not a mere accident, but is a resultant of unending experimentation with different methods of distribution carried on since the beginning of human society. A method of distribution had to be found and retained that would work under the conditions of human nature at each stage of social progress; and compet.i.tion, however imperfectly, has worked. It is evident from the voices of praise and of blame that compet.i.tion has its good and its bad aspects. Let us observe first the good ones. Compet.i.tion acts to distribute the working force over the field of industry wherever it is most needed. The remarkable (tho far from perfect) adjustment of industry to the needs of each neighborhood is brought about by individual motives, not by centralized authority. Wherever consumers settle, stores are started and factories are built. Wherever work is to be done, men come in about the right number to do it. It is not mere chance that produces this result. The available skill is adjusted to varying needs by the delicate measurement of the market rate of wages. Two-sided compet.i.tion gives a definite rule of price--the only definite impersonal rule. The theoretical compet.i.tive price is the standard to which things tend constantly to adjust themselves in an open market.[8]

Compet.i.tion is an essentially economic method as contrasted with the legal and personal methods above and later described, because it is impersonal and reducible to a rule of value. Distribution under compet.i.tion is made, not with reference to abstract ethical principles or to personal affection, but to the value of the product. Each worker strives to do what will bring him the largest return, and the price others pay expresses their estimates of the service in that market.

Each seeking his own interest is led to make himself more valuable to others. In most cases and in large measure, compet.i.tion stimulates men to sacrifice, to invention, to preparation; thus is zeal animated and are efforts sustained. In the economic realm, as is now seen to be the case in the biologic realm, compet.i.tion of some effective kind is an indispensable condition not only of progress but of life without degeneration. Monopoly, as we have noted, never has ceased to rest under the ban of Anglo-Saxon law, and therefore to exemplify compulsory, as opposed to compet.i.tive distribution. A striking feature of the compet.i.tive method is its decentralization. Each helps to value the economic services of each. If one pays more for the services of the singer than for those of the cook, it is not because one would rather listen to the singing than to eat when starving, but because by apportioning one's income one can get the singing and the eating too.

In the existing circ.u.mstances, the singer's services seem to the music lover to be worth paying for, and he backs his opinion with his money.

So each is measuring the services of all others, and all are valuing the services of each. It is distribution by valuation, and it is valuation by democracy.

-- 8. #Wide acceptance of compet.i.tion.# On purely abstract and _a priori_ grounds compet.i.tion cannot be accorded an ethical sanction, as is sometimes a.s.sumed. But because of the qualities above outlined, and because it meets in large measure the pragmatic tests, the compet.i.tive rule of distribution appeals to all men (even to those who denounce it) as having in many of its applications a moral character, as compared with the other possible methods of distribution. Indeed, the compet.i.tive rule is the only rule that does not involve either personal and arbitrary judgment (force, charity, and authority) or status. Even such measure of justification as is found in status (as in property and inheritance laws) is traceable, in the long run, to compet.i.tion. The case for a limited application of status is based upon its results in stimulating motives of effort and acc.u.mulation.[9]

When the rule of authority is applied to-day in the large field of public regulation where _actual_ compet.i.tion has become impossible, almost the only guiding rule is _hypothetical_ compet.i.tion. The just rate is felt to be that which in the long run _would be_ just sufficient to afford "normal" incomes to labor and to capital, to call forth the necessary effort, skill, judgment, and forethought, if compet.i.tion _were_ at work, as it is not.[10] Only this rule of hypothetical compet.i.tion redeems these public rates from arbitrariness, favoritism, and force.

-- 9. #"Economic harmonies" and discords.# Every truth in political philosophy finds some exaggerated expression. Compet.i.tion, as compared with status and custom, has some notable merits; and when the eighteenth century was throwing off some of the burdens inherited from the more static Middle Ages, compet.i.tion appeared to be a panacea for all the ills of society.[11] The belief in the benefits of compet.i.tion and the virtues of economic freedom found its extremist expression in the first half of the nineteenth century in the doctrine of "the economic harmonies." According to this, if men are left entirely free to do as their interests dictate, the highest efficiency and best results for all will follow; the economic interests of all men are in harmony. Corresponding with this doctrine is the economic policy of extreme _laissez faire._

But experience has shown that the economic interests of the individuals in a community are only partly very rarely are they wholly, in harmony. There are three species of compet.i.tion in every market: that between sellers, that between buyers, and that between sellers on the one hand and buyers on the other.[12] If at any point free compet.i.tion is hindered, even the disciple of economic harmony must, from the very nature of his doctrine, expect a discordant result. In reality compet.i.tion is rarely quite complete on both sides, and when it is not the weak usually suffer. Men do not start with fair opportunities. All that they may be ent.i.tled to have under compet.i.tion may be so little that social sympathy seeks to better the results; hence poor relief, public and private. Society as a whole has an interest in the outcome of the individual's economic struggle.

It cannot see men starving or driven into crime. Moreover, when compet.i.tion is the rule of valuation, it, like all valuations, partakes of the quality of those choosing--wise or foolish, good or evil.[13] And tho compet.i.tion is the rule of democracy in economics, yet democracy cannot permit the economic vote of a vicious or of a foolish group to stand, where the goods, services, and prices resulting offend the prevailing public judgment and social conscience.

-- 10. #Compet.i.tion modified by charitable distribution.# In practice the compet.i.tive method of distribution always has been modified or supplemented in varying degrees by the other methods. Important among these is charitable distribution. Charitable is here used in its original sense, as synonymous with benevolence and affection. First is parental love, the root and type of all the forms of charity. There is a complete lack of economic equivalence in the relation of parent and child in early years. The helpless infant does nothing for the parent, the parent gives all and does all for the child. Gradually, however, the balance is regained; as the years go on, not only do children repay in affection but in many cases they repay in material ways.

Especially in the factory districts and on the farm the child sooner or later begins to reestablish the balance, becomes a worker, and contributes to the family income as much as the cost of his support, and finally more. A student of modern English town life has traced the curve of poverty traversed by the average poor family as the children are first an economic burden, and later an aid to their parents. In the middle, or propertied, cla.s.ses the children do not for many years cease to be a financial burden to their parents, and in most eases the economic balance is never reestablished. It is not to the parents, but to the succeeding generation, that the debt is tardily paid.

Friends.h.i.+p widens the range of generosity and multiplies the ma.s.s of gifts. Broad sentiments of humanity lead to gifts outside the range of personal affection and personal interest, to the beggar on the street, to inst.i.tutions devoted to charity. In New York state alone a sum of more than $20,000,000 a year is expended by inst.i.tutional charities.

About $512,000,000 in public benefactions were given in the United States by private donors in the year 1915, and in this respect that year was not exceptional. An enormous and increasing body of property is thus being year by year socialized, largely through bequests from persons without direct heirs. Great public subscriptions to the sufferers from great disasters, such as the Irish and the Indian famines, the Chicago fire, the Galveston flood, the San Francisco earthquake, the great European war, bespeak a widening generosity.

Religion impels to the building of churches, to the support of priests, missions, and manifold religious undertakings. Charity in this connection is the expression of a sentiment that varies from the most intense personal, affection to the broadest and most general humanitarian sentiment.