THE DEVELOPMENT OF CAPITALISM

The years immediately following the War with Spain were marked by extraordinary prosperity in business. The country recovered from the collapse of the nineties and entered with full swing into another era of inflation and promotion. The Dingley tariff law, enacted July 24, 1897, had incidentally aided in the process by raising the protection principle to its highest point since the Civil War, but the causes of the upward movement lay deeper. The Spanish War, of course, stimulated trade, for destruction on such a large scale always creates a heavy demand for commodities and capital--a demand which was partially met, as usual, by huge drafts on the future in the form of an increased national debt. But the real cause lay in the nature of the economic processes which had produced the periodical cycles of inflation and collapse during the nineteenth century. Having recovered from a collapse previous to the War, inflation and capitalization on a gigantic scale set in and did not run their course until a debacle in 1907.

The formation of trusts and the consolidation of older combinations in this period were commensurate in scale with the gigantic financial power created by capitalist acc.u.mulations. The period of the later seventies and eighties, as has been shown, was a period of hot compet.i.tion followed by pools, combinations, and trusts. The era which followed the Spanish War differed in degree rather than in kind, but it was marked by financial operations on a scale which would have staggered earlier promoters. Perhaps it would be best to say that the older school merely found its real strength at the close of the century, for the new financing was done by the Vanderbilt, Astor, Gould, Morgan, and Rockefeller interests, the basis of which had been laid earlier. There was, in fact, no break in the process, save that which was made by the contraction of the early nineties. But the operations of the new era were truly grand in their conception and execution.

A few examples will serve to ill.u.s.trate the process. In 1900, the National Sugar Refining Company of New Jersey was formed with a capital of $90,000,000, and "from its inception it adopted the policy of issuing no public statements to its stockholders regarding earnings or financial conditions. The only statement ... is simply an annual balance sheet, showing the a.s.sets and liabilities of the corporation in a greatly condensed form." In 1904, the total capital of parent and affiliated concerns was approximately $145,000,000. The Copper Trust was incorporated under New Jersey laws in 1899, and in 1904 its par value capital was $175,000,000. In 1899, the Smelters' Trust with an authorized capital of about $65,000,000 was formed. In the same year the Standard Oil Company, as the successor to the Trust, was organized with $102,233,700 capital.

The process of consolidation may best be shown by turning from generalities to a brief study of the United States Steel Corporation, a great portion of whose business was laid bare in 1911-12 by a Federal investigation. It appears that until about 1898 there was a large number of steel concerns actively engaged in a compet.i.tion which was modified at times by pools and price agreements; and that each of them was vigorously reaching out, not only for more trade, but for control over the chief source of strength--supply of ore. Finally, in the closing days of the nineties, this compet.i.tion and stress for control became so great that the steel men and the a.s.sociated financial interests began to fear that the increased facilities for production would result in flooding the market and in ruining a number of concerns. The rough steel manufacturers began to push into the field of finished products, and the wire, nail, plate, and tube concerns were crowding into the rough steel manufacturing. All were scrambling for ore beds. In this "struggle of the giants" the leading steel makers saw nothing but disaster, and they set to work to consolidate a dozen or more companies. Their labors were crowned with success on April 1, 1901, when the new corporation with a capital of a little more than $1,400,000,000 began business.

In the consolidation of the several concerns an increase of more than $400,000,000 was made in the total capital; and a stock commission of the cash value of $62,500,000 was given to the Morgan underwriting syndicate for financing the enterprise. It is, of course, impossible to discover now the physical value of the properties consolidated, many of which were already heavily "watered." Of the Carnegie concern, a Federal report says, "The evidence on the whole tends to show that bonds were issued substantially up to the full amount of the physical a.s.sets acquired and that the stock was issued merely against good will and other intangible considerations." How much of the total capital was "water" is impossible to determine, but the Bureau of Corporations estimates "that more than $150,000,000 of the stock of the Steel Corporation (this including more than $41,000,000 of preferred stock and $109,000,000 of common stock) was issued, either directly or indirectly (through exchange) for mere promotion or underwriting services. This total, moreover, as noted does not include anything for the American Sheet Steel Company ... nor is anything added in the case of the Shelby Steel Tube Company. It should be repeated that this enormous total of over $150,000,000 does not include common stock issued as bonus with preferred for property or for cash, but simply what may be termed the promotion and organization commissions in the strict sense. In other words, nearly one seventh of the total capital stock of the Steel Corporation appears to have been issued, either directly or indirectly, to promoters for their services." How much more of the $440,000,000 additional capital represented something other than physical values is partially a matter of guesswork. The Bureau of Corporations valued the tangible property of the corporation at $682,000,000 in 1901, as against $1,400,000,000 issued securities; and computed the rate of profit from 1901 to 1910 on the actual investment at 12 per cent. It should be noted, also, that shortly after the formation of the concern the common stock which had been issued fell with a crash, and the outsiders who risked their fortunes in the concern were ruined.[47]

All of the leading trusts and railways were, even at their inception, intimately connected through cross investments and interlocking directorates. Writing in 1904, Mr. Moody, an eminent financial authority, said: "Around these two groups [the Morgan-Rockefeller interests], or what must ultimately become one greater group, all other smaller groups of capitalists congregate. They are all allied and intertwined by their various mutual interests. For instance, the Pennsylvania Railroad interests are on the one hand allied with the Vanderbilts and on the other with the Rockefellers. The Vanderbilts are closely allied with the Morgan group, and both the Pennsylvania and Vanderbilt interests have recently become the dominating factors in the Reading system, a former Morgan road and the most important part of the anthracite coal combine which has always been dominated by the Morgan people.... Viewed as a whole, we find the dominating influences in the trusts to be made up of an intricate network of large and small capitalists, many allied to another by ties of more or less importance, but all being appendages to or parts of the greater groups which are themselves dependent on and allied with the two mammoth, or Rockefeller and Morgan, groups. These two mammoth groups jointly ... const.i.tute the heart of the business and commercial life of the nation."[48]

How tremendous is this corporate control over business, output, and wage earners is indicated by the census of 1909. Of the total number of establishments reported as engaged in manufacturing in 1904, 23.6 per cent were under corporate ownership, while in 1909 the percentage had increased to 25.9. Although they controlled only about one fourth of the total number of establishments, corporations employed 70.6 per cent of all the wage earners reported in 1904 and 75.6 per cent in 1909. Still more significant are the figures relative to the output of corporations.

Of the total value of the product of all establishments, 73.7 per cent was turned out by corporations in 1904 and 79 per cent in 1909. "In most of the states," runs the Census Report, "between three fifths and nine tenths of the total value of manufactured products in 1909 was reported by establishments under corporate ownership." Of the 268,491 establishments reported in 1909, there were 3061 which produced 43.8 per cent of the total value of all products and employed 30.5 per cent of the wage earners. It is, in fact, this absorption of business by a small number of concerns which marks the great concentration of modern industry. The mere number of corporations is not of much significance, for most of them are petty.

In addition to gaining control of the leading manufacturing concerns and the chief natural resources of the country, the great capitalist interests seized upon social values to the amount of billions of dollars through stock watering and manipulations of one kind or another.

"Between 1868 and 1872, for example, the share capital of the Erie was increased from $17,000,000 to $78,000,000, largely for the purpose of stock-market manipulation.... The original Central Pacific Railroad, for instance, actually cost only $58,000,000; it is a matter of record that $120,000,000 was paid a construction company for the work. The syndicate which financed the road received $62,500,000 par value in securities as profits, a sum greater than it actually cost to build the property. The 80 per cent stock dividend of the New York Central in 1868; scrip dividends on the Reading in the seventies; the 50 per cent dividend of the Atchison in 1881; the 100 per cent stock dividends of the Louisville and Nashville in 1880, by a pen stroke adding $20,000,000 to 'cost of road' upon the balance sheet; the notorious 100 per cent dividend of the Boston and Albany in 1882 [are further examples].... Recent inflations of capitalization in connection with railroad consolidation are headed by the case of the Rock Island Company. In 1902 this purely financial corporation bought up the old Chicago, Rock Island, and Pacific Railway, capitalized at $75,000,000 and subst.i.tuted therefor its own stock to the amount of $117,000,000, together with $75,000,000 of collateral trust bonds, secured by the stock of the property acquired. The entire history of the New York traction companies is studded with similar occurrences.

One instance may suffice. In 1906 the Interborough-Metropolitan Company purchased $105,540,000 in securities of the merged lines, and issued in place thereof $138,309,000 of its own stock and $70,000,000 in bonds....

E. H. Harriman and three a.s.sociates ... expanded the total capitalization of the [Alton] road from $33,950,000 to $114,600,000, an increase of over $80,000,000. In improvements and additions to the property out of this augmented capitalization, their own accounts showed only about $18,000,000 expended. It thus appears that securities aggregating $62,600,000 were put forth during this time [seven years, beginning in 1898], without one dollar of consideration. This sum is equal to about $66,000 per mile of line owned--a figure considerably in excess of the average net capitalization of the railroads of the country."[49]

It is not necessary to cite further evidence to show that billions of dollars of fict.i.tious values were saddled upon the country between the end of the Civil War and the close of the century. A considerable portion of the amount of stocks and bonds issued was doubtless based on the dividend-paying power of the concerns in question. In many instances the stock was not purchased in large quant.i.ties by the investing public, but was simply issued to promoters, and when values collapsed they only lost so much worthless paper. It is apparent, therefore, that all the stock watering is not of the same character or effect; but nevertheless it remains a fact that the buying public and the working cla.s.s are paying millions in annual tribute to the holders of paper which represents no economic service whatever. If the water were all squeezed out of railway, franchise, and industrial stocks and bonds and the mineral and other resources which have been actually secured at a nominal value, or fraudulently were returned to the government, there would be a shrinkage in the necessary dividends paid out that would startle the world.

Those who followed the literature of political economy during this period of gigantic consolidation and high finance could not help discovering a decided change in the views of leading men about the nature of industrial evolution. The old practice of indiscriminate abuse of all trusts began to undergo a decided modification; only persons from the backward industrial regions of the West and South continued the inordinate clamor for the immediate and unconditional dissolution of all of them, on the theory that they were "artificial" products, brought forth and nourished by malicious men bent solely upon enhancing their personal fortunes. The socialist contention (set forth by Marx and Engels in 1848) that compet.i.tion destroyed itself, and that the whole movement of industry was inevitably toward consolidation, began to receive attention, although the socialist solution of the problem was not accepted.

This change in att.i.tude was the result partly of the testimony of practical business men before the Industrial Commission in 1900, which was summarized in the following manner by the Commission: "Among the causes which have led to the formation of industrial combinations, most of the witnesses were of the opinion that compet.i.tion, so vigorous that profits of nearly all competing establishments were destroyed, is to be given the first place. Even Mr. Havemeyer said this, though, as he believed that in many cases compet.i.tion was brought about by the fact that the too high protective tariff had tempted too many rivals into the field, he named the customs tariff law as the primal cause. Many of the witnesses say that their organization was formed to make economies, to lessen compet.i.tion, and to get higher profits--another way of saying that compet.i.tion is the cause without conceding that the separate plants were forced to combine."

In a careful and thoughtful a.n.a.lysis of the problem, published in 1900 by Professor J. W. Jenks, then of Cornell University, the wastes of compet.i.tion and the economies of combination (within limits) were pointed out with clarity and precision. The Industrial Commission had reported that rebates and discriminations by railways had been declared to be a leading cause of combination by several witnesses appearing before it; but Professor Jenks at the close of his survey came to the positive conclusion "that, whenever the nature of the industry is one which is peculiarly adapted for organization on a large scale, these peculiarities will so strengthen the tendency toward a virtual monopoly that, without legal aid and special discriminations or advantages being granted by either the State or any other influence, a combination will be made, and if shrewdly managed can and, after more experience in this line has been gained, probably will practically control permanently the market, unless special legal efforts better directed than any so far attempted shall prevent."[50] The logical result of this conclusion is at least government supervision, and this Mr. Jenks advocated.

Whether some special privileges beyond the ownership of basic natural resources was necessary to bring about combinations on a large scale, the leaders in such combinations seem to have engaged extensively in politics, contributing to the campaign funds of both parties, helping to select their candidates, and maintaining expensive lobbies at Washington and at the capitals of the several states. Mr. Havemeyer admitted before a Senate committee in 1893 that the Sugar Trust was "a Democrat in a Democratic state and a Republican in a Republican state"; and added that in his opinion all other large corporations made contributions to the two leading parties as a matter of course, for "protection." The testimony taken by the New York insurance investigating committee in 1905 and by the Clapp committee of the United States Senate in 1912 revealed the fact that during the period between 1896 and 1912 millions of dollars had been contributed to the Republican party by the men who had been most active in organizing the great industrial combinations, and that representatives of the same group had also given aid and comfort to the Democratic party,[51] although the latter, being out of power at Washington, could not levy tribute with the same effectiveness.

The statesman of the new capitalism was Mr. Marcus A. Hanna. Mr. Hanna was born in 1837 of pioneer stock of the second or third generation, after the roughness of the earlier days was somewhat smoothed away without injury to the virility of the fiber. He entered business in Cleveland in 1858 at a time when a remarkable group of business men, including Mr. John D. Rockefeller, were laying the foundation of their fortunes. Endowed with hard, practical, economic sense, he refused to be carried away by the enthusiasm that was sweeping thousands of young men of his age into the Union army, and he accordingly remained at his post of business.[52] It was fortunate for his career that he did not lose those four years, for it was then that he made the beginnings of his great estate in coal, iron, oil, and merchandising.

Mr. Hanna, like most of the new generation of northern business men, was an ardent Republican. "He went into politics as a citizen," remarks his biographer. "The motive, in so far as it was conscious, was undoubtedly patriotic. That he should wish to serve his country as well as himself and his family was rooted in his make-up. If he proposed to serve his country, a man of his disposition and training could only do so by active work in party politics. Patriotism meant to him Republicanism.

Good government meant chiefly Republican government. Hence the extreme necessity of getting good Republicans elected and the absolute ident.i.ty in his mind and in the minds of most of his generation between public and party service."[53] In his early days, therefore, he partic.i.p.ated in politics in a small way, but it was not until 1891, during the candidacy of Mr. McKinley for governor of Ohio and Mr. Sherman for the Senate, that he began to serve his party in a large way by raising campaign funds.[54]

In 1895 Mr. Hanna retired from active business and set about the task of elevating Mr. McKinley to the Presidency. He spent a great deal of time at first in the South securing Republican delegates from the states where the Republican party was a shadow, and other than party considerations entered largely into selection of delegates to the Republican convention. While laying a solid foundation in the South, Mr.

Hanna bent every effort in capturing the delegates in northern states.

According to Mr. Croly, "Almost the whole cost of the campaign for Mr.

McKinley's nomination was paid by Mr. Hanna.... He did receive some help from Mr. McKinley's personal friends in Ohio and elsewhere, but its amount was small compared to the total expenses. First and last Mr.

Hanna contributed something over $100,000 toward the expense of the canva.s.s."[55]

Mr. Hanna firmly believed, and quite naturally too, that the large business concerns which had prospered under the policies of the Republican party should contribute generously to its support. As early as 1888, when the tariff scare seized certain sections of the country, he was selected as financial auxiliary to the Republican national committee, and raised about $100,000 in Cleveland, Toledo, Mahoning Valley, and adjacent territory.[56]

But Mr. Hanna's greatest exploits in financing politics were in connection with Mr. McKinley's campaigns. In 1896 he at first encountered some difficulties because of his middle western connections and the predilection of Wall Street for Mr. Levi P. Morton in preference to Mr. McKinley. "Mr. James J. Hill states that on August 15, just when the strenuous work of the campaign was beginning, he met Mr. Hanna by accident in New York and found the chairman very much discouraged. Mr.

Hanna described the kind of work which was planned by the Committee and its necessarily heavy expense. He had been trying to raise the needed money, but with only small success. The financiers of New York would not contribute. It looked as if he might have to curtail his plan of campaign, and he was so disheartened that he talked about quitting. Mr.

Hill immediately offered to accompany Mr. Hanna on a tour through the high places of Wall Street, and during the next five days they succeeded in collecting as much money as was immediately necessary. Thereafter Mr.

Hanna did not need any further personal introduction to the leading American financiers."[57]

Many grave charges were brought against Mr. Hanna to the effect that he had no scruples in the use of money for corrupt purposes, but such charges have never been substantiated to the satisfaction of his friends. That in earlier days he employed the methods which were common among public service corporations, is admitted by his biographer, but condoned on the ground that practically every other street railway company in the country was confronted with the alternative of buying votes or influence. Mr. Hanna's Cleveland company "the West Side Street Railway Company and its successors were no exception to this rule. It was confronted by its compet.i.tors, who had no scruples about employing customary methods, and if it had been more scrupulous than they, its compet.i.tors would have carried off all the prizes. Mr. Hanna had, as I have said, a way of making straight for his goal.... He and his company did what was necessary to obtain the additional franchises needed for the development of the system. The railroad contributed to local campaign committees and the election expenses of particular councilmen; and it did so for the purpose of exercising an effective influence over the action of the council in street railway matters."[58]

Grave charges were also made at the time of Mr. Hanna's candidacy for the United States Senate that he employed the methods which he had found so advantageous in public-service-corporation politics, but his biographer, Mr. Croly, indignantly denies the allegation, showing very conclusively that Mr. Hanna won his nomination squarely on the issue put before the Republican voters and was under the rules of politics ent.i.tled to the election by the legislature. Mr. Hanna's career, says Mr. Croly, "demanded an honorable victory. Like every honest man he had conscientious scruples about buying votes for his own political benefit, and his conscience when aroused was dictatorial.... It does not follow that no money was corruptly used for Mr. Hanna's benefit. Columbus [Ohio] was full of rich friends less scrupulous than he.... They may have been willing to spend money in Mr. Hanna's interest and without his knowledge. Whether as a matter of fact any such money was spent I do not know, but under the circ.u.mstances the possibility thereof should be frankly admitted."[59]

In his political science as well as his business of politics, Mr. Hanna looked to the instant need of things. He does not seem to have been a student of history or of the experience of his own or other countries in the field of social legislation. As United States Senator he made practically no speeches, if we except his remarks in favor of ship subsidies and liberal treatment of armor plate manufacturers. On the stump, for in later years he developed some facility in popular addresses, he confined his reflections to the customary generalizations about prosperity and his chief contribution to political phraseology was the slogan, "Stand pat."[60] When not engaged in actual labor of partisan contests, Mr. Hanna seems to have enjoyed the pleasure of the table and good company rather than the arduous researches of the student of politics. He had an immense amount of shrewd practical sense, and he divined a good deal more by his native powers of quick perception than many a statesman of the old school, celebrated for his profundity as a "const.i.tutional lawyer and jurist."

The complete clew to Mr. Hanna's philosophy of politics is thus summed up by his penetrating and sympathetic biographer, Mr. Croly: "We must bear in mind that (1) he was an industrial pioneer and instinctively took to politics as well as to business; (2) that in politics as in business he wanted to accomplish results; (3) that politics meant to him active party service; (4) that successful party service meant to him the acceptance of prevailing political methods and abuses; and (5) finally that he was bound by the instinctive consistency of his nature to represent in politics, not merely his other dominant interest, but the essential harmony between the interests of business and that of the whole community." In other words, Mr. Hanna believed consistently and honestly in the superior fitness of business men to conduct the politics of a country which was predominantly commercial in character. He was not unaware of the existence of a working cla.s.s; in fact he was said to be a generous and sympathetic employer of labor; but he could not conceive the use of government instrumentalities frankly in behalf of that cla.s.s.

Indeed, he thought that the chief function of the government was to help business and not to inquire into its methods or interfere with its processes.

An ill.u.s.tration of Mr. Hanna's theory of governmental impotence in the presence of the dominant private interests was afforded in the debate in the Senate over the price to be paid for armor plate, in the summer of 1900. The Senate proposed that not more than a stipulated price should be paid to the two steel companies, Carnegie and Bethlehem, which were not competing with each other; and that, in case they failed to accept, a government manufacturing plant should be erected. Mr. Hanna's proposition was that the price of steel should be left, as the House had proposed, with the Secretary of the Navy, and he warmly resisted all government interference. When it was brought out in debate that the steel companies had refused the government officers the data upon which to determine whether the price charged was too high, Mr. Hanna declared: "They did perfectly right in not disclosing those facts. That is their business; and if they chose not to give the information to the public, that was their business also." In short, he took the position that the government should provide ample protection to the steel interests against foreign compet.i.tion, and pay substantially whatever the steel companies might charge for armor plate (for without proper data the Secretary of the Navy could not know when prices were reasonable), and then ask them no questions whatever. Here we have both _laissez faire_ and capitalism in their simplest form.

Mr. Hanna, however, had none of the arts of the demagogue, not even the minor and least objectional arts. His bluntness and directness in labor conflicts won for him the respect of large numbers of his employees. His frank and open advocacy of ship subsidies and similar devices commanded the regard, if not the esteem, of his political enemies. His chief faults, as viewed by his colleagues as well as his enemies, were in many instances his leading virtues. If some of the policies and tactics which he resorted to are now discredited in politics, it must be admitted that he did not invent them, and that it was his open and clean-cut advocacy of them that first made them clearly intelligible to the public. When all the minor and incidental details and personalities of the conflicts in which he was engaged are forgotten, Mr. Hanna will stand out in history as the most resourceful and typical representative of the new capitalism which closed the nineteenth century and opened the new.

_The Development of the Urban Population_

The rapid advance of business enterprise which followed the Spanish War made more striking than ever the social results of the industrial revolution.[61] In the first place, there was a notable growth in the urban as contrasted with the rural population. At the close of the century more than one third of the population had become city dwellers.

The census of 1910 cla.s.sified as urban all thickly populated areas of more than 2500 inhabitants, including New England towns which are in part rural in character, and on this basis reported 46.3 per cent of the population of the United States as urban and 53.7 rural. On this basis, 92.8 per cent of the population of Ma.s.sachusetts was reported as urban, 78.8 per cent in New York, and 60.4 per cent in Pennsylvania. That census also reported that "the rate of increase for the population of urban areas was over three times that for the population living in rural territory."

The industrial section of this urban population was largely composed of non-home owners. The census of 1900 reported "that the largest proportion of hired homes, 87.9 per cent, is found in New York City. In Manhattan and Bronx boroughs the proportion is even higher, 94.1 per cent, as compared with 82 per cent for Brooklyn.... There is also a very large proportion of hired homes in Boston, Fall River, Jersey City, and Memphis, const.i.tuting in each of them four fifths of all the homes in 1900." Of the great cities having a large proportion of home owners, Detroit stood at the head, with 22.5 per cent of the population owning homes free of mortgage.

Another feature of the evolution of the working cla.s.s was the influx of foreign labor, and the change in its racial character. The total alien immigration between 1880 and 1900 amounted to about 9,000,000; and in 1905 the immigration for the fiscal year reached 1,026,449. For the fiscal year 1910 it reached 1,198,037. During this period the racial composition of the immigration changed decidedly. Before 1880 Celtic and Teutonic nations furnished three fourths of the immigrants; but in 1905 the proportions were reversed and Slavic and Iberian nations, Italy leading, sent three fourths of the immigrants.

This alien population drifted naturally to the industrial cities, and the census of 1910 reported that of the 229 cities having 25,000 inhabitants and more, the native whites of native parentage furnished only 35.6 per cent, and that the foreign-born whites const.i.tuted 44.5 per cent in Perth Amboy, New Jersey, 40.4 per cent in New York City, and 35.7 per cent in Chicago. From the standpoint of politics, a significant feature of this development is the manning of American industries largely by foreign laborers who as aliens possess no share in the government.

A third important aspect of this transformation in the ma.s.s of the population is the extensive employment of women in industries. The census of 1910 reported that 19.5 per cent of the industrial wage earners were women, and that the proportion of women breadwinners was steadily increasing. The proportion of females who were engaged in gainful pursuits was 14.7 per cent in 1870, 16 per cent in 1880, 19 per cent in 1890, and 20.6 per cent in 1900. At the last date, about one third of the females over ten years of age in Philadelphia were engaged in gainful pursuits, and one eighth were employed in industries. At the same time about 15,000 out of 42,000 women at Fall River, Ma.s.sachusetts, were in industries.

_The Labor Movement_

The centralization of capital and the development of the new statesmen of Mr. Hanna's school were accompanied by a consolidation of the laboring cla.s.ses and the evolution of a more definite political program for labor. As has been pointed out above, the economic revolution which followed the Civil War was attended by the formation of unions in certain trades and by the establishment of the Knights of Labor. This national organization was based on the principle that all of the working cla.s.s could be brought together in a great society, equipped for waging strikes in the field of industry and advancing a program of labor legislation at the same time. This society, like a similar one promoted by Robert Owen in England half a century before, fell to pieces on account of its inherent weaknesses, particularly the inability of the leaders to overcome the indifference of the workingmen in prosperous trades to the struggles of their less fortunate brethren.

Following the experience of England also, the labor leaders began to build on a more secure foundation; namely, the organization of the members of specific trades into local unions followed by their amalgamation into larger societies. Having failed to stir a cla.s.s consciousness, they fell back upon the trade or group consciousness of identical interests. In 1881, ninety-five trade-unions were federated on a national scale, and in 1886 this society was reorganized as the American Federation of Labor. The more radical labor men went on with the Knights, but the foundations of that society were sapped by the more solidly organized rival, which, in spite of many defeats and reverses, steadily increased in its membership and strength. In 1910 the Federation reported that its affiliations included 120 international unions, 39 state federations, 632 city central bodies, 431 local trade-unions, and 216 Federal labor unions, with a membership totaling 1,744,444 persons.

Unlike German and English trade-unionists, the American Federation of Labor steadily refused to go into politics as a separate party contesting at the polls for the election of "labor" representatives.

This abstention from direct political action was a matter of expediency, it seems, rather than of set principle. Mr. John Mitch.e.l.l, the eminent former leader of the miners, declared that "wage earners should in proportion to their strength secure the nomination and election of a number of representatives to the governing bodies of city, state, and nation"; but he added that "a third Labor Party is not for the present desirable, because it could not obtain a majority and could not therefore force its will upon the community at large." This view, Mr.

Mitch.e.l.l admitted, was merely temporary and due to circ.u.mstances, for he frankly said: "Should it come to pa.s.s that the two great American political parties oppose labor legislation as they now favor it, it would be the imperative duty of unionists to form a third party to secure some measure of reform." This was also substantially the position taken by the President of the American Federation, Mr. Gompers.

But it is not to be supposed that the American Federation of Labor refused to consider the question of labor in politics. Its prominent leaders were affiliated with the American Civic Federation, composed largely of employers of labor, professional men, and philanthropists, and known as one of the most powerful anti-socialist organizations in the United States. Not only were Mr. Gompers and other labor leaders a.s.sociated with this society which strongly opposed the formation of a cla.s.s party in the United States, but they steadily waged war on the socialists who were attempting to organize the working cla.s.s politically. The leaders in the American Federation, with a few exceptions, were thus definitely anti-socialist and were on record on this political issue. Moreover, while warning workingmen against political action, Mr. Gompers and Mr. Mitch.e.l.l openly identified themselves with the Democratic party and endeavored to swing the working cla.s.s vote to that party. Mr. Gompers was especially active in the support of Mr. Bryan in 1908, and boasted that 80 per cent of the voting members of the Federation cast their ballots for the Democratic candidate.

In fact, a study of the writings and speeches of the leaders in the American Federation of Labor shows that they had a fairly definite politico-economic program, although they did not admit it. They favored in general munic.i.p.al and government ownership of what are called "natural" monopolies, and they sympathized with the smaller business men in their attempt to break up the great industrial corporations against which organized labor had been able to make little headway. They supported all kinds of labor legislation, such as a minimum wage, workmen's compensation, sanitary laws for factories, the shortening of hours, prohibition of child labor, insurance against accidents, sickness and old age pensions, and industrial education. They were also on record in favor of such political reforms as the initiative, referendum, and recall, and they were especially vigorous in their efforts to curtail the power of the courts to issue injunctions against strikers. In other words, they leaned decidedly toward "state socialism" and expected to secure their ends by supporting the Democratic party, historically the party of individualism, and _laissez faire_. This apparent anomaly is explained by the fact that state socialism does not imply the political triumph of the working cla.s.s, but rather the strengthening of the petty bourgeoisie against great capitalists.

It would be a mistake, however, to conclude that the American Federation of Labor was solidly in support of Mr. Gompers' program. On the contrary, at each national convention of the Federation the socialist members attempted to carry the organization over into direct political action. These attempts were defeated each year, but close observers of the labor movement discovered that the socialists were electing a large number of local and state trade-union officials, and those who hope to keep the organization in the old paths are anxious about the outcome at the end of Mr. Gompers' long service.

FOOTNOTES:

[47] _Report of the Commissioner of Corporations on the Steel Industry_, July 1, 1911.