5. Personal service units, which render a service to the consumer in some direct, personal way--housekeepers, educators, entertainers, health experts.

6. The financial units, which are concerned with the handling of money and of credit (the counters of the economic system) banks, loan a.s.sociations, credit houses.

These are some of the main divisions of the economic system as it exists at the present time. Each division is a great net-work of economic inter-relations, specialized and subdivided into individual plants, factories, departments and the like. Take, as an example, one group, the manufacturing industries of the United States. When the Census of 1914 was compiled, the manufacturing industries were cla.s.sed in fourteen groups,--food and food products, textiles, iron and steel and their products, lumber and its remanufactures, etc. There were 496,234 wage-earners working in 59,317 food and food products establishments, 1,498,644 wage-earners in 22,995 textile establishments, 1,061,058 individuals working in 17,719 iron and steel establishments, and so forth. Each of the fourteen subdivisions of the manufacturing industries of the United States employ hundreds of thousands of men and women who are at work in tens of thousands of establishments in thousands of cities and town. The same kind of specialization is to be found throughout the various modern industries, and in the different industrial countries.

Each one of the larger establishments--each factory or plant--is in turn composed of departments, divisions, shops and the like.

Whether the individual establishment or the individual department be regarded as the unit of economic activity, the outstanding feature of the manufacturing industry is the immense number of units that must be in working order and co-operating harmoniously with the others before the whole can function smoothly. And this is but one of the general divisions of industry. At the time of the Census of 1920 there were in the United States alone, 6,447,998 farms; in 1914 there were 275,791 manufacturing establishments; in 1910 there were 1,127,926 retail dealers and 50,123 wholesale dealers. Literally, there are millions of productive economic units in this one country which are specialized, which are a.s.sociated in their activities and which must be put on a co-operative basis if effective results are to be obtained from them.

3. _Three Lines of Economic Organization_

So much, then, for the interdependence of the various economic groups under the present forms of society. This interdependence runs throughout the capitalist system. Farms depend on railroads, railroads on mines, mines on factories, factories on farms, and so on.

This extreme specialization of the economic system is the product of the past two hundred years, the outcome primarily of the industrial revolution. The experience of society with these specialized economic forms does not, therefore, extend over more than five or six generations. This experience is sufficient, however, to indicate, that there are three general lines along which economic organization may develop:

1. _Economic "states rights" or individualism_--the theory upon which the present day industry as well as the modern state was founded.

Under this theory each economic group must be free to go its way, cutting a path for itself through the ranks of its compet.i.tors, and making its triumphant advance over their prostrate remains.

2. _Economic bureaucracy_, involving the concentration of economic authority in the hands of a centralized group which, knowing little or nothing about the requirements of particular localities, is nevertheless in a position to legislate for them and to enforce its mandates.

3. _Economic federation or federalism_, with local groups enjoying local autonomy in all local matters, and only so much centralized control as is necessary for the unified direction of the entire enterprise.

American industry has had considerable experience with the two first forms of organization. Until the period of the Civil War, compet.i.tion was the generally accepted rule in all phases of economic life. With the formation of the Standard Oil Company in 1870, a new principle was demonstrated, and the idea of centralization was embodied in a form that served as the model for the American trust movement. By the time of the late nineties, this principle of centralization had been carried so far that a reaction set in, and when the United States Steel Corporation was organized in 1901 local autonomy was recognized as one of the essential principles around which its structure was built.

Experience points to the system of local autonomy in local matters and to the central control of general matters as the most workable in a complex society.

In the first instance, under such a system, each local unit is responsible for its own activities and for its own discipline. It is obvious that no matter how efficient the bureaucracy, it would hardly be possible for a centralized authority to control, from one point, the six millions of farms and the quarter million industrial establishments of the United States. It is only where the handling of local matters rests with those immediately concerned that the highest degree of local pride, initiative and energy can be generated and maintained.

Such a system leaves the central authority free from detail so that it may devote all of its energies to decisions on matters of general policy, and to such procedure as affects the welfare of the whole rather than of any particular part. Economic society, to be organized successfully, must be built of units that will prove self-acting and self-directing in all matters of purely local concern. At the same time, a scheme of economic life must be devised that will make it easy and natural for these economic units to function co-operatively in all matters connected with the well-being of the whole industry or of the whole economic society.

4. _Economic Forms_

Much has been done to organize the economic life of the planet, particularly during the past two centuries. Prior to the industrial revolution the economic life of the ma.s.ses of the people, with the exception of a little trading and shipping, was localized and individualized in the village, the commune, the homestead and the home.

The industrial revolution, with its dependence upon mechanical power, served to concentrate economic life in larger units--the factory, the plant, the industrial city. As a matter of necessity, organization followed in the wake of this concentration. The owners of industry organized on the one side: the workers organized on the other. Besides these two major forms of organization within the field of industry, there was the organization of the state, which has played a leading role in the life of present-day society.

The organization of the owners, which is far more complex and more highly developed than that of the workers, has followed four general lines:

1. The organization of one line of industry. Woolen mills in Ma.s.sachusetts and in New York unite to form the American Woolen Company: sugar refineries are consolidated into the American Sugar Refining Company.

2. The organization of those industries which are concerned with the turning out of one product--industrial integration. The iron ore beds of Michigan, the coal and c.o.ke industries of Pennsylvania, lime-stone quarries, smelters, converters, rolling-mills, railroad connections and selling organizations all unite into the Cambria Steel Company or the Carnegie Steel Company. Timber tracts, ore properties, mills, mines and selling agencies join to form the International Harvester Company.

3. The organization of unlike and unrelated industries--manufacturing industries, public utilities, insurance companies, railroads, trust companies and banks brought under the financial control of Morgan and Company or of some other banking syndicate.

4. The banding together of these various groups in mutual welfare a.s.sociations such as chambers of commerce, boards of trade, manufacturers' a.s.sociations and so on.

None of these organizations has any primary interest in geographic areas or in national boundaries. Half of the business of the Standard Oil Company of New Jersey is carried on outside of the United States; the International Harvester Company puts up plants in Canada and in Russia; United States Steel buys properties in Mexico; The National City Bank opens agencies in Cuba and in Argentina. The great modern business units deal, not with political boundaries, but with economic areas. They seek out, as the field for their operations, abundant resources, cheap labor, attractive markets.

The present economic system has made great strides toward the world organization of economic life in a comparatively short time. Australia, Canada and the United States furnish excellent ill.u.s.trations of the way in which continents have been surveyed, spanned with steel, populated and exploited in three or four generations. So completely has the economic system been altered that the seventeenth century world would not recognize its infant great-grandson of the twentieth century.

5. _Limitations on Capitalism_

Important changes have been made in the structure of society since the inauguration of the present economic system, but these changes have not been radical enough to keep pace with the still more radical changes that have occurred in the mechanism of economic production and exchange.

The chief failure of the present order is its failure to readjust social machinery in conformity with the economic changes that have occurred in society, and this failure is due, in large measure, to the limitations contained within the capitalist system.

Like all social systems which attain to positions of consequence, the capitalist system has played an important role in the development of society, and like all such systems, it has had its day. The needs of the community have advanced to a point at which they cannot be met under capitalism, whose chief failure to function more effectively in the present crisis may be traced to:

1. _Excessive centralization of the determining control of industry in the hands of financial manipulators, who do not even enjoy the advantage of owning the industries which they dominate._

Through shrewd financial dealing they have maneuvered themselves into positions of importance, which they hold because of their ability to manipulate, a political rather than an industrial virtue. The necessary result of this concentration of authority is a denial of local self-determination and a corresponding loss of local initiative. The less local initiative there is, the more centralization is required to keep the machinery running, until a point is reached where all power and authority are exercised from the centre, and the local group is as devoid of spontaneity as it is of authority. At somewhere about this point, the friction involved in administration becomes so great that the whole of the social energy is consumed in the routine of keeping the social machinery running, and there is no surplus, either for leisure or improvement. This was the outcome of a similar centralization of authority under Feudalism, and it shows itself in any organization that permits itself to drift into the danger-zone of bureaucracy.

2. _A second obstacle to the further development of the present economic system is nationalism._

The political state has become an adjunct to the capitalist economic system. It relies for one of its sources of driving power upon a concept of nationalism which places the political boundary lines that happen to surround a people first among the public limitations on conduct. "My country, right or wrong," becomes a catch phrase on the lips of school children. Whatever transpires inside these political boundary lines is sanctified by its a.s.sociation with the fatherland, while events having their origin outside of the country must be correspondingly discounted.

Since the middle of the nineteenth century the business men of every great industrial nation have been compelled to go abroad for raw materials, for markets and for investment opportunities. In order to obtain these economic advantages, the citizens of the civilized nations have not hesitated to plunder the natives, and if they resisted, to murder them--as Britain has done in India, as Belgium has done in the Congo, as j.a.pan has done in Korea, as the United States has done in the Philippines and Hayti. This robbing and murdering is sanctified by the fact that "our interests were in danger" or that "our flag was fired upon" or that "our citizens have lost lives and property." But during the past few decades the exploiting nations have found more than natives to deal with. In almost every instance there have been at least two claimants for each choice economic morsel, and a conflict has frequently resulted, like that between Russia and j.a.pan for the control of Eastern Asia or between Germany and France for the control of the iron and coal deposits of Western Europe. In such cases the wars are justified to the home populations as necessary defensive measures.

The justification may or may not be complete, but the bills must be paid, and they have proved to be inordinately high. The cost of killing African natives or unarmed Haytians is comparatively low, but the cost of killing Frenchmen and Germans is enormous. If, as some experts have estimated, the direct cost of the Great War was 250 billions of dollars, and if only 10 millions were killed, it cost something like $25,000 to kill each of the ten millions. It is at this point that nationalism breaks down because of the sheer inability of the peoples to foot the bills that have been contracted in destroying their "enemies"--namely, the citizens of other nations.

When this point is reached--when the costs of expansion beyond boundary lines of a nation are so great that the people who do the country's work cannot or will not meet them, the end of the system that depends upon expansion is already in sight. That point has been reached and pa.s.sed in capitalist society.

While the costs of expansion were merely the cost of subduing naked savages, the business was a remunerative one; but when, to these ordinary costs must be added the stupendous price of capturing trenches protected by barbed wire entanglements, of bombing whole countrysides, of desolating states and wiping out industries, not to mention the cost of building forty million dollar ships that can be sunk in six or seven minutes with one well aimed torpedo, the limit has been reached, and bankruptcy sooner or later ensues. Capitalism is now paying that price throughout most of Europe.

3. _A third obstacle to the continuance of the capitalist system lies in the fact that it has fallen into the hands of profiteers (bankers and absentee owners) whose chief purposes are to control economic machinery for the money there is in it, and to guarantee their clients (investors) an opportunity to live without working on the labor of others._

By the very nature of their connections the managers of industry are denied the right to think in economic terms. Their function is to "make money" by exploiting nature and men. They are therefore profiteers rather than producers, and no economic system can hope to survive unless it is based on production rather than profiteering.

4. _The present economic system is in the hands of those who are responsible to wealth (stockholders) and not to the ma.s.ses of the people._

A small fraction of the people in a modern industrial community--one in 30 or 40 or 50--holds the controlling vote in the strategic industrial enterprises, and says the final word on all questions of industrial policy. Their interest is a property interest. Automatically they are precluded and prevented from thinking or acting in the interest of the general welfare, since their clientele, which is seeking to live on the labor of the ma.s.ses of their fellow citizens, is only a minute part of the general public.

5. _There is another limitation arising out of the third and fourth, just enumerated--the limitation imposed upon the whole of society by the incessant struggle between the owners of industry and the workers in industry._

While the owning cla.s.s continues, without labor, to derive an income from the labor of the workers, the former will grip their privileges, while the latter will oppose, obstruct, attack and ultimately deny the rights of the owners.

These five limitations: centralization, nationalism, profiteering, the handling of economic affairs in the name of property rather than in that of human welfare, and the cla.s.s struggle--make it difficult or impossible for the directors of the present economic system to extend it in response to the pressing demand for expansion. Like other social systems that have prevailed in historic times, the capitalist system of economic control has its limitations, and like many another system, it seems to have reached them.

6. _The Growth of Capitalism_

The existing economic order has grown to its present proportions compet.i.tively and nationalistically, without any centralized supervisory control (without any board of strategy) just as one of the Canadian cities out upon the plains has grown, or rather sprawled over the prairie--each man building how and when and where he liked, each industry choosing its own location, stores, schools, churches, theatres, squatting at those points that seemed to be the centres of the crowd life. Mines have been opened, factories established, railroads built, electric plants constructed, by some individual or corporation interested in making a profit on the investment, and with little or no relation to the well-being of the community. There has been no recognized intelligent guidance behind the development of the industrial system.

In so far as the present economic life was planned, it was planned locally, by the directors of one industry, by the chamber of commerce of some city, by a far-sighted banker or financier who insisted upon thinking in terms of the coming business generation. For the most part the system grew, however, like stalks of corn in a field, each stalk drawing its own nourishment from the soil and making what progress it could along its own path toward the zenith.

Another serious drawback in the growth of the present economic system is that much of it was developed as an underground organization. Even had they decided to do so, individual business men have not been free to plan ahead and work out a business policy in the light of day. On the one side were the jealous compet.i.tors, watching every move and eager to profit by any bit of information that they could secure with regard to the plans of their rivals. On the other side was the government, with its conspiracy laws and its anti-trust laws, ready to swoop down on the business director who planned too broadly or thought too far into the future. Then, too, there was an ever-growing force in a public opinion that was suspicious of profiteers, no matter what their professions.

With compet.i.tors on the watch here, and government officials yonder, there was nothing for it but to work in secret, to shadow the new policies in mystery and to get as far as possible without being found out.