III

THE FRUITS OF INDUSTRIAL ORGANIZATION

The only sound point of departure for a national economic policy is, as we have seen, the acceptance by the state of certain of the results of corporate industrial organization. Such state recognition is equivalent to discrimination in their favor, because it leaves them in possession of those fundamental economic advantages, dependent on terminals, large capital, and natural resources, which place them beyond effective compet.i.tion; and the state has good reason to suffer this discrimination, because a wise government can always make more social capital out of a cooperative industrial organization than it can out of an extremely compet.i.tive one.

It is extremely improbable that, even when officially recognized in this way, the process of corporate combination would go beyond a certain point. It might result in a condition similar to that which now prevails in the steel industry or that of sugar refining; but it should be added that in industries organized to that extent there is not very much compet.i.tion in prices. Prices are usually regulated by agreement among the leading producers; and compet.i.tion among the several producers turns upon quickness of delivery and the quality of the service or product.

Whether or not this restriction of compet.i.tion works badly depends usually upon the enlightened shrewdness with which the schedule of rates and prices is fixed. A corporation management which was thoroughly alive to its own interest would endeavor to arrange a scale of prices, which, while affording a sufficient profit, would encourage the increased use of the product, and that is precisely the policy which has been adopted by the best managed American railroad and industrial corporations. But it must always be kept in mind that, in the absence of a certain amount of compet.i.tion, such a policy cannot be taken wholly for granted. A short-sighted management may prefer to reap large profits for a short time and at the expense of the increased use of its product or service.

Moreover, the margin between the cost of production and the particular price at which the product or service can be sold consistent with its largely increasing use may enable the producer to gather enormous profits; and such profits may not stimulate compet.i.tion to any effective extent, precisely because they depend upon advantages in production which cannot be duplicated. No state desirous of promoting the economic welfare of its citizens can remain indifferent to the chance thus afforded of earnings disproportionately large to the economic service actually rendered.

In dealing with this question of possibly excessive profits under such a method of economic organization, the state has many resources at its disposal besides the most obvious one of incessant official interference with the essentials of corporation management. Of these the most useful consists unquestionably in its power of taxation. It can const.i.tute a system of taxation, in respect to the semi-monopolistic corporations, which would deprive them of the fruits of an excessively large margin between the cost of production and the price at which the product or service could be increasingly sold. Net profits could be taxed at a rate which was graduated to the percentage paid; and beyond a certain point the tax should amount to much the larger fraction of the profits. In this way a semi-monopolistic corporation would not have any interest in seeking profits beyond a certain percentage. A condition would be established which, while it would not deprive the managers of a corporation of full responsibility for the conduct of its business, would give them an additional inducement always to work for the permanent improvement of the economic relation of the corporation to the community. They would have no interest in preferring large but insecure net earnings to smaller ones, founded on a thoroughly satisfactory service, a low schedule of prices, and the constantly increasing efficiency of the plant and organization of the company.

The objection will, no doubt, be immediately urged that a system of this kind would prevent any improvement of service from going beyond a certain point, just because it would cease to be profitable beyond a certain point. But such an objection would not be valid, provided the scale of taxation were properly graduated. I shall not attempt to define any precise scale which would serve the purpose because the possible adoption of such a plan is still too remote; but the state should, in return for the protection it extends to these semi-monopolistic corporations, take a certain percentage of all profits, and, while this percentage should increase until it might at a certain level reach as much as one half or three quarters, it should not become larger than three quarters--except in the case of a corporation earning, say, more than 20 per cent on its capital. To be sure the establishment even of such a level would conceivably destroy the interested motive for increased efficiency at a certain point, but such a point could hardly be reached except in the case of companies whose monopoly was almost complete.

The foregoing plan, however, is not suggested as a final and entirely satisfactory method of incorporating semi-monopolistic business organizations into the economic system of a nationalizing democracy. I do not believe that any formula can be framed which will by the magic of some chemical process convert a purely selfish economic motive into an unqualified public economic benefit. But some such plan as that proposed above may enable an industrial democracy to get over the period of transition between the partial and the complete adaptation of these companies to their place in a system of national economy. They can never be completely incorporated so long as the interest of their owners is different from that of the community as a whole, but in the meantime they can be encouraged to grow and perhaps to become more efficient, while at the same time they can be prevented from becoming a source of undesirable or dangerous individual economic inequalities; and I do not believe that such a transitional system of automatically regulated recognition would be open to the same objections as would a system of incessant official interference. In so far, indeed, as the constructive industrial leader is actuated merely by the motive of ama.s.sing more millions than can be of any possible use to himself or his children--in so far as such is the case, the inducement to American industrial organization on a national scale would be impaired. But if an economic democracy can purchase efficient industrial organization on a huge scale only at the price of this cla.s.s of fortunes, then it must be content with a lower order of efficiency, and American economic statesmanship has every reason to reject such an alternative until there is no help for it. The best type of American millionaire seems always to have had as much interest in the work and in the game as in its prodigious rewards; and much of his work has always been done for him by employees who, while they were paid liberally, did not need the inducement of more money than they could wholesomely spend in return, for service of the highest efficiency.

In any event the plan of an automatically regulated recognition of semi-monopolistic corporations would be intended only as a transitional measure. Its object would be to give these somewhat novel industrial agents a more prolonged and thorough test than any they have yet received. If they survived for some generations and increased in efficiency and strength, it could only be because the advantages they enjoyed in the way of natural resources, abundant capital, organization, terminals, and responsible management were decisive and permanent; and in that case the responsibility of the state could not be limited to their automatic regulation and partial a.s.similation. A policy must be adopted of converting them into express economic agents of the whole community, and of gradually appropriating for the benefit of the community the substantial economic advantages which these corporations had succeeded in acquiring. Just in so far, that is, as a monopoly or a semi-monopoly succeeded in surviving and growing, it would partake of the character of a natural monopoly, and would be in a position to profit beyond its deserts from the growth of the community. In that event a community which had any idea of making economic responsibility commensurate with power would be obliged to adopt a policy of gradual appropriation.

The public service corporations in the large cities have already reached the stage of being recognized natural monopolies. In the case of these corporations public opinion is pretty well agreed that a monopoly controlling the whole service is more likely to be an efficient servant of the city than a number of separate corporations, among whom compet.i.tion in order to be effective must be destructive and wasteful.

American munic.i.p.al policy is consequently being adapted to the idea of monopolized control of these public services. The best manner of dealing with these monopolies, after they have been created and recognized, is not settled by any means to the same extent; but the principle of restricting the franchises under which they operate to a limited term of years is well established, and the tendency is towards a constant reduction of the length of such leases and towards the retention of a right of purchase, exercisable at all or at certain stated times. The American city has come to realize that such privileges possess a value which increases automatically with the growth of the city and with the guarantee against compet.i.tion; and this source of value should never be alienated except for a short period and on the most stringent terms.

Wherever, consequently, a city has retained any control over such franchises, it is converting the public service corporations merely into temporary tenants of what are essentially exclusive economic privileges.

During the period of its tenancy the management of a corporation has full opportunity to display any ability and energy whereof it may be possessed; and such peculiarly efficient management should be capable of earning sufficient if not excessive rewards. In the meantime, any increase in value which would result inevitably from the possession of a monopoly in a growing community would accrue, as it should, to the community itself.

The only alternative to such a general scheme of munic.i.p.al policy in relation to public service corporations would be one of munic.i.p.al operation as well as munic.i.p.al ownership; and munic.i.p.al operation unquestionably has certain theoretical advantages. When a corporation enjoys a tenancy for a stated term only, there is always a danger that it will seek temporarily larger profits by economizing on the quality of its service. It has not the same interest in building up a permanently profitable business that it would in case it were owner as well as operator. This divergence of interest may lead to a good deal of friction; but for the present at least the mixed system of public ownership and private operation offers the better chance of satisfactory results. As long as the munic.i.p.al civil service remains in its existing disorganized and inefficient condition, the public administration should not be granted any direct responsibility which can be withheld without endangering an essential public interest. A system of public operation would be preferable to one of divided personal responsibility between public and private officials; but when a mixed system can be created which sharply distinguishes the two responsibilities one from another without in any way confusing them, it combines for the time being a maximum of merit with a minimum of friction.

Such a system carries with it, however, two results, not always appreciated. A munic.i.p.ality which embarks upon a policy of guaranteeing monopolies and leasing the enjoyment thereof should make all permanent improvements to the system at its own expense, and its financial organization and methods must be adapted to the necessity of raising a liberal supply of funds for such essential purposes. Its borrowing capacity must not be arbitrarily restricted as in the case of so many American cities at the present time; and, of course, any particular lease must be arranged so as to provide not only the interest on the money raised for all work of construction, but for the extinction of the debt thereby incurred. Furthermore a city adopting such a policy should push it to the limit. Wherever, as is so often the case, private companies now enjoy a complete or a substantial monopoly of any service, and do so by virtue of permanent franchises, every legal means should be taken to nullify such an intolerable appropriation of the resources of the community. Persistent and ruthless war should be declared upon these unnatural monopolies, because as long as they exist they are an absolute bar to any thoroughly democratic and constructive system of munic.i.p.al economy. Measures should be taken which under other circ.u.mstances would be both unfair and unwise for the deliberate purpose of bringing them to terms, and getting them to exchange their permanent possession of these franchises for a limited tenancy. Permanent commissions should be placed over them with the right and duty of interfering officiously in their business. Taxation should be made to bear heavily upon them. Compet.i.tive services should be established wherever this could be done without any excessive loss. They should be annoyed and worried in every legal way; and all those burdens should be imposed upon them with the explicit understanding that they were measures of war. In adopting such a policy a community would be fighting for an essential condition of future economic integrity and well-being, and it need not be any more scrupulous about the means employed (always "under the law") than would an animal in his endeavor to kill some blood-sucking parasite. The corporation should plainly be told that the fight would be abandoned wherever it was ready to surrender its unlimited franchises for a limited but exclusive monopoly, which in these cases should in all fairness run for a longer term than would be ordinarily permissible.

I have lingered over the case of corporations enjoying munic.i.p.al franchises, because they offer the only existing ill.u.s.tration of a specific economic situation--a situation in which a monopolized service is based upon exclusive and permanent economic advantages. Precisely the same situation does not exist in any other part of the economic area; but the idea is that under a policy of properly regulated recognition such a situation may come to exist in respect to those corporations which should be subject to the jurisdiction of the central government; and just in so far as it does come to exist, the policy of the central government should resemble the one suggested for the munic.i.p.al governments and already occasionally adopted by them. That any corporations properly subject to the jurisdiction of the Federal government will attain to the condition of being a "natural" monopoly may be disputed; but according to the present outlook, if such is not the case, the only reason will be that the government by means of official and officious interference "regulates" them into inefficiency, and consequent inability to hold their own against smaller and less "regulated" compet.i.tors. If these corporations are left in the enjoyment of the natural advantages which wisely or unwisely they have been allowed to appropriate, some of them at any rate will gradually attain to the economic standing of "natural" monopolies.

The railroad system of the country is gradually approximating to such a condition. The process of combination which has been characteristic of American railroad development from the start has been checked recently both by government action and by anti-railroad agitation; but if the railroads were exempted from the provisions of the Anti-Trust Law and were permitted, subject to official approval, either to make agreements or to merge, according as they were competing or non-competing lines, there can be no doubt that the whole country would be gradually divided up among certain large and essentially non-compet.i.tive systems. A measure of compet.i.tion would always remain, even if one corporation controlled the entire railway system, because the varying and conflicting demands of different localities and businesses for changes in rates would act as a compet.i.tive force; and in the probable system of a division of territory, this compet.i.tive force would have still more influence. But at the same time by far the larger part of the freight and pa.s.senger traffic of the country would under such a system be shared by arrangement among the several corporations. The ultimate share of each of the big corporations would not be determined until the period of building new through routes had pa.s.sed. But this period is not likely to endure for more than another generation. Thereafter additional railroad construction will be almost exclusively a matter of branch extensions and connections, or of duplicating tracks already in existence; and when such a situation is reached, the gross traffic will be just as much divided among the cooperative companies as if it were distributed among different lines by a central management. Certain lines would be managed more efficiently than others and might make more money, just as certain departments of a big business might, because of peculiarly able management, earn an unusually large contribution to the total profits; but such variations could not be of any essential importance. From the point of view of the community as a whole the railroad system of the country would be a monopoly.

The monopoly, like that of a munic.i.p.al street railroad, would depend upon the possession of exclusive advantages. It would depend upon the ownership of terminals in large and small cities which could no longer be duplicated save at an excessive expense. It would depend upon the possession of a right of way in relation to which the business arrangements of a particular territory had been adjusted. It would have become essentially a special franchise, even if it had not been granted as a special franchise by any competent legal authority; and, like every similar franchise, it would increase automatically in value with the growth of the community in population and business. This automatic increase in value, like that of a munic.i.p.al franchise, should be secured to the community which creates it; and it can be secured only by some such means as those suggested in the case of munic.i.p.al franchises. The Federal government must, that is, take possession of that share of railroad property represented by the terminals, the permanent right of way, the tracks, and the stations. It is property of this kind which enables the railroads to become a monopoly, and which, if left in private hands, would absolutely prevent the gradual construction of a national economic system.

In the existing condition of economic development and of public opinion, the man who believes in the ultimate necessity of government ownership of railroad road-beds and terminals must be content to wait and to watch. The most that he can do for the present is to use any opening, which the course of railroad development affords, for the a.s.sertion of his ideas; and if he is right, he will gradually be able to work out, in relation to the economic situation of the railroads, some practical method of realizing the ultimate purpose. Even if public opinion eventually decided that the appropriation of the railroads was necessary in the national economic interest, the end could in all probability be very slowly realized. In return, for instance, for the benefit of government credit, granted under properly regulated conditions, the railroads might submit to the operation of some gradual system of appropriation, which would operate only in the course of several generations, and the money for which would be obtained by the taxation of railroad earnings. It might, however, be possible to arrange a scheme of immediate purchase and the conversion of all railway securities, except those representing equipment and working capital, into one special cla.s.s of government security. In that case the whole railroad system of the country could be organized into a certain limited number of special systems, which could be leased for a definite term of years to private corporations. These independent systems would in their mutual relations stimulate that economic rivalry among localities which is the wholesome aspect of railroad compet.i.tion. Each of these companies should, of course, be free to fix such rates as were considered necessary for the proper development and distribution of traffic within its own district.

Any such specific suggestions cannot at the present time be other than fanciful; and they are offered, not because of their immediate or proximate practical value, but because of the indication they afford of the purposes which must be kept in mind in drawing up a radical plan of railroad reorganization in the ultimate national interest. All such plans of reorganization should carefully respect existing railroad property values, unless the management of those railroads obstinately and uncompromisingly opposed all concessions necessary to the realization of the national interest. In that event the nation would be as much justified in fighting for its essential interests as would under a.n.a.logous circ.u.mstances a munic.i.p.ality. Furthermore, any such reorganization should aim at keeping the benefits of the then existing private organization--whatever they might be. It should remain true to the principle that, so far as economic authority and power is delegated in the form of terminable leases to private corporations, such power should be complete within certain defined limits. If agents of the national economic interest cannot be trusted to fulfill their responsibilities without some system of detailed censure and supervision they should be entirely dispensed with. It may be added that if the proposed or any kindred method of reorganization becomes politically and economically possible, the circ.u.mstances which account for its possibility will in all probability carry with them some practicable method of realizing the proposed object.

Wherever the conditions, obtaining in the case of railroad and public service corporations, are duplicated in that of an industrial corporation, a genuinely national economic system would demand the adoption of similar measures. How far or how often these measures would be necessarily applied to industrial corporations could be learned only after a long period of experimentation, and during this period the policy of recognition, tempered by regulation under definite conditions and graduated taxation of net profits would have to be applied. But when such a policy had been applied for a period sufficiently prolonged to test their value as national economic agents, further action might become desirable in their case as in that of the railroads. The industrial, unlike the service corporations, cannot, however, be considered as belonging to a cla.s.s which must be all treated in the same way. Conditions would vary radically in different industries; and the case of each industry should be considered in relation to its special conditions. Wherever the tendency in any particular industry continued to run in the direction of combination, and wherever the increasingly centralized control of that industry was a.s.sociated with a practical monopoly of some mineral, land, or water rights, the government might be confronted by another instance of a natural monopoly, which it would be impolitic and dangerous to leave in private hands. In all such cases some system of public ownership and private operation should, if possible, be introduced. On the other hand, in case the tendency to combination was strengthened in an industry, such, for instance, as that of the manufacture of tobacco, which does not depend upon the actual ownership of any American natural resources, the manner of dealing with it would be a matter of expediency, which would vary in different cases.

In the case of a luxury like tobacco, either a government monopoly might be created, as has been already done so frequently abroad, or the state might be satisfied with a sufficient share of the resulting profits. No general rule can be laid down for such cases; and they will not come up for serious consideration until the more fundamental question of the railroads has been agitated to the point of compelling some kind of a definite settlement.

This sketch of a constructive national policy in relation to corporations need not be carried any further. Its purpose has been to convert to the service of a national democratic economic system the industrial organization which has gradually been built up in this country; and to make this conversion, if possible, without impairing the efficiency of the system, and without injuring individuals in any unnecessary way. The attempt will be criticised, of course, as absolutely destructive of American economic efficiency and as wickedly unjust to individuals; and there will be, from the point of view of the critics, some truth in the criticism. No such reorganization of our industrial methods could be effected without a prolonged period of agitation, which would undoubtedly injure the prosperity and unsettle the standing of the victims of the agitation; and no matter what the results of the agitation, there must be individual loss and suffering.

But there is a distinction to be made between industrial efficiency and business prosperity. Americans have hitherto identified prosperity with a furious economic activity, and an ever-increasing economic product--regardless of genuine economy of production and any proper distribution of the fruits. Unquestionably, the proposed reorganization of American industrial methods would for a while make many individual Americans less prosperous. But it does not follow that the efficiency of the national economic organization need be compromised, because its fruits are differently distributed and are temporarily less abundant.

It is impossible to judge at present how far that efficiency depends upon the chance, which Americans have enjoyed, of appropriating far more money than they have earned, and far more than they can spend except either by squandering it or giving it away. But in any event the dangerous lack of national economic balance involved by the existing distribution of wealth must be redressed. This object is so essential that its attainment is worth the inevitable attendant risks. In seeking to bring it about, no clear-sighted democratic economist would expect to "have it both ways." Even a very gradual displacement of the existing method of distributing economic fruits will bring with it regrettable wounds and losses. But provided they are incurred for the benefit of the American people as an economic whole, they are worth the penalty. The national economic interest demands, on the one hand, the combination of abundant individual opportunity with efficient organization, and on the other, a wholesome distribution, of the fruits; and these joint essentials will be more certainly attained under some such system as the one suggested than they are under the present system.

The genuine economic interest of the individual, like the genuine political interest, demands a distribution of economic power and responsibility, which will enable men of exceptional ability an exceptional opportunity of exercising it. Industrial leaders, like political leaders, should be content with the opportunity of doing efficient work, and with a scale of reward which permits them to live a complete human life. At present the opportunity of doing efficient industrial work is in the case of the millionaires (not in that of their equally or more efficient employees) accompanied by an excessive measure of reward, which is, in the moral interest of the individual, either meaningless or corrupting. The point at which these rewards cease to be earned is a difficult one to define; but there certainly can be no injustice in appropriating for the community those increases in value which are due merely to a general increase in population and business; and this increase in value should be taken over by the community, no matter whether it is divided among one hundred or one hundred thousand stockholders in a corporation. The essential purpose is to secure for the whole community those elements in value which are made by the community. The semi-monopolistic organization of certain American industries is little by little enabling the government to separate from the total economic product a part at least of that fraction which is created by social rather than individual activity; and a democracy which failed to take advantage of the opportunity would be blind to its fundamental interest. To be sure, the opportunity cannot be turned to the utmost public benefit until industrial leaders, like political leaders, are willing to do efficient work partly from disinterested motives; but that statement is merely a translation into economic terms of the fundamental truth that democracy, as a political and social ideal, is founded essentially upon disinterested human action. A democracy can disregard or defy that truth at its peril.

IV

TAXATION AND INEQUALITIES IN WEALTH

Before dismissing this subject of a national industrial organization and a better distribution of the fruits thereof brief references must be made to certain other aspects of the matter. The measures which the central and local governments could take for the purpose of adapting our economic and social inst.i.tutions to the national economic and social interest would not be exhausted by the adoption of the proposed policy of reconstruction; and several of these supplementary means, which have been proposed to accomplish the same object, deserve consideration. Some of these proposals look towards a further use of the power of taxation, possessed by both the state and the Federal governments; but it must not be supposed that in their entirety they const.i.tute a complete system of taxation. They are merely examples, like the protective tariff, of the use of the power of taxation to combine a desirable national object with the raising of money for the expenses of government.

It may be a.s.sumed that the adoption of the policy outlined in the last section would gradually do away with certain undesirable inequalities in the distribution of wealth: but this process, it is scarcely necessary to add, would do nothing to mitigate existing inequalities. Existing inequalities ought to be mitigated; and they can be mitigated without doing the slightest injustice to their owners. The means to such mitigation are, of course, to be found in a graduated inheritance tax--a tax which has already been accepted in principle by several American states and by the English government, which certainly cannot be considered indifferent to the rights of individual property owners.

At the present stage of the argument, no very elaborate justification can be necessary, either for the object proposed by a graduated inheritance tax, or for the use of precisely these means to attain it.

The preservation intact of a fortune over a certain amount is not desirable either in the public or individual interest. No doubt there are certain people who have the gift of spending money well, and whose personal value as well as the general social interest is heightened by the opportunity of being liberal. But to whatever extent such considerations afford a moral justification for private property, they have no relevancy to the case of existing American fortunes. The multi-millionaire cannot possibly spend his income save by a recourse to wild and demoralizing extravagance, and in some instances not even extravagance is sufficient for the purpose. Fortunes of a certain size either remorselessly acc.u.mulate or else are given away. There is a general disposition to justify the possession of many millions by the frequent instances among their owners of intelligent public benefaction, but such an argument is a confession that a justification is needed without const.i.tuting in itself a sufficient excuse. If wealth, particularly when acc.u.mulated in large amounts, has a public function, and if its possession imposes a public duty, a society is foolish to leave such a duty to the accidental good intentions of individuals. It should be a.s.sumed and should be efficiently performed by the state; and the necessity of that a.s.sumption is all the plainer when it is remembered that the greatest public gifts usually come from the first generation of millionaires. Men who inherit great wealth and are brought up in extravagant habits nearly always spend their money on themselves.

That is one reason why the rich Englishman is so much less generous in his public gifts than the rich American. In the long run men inevitably become the victims of their wealth. They adapt their lives and habits to their money, not their money to their lives. It pre-occupies their thoughts, creates artificial needs, and draws a curtain between them and the world. If the American people believe that large wealth really requires to be justified by proportionately large public benefactions, they should a.s.suredly adopt measures which will guarantee public service for a larger proportion of such wealth.

Whether or not the state shall permit the inheritance of large fortunes is a question which stands on a totally different footing from the question of their permissible acc.u.mulation. Many millions may, at least in part, be earned by the men who acc.u.mulate them; but they cannot in the least be earned by the people who inherit them. They could not be inherited at all save by the intervention of the state; and the state has every right to impose conditions in its own interest upon the whole business of inheritance. The public interests involved go very much beyond the matter of mitigating flagrant inequalities of wealth. They concern at bottom the effect of the present system of inheritance upon the inheritors and upon society; and in so far as the system brings with it the creation of a cla.s.s of economic parasites, it can scarcely be defended. But such is precisely its general tendency. The improbability that the children will inherit with the wealth of the parent his possibly able and responsible use of it is usually apparent to the father himself; and not infrequently he ties up his millions in trust, so that they are sure to have the worst possible moral effect upon his heirs. Children so circ.u.mstanced are deprived of any economic responsibility save that of spending an excessive income; and, of course, they are bound to become more or less respectable parasites. The manifest dissociation thereby implied between the enjoyment of wealth and the personal responsibility attending its ownership, has resulted in the proposal that fathers should be forbidden by the state to arrange so carefully for the demoralization of their children and grandchildren.

Even if we are not prepared to acquiesce in so radical an impairment of the rights of testators, there can be no doubt that, under a properly framed system of inheritance taxation, all property placed in trust for the benefit of male heirs above a certain amount should be subject to an exceptionally severe deduction. Whatever justification such methods of guaranteeing personal financial irresponsibility may have in aristocratic countries, in which an upper cla.s.s may need a peculiar economic freedom, they are hostile both to the individual and public interest of a democratic community.

Public opinion is not, however, even remotely prepared for any radical treatment of the whole matter of inheritance; and it will not be prepared, until it has learned from experience that the existing freedom enjoyed by rich testators means the sacrifice of the quick to the dead--the mutilation of living individuals in the name of individual freedom and in order that a dead will may have its way. Until this lesson is learned the most that can be done is to work for some kind of a graduated inheritance tax, the severity of which should be dictated chiefly by conditions of practical efficiency. Considerations of practical efficiency make it necessary that the tax should be imposed exclusively by the Federal government. State inheritance taxes, sufficiently large to accomplish the desirable result, will be evaded by change of residence to another state. A Federal tax could be raised to a much higher level without prompting the two possible methods of evasion--one of which would be the legal transfer of the property during lifetime, and the other a complete change of residence to some foreign country. This second method of evasion would not const.i.tute a serious danger, because of the equally severe inheritance laws of foreign countries. The tax at its highest level could be placed without danger of evasion at as much as twenty per cent. The United Kingdom now raises almost $100,000,000 of revenue from the source; and a slightly increased scale of taxation might yield double that amount to the American Treasury, a part of which could be turned into the state Treasuries.

There has been a.s.sociated with the graduated inheritance tax the plan of a graduated income tax; but the graduated income tax would serve the proposed object both less efficiently and less equitably. It taxes the man who earns the money as well as him who inherits it. It taxes earned income as well as income derived from investments; and in taxing the income derived from investments, it cannot make any edifying discrimination as to its source. Finally, it would interfere with a much more serviceable plan of taxing the net profits of corporations subject to the jurisdiction of the Federal government--a plan which is an indispensable part of any constructive treatment of the corporation problem in the near future.

The suggestion that the inheritance tax should const.i.tute a pillar of central rather than local taxation implicitly raises a whole series of difficult Const.i.tutional and fiscal questions concerning the relation between central and local taxation. The discussion of these questions would carry me very much further than my present limits permit; and there is room in this connection for only one additional remark. The real estate tax and saloon licenses should, I believe, const.i.tute the foundation of the state revenues; but inasmuch as certain states have derived a considerable part of their income from corporation and inheritance taxes, allowance would have to be made for this fact in revising the methods of Federal taxation. It is essential to any effective control over corporations and over the "money power" that corporation and inheritance taxes should be uniform throughout the country, and should be laid by the central government; but no equally good reason can be urged on behalf of the exclusive appropriation by the Federal Treasury of the proceeds of these taxes. If the states need revenues derived from these sources, a certain proportion of the net receipts could be distributed among the states. The proportion should be the same in the case of all the states; but it should be estimated in the case of any particular state upon the net yield which the Federal Treasury had derived from its residents.

V

THE ORGANIZATION OF LABOR

Only one essential phase of a constructive national policy remains to be considered--and that is the organization of labor. The necessity for the formulation of some constructive policy in respect to labor is as patent as is that for the formulation of a similar policy in respect to corporate wealth. Any progress in the solution of the problem of the better distribution of wealth will, of course, have a profound indirect effect on the amelioration of the condition of labor; but such progress will be at best extremely slow, and in the meantime the labor problem presses for some immediate and direct action. As we have seen, American labor has not been content with the traditional politico-economic optimism. Like all aggressive men alive to their own interest, the laborer soon decided that what he really needed was not equal rights, but special opportunities. He also soon learned that in order to get these special opportunities he must conquer them by main force--which he proceeded to do with, on the whole, about as much respect for the law as was exhibited by the big capitalists. In spite of many setbacks the unionizing of industrial labor has been attended with almost as much success as the consolidating of industrial power and wealth; and now that the labor unions have earned the allegiance of their members by certain considerable and indispensable services, they find themselves placed, in the eyes of the law, in precisely the same situation as combinations of corporate wealth. Both of these attempts at industrial organization are condemned by the Sherman Anti-Trust Law and by certain similar state legislation as conspiracies against the freedom of trade and industry.

The labor unions, consequently, like the big corporations, need legal recognition; and this legal recognition means in their case, also, substantial discrimination by the state in their favor. Of course, the unionist leaders appeal to public opinion with the usual American cant.

According to their manifestoes they demand nothing but "fair play"; but the demand for fair play is as usual merely the hypocritical exterior of a demand for substantial favoritism. Just as there can be no effective compet.i.tion between the huge corporation controlling machinery of production which cannot be duplicated and the small manufacturer in the same line, so there can be no effective compet.i.tion between the individual laborer and the really efficient labor union. To recognize the labor union, and to incorporate it into the American legal system, is equivalent to the desertion by the state of the non-union laborer. It means that in the American political and economic system the organization of labor into unions should be preferred to its disorganized separation into competing individuals. Complete freedom of compet.i.tion among laborers, which is often supposed to be for the interest of the individual laborer, can only be preserved as an effective public policy by active discrimination against the unions.

An admission that the recognition of labor unions amounts to a substantial discrimination in their favor would do much to clear up the whole labor question. So far as we declare that the labor unions ought to be recognized, we declare that they ought to be favored; and so far as we declare that the labor union ought to be favored, we have made a great advance towards the organization of labor in the national interest. The labor unions deserve to be favored, because they are the most effective machinery which has as yet been forged for the economic and social amelioration of the laboring cla.s.s. They have helped to raise the standard of living, to mitigate the rigors of compet.i.tion among individual laborers, and in this way to secure for labor a larger share of the total industrial product. A democratic government has little or less reason to interfere on behalf of the non-union laborer than it has to interfere in favor of the small producer. As a type the non-union laborer is a species of industrial derelict. He is the laborer who has gone astray and who either from apathy, unintelligence, incompetence, or some immediately pressing need prefers his own individual interest to the joint interests of himself and his fellow-laborers. From the point of view of a constructive national policy he does not deserve any special protection. In fact, I am willing to go farther and a.s.sert that the non-union industrial laborer should, in the interest of a genuinely democratic organization of labor, be rejected; and he should be rejected as emphatically, if not as ruthlessly, as the gardener rejects the weeds in his garden for the benefit of fruit-and flower-bearing plants.

The statement just made unquestionably has the appearance of proposing a harsh and unjust policy in respect to non-union laborers; but before the policy is stigmatized as really harsh or unjust, the reader should wait until he has pursued the argument to its end. Our att.i.tude towards the non-union laborer must be determined by our opinion of the results of his economic action. In the majority of discussions of the labor question the non-union laborer is figured as the independent working man who is a.s.serting his right to labor when and how he prefers against the tyranny of the labor union. One of the most intelligent political and social thinkers in our country has gone so far as to describe them as industrial heroes, who are fighting the battle of individual independence against the army of cla.s.s oppression. Neither is this estimate of the non-union laborer wholly without foundation. The organization and policy of the contemporary labor union being what they are, cases will occasionally and even frequently occur in which the non-union laborer will represent the protest of an individual against injurious restrictions imposed by the union upon his opportunities and his work. But such cases are rare compared to the much larger number of instances in which the non-union laborer is to be considered as essentially the individual industrial derelict. In the compet.i.tion among laboring men for work there will always be a certain considerable proportion who, in order to get some kind of work for a while, will accept almost any conditions of labor or scale of reward offered to them. Men of this kind, either because of irresponsibility, unintelligence, or a total lack of social standards and training, are continually converting the compet.i.tion of the labor market into a force which degrades the standard of living and prevents ma.s.ses of their fellow-workmen from obtaining any real industrial independence. They it is who bring about the result that the most disagreeable and dangerous cla.s.ses of labor remain the poorest paid; and as long as they are permitted to have their full effects upon the labor situation, progress to a higher standard of living is miserably slow and always suffers a severe setback during a period of hard times. From any comprehensive point of view union and not non-union labor represents the independence of the laborer, because under existing conditions such independence must be bought by a.s.sociation. Worthy individuals will sometimes be sacrificed by this process of a.s.sociation; but every process of industrial organization or change, even one in a constructive direction, necessarily involves individual cases of injustice.

Hence it is that the policy of so-called impartiality is both impracticable and inexpedient. The politician who solemnly declares that he believes in the right of the laboring man to organize, and that labor unions are deserving of approval, but that he also believes in the right of the individual laborer to eschew unionism whenever it suits his individual purpose or lack of purpose,--such familiar declarations const.i.tute merely one more ill.u.s.tration of our traditional habit of "having it both ways." It is always possible to have it both ways, in case the two ways do not come into conflict; but where they do conflict in fact and in theory, the sensible man must make his choice. The labor question will never be advanced towards solution by proclaiming it to be a matter of antagonistic individual rights. It involves a fundamental public interest--the interest which a democracy must necessarily take in the economic welfare of its own citizens; and this interest demands that a decisive preference be shown for labor organization. The labor unions are perfectly right in believing that all who are not for them are against them, and that a state which was really "impartial" would be adopting a hypocritical method of r.e.t.a.r.ding the laborer from improving his condition. The unions deserve frank and loyal support; and until they obtain it, they will remain, as they are at present, merely a cla.s.s organization for the purpose of extorting from the political and economic authorities the maximum of their special interests.

The labor unions should be granted their justifiable demand for recognition, partly because only by means of recognition can an effective fight be made against their unjustifiable demands. The large American employer of labor, and the whole official politico-economic system, is placed upon the defensive by a refusal frankly to prefer unionism. Union labor is allowed to conquer at the sword's point a preferential treatment which should never have been refused; and the consequence is that its victory, so far as it is victorious, is that of an industrial faction. The large employer and the state are disqualified from insisting on their essential and justifiable interests in respect to the organization of labor, because they have rejected a demand essential to the interest of the laborer. They have remained consistently on the defensive; and a merely defensive policy in warfare is a losing policy. Every battle the unions win is a clear gain. Every fight which they lose means merely a temporary suspension of their aggressive tactics. They lose nothing by it but a part of their equipment and prestige, which can be restored by a short period of inaction and acc.u.mulation. A few generations more of this sort of warfare will leave the unions in substantial possession of the whole area of conflict; and their victory may well turn their heads so completely that its effects will be intolerable and disastrous.

The alternative policy would consist in a combination of conciliation and aggressive warfare. The spokesman of a constructive national policy in respect to the organization of labor would address the unions in some such words as these: "Yes! You are perfectly right in demanding recognition, and in demanding that none but union labor be employed in industrial work. That demand will be granted, but only on definite terms. You should not expect an employer to recognize a union which establishes conditions and rules of labor inimical to a desirable measure of individual economic distinction and independence. Your recognition, that is, must depend upon conformity to another set of conditions, imposed in the interest of efficiency and individual economic independence. In this respect you will be treated precisely as large corporations are treated. The state will recognize the kind of union which in contributing to the interest of its members contributes also to the general economic interest. On the other hand, it will not only refuse to recognize a union whose rules and methods are inimical to the public economic interest, but it will aggressively and relentlessly fight such unions. Employment will be denied to laborers who belong to unions of that character. In trades where such unions are dominant, counter-unions will be organized, and the members of these counter-unions alone will have any chance of obtaining work. In this way the organization of labor like the organization of capital may gradually be fitted into a nationalized economic system."

The conditions to which a "good" labor union ought to conform are more easily definable than the conditions to which a "good" trust ought to conform. In the first place the union should have the right to demand a minimum wage and a minimum working day. This minimum would vary, of course, in different trades, in different branches of the same trade, and in different parts of the country; and it might vary, also, at different industrial seasons. It would be reached by collective bargaining between the organizations of the employer and those of the employee. The unions would be expected to make the best terms that they could; and under the circ.u.mstances they ought to be able to make terms as good as trade conditions would allow. These agreements would be absolute within the limits contained in the bond. The employer should not have to keep on his pay-roll any man who in his opinion was not worth the money; but if any man was employed, he could not be obliged to work for less than for a certain sum. On the other hand, in return for such a privileged position the unions would have to abandon a number of rules upon which they now insist. Collective bargaining should establish the minimum amount of work and pay; but the maximum of work and pay should be left to individual arrangement. An employer should be able to give a peculiarly able or energetic laborer as much more than the minimum wage as in his opinion the man was worth; and men might be permitted to work over-time, provided they were paid for the over-time one and one half or two times as much as they were paid for an ordinary working hour. The agreement between the employers and the union should also provide for the terms upon which men would be admitted into the union. The employer, if he employed only union men, should have a right to demand that the supply of labor should not be artificially restricted, and that he could depend upon procuring as much labor as the growth of his business might require. Finally in all skilled trades there should obviously be some connection between the unions and the trade schools; and it might be in this respect that the union would enter into closest relations with the state. The state would have a manifest interest in making the instruction in these schools of the very best, and in furnishing it free to as many apprentices as the trade agreement permitted.

In all probability the general policy roughly sketched above will please one side to the labor controversy as little as it does another. Union leaders might compare the recognition received by the unions under the proposed conditions to the recognition which the bear accords to the man whom he hugs to death. They would probably prefer for the time being their existing situation--that of being on the high road to the conquest of almost unconditional submission. On the other hand, the large employers believe with such fine heroism of conviction in the principle of compet.i.tion among their employees that they dislike to surrender the advantages of industrial freedom to the oppressive exigencies of collective bargaining. In a.s.suming such an att.i.tude both sides would be right from their own cla.s.s points of view. The plan is not intended to further the selfish interest of either the employer or the union.

Whatever merits it has consist in its possible ability to promote the national economic interest in a progressively improving general standard of living, in a higher standard of individual work, and in a general efficiency of labor. The existing system has succeeded hitherto in effecting a progressive improvement in the standard of living, but the less said the better about its effects upon labor-quality and labor-efficiency. In the long run it looks as if the improvement in the standard of living would be brought to an end by the accompanying inefficiency of labor. At any rate the employers are now fighting for an illusory benefit; and because they are fighting for an illusory benefit they are enabling the unions to a.s.sociate all sorts of dangerous conditions with their probable victory. The proposed plan does not do away with the necessity of a fight. The relations between labor and capital are such that only by fighting can they reach a better understanding. But it asks the employers to consider carefully what they are fighting for, and whether they will not lose far more from a defeat than they will gain from a successful defense. And it asks the unions to consider whether a victory, gained at the expense of labor-efficiency, will not deprive them of its fruits. Let the unions fight for something they can keep; and let the employers fight for something they will not be sure to lose.

The writer is fully aware of the many difficulties attending the practical application of any such policy. Indeed it could not be worked at all, unless the spirit and methods of collective bargaining between the employers and the labor organizations were very much improved. The consequences of a strike would be extremely serious for both of the disputants and for the consumers. If disagreements terminating in strikes and lock-outs remained as numerous as they are at present, there would result both for the producer and consumer a condition of perilous and perhaps intolerable uncert.i.tude. But this objection, although serious, is not unanswerable. The surest way in which a condition of possible warfare, founded on a genuine conflict of interest, can be permanently alleviated is to make its consequences increasingly dangerous. When the risks become very dangerous, reasonable men do not fight except on grave provocation or for some essential purpose. Such would be the result in any industry, both the employers and laborers of which were completely organized. Collective bargaining would, under such circ.u.mstances, a.s.sume a serious character; and no open fight would ensue except under exceptional conditions and in the event of grave and essential differences of opinion. Moreover, the state could make them still less likely to happen by a policy of discreet supervision. Through the pa.s.sage of a law similar to the one recently enacted in the Dominion of Canada, it could a.s.sure the employers and the public that no strike would take place until every effort had been made to reach a fair understanding or a compromise; and in case a strike did result, public opinion could form a just estimate of the merits of the controversy. In an atmosphere of discussion and publicity really prudent employers and labor organizations would fight very rarely, if at all; and this result would be the more certain, provided a consensus of public opinion existed as the extent to which the clashing interests of the two combatants could be fitted into the public interest. It should be clearly understood that the public interest demanded, on the one hand, a standard of living for the laborer as high as the industrial conditions would permit, and on the other a standard of labor-efficiency equivalent to the cost of labor and an opportunity for the exceptional individual laborer to improve on that standard in his own interest. The whole purpose of such an organization would be the attempt to develop efficient labor and prosperous laboring men, whereas the tendency of the existing organization is to a.s.sociate the prosperity of the laboring man with the inefficiency of labor. The employers are usually fighting not for the purpose of developing good labor, but for the purpose of taking advantage of poor, weak, and dependent laborers.

How far the central, state, and munic.i.p.al governments could go in aiding such a method of organization, is a question that can only be indefinitely answered. The legislatures of many American states and munic.i.p.alities have already shown a disposition to aid the labor unions in certain indirect ways. They seek by the pa.s.sage of eight-hour and prevailing rate-of-wages laws to give an official sanction to the claims of the unions, and they do so without making any attempt to promote the parallel public interest in an increasing efficiency of labor. But these eight-hour and other similar laws are frequently being declared unconst.i.tutional by the state courts, and for the supposed benefit of individual liberty. Without venturing on the disputed ground as to whether such decisions are legitimate or illegitimate interpretations of const.i.tutional provisions, it need only be said in this, as in other instances, that the courts are as much influenced in such decisions by a political theory as they are by any fidelity to the fundamental law, and that if they continue indefinitely in the same course, they are likely to get into trouble. I shall, however, as usual, merely evade const.i.tutional obstacles, the full seriousness of which none but an expert lawyer is competent to appraise. Both the state and the munic.i.p.al governments ought, just in so far as they have the power, to give preference to union labor, but wherever possible they should also not hesitate to discriminate between "good" and "bad" unions. Such a discrimination would be beyond the courage of existing governments, but a mild hope may be entertained that it would not be beyond the courage of the regenerated governments. The adoption of some such att.i.tude by the munic.i.p.al and state authorities might encourage employers to make the fight along the same lines; and wherever an employer did make the fight along those lines, he should, in his turn, receive all possible support. In the long run the state could hardly impose by law such a method of labor organization upon the industrial fabric. Unless the employers themselves came to realize just what they could fight for with some chance of success, and with the best general results if successful, the state could not force him into a better understanding of the relation between their own and the public interest. But in so far as any tendency existed among employers to recognize the unions, but to insist on efficiency and individual opportunity; and in so far as any tendency existed among the unions to recognize the necessary relation between an improving standard of living and the efficiency of labor--then the state and munic.i.p.al governments could interfere effectively on behalf of those employers and those unions who stand for a constructive labor policy.

And in case the tendency towards an organization of labor in the national interest became dominant, it might be possible to embody it in a set of definite legal inst.i.tutions. But any such set of legal inst.i.tutions would be impossible without an alteration in the Federal and many state const.i.tutions; and consequently they could not in any event become a matter for precisely pressing consideration. In general, however, the labor, even more than the corporation, problem will involve grave and dubious questions of const.i.tutional interpretation; and not much advance can be made towards its solution until, in one way or another, the hands of the legislative authority have been untied.

Before ending this very inadequate discussion of the line of advance towards a constructive organization of labor, one more aspect thereof must be briefly considered. Under the proposed plan the fate of the non-union laborer, of the industrial dependent, would hang chiefly on the extent to which the thorough-going organization of labor was carried. In so far as he was the independent industrial individual which the opponents of labor unions suppose him to be, he could have no objection to joining the union, because his individual power of efficient labor would have full opportunity of securing its reward. On the other hand, in so far as he was unable to maintain a standard of work commensurate with the prevailing rate of wages in any trade, he would, of course, be excluded from its ranks. But it should be added that in an enormous and complicated industrial body, such as that of the United States, a man who could not maintain the standard of work in one trade should be able to maintain it in another and less exacting trade.