Samuel MacClintock, Ph. D. (continued 2)

Such an extension in the size of the single establishment would of course not have been possible if improvements in the arts of communication and transportation had not at the same time immensely widened the market. As long as the market was local, and a factory could afford to send its goods over only a limited territory there was of course a fixed limit to the expansion of that industry. Now, however, when markets are often world-wide and the demand for goods has so enormously increased, while the modern railway and steamship can transport goods cheaply and quickly half around the globe, enterprises can be expanded and carried on on a scale commensurate with the expanded market and improved methods. It is clear then that the tendency to production on a large scale is the logical result of machine methods, that it secures great economies, and that in industries of increasing returns it is absolutely inevitable.

But not only in manufacturing is this movement observable. More recently concentration in large establishments has revolutionized the retail trade. Department stores have supplanted the small shops because they can buy on better terms, get transportation cheaper, offer a greater variety to the customer at a lower price, and save time and trouble to the customer. The growing ease of communication with central shopping districts, the rapid changes in fashion with the consequent large variety which only a large establishment could afford to carry—all these factors have helped along the movement. There are limits to such a movement, for small tradesmen will always hold the repairing trades, and the sale of perishable goods; thus there are no businesses so scattered as the small stores of the “butchers and grocers.” But on the whole we may safely conclude that the small storekeeper is doomed now just as the small manufacturer was two or three decades ago. In the carrying trade country carriers and a few cabmen in the cities are the only survivals of the small independent business; the steam railroad and the electric railway have driven the small carrier out of business. In agriculture alone, where concentration is strictly limited by the necessity for intensive cultivation, and in professional and personal service, where the very nature of the business prevents it, is there little or no development in the direction of large-scale methods.

The industrial and social effects of this development have been marked in all countries. In the United States the main attention has been given to the organization and development of machinery, and a wonderful industrial advance has followed the movement. The economic readjustments have consequently been made with comparative ease, and the labor set free by the invention of new machines has been reabsorbed in the same or other industries. Consequently the social effects have not been so marked as to call for special emphasis; as the same question presents itself, however, in connection with the more recent trust movement we may profitably defer its discussion to the next section.

There is one other characteristic feature of modern capitalistic machine industry which deserves special mention, especially as its development has been carried furthest in the United States. Reference is made to the system of standardization and of interchangeable parts. In no single feature is the contrast between modern machine methods and those of the old hand trades greater. By standardization is meant the production of so-called “standard products” according to some acceptable size, form, or shape. In the manufacture of screws or iron beams, or even ready-made clothing, for example, certain dimensions and sizes which are best adapted for general use, are selected as standard sizes and these are then turned out in large quantities by automatic machinery. The advantages of such a system, in cheapness, quickness of delivery, ability to replace a single broken part, etc., are numerous and manifest. “The possibilities of standardization are strikingly shown in a recent international incident. The Egyptian Government desired a bridge for the Atbara at the earliest possible moment; inquiry was made of the English bridgemakers, but no promise of prompt delivery could be secured. Within twenty-seven days after the tender of the contract was made to an American firm the bridge was ready for shipment. The feat, not a remarkable one, was due to the standardization of bridge material. This in itself was a guarantee of quick delivery and construction.”[3]

Standardization was followed by the system of interchangeable parts, according to which each part of an intricate machine or product is made exactly like the same part in every other machine. The parts can thus be turned out in large quantities and “assembled” at a single operation. From the standpoint of the consumer or user of the machines thus made, the great merit of the system lies in the fact that he can quickly and at small expense duplicate any broken part. It is today applied to almost every product of large consumption, from agricultural implements and steam engines to watches and nails. By producing machinery on this plan it has been possible for American manufacturers to extend their trade very materially in foreign lands. It was recently reported in the newspapers that Mr. E. H. Harriman had expended $65,000,000 in standardizing the equipment on his railroad systems; while this sum is enormous, it will undoubtedly be justified by the increased economy of repairs and operation.

V. TRUSTS AND MONOPOLIES.

We have already seen how production upon a large scale has superseded production upon a small scale in most important branches of manufactures. We have now to inquire whether production upon a large scale is in turn to be supplanted by single consolidated enterprises, by those combinations of capital known as trusts. Under one of these three conditions industry must be carried on; few people wish to revert to the stage when production was carried on in small establishments, but warm controversy and difference of opinion still exist as to whether centralized management by a single company or combination offers superior advantages to production by independent competing establishments. The concentration of production in a few large establishments has been followed by the consolidation of these larger units into a single whole. Since the days of Adam Smith capital has tended to combine for the purpose of fixing prices, and these combinations have passed through several phases. The earliest form is the agreement of independent concerns to fix prices, as was done by the American railroads in their early traffic agreements. The next step was to divide the field, as has been done by the French railways and the American express companies. A third phase of combination was the pool, which attempted to regulate the output rather than to fix the price or divide the field. Railway, whisky, beam, and other pools were organized for this purpose, but all broke down because of the difficulty of enforcing the agreement and the temptations to each member to break it secretly for the sake of the large profits obtainable. By this time it had become clear that if a real permanent consolidation of interests was to be secured by the competing enterprises some closer form of combination must be devised which could not be broken at will by any member. An industrial union and not a loose confederation must be attained. Accordingly the next step was taken in 1882 by the formation of the Standard Oil Trust, so called because the constituent concerns handed over their business to the complete control of a central board of trustees, receiving in return trust certificates which entitled them to dividends. Similar “trusts” were formed in the whisky, sugar, and other industries, but were speedily declared illegal by the federal Supreme Court. By this decision the form of combination was changed, but the movement was not at all checked. The next phase and the last was the establishment of holding corporations, which are organized to buy up and hold the stock of a number of individual corporations, which still retain their corporate existence. In this way unity of control is secured, to which is added a certain flexibility; but it is really the trust under another legal form. Where pooling and combination by means of holding companies have been forbidden by law, as in the case of railroad companies, actual consolidation has often taken place, though when trusts are spoken of the other form of combination is more often meant. From the point of view of business organization the holding company is simply an extension of the principle of the corporation, and to a consideration of this we must therefore turn.

There are three classes of establishments by which industry is carried on—those that are the property of an individual, those which belong to partnerships or firms of unlimited liability, and those belonging to corporations of limited liability. The usefulness of the individual system is of course limited to small undertakings, where but little capital and credit are necessary; this form of organization still dominates the field in agriculture, in the small retail trade, and in the repairing industries. The partnership is a joint undertaking by two or more individuals, and makes larger enterprises possible, but as each individual is liable for all obligations of the firm or his partners his personal liability is greatly increased. While it is well adapted to certain undertakings, as moderate mercantile establishments and professional firms, owing to a certain elasticity in the contractual relations of its members, it is not suited to large industrial ventures, both because of the excessive personal liability, and because of the necessity of dissolving the partnership upon the death, withdrawal, or insolvency of any member. The advantage of the corporation lies in the fact that it has a continuous existence, and that the liability of the shareholders is limited to the amount of capital actually contributed by each; it is well adapted to modern enterprise because it permits the summation of large amounts of capital from a number of small savers and centralizes the use of this capital in the most economical manner. There may thus be concentration of management without concentration of ownership. The federal census of manufactures in 1905 showed that, although less than one-quarter of the manufacturing establishments were organized as corporations, yet they produced three-quarters of the total manufactures in money value. In the field of transportation, corporations are in almost exclusive control, most banks and insurance companies are organized under this form, while mercantile and industrial undertakings are being more and more generally organized as corporations. Not merely are most of our business enterprises being conducted under corporate form and organization, but most recently, as has been already pointed out, there has been a movement to combine individual corporations into larger concerns, or trusts. The trust is usually thought of as a monopoly and, while not necessarily so, it usually does exercise monopoly control; but for the present we shall consider the trust problem from the standpoint of business organization, deferring to the end of the section the discussion of monopoly.

The trust movement may be said to have begun with the formation of the Standard Oil Trust in 1882, but down to 1898 its progress was slow. Beginning with the revival of prosperity in 1898, however, there ensued a veritable stampede of business managers to enter into combinations. During the next three years 149 large combinations, with a capital of over $3,000,000,000, were formed. The movement spent most of its force by 1902, though it is by no means at an end yet, as the recent floating of the Dry Goods Trust indicates. A few figures from reliable authorities will make clear the extent of the movement. According to the New York Journal of Commerce, industrial (i.e., manufacturing and commercial) and gas trusts were organized in the United States between 1860 and 1900, not including combinations in banking, shipping, railroads, etc., as shown in the accompanying table.

Another more recent list by John Moody[4] gives the number of “industrial” trusts organized down to Jan. 1, 1904, as 318; these have acquired or control 5,288 plants, and have a total nominal capital of $7,246,342,533. A movement so general and widespread, and of such gigantic proportions, must have had some powerful and intelligible causes behind. For it was not confined to the United States, but was equally observable in such industrial diverse countries as England, France, Germany, Russia, and other European nations.

Decade. Number Organized. Total Nominal Capital.

1860-69 2 $ 13,000,000

1870-79 4 135,000,000

1880-89 18 288,000,000

1890-99 157 3,150,000,000

Total, 40 years 181 $3,586,000,000

The most important and general cause was the desire to secure the legitimate economies of large-scale production. A combined or federated industry may secure even greater economies than a single large factory. These have been concisely stated as follows[5]: “The cost of management, amount of stock carried, advertising, cost of selling the product, may all be smaller per unit of product. A large aggregation can control credit better and escape loss from bad debts. By regulating and equalizing the output in the different localities, it can run more nearly full time. Being acquainted with the entire situation it can reduce the friction. A strong combination has advantages in shipment. It can have a clearing-house for orders and ship from the nearest source of supply. The least efficient factories can be first closed when demand falls off. Factories can be specialized to produce that for which each is best fitted. The magnitude of the industry and its presence in different localities strengthens its influence with the railroads. Its political as well as its economic power is increased.”

Many of these economies of production are not new to these trusts, but have been secured equally by large-scale manufacturing establishments. Some of the savings, especially in buying raw material and marketing their products, are peculiar to the trusts and mark a more efficient mode of organization than mere concentration of industry in single large establishments. Thus, it has been found possible to dispense with a great number of traveling salesmen, of whom it was said that 30,000 lost their positions in the year 1898 alone. When the whisky trust was formed only twelve of the eight distilleries entering into the combination were kept running, but as these were the largest, best located and best equipped, and were run at their full capacity, they were able to turn out as much as all had done before and at an immense economy. The saving of cross freights by having an order filled from the plant most conveniently located is considerable; Mr. Gates estimated the saving of the American Steel and Wire Company in this single point at $500,000 a year. Such an economy could not be secured by a single establishment, no matter how well organized or on how large a scale. The specialization of particular factories to do special processes is well illustrated by the organization of the United States Steel Corporation.

The growth of this latter combination is an example not only of consolidation, but of the integration of industry, that is, the grouping together under one control of a whole series of industries. From the mining of the ore and coal, through the processes of carrying it to the furnaces, coking the coal and making the pig iron, manufacturing the latter into the finished forms of iron and steel products, and down to the marketing of the latter, every step is carried on under the control of the United States Steel Corporation. The assets of the company were stated as follows soon after its organization, and illustrate the magnitude and scope of its operations:

Iron and Bessemer ore properties $ 700,000,000

Plants, mills, machinery, etc. 300,000,000

Coal and coke fields 100,000,000

Railroads, ships, etc. 80,000,000

Blast furnaces 48,000,000

Natural gas fields 20,000,000

Limestone properties 4,000,000

Cash and cash assets 148,251,000

Total $1,400,281,000

In addition to economies due to improvements in methods of organization, production and marketing, another cause for the sudden and vigorous outburst of trust promotion in the years 1898-1902 may be found in the profits to be secured by promoters and organizers. After the successful launching of the first few trusts, with their undoubted economies and advantages, the movement was taken in hand by professional promoters, who organized combinations, often with the help of underwriters, in every branch of industry where there was any promise of profit. That many of these were artificial or premature is evident from the financial results: of the 183 industrial combinations enumerated by the census in 1900, one-third paid no dividends whatever after their formation and another one-third paid no dividends to the holders of common stock. As an indication of the profits obtained by the successful trust promoter may be cited the testimony given before the Industrial Commission in the case of the Tin Plate Trust stating that this promoter realized from $2,000,000 to $3,000,000 profit from the undertaking. When to this is added the profit obtained by the owners of the constituent plants, which were usually taken over by the trust at an exorbitant valuation, it is clear that the stimulus of financial gain was probably stronger in many cases than that of economy in production. The bill was of course paid in most cases by the investing public, which absorbed large amounts of industrials in the years of their active promotion.

Other causes have sometimes been adduced to explain the growth of combinations, such as the tariff and railroad freight discriminations, but these are too local in their influence to explain adequately the world-wide movement toward combination. Trusts exist in free-trade England, and in Germany where freight discriminations on the state-owned railroads are practically unknown. It is, however, true that in the United States both these factors have been of decisive importance in building up certain powerful trusts. “There can be no doubt,” said the conservative report of the Industrial Commission, “that in early times special favors from railroads were a prominent factor, probably the most important factor, in building up some of the largest combinations. The receipt of discriminating favors from railroads has been conceded repeatedly by representatives of the combinations themselves.” The Standard Oil, beef, coffee, steel, and other trusts may be cited as illustrations. In the matter of the tariff Mr. Havemeyer’s statement that “the mother of all trusts is the customs tariff law” may be set down as the rather peevish utterance of a disappointed beneficiary; but there is no doubt that combination has been made easier behind the tariff wall. Instance the sugar trust itself, the leather, steel, tin plate, and others.

Let us now turn to some of the effects of industrial combinations, which we may classify according as they bear upon competitors and producers of raw materials, labor, and consumers. As the number of competitors is reduced the fierceness of competition among those remaining in the field is greatly increased, for the value of the prize to the successful enterprise is correspondingly greater. It is not surprising therefore that at times this rivalry should have assumed unethical if not actually illegal forms. The practice by some trusts of fixing prices below cost at some strategic point in order to crush out a troublesome competitor, and then correspondingly raising them elsewhere so as not to sustain any loss, is serious because so subtle. Prof. John B. Clark regards this as so serious an evil that he would have the Constitution amended in order that power might be given the Federal Government to prevent it. The producers of raw materials, as cattlemen, crude oil and coal producers, sugar and tobacco growers, and others, complain that the prices at which they sell their products are dictated to them by the trusts, which are practically the sole purchasers of what they have produced. They claim that prices are depressed to the lowest point possible and that every gain from increase of demand goes into the pockets of the trust managers. It may of course be answered that the trust cannot depress prices below the point at which a living profit can be secured by the producer of the raw material or he will stop producing, but there is no doubt but that the monopoly power possessed by the trust in such cases will sometimes be used to the disadvantage of those whose product it alone buys.

The effects upon labor of the organization of capital in combined industries and under centralized control are more complex. As trusts have superseded single corporations because this mode of industrial organization was more economical, we must expect to find that one of the economies was the displacement of labor. The discharge of traveling salesmen has already been spoken of; with the consolidation of various plants under one control other high-priced men were let go—managers, superintendents, etc. The same thing was true at the other end of the industrial scale and thousands of workmen, usually the least efficient and capable, were deprived of work. The natural consequences of these combinations and economies were not clearly apparent at the time, because they were happily coincident with a period of business expansion and prosperity which reabsorbed into the industrial organism most of the displaced workers. Another phase of the relation between trusts and labor is that of their effect upon wages. In general it may be said that there are only two sources out of which an increase of wages can be paid, and these are the profits of the business organizer and manager or the increased product of the business itself, and of these two only the latter can serve as a permanent source of higher wages. Now it is pretty evident that labor has not been in a position to force the trust magnates to forego their profits. On the other hand, wages in industries carried on by industrial combinations have risen, and it must therefore have been because there was more produced and consequently more to be divided. If the inefficient workers were discharged and only the best ones retained by the trusts, here is one explanation why they could afford to pay high wages—they paid more because they got more done. As yet labor has not admitted that it is unable to cope with these industrial combinations; it has however demanded that it be allowed to combine on a national scale and to bargain collectively for united labor with combined capital.

The discussion of the effects of trusts upon the consumer leads at once to the discussion of their effects upon prices, for it is through the agency of price that the trust touches the ordinary man. The advantages claimed by trust organizers are economies of production and lowered cost; but the vital question to the consumer is whether lowered cost increases profits or reduces prices. On this point the Industrial Commission reaches the following conclusion: “that in most cases the combination has exerted an appreciable power over prices, and in practically all cases it has increased the margin between raw materials and finished products. Since there is reason to believe that the cost of production over a period of years has lessened, the conclusion is inevitable that the combinations have been able to increase their profits.” Moreover the power over prices was greatest during certain periods when the control of the combinations was greatest. The problem therefore resolves itself into the question, are trusts monopolies? While a categorical answer cannot be given to this, it may safely be affirmed that all trusts try to be monopolies. Nor is it necessary to control the production, sale, or purchase of a commodity absolutely in order to exercise monopoly power; the control of 50 or 60 per cent may suffice to secure virtual monopoly. The purpose of a monopoly is so to fix the price that it will obtain the maximum net profit. It is conceivable that this result may be attained by lowering the monopoly price below the point of the competitive price, but this is unusual. In general a monopoly price has meant a high price, and a high price has meant a restriction of the output. Where that has been the result of trust control, society has been injured, for not only has it not shared in the economies of production but it actually gets less and has to pay more than it would have done under competition. It may be said, however, that even in the case of the greatest monopoly there is always the specter of potential competition threatening its profits, while the possibility of substituting some other commodity for the monopolized article protects the consumer from too great extortion and keeps the price within limits. Absolute control over price is never exercised by any monopoly. Nevertheless, we may fairly conclude, in the words of Henry D. Lloyd, that “monopoly is business at the end of its journey,” control over prices is the object of combination.

There remains to be considered another charge of monopoly which has been brought against the trust, the monopoly of opportunity or the suppression of individual initiative. It is no longer possible, it is claimed, for the man of small means, even with good talents, to engage in business for himself: he must accept some subordinate position in a corporation where his individuality is checked and his power of initiative does not find free play. So far as this is true it would seem to be the result not so much of the trust movement as of large-scale production. We have seen that the tendency of machine production is to enlarge the business unit and to call for the investment of constantly larger amounts of capital in up-to-date establishments. Some writers even point out that the average business man who engages in business on his own account fails, and that he should therefore be grateful if more efficient producers offer him a remunerative and steady salaried position. Without insisting upon this point it may still fairly be noted that there are large fields of enterprise that lie outside the area of monopolistic control. “Large-scale production is best adapted to articles that can be turned out in large quantities according to uniform patterns and standards; individual initiative is still free in those lines of production that call for artistic ability or appeal to individual tastes, or which, like agriculture, are dependent upon variable conditions.”[6]

There are, however, other evils connected with trust organization and management that are more easily remediable and that call for legislative regulation. “The evils of combination, remedied by regulative legislation,” concludes the report of the Industrial Commission,[7] “come chiefly from two sources: (1) the more or less complete exercise of the power of monopoly; (2) deception of the public through secrecy or false information.” Various remedies have been suggested to meet the first class of evils, those of monopoly, generally in the direction of strengthening the powers of the Federal Government. We have however no lack of legislation on this subject already: thirty-four states and territories have passed anti-trust laws, and the federal Anti-Trust Law of 1890 explicitly provides that “every contract, combination in the form of a trust or otherwise, or conspiracy in restraint of trade or commerce among the several states, or with foreign nations, is hereby declared illegal.” The severe restrictive measures of the states have been largely nullified by the loose legislation of three or four “charter granting” states, in which 95 per cent of all the trusts have accordingly been chartered, while the federal enactments have been found very difficult to enforce. It is not easy to define or to prove monopoly or conspiracy in restraint of trade. The second class of evils has been met by statutes requiring publicity and more definitely fixing the responsibility of corporation officials. Such measures of control must be the first step toward intelligent regulation, and are to be commended as thoroughly reasonable. The establishment of the federal Bureau of Corporations with power to “investigate” industrial corporations engaged in interstate commerce has already led to the publication of some valuable reports. We must first proceed along the lines of publicity and intelligent information before we attempt more drastic remedies.

VI. SPECULATION AND CRISES.

An unavoidable element of risk enters into all modern business. In the old handicraft stage of industry goods were made upon order; demand preceded supply very definitely, and there was little possibility of mistakes in production. Nowadays, as we have seen, production is for a distant and often uncertain market. It is carried on by machine methods and roundabout processes; sometimes the result is a very remote one and the uncertainty of success is correspondingly great. Production is not based upon order, but upon a forecast of the possible demand, upon a future market. Chance and change are inseparable from productive enterprise—natural chances from the elements, political changes, as war or unfavorable legislation, industrial mistakes or sickness or death of oneself or others, and economic changes, as the invention of a new machine or a change in fashion. These are the unavoidable incidents in industry and are not under the control of the individual business. Some of them, however, are so regularly recurrent that they can be foretold on a large scale for any industrial society, and can be guarded against by insurance. Everyone recognizes the desirability of having such risks as those of fire, shipwreck, lightning, death, etc., assumed by certain individuals or companies who make a business of such risk-taking. A small premium is paid by the individual for protection, and he is freed from anxiety from mischance and is able to devote his whole energies and capital to his business; the insurance company has specialized in this one department and by equalizing the chances over a wide field has practically eliminated them. In doing this it performs a service of recognized and undoubted social value.

There is another kind of risk-taking the social utility of which is not at first sight so clear. Among the chances of productive enterprise are those due to the rise and fall in the prices of the raw materials, the labor, and the finished product between the time when the process of production is begun and the time when it is completed. Every farmer, every manufacturer, every student even who invests capital in his own education, is to some extent a speculator. Along certain lines he can protect himself by insurance, but that is not possible in all. Is there no way, then, by which he can guard himself against price fluctuations and assure himself of the legitimate gains of his business? This, it may be answered, is the function of the speculator in modern business, and in performing this service he is benefiting society in much the same way that the insurance company does. We must, however, clearly distinguish between legitimate and illegitimate speculation; we are discussing only the former.

One way in which the speculative risk attaching to price fluctuations is reduced for the manufacturer and assumed by the speculator is by the establishment of a continuous open market, as the stock and produce exchanges. If a miller, for instance, engages to deliver flour a year hence and expects to begin milling in six months, he must know at what price he can buy his wheat when he needs it, or his anticipated gain may be turned into a loss by an unexpected rise in the price of wheat. He is able, however, to buy a “future” in wheat on the produce exchange from some broker who makes a specialty of this business. He buys his needed wheat now for delivery six months hence, and on the basis of this price is able to accept an order for his flour a year from now, allowing himself a fair profit as a miller but wholly eliminating the speculative risk of price fluctuations. Or a building contractor, before making an estimate of the cost of erecting a structure, will secure options at definite prices from dealers on the materials he will require. So, too, in the iron and steel business it is customary for manufacturers to contract in advance for materials at the same time that they accept orders for the delivery of the finished products. In all these cases the business of dealing in futures is assumed by a particular class, who have developed a special skill and ability in forecasting price variations, and who can do so very accurately. It is not a matter of luck or chance, but the result of wide knowledge and careful study. “To foretell the price of wheat one must know the rainfall in India, the condition of the crop in Argentina, must be in touch as nearly as possible with every unit of supply that will come into the market.” Sometimes the speculators make mistakes, but they are certainly less apt to do so than men who are without their special talent and training.

The social value of this service lies in the equalization of demand and supply between the present and future that is thereby effected. Let us take as an illustration the case of the miller cited above. If at the time he accepts the order for flour the price of wheat is high, he will be inclined to charge a high price. But the wheat broker, foreseeing that there is going to be an abundant crop six months hence, engages to sell him his wheat for future delivery at a low price, and he is thereby enabled to sell his flour at a lower price. At the same time the price of the wheat on hand at the present time, instead of being held and sold at famine prices, is consumed for present needs at moderate prices. The operations of the wheat brokers in such a case have a very steadying influence on prices, preventing the oscillation between very high prices in times of scarcity and very low prices in times of glut. It must be admitted that dealings in futures are highly speculative; “but it must be remembered that it is not merely the dealings in futures, but the future itself, that is uncertain. If such dealings can be confined to the men most competent to make accurate predictions, their tendency will clearly be to lessen the uncertainties of business.”[8] But closely connected with legitimate speculation or risk-taking by a specialized and trained class, there is, as our stock and produce exchanges are actually conducted, a large amount of illegitimate speculation, and to this we may now turn for a brief consideration.

The facilities offered by the open markets on the exchanges and the practice of dealing in futures are taken advantage of by many who, without any special training or opportunities of knowing the market, simply bet on the price movements. Brokers are willing to buy and sell produce or stocks for their customers if the latter will put up with them a margin of about 10 per cent to protect them from loss. It is therefore possible for a person with little capital and no knowledge to speculate on a margin, buying what he does not want and selling what he does not own. In practice it is impossible to distinguish between those dealings in which actual delivery is intended (legitimate speculation) and those in which no such delivery is contemplated (gambling), and consequently most efforts to regulate transactions on the exchanges have failed to accomplish their purpose. The purification of their methods would seem to lie with the members of such exchanges themselves. The contention has often been made that these fictitious transactions in such commodities as wheat or corn or cotton create an artificial reduction in prices, since the professional gambler usually sells short or “bears” the market, and that this injuriously affects the farmer. This is manifestly untenable, since every fictitious sale must be balanced by a fictitious purchase. What actually takes place is simply a bet between the two parties to such a transaction on the actual course of prices and of itself does not affect prices, except in the unusual case of a “corner.” There is, however, great possibility of evil in the presence of a crowd of uninformed speculators, for they can greatly increase the power of an unscrupulous operator who can persuade them to follow his lead. Their presence, too, increases the temptation to such a man to rig the market. Under present conditions the abuses of speculation are more in evidence than the economic advantages. How to confine speculation to the small group of risk-takers who have special training and aptitude for it, and to prevent gambling on the stock and produce exchanges is one of the economic problems of the day.

One of the most striking phenomena of modern industry is the frequent and violent convulsions of business known as crises. They are characteristic of all commercially advanced countries and are generally most marked in those countries which are most advanced. They are a product of modern methods of capitalistic production and are essentially a phenomenon of the nineteenth century. A crisis in its last analysis is the result of a lack of adjustment between production and consumption, due primarily to mistakes in production. It is significant that crises usually occur in periods of business prosperity when credit is easy, prices high, and employment general. Such a period of business prosperity and rising credit may have been begun by a series of good harvests. The demand for manufactured commodities increases, prices rise, manufacturers enlarge their factories or engage in new enterprises, wages and profits go up. Many speculators, seeing the rise, and thinking it will continue, borrow money to buy goods with the expectation of selling again at a profit. Credit operations are expanded to a dangerous extent, and when at last a shock to confidence occurs the house of cards collapses and a painful liquidation and readjustment of industry ensues. The state of trade, in the words of Lord Overstone, “revolves apparently in an established cycle. First we find it in a state of quiescence—next improvement, growing confidence, prosperity, excitement, over-trading, convulsion, pressure, stagnation, distress, ending again in quiescence.”

The immediate occasion of a crisis is always a shock to credit or confidence. Such a shock, begun perhaps by the failure of a bank or merchant, creates a demand for ready money. No one is sure that his neighbor will remain solvent. Everyone accordingly tries to secure himself against loss by enlarging his cash reserve and thus lessens the supply for others. Now modern industry is carried on by means of credit. There is at no one time enough money in the country to meet all obligations expressed in terms of money. Considerably over three-fourths of the larger commercial transactions in the United States are carried on by means of credit. If everyone tries at the same time to get actual cash, there is simply not enough money in the country to go around. This increase of demand and diminution in the supply of money forces up the interest rate on short-time loans. Money—actual cash—is needed by many people to meet immediate engagements and they are willing to pay almost any price for it. In the last panic the rates for call money went up to over 100 per cent and in many cities in the United States clearing-house certificates and other substitutes for money were issued for use in ordinary retail trade. But even at high rates money can often not be borrowed. Many merchants and manufacturers are compelled to sell their goods at a sacrifice in order to obtain it. Vast quantities of goods and securities are thrown on the market just when investors and consumers feel least able to purchase. The result is a fall in prices. Such a fall in prices lowers profits. Enterprises have been started and engagements made on the supposition that prices would continue at the old high level. When they fall it is impossible to pay interest out of current earnings. Foreclosures and readjustments take place. There is a general liquidation and reorganization of industry. When interest contracts have been adjusted, then the effect on wages begins to be felt. As long as a manufacturer is struggling to maintain his credit he will keep his factory going, but when he has failed and perhaps been foreclosed, then the factory stops. Men are thrown out of work, and wages—the price of labor—fall. Labor troubles usually mark the end of such a period of readjustment.

This stage marks the end of the crisis and the beginning of a period of depression or “hard times,” which continues for a longer or shorter period. The panic of 1893 was followed by a long-continued depression which lasted until 1897, a period which was marked by low prices and slack work. In 1898 began a revival of business and an era of marked prosperity set in which continued for almost ten years, interrupted only slightly by a “Wall Street panic” in 1903. In October, 1907, a severe crisis occurred, recovery from which, however, has been remarkably rapid. The periodicity which has attended crises in the past is so marked—occurring as they have at intervals of about ten years—that many writers consider them inevitable. As the easiest way to answer this question we may take up three main theories as to the causes of crises.

A much quoted, but now generally discredited, theory is that of W. S. Jevons, a noted English economist, who ascribed crises to sun-spots. Every ten years and a fraction there occur outbursts of electrical and heat energy on the sun, which we call sun-spots. These result in increased heat waves, which affect the crops on the earth, causing enlarged harvests in Europe and the United States and drought and famine in India and the tropics. The large harvests and good prices start a wave of prosperity and speculation, which culminates inevitably in a panic and depression, until a recurrence of the heat phenomenon starts the cycle again. The theory states some undoubted facts, but no causal connection between sun-spots and crises can be traced, as the latter are too irregular and the two do not always coincide. Were this theory true crises would be beyond human control.

A second theory, or group of theories, are those which attribute crises to over-production. Under modern conditions of industry a small group of men direct industry and determine what shall be produced. They try to estimate future demand and to adjust production to consumption, but they often make mistakes. They divert capital into unproductive industries, they produce the wrong things and create a comparative glut in certain lines, and when they cannot sell their goods at a profitable price they fail and precipitate a crisis. Industry must then be reorganized and frequently control be put in the hands of other men. A variation has been given this theory by the socialists, under the leadership of Rodbertus, who insist that the reason that there is over-production is because of the institution of private property. Since the capitalists own all the tools of production they pay the laborers only starvation wages. The latter cannot possibly buy all that is produced and commodities consequently heap up in the warehouses until they are thrown upon the market to be sold at any price. Then a panic occurs and a readjustment of production.

The last of these theories regards a crisis as essentially due to a failure of credit. It is seen that a large part of modern industry is carried on by borrowed capital, by roundabout processes and for a distant market and not upon order. That is, the success of a business depends upon its ability to sell its goods when produced. Now the aggregate volume of transactions that can be carried on in a year, so runs the theory, depends upon the efficiency of the credit system; that is, in general, upon the freedom with which banks are willing to loan money to people who engage to repay it in the future out of their ventures. If for any reason the banks reduce this accommodation the amount of business that can be transacted upon borrowed capital is lessened. Either some transactions must stop or prices must fall. Either of these events causes commercial disaster. The contraction of credit makes it impossible to get the goods into the right hands, and so we have the phenomena of over-production in a great many lines. As exchange and transportation have developed and markets widened, crises have become more universal. According to this theory, they are inseparably connected with the use of credit and can be controlled only by a more careful granting of credit by the banks to industrial managers. Another phase of the credit theory is presented by those who insist that the cause of crises is the rhythmic overestimation of the profits to be secured out of certain lines of production, or their over-capitalization. The new enterprises are financed by the banks on the basis of this mistaken over-capitalization, their organizers engage to pay rates of interest which they cannot earn, and the crash inevitably follows. This is often called the over-capitalization theory, and is essentially psychological in its character.

There is no doubt as to the truth contained in this last theory. It helps to explain the rhythmic periodicity of crises. After every period of business depression confidence revives and hope is renewed; overestimation of the success of new ventures is inevitable. Then follows a mistaken investment of capital in certain lines of production, as in railroads in 1884, and a relative over-production at profitable prices of certain commodities. The true explanation seems to be found in a combination of the over-production and over-capitalization theories.

The practical problem that presents itself in this connection is the question as to whether it is possible to prevent the recurrence of crises. In view of the explanation just given it would seem that they must be regarded as unpreventable as long as industry is carried on under the competitive capitalistic system of production and the modern credit system. Moreover, crops differ in amount from year to year and probably always will. Human production and human genius are unequal. Crises may be regarded as the price a progressive society pays for its advance, and they may be expected to recur pretty regularly at periodic intervals. Their disastrous effects may, however, be greatly lessened by wise currency legislation, by greater care in granting credit, and by greater wisdom in the direction of individual effort.

VII. THE MODERN WAGE SYSTEM.

We have already characterized the modern system of industry as capitalistic, that is, as involving the use of expensive and complex machinery in factories under the control of the capitalist managers of industry. As we have seen, such a system has caused an enormous increase in the production of wealth; it has also raised the general standard of comfort and the level of wages, and has relieved labor to a considerable extent of the deadly strain of hard manual toil that was characteristic of preceding systems. The factory system, under which capitalistic production is now carried on, may also fairly be credited with other beneficial results: as steadiness and punctuality are essential, it has on the whole led to increased sobriety and temperance; the work in general is healthier, being performed under better sanitary conditions than under the old domestic system; the intellectual status of the workingman has been raised, as vastly more intelligence is required of a skilled machine operator than of the old-time hand laborer; and finally the general well-being of the working class has been improved, as they have shared in the larger production made possible by machine methods. But, on the other hand, the new processes and methods have been accompanied by great abuses, though never so great in this country as in England. Long hours, the employment of women and children, the weakened economic position of the laborer, fluctuations in production, liability to be without employment, industrial accidents, the abolition of personal ties between employer and employe, the crowding of workmen into a small space to work by day and their concentration in city tenements by night—these are some of the problems for which the factory system must be held responsible. The condition and position of labor have been vitally affected. So far we have considered mainly the problems connected with the organization and use of capital. We must now take up the various questions connected with the relation of labor to capital and to the capitalistic system of production.

One of the most vital factors in the situation—which we must frankly admit at the start—is the existence in modern industrial society of a distinct wage-earning class. It is perfectly obvious that under present conditions of production great capital or great ability is necessary in order to become the manager of an industrial enterprise. Most laborers do not possess either the one or the other of these, and although there are fortunate examples of industrial leaders who have risen from the ranks, the general rule is, once a wage-earner always a wage-earner. The number of those who can achieve industrial independence is moreover growing smaller as business becomes more specialized and centralized. The laborer therefore belongs to a class, which is rapidly developing what the German socialists call class-consciousness, that is, the feeling that he belongs to a distinct industrial group with interests different from and often antagonistic to those of other groups or classes. In his struggles with employers over wages this antagonism of immediate aims obscures the deeper mutuality and interdependence of their really complementary interests and not infrequently leads to a feeling of hostility, finding expression in strikes and labor agitation.

In the transition to the factory system Mr. John A. Hobson[9] points out that the position of the laborer has been one of increasing dependence in the following five important points: (1) The ownership of material—at first the worker owned this and made it into the finished product, but now he has only a passing interest in a small part of the process of working it up. (2) Ownership of tools—he retained these up to the time of the introduction of machinery, but now seldom owns them. (3) Control of productive power—with the displacement of hand labor and muscular power by steam-driven machinery, he no longer owns even this. (4) Relations between workers and employers—they were formerly on an equality; under the guild system the master and the apprentice had the same social position; now the laborer has sunk in the scale, or the employer has risen, until the only bond between them is, as Carlyle said, the “cash nexus.” A case was recently instanced where a workingman who had been working in a factory met his employer for the first time at the end of seventeen years. (5) Workplace—until the establishment of the factory system this had always been the home; now it is the factory, and there is a complete divorcement between work and the home.

Another characteristic of modern industry from the labor point of view is the existence not merely of a wage-earning class, but, more fundamental, of the wage system. “It is characteristic of the modern industrial system,” writes President Hadley,[10] “that a laborer who owns no capital, though nominally free to do what he pleases, must actually find some property owner who will give him enough to keep him alive during the period which must elapse between the rendering of the labor and the sale of the finished product. Under such circumstances, the laborer almost inevitably submits to the direction of the property owner in deciding how his labor shall be applied. Laborers without capital must necessarily work on this basis; even those who have small amounts of capital habitually do so. Such advances of capital are known as wages.” Here we have the essence of the wage system in a nut shell. The laborer sells his labor to an employer for a stipulated wage. He has a commodity, his labor, consisting of a certain amount of strength and skill, which he is free to dispose of on the market to the best advantage, as the owner of any other commodity might do. Legally, labor is property. Owing, however, to the fact that all modern production requires capital, the only buyer of his labor is a capitalist, who directs the way in which the labor shall be applied. Such a condition, as well as some peculiarities of the commodity labor leave the laborer, indeed, only “nominally” free. In theory the labor contract is a perfectly free contract, entered into voluntarily by both employer and wage-earner, and the courts have generally insisted that this theoretical freedom must be maintained. In practice various modifications of the theory have taken place: legislation has been passed protecting laborers from bargaining away their rights, and trade unions have been formed to bargain collectively for a group of laborers. In the last analysis, however, the laborer must support himself by the sale of his labor; society guarantees him neither a living nor even the right to work. He is a bargainer in a competitive industrial world and he must assume the responsibility of providing for himself and his family by securing work. Just what is involved in such a statement is perhaps best brought out by comparing the modern wage system with previous systems of labor.

The first historical system of labor, aside from that in the family, was that of slaves. In this case the labor was forced, and being given under coercion was probably very inefficient; but the laborer was at least assured of a minimum of food, clothes and shelter. Slavery was the main source of manual labor in the ancient world, and did not disappear in England until the eleventh century. The feudal system of the Middle Ages was characterized by serfdom, according to which the laborer was bound to the soil and was compelled to render his lord certain services. Gradually serfdom was broken down and the wage system took its place, although remnants of serfdom remained in England until the eighteenth century. Four centuries before this, however, the disintegration of the feudal society had already begun, the serfdom of the agricultural laborer was commuted into regular money payments, and the artisan bought or otherwise secured his freedom from feudal exactions. In the towns industry was regulated by the guilds, and while at first they were distinctly beneficial, in time they became monopolistic and oppressive. Power was lodged in the hands of the wealthy traders and merchants and they legislated in their own behalf against the growing class of laborers, as did the wealthy land owners against the agricultural laborers. The Statute of Laborers and other acts sought to fix wages and to prevent the freedom of the laborer in moving about or choosing his own occupation. Not indeed until the nineteenth century were the last of these old regulative laws repealed and the modern labor contract recognized in law and practice as a free contract. “The growth of labor,” says Brentano, has been “from the system of authority to the system of contract.” The system of authority, by which rates of wages, length of apprenticeship, and other details of industry were fixed by some superior authority, was found to be restrictive, uneconomic and unjust, and it gave way to the principle of economic freedom. According to the newer theory, first given effective voice by Adam Smith, in 1776, the individual should be left to himself, as he knows his own interest better than does the most enlightened government. The freest scope was given to the powers of individuals and each was to be the unlimited master of himself and his possessions.

It has since been found necessary, however, to modify both the theory and practice of this extreme individualism in order to protect the interests of various classes of society, especially the laborer. The legal theory still is that “today the labor contract is perfectly free: either side may make whatever contract he can get the other side to sign. Not only this, but either side may freely combine to demand any form of contract from the other side, as mere combinations alone are now made perfectly legal.”[11] In practice, however, this complete freedom has been greatly modified by factory acts, acts restricting the hours and conditions of employment of women and children, anti-truck acts, laws providing for weekly payments, guarding of machinery, limiting the hours of labor, and on the other hand prohibiting intimidation and molesting. For the most part these laws have applied to women and children, who are thought less capable of guarding their own interests, and to a much less degree to labor contracts made by men, who have been considered better able to make equal contracts with employers. But concerning certain conditions of employment it has been realized that even adult males are not capable of securing equitable bargains, and along these lines the nominal freedom of the labor contract has been decidedly abridged. The attitude of the courts toward such legislation shows that they have declared many laws unconstitutional on the ground that they infringe upon the right of free contract, but in the long run seem inclined to uphold as much of this restrictive legislation as seems necessary to obviate the undoubtedly evil results that flow from this real inequality of employer and laborer.

It is a very vital and important practical economic problem that presents itself in this connection. How far shall we carry this regulative principle, or how far shall we insist upon the principle of freedom? Many labor leaders are again asking for an effectual control of the labor contract, not by the action of trade unions, but by the direct legislation of the state. What shall be our attitude to this demand? Before we can fairly answer this question we must consider somewhat more fully the character of the bargain that takes place between an employer and an individual workman, and the nature of the commodity that the laborer has to sell.

It has already been stated that the commodity which the laborer brings upon the market is his labor, that is, himself, his time, and his energies. But these wares are peculiar and differ in several important respects from ordinary marketable commodities. In the first place, labor is like a perishable commodity which must be sold at once if the owner is not to incur loss. The laborer has usually little if any capital by which to support himself in case he cannot find work, and may be compelled to make a forced sale of his labor, that is, to accept unduly low wages. In this respect then he is at a disadvantage in bargaining with his employer. A second peculiarity of the sale of labor is that the laborer and his work are inseparable. The seller of an ordinary commodity disposes of it absolutely when he makes a sale. “It matters nothing to the seller of bricks whether they are to be used in building a palace or a sewer; but it matters a great deal to the seller of labor, who undertakes to perform a task of given difficulty, whether or not the place in which it is to be done is a wholesome and a pleasant one, or whether or not his associates will be such as he cares to have.” The person who buys this labor necessarily directs the application of it to the task in hand, and thus controls very largely the place, the sanitary and social conditions, the hours, the character, and safety of the work. In the third place, the superior knowledge and intelligence of the employers gives them an advantage in bargaining with their employes, while the reluctance of employers to “spoil the labor market” often prevents that freedom of competition which is supposed to secure to the laborer his full share of the product he helps to produce.

In view of these facts we may fairly conclude that workmen are inferior to employers as bargainers and that protective legislation is necessary in order to put them on a real equality. “When laborers have to make a forced sale of their labor, their freedom of contract is more nominal than real. When women and children stand individually before the manager of hundreds of thousands of capital, it is possible that there may be little freedom and less equality in the contract by which they sell their services.”[12] It is clear that between two parties of such unequal knowledge, resources and ability as a laborer and his employer the labor contract cannot be entirely free and equal. While trade unions, by combining isolated workmen into formidable and unified groups, have immeasurably increased their bargaining strength, yet legislation has also been found necessary to remedy the disadvantages already enumerated. It is realized that “there is no greater inequality than the equal treatment of unequals.” In the opening section of this text attention was called to the fact that economic freedom or liberty was one of the corner stones of our modern industrial society. But freedom can best be secured by securing equality and responsibility. Factory legislation and labor laws are designed to correct the inequalities imposed by nature or involved in the very nature of capitalistic production. Direct interference by the state in the freedom of contract is justified as leading to a more real and certain equality and liberty. But while we may thoroughly approve the principle of labor legislation it is difficult to know at what point we should stop. A leading American authority on the law of labor has stated[13] that “the industrial laborer at least is beginning to be a privileged class in the law.” On the other hand, it was possible for Disraeli to say as late as 1875, after the passage of the Employers and Workmen Act by the British Parliament, “for the first time in the history of this country employer and employed sit under equal laws”—so recently were the legal disabilities removed under which the English workmen had suffered up to this time.[14] The pendulum has swung so rapidly and so far in labor’s direction in the last generation that it is a fair question how far it will—or should—continue to go.

VIII. LABOR ORGANIZATIONS AND COLLECTIVE BARGAINING.

As modern capitalistic production caused the growth of a distinct wage-earning class and brought about a sharp separation between employers and laborers, and as the latter were thrown upon their own resources under the prevailing theories of free competition and free contract, it was inevitable that they should organize to secure their interests as a class. The growth of labor organizations has been greatest in those countries where the laborer has been forced to depend mostly upon his own efforts for protection and improvement, namely, in England and the United States. On the continent of Europe, on the other hand, where the individual has been accustomed to look to the government for the redress of industrial grievances, there has been a much less vigorous and spontaneous development of such organizations. They are a product of the nineteenth century and had their origin in modern machine production.

The growth of labor organizations in the United States has proceeded hand in hand with the industrial development of this country, and has been especially rapid since the Civil War. Two distinct types of trade unions may be noted—the local and the national (or international) unions. The former, which comprises members who live and work in the same locality, is the primary unit, and dates back to the beginning of the century. Each local union, even when subordinate to a national organization, is a self-governing unit, and is absolutely democratic. Its relation to the national body has been well compared to that of one of our states to the United States. The first national union was not formed until 1850, but now these far surpass the locals in importance. Their government is representative, as they are made up of local unions. The great majority of the national trade unions are bound together in the powerful federal organization, the American Federation of Labor. The membership of this body numbers considerably over 1,000,000, while the railroad unions, which are not connected with it, claim about 125,000 more. Probably not far from 1,500,000 persons in the United States belong to labor organizations, which is about 10 per cent of the total working population or about 15 per cent of those engaged in trade and transportation, manufacturing and mechanical pursuits. While this does not seem a very large proportion and is not as large as the membership of British trade unions, yet it must be remembered that they constitute on the whole the elite of the labor world and exercise an authority and power out of proportion to their numbers. Many other workmen, who do not themselves belong to the unions, follow their lead and are directly affected by their actions.

Historically the two most important national organizations in this country have been the Knights of Labor and the American Federation of Labor, and they represent such different principles that it will be worth while to describe them. The Knights of Labor was organized in 1869 as a local union of seven garment cutters and had a meteoric career, counting a membership of 730,000 in 1886, the year of its greatest strength. It was a national amalgamation of mixed local assemblies composed of workers of all trades who lived in the same locality. It held the theory that the interests of all members of the laboring class are identical and must be cared for at the same time, if possible, by political action, by co-operation, and by education. In 1886, however, it entered upon a series of disastrous strikes; later it came into conflict with trade unions which had not joined its ranks and were opposed to its policies; and finally it became entangled in politics. As it lost in influence and strength its place was taken by the American Federation of Labor, which was its very opposite in organization and government. This latter body is a “confederation of trade and labor unions,” each trade being organized separately into local unions which are given great autonomy, these unions alone being represented in the national body. Only matters of general interest come before it, all local trade matters being left to the local unions. In 1903 it claimed a membership of 1,745,000.

More important than the history of labor organizations is a knowledge of their objects and methods. The primary purpose is of course to control the conditions of labor and to substitute the principle of collective bargaining for individual contract. As one of the most effective ways to secure this result they aim at a more or less complete monopoly of the labor market. This they may do by bringing all workers in a trade within the union or by preventing non-union men from working. The first of these is called the inclusive method,[15] and if successful makes the union the sole seller of the kind of labor controlled by its members. It is a monopoly of the laborers against the employers and is sought to be enforced by inducing men to join the union either by persuasion or coercion, the latter finding expression in the strikes against the employment of non-union men and the insistence upon the “closed shop.” The other form of monopoly consists in the exclusion of new members from the trade and in a control of employment; this is a monopoly of a small group against their fellow-workmen. It is enforced by regulating the entrance to the trade, making it difficult or expensive, or by limiting the number of apprentices. Sometimes, as in the Chicago Building Trades in 1900, they have united with their employers by means of “exclusive agreements” to raise wages and prices of the finished products at the same time, and thus jointly to mulct the public. Such efforts to monopolize the labor market have their counterparts in the organization of capital, as we have seen. In practice such a labor monopoly has sometimes been used to improve and elevate conditions, just as sometimes a capitalistic monopoly has reduced prices below the competitive point. In general, however, we must condemn monopoly on principle in the competitive field and insist that freedom and opportunity be given to all on as equal terms as possible. Of the two forms of trade union monopoly, the former alone, which endeavors to make it all comprehensive and to enforce generally union conditions, can be economically justified.

“The establishment of a standard rate of wages may perhaps be said to be the primary object of trade union policy. Without the standard rate the trade union, such as it is, could have no existence.”[16] The purpose of the union is to substitute collective bargaining for individual agreements and thereby to improve the condition of its members. But if a single bargain is to determine the pay of a large number of men, there must be a common standard. In every employment on a large scale the men are necessarily grouped together and their pay is determined by a common rule. This is true even in non-union shops. It is generally assumed that the standard rate of labor organizations means a uniform wage for each member, but this is not the case; it means rather a uniform rate of pay to all for the same performance. In the case of piece work, it could manifestly not mean anything else; but a large number of labor leaders object to piece work. They insist that a standard wage means a minimum wage, and that by the establishment of such a minimum the whole standard of efficiency and the plane of competition are raised, as the employers cannot then afford to hire any but competent workmen. The question immediately presents itself as to what is to become of the older or partially disabled men, who are no longer able to earn the standard or minimum wage? In England they are practically guaranteed a subsistence by the union; in this country the union not infrequently exempts them from the provisions as to the standard wage. When the rule is enforced there is certainly a real hardship for these men. But from the employers there comes the more serious complaint that the effect of the standard wage is to reduce to a dead level the efficient and the inefficient; that it is a maximum wage and that the efficient and industrious are prevented from earning more than a fixed amount. There is undoubtedly a great deal of truth in this charge; the man who hastens the pace is said to be taking “blood money,” and sometimes a maximum wage is set which the members are forbidden to exceed. On the other hand, it may fairly be said that while the union regulation of wages does tend to produce greater uniformity, the union rate is usually higher than the competitive rate would be, that is, wages are leveled up, not down; and finally, that territorial variations make the local rate conform to local conditions.

A reduction in the hours of labor has been even more strenuously urged by progressive labor leaders in the United States than an increase in wages. “Organize and control your trade and shorten your hours,” is their contention, “and wages will take care of themselves.” Their arguments in favor of a general shortening of the working day are twofold. In the first place, owing to the intensity and strain of work under modern machine methods, the worker cannot work efficiently more than eight or nine hours a day. The work is too exacting and the strain on the attention too great; it is a noticeable fact that most of the accidents in industrial establishments occur in the last hour or two of the working day. Not only that, but the laborer is entitled to his share of industrial progress in the form of more leisure, giving him time for a better family and social life, affording opportunity for intellectual improvement, and permitting the development of more rational and higher wants. With the improvement in the condition of the laboring classes, will go the elevation of society as a whole.

The second argument in favor of shorter hours put forward by the trade unionist, is economic rather than social. He argues that a “reduction of hours will diminish the supply of labor in the market, and so will raise its price. It will make room for the unemployed, and so will remove the depressing influence of their competition.” There is involved in this contention the familiar lump-of-labor argument of the trade unionist: there is just so much work to be done, and if some men do each a little less there will be more for others. By shortening the hours of labor of everybody employment will be made more general, and the work will be better distributed. Now the economists in general have supported the trade unions in their demands for a shorter working day, but they have done so because they believed that the product of industry would not thereby be diminished. They have seen that when the hours of labor were reduced the laborer was less rapidly worn out physically, that he could work more rapidly for a short time, and that his increased leisure and pay, if rationally used, made him a more intelligent and efficient worker. In other words, a reduction in the hours of labor from 15 a day to 12, to 10, and even in some cases to 8, was not attended by a parallel reduction in the output, but the latter remained about the same. This is the great economic justification of the shorter working day, and as long as this can go on without materially affecting the product of industry it must be approved. If, however, the latter is decreased there will be less to divide and then the relative disadvantages of a smaller dividend must be weighed against the advantages of increased leisure. Of course the point to which the number of hours can be reduced without lessening the product can only be determined by experiment, and will differ in different trades, but it is inevitable that until this point is reached the pressure of the trade unions for shorter working days—or for more holidays or half-holidays—will not be successfully resisted.

Turning now from theory to fact, we find that there has been a great improvement in the condition of labor in this respect. At the beginning of the nineteenth century the almost universal working day was, as McMaster tells us, from sun to sun. As factories grew up the habits of agricultural labor were carried over into industrial occupations, and working days of 16 and 18 hours were not uncommon. In 1903 the average length of the working day in the United States was 9.6 hours. This great reform may fairly be credited to the efforts of organized labor itself, for without their insistence and struggles it is unlikely that it would have been voluntarily granted by employers.

The limitation of output results almost necessarily from the above-mentioned practices of the unions: reduction of hours, prohibition of piece work, and the standardization of wages all tend to restrict the output of the individual worker. But some of the unions have gone further and have directly limited the amount that could be produced during a given period by the laborer. This has been particularly true of British unions and is the subject of common complaint by English employers and writers, but illustrations may easily be found in the United States. Thus in Chicago in 1900 “the lathers limited a day’s work to twenty-five bundles of lath, for which they received $3; they had formerly done thirty-five bundles for a daily wage of $1.75. Plasterers were limited to thirty square yards a day; the steam fitters were permitted to lay only ninety feet of steam pipe per day; but the plumbers had the most objectionable rules and restricted materially the amount of work that could be done in a day.”[17] These rules were defended by the unions on the ground that they were necessary in order to secure careful work and to prevent the “rusher” for setting the pace for a fair day’s work. The practice has not been uncommon, especially in the sweated trades, for an unscrupulous employer to pay a few particularly able workmen to put extra speed into their work and so set a pace that the other workmen would be compelled to maintain. This was especially objected to by the unions in the case of team work. They claimed that when all the workmen had come up to the new standard, particularly in piece work, the wages were reduced so that even by working at the higher rate of speed, they could only make a fair wage. One of the rules of the Chicago carpenters’ union provided that “any member guilty of excessive work or rushing on any job shall be reported and shall be subject to a fine of $5.” Whatever the excuse it is clear that such limitations cannot be economically justified. Not only does such dawdling undermine the industrial efficiency of the worker, but it is unfair to the employer. If the latter bargains for the union rate of wages and the normal working day, he is entitled to a full return of the laborer’s best efforts. Otherwise there is no fairness in collective bargaining. “So far as labor leaders are concerned,” said Mr. John Burns, the English trade unionist, “we are all strongly opposed to the restriction of production; we are all in favor of better and more conscientious work.”

Laboring men have never been quite able to divest themselves of their old antipathy to labor-saving machinery. They generally regard the introduction of a new machine as a displacer of men, a creator of unemployment, a depresser of wages. Some unions have successfully resisted the introduction of machinery into their trades, as the stone cutters in Chicago,[18] but in general they have recognized the impossibility of this attitude. In general they now demand that when machinery is introduced it shall be operated by union men and their wages shall be fixed so as to give the workers a share of the increased production.

The policies and methods of the trade unions thus far discussed are those of a militant nature, but the fraternal objects of these associations, though less conspicuous, are none the less important. Labor organizations generally; have insurance and benefit features, by which sick, injured, or unemployed members are assisted. This is particularly true of the English organizations, which developed these features before the rise of the militant new unionism. They often possess large funds and have been rendered thereby more conservative and responsible. The educative effect of trade unionism among the members is marked; some of them possess libraries and all of them promote discussion and thought upon economic problems, while the administration of their affairs often gives valuable training. The older unions did much to encourage co-operation among their members, but today the tendency is to limit their activities to the essential one for which they are organized, namely, collective bargaining.

Intelligent unionists realize that they can secure the various objects for which they strive only by substituting collective bargaining for contracts between employers and individual laborers. Where this plan is accepted by employers, representatives of the two sides agree upon wage scales, usually for a year; during this period the chief task of union officials is to see that the agreement is lived up to, and if possible to add to their membership and strengthen the union. In the United States relatively few trades have adopted this method as a general practice, the employers still being able to dictate wages and conditions of employment in most of them, while the unions are still struggling for recognition, if not for existence. Employers insist, in refusing to make collective bargains with the unions, that, as they run all the risks, they must be permitted to manage their business as they see fit and without interference from the business agent of the union. In reply the unions insist that hours, wages, and conditions of employment are as much their business as that of the employer. The latter also urges that the trade unions as at present organized are too irresponsible and before they ask for collective bargaining should be incorporated, so that they could be sued for breach of contract if guilty of such. As yet, however, the unions have preferred their present position of irresponsibility and immunity and have almost invariably refused to be incorporated.

“In the minds of a large section of the public,” writes President Hadley,[19] “labor unions are chiefly associated with strikes. It is believed by many who ought to know better, that such organizations exist for the purpose of striking, and that if the organizations were suppressed, industrial peace would be secured. The first of these ideas is a distorted one; the second is wholly unfounded.” Strikes are, however, a necessary concomitant of collective bargaining. If the representatives of a union cannot come to terms with an employer, they may compel their members to refuse to sell their commodity, labor; such a concerted refusal to work is a strike. The “right to quit work” has been regarded as a sacred one by trade unionists, but it involves social consequences of great importance. For the workingman, it means loss of wages and demoralizing idleness; to the employer, idle capital, loss of profits, and depreciation of plant; and to the consuming public, inconvenience and annoyance together with curtailed production. Quite aside from all acts of violence and lawlessness, by which they are too often accompanied, there is involved an enormous money waste. According to a report of the Department of Labor, losses from strikes and lockouts in the United States from 1881 to 1900 amounted to $449,342,000 or an average loss per establishment involved of about $3,500.

The public is awakening to the realization that it suffers the greatest injury as the innocent third party to every industrial dispute, and is insisting that the industrial peace be kept or more reasonable methods of settling differences be found than a strike or lockout. Such a method is found in conciliation and arbitration. In the older and more strongly organized unions strikes are infrequent and methods of joint discussion and agreement are increasingly resorted to. Boards of conciliation are often provided for, which endeavor by means of conference and concession to prevent a dispute from arising; they succeed best where both employers and employes are organized. Should the dispute come to a head, however, provision is usually made for its reference to a board of arbitration, which may be selected by the disputants themselves or may be created by the state; in the latter case the acceptance of the award may be voluntary or compulsory. In the United States most of the successful boards have been those selected by the parties to the dispute; the state boards have usually the power only of investigating the causes of the trouble, but this in itself has proved of considerable value in more than one instance, notably in the case of the Anthracite Coal Commission. Compulsory arbitration is being given a thorough trial in Australasia and seems to be meeting with success there. In this country, however, the trade unions are strongly opposed to compulsory or enforced governmental arbitration. Writing of Great Britain, Mr. and Mrs. Webb assert that the principle of arbitration, having been found inconsistent with collective bargaining, is fast going out of favor. It would seem from the experience of both England and the United States that the chief virtue in these methods lies in the habit of joint conference and conciliation between the representatives of labor and capital.

IX. WOMEN AND CHILDREN AT WORK.

While women and children have always assisted in the work of the home, it was not until the development of the factory system that they began to work for wages outside of the family. From the earliest days the preparation of food, spinning and weaving and making up of garments, and other branches of domestic economy had been the peculiar tasks of the housewife. With the removal of the textile industries from the home to the factory and the invention of light-running machinery, many women followed them and employment was found also for young children. Thus with the inception of the modern factory system and machine production there arose the problem of woman and child labor. In England the evils of the early factory system were incredibly bad. “The beginning of the present century,” wrote President Walker,[20] “found children of five, and even of three years of age, in England, working in factories and brickyards; women working underground in mines, harnessed with mules to carts, drawing heavy loads; found the hours of labor whatever the avarice of individual mill owners might exact, were it thirteen, or fourteen, or fifteen; found no guards about machinery to protect life and limb; found the air of the factory fouler than language can describe, even could human ears bear to hear the story.” Conditions were never so bad in this country as in England owing to the later development of the system and prompter legislation against its evils, and especially to the scarcity of labor which compelled employers to make the conditions of labor more attractive.

The field of employment for women has been a constantly expanding one. When Miss Harriet Martineau visited the United States in 1840 she found only seven occupations open to women, namely, teaching, needle-work, keeping boarders, work in the cotton mills, type-setting, book-binding, and domestic service. Since that time the area has widened until there is scarcely an occupation in which women are not found except those closed to her by law or by physical inability. The number of females 10 years of age and over engaged in gainful occupations was 2,647,000 in 1880 or 14.7 per cent of the total female population; this number more than doubled in the next twenty years, being 5,319,000 in 1900 or 18.8 per cent of all. The largest number employed was in domestic and personal service, and next to that in manufacturing and mechanical pursuits, though even in that branch they were most numerous in the traditional branches of woman’s work, as dressmakers, seamstresses, etc. It is nevertheless in the manufacturing industries that the most serious evils connected with woman and child labor are found. The problems differ greatly in different sections of the United States: in the Atlantic states the greatest proportion of women as compared with men find employment and give rise to special problems of women’s work; in the South child labor is more conspicuous; while in the West both woman and child labor are of relatively small importance.

An interesting question suggests itself at this point: Is the increase in the employment of women at the expense of men? Are the women crowding the men out of their occupations and taking their places? At first inspection the statistics of occupations would seem to lead to an affirmative answer, for the percentage of women breadwinners increased from 13.5 per cent of all such in 1880 to 16.6 per cent in 1900, while that of the men fell from 80 to 77.3 per cent, and that of the children remained about the same. The cause of the change in the proportion of the sexes was not due, however, to any falling off in the number of men, but to the great influx of women into the ranks of wage-workers. In some lines of employment, like those of bookkeepers, stenographers, typewriters, clerks, etc., there has undoubtedly been an encroachment and men have been displaced. But on the other hand, many occupations have been opened to men during the last fifty years that were unknown before. Such have been the expanding fields of railroad construction and operation, the steel industry, the utilization of electricity, and other similar lines. In most of these the muscular effort involved or the character of the work have kept women out, but in other lines where special rapidity or lightness of touch are required the women outnumber the men, as in the manufacture of cotton goods, hosiery, hats and caps, etc. The development and improvement of machinery has of course favored the employment of women. Mr. John A. Hobson[21] asserts that “in modern machinery a larger and larger amount of inventive skill is engaged in adjusting machine-tending to the physical and mental capacity of women and children.” He concludes that if the exploitation of these forms of cheap labor had not been prevented by factory legislation and by public disapproval, “the great mass of the textile factories of this country [England] would have been almost entirely worked by women and children.” As a matter of fact one of the reasons for the great expansion of woman labor in the United States as well as England is because it has been found cheaper than man’s labor. We are thus brought face to face with a fundamental question in the discussion of the problem—why are women paid lower wages than men?

As to the fact there is no doubt; one comparison taken from the Census of 1900 will be sufficient to illustrate it: the annual average earnings of men in mechanical and manufacturing industries were $490, and of women $272 per annum. The more important question is why this difference exists. A number of reasons suggest themselves at once. In the first place women are less efficient than men and produce less; hence they are paid less. In some industries, particularly those requiring physical strength, women cannot compete successfully, and those are usually the highest paid employments. Other well-paid industries are regarded by men as essentially their own and social pressure is applied to keep women out. Then, too, woman’s ambition to attain industrial efficiency is not so great, owing to her expectation of marriage and release from industrial life. Women are more often absent from work owing to sickness and domestic claims upon their time; this irregularity of employment tends to reduce their efficiency. But even in employments where the efficiency of men and women are admittedly equal the women receive lower wages in the majority of cases. According to a report of the Bureau of Labor, out of 100 cases where the women did the same work as the men and did it as well, they received lower wages than the men in 80. This leads to the consideration of a second group of causes, which have to do with woman’s standard of living. One reason why she receives less is because she is able and willing to live on less. Physiologically, Dr. Atwater has said, man needs one-fifth more nutriment than woman. Women’s wages are less because of their somewhat lower cost of subsistence. But even aside from this fact, the frequent partial dependence of women upon other members of their family for support makes them willing to accept less and consequently reduces their wages. The average American workingwoman is young, only about twenty-two and a half years old, and after the age of twenty-five is reached the number declines rapidly. That is to say, working girls regard their employment as a temporary affair, remaining only about five years on the average in the store or factory; during this time they often live at home with their parents and are content to receive a wage much smaller than a man would require as head of a household.

The third reason is, however, the most important, because it explains at the same time the low economic position which woman occupies in the industrial world. The narrowing of the field within which women can readily find employment has the effect of greatly intensifying the competition within that field. There is also a great reserve army of potential women wage-earners, whom a slight increase of wages or force of circumstances—loss of employment by the male members of the family—will bring into the field as competitors. There is, in other words, a constant over-supply of labor in most women’s industries, which does not exist in any men’s industries except the most unskilled. Women exhibit, furthermore, a comparative lack of mobility from one industry to another, as well as from one locality to another. According to Professor Smart, women are so unready to leave home that their pay on one side of narrow Scotland is 50 per cent lower than on the other side. In the same way, the flow of labor from one occupation to another, which tends to equalize the advantages and rates of pay of different employments, is far feebler among women than among men. Finally, there is little organization among women. Their individualistic, almost jealous, attitude to one another prevents their combination and united action, while their submissive acceptance of what is offered leads to apathy. They have only infrequently formed unions and endeavored to substitute collective bargaining for individual action. Women are therefore industrially in much the same situation as unskilled, unorganized male laborers, and the remedy in both cases would seem to be the same—education and organization.

The presence of a large supply of cheap woman labor undoubtedly has a depressing effect upon men’s wages, and consequently upon the standard of life of the whole laboring class. George Gunton[22] is authority for the statement that “in proportion as the wife and children contribute to the support of the family the wages of the father are reduced.” The family wage tends to remain the same whether it is earned by the father alone, or by the father with the assistance of his wife and children. It is, however, not quite clear in most cases whether the men’s wages are low because the women and children work, or whether the women and children work because the men’s wages are low. It may fairly be concluded, however, that the evil effects of low wages for women are not confined to themselves but are felt by all with whom they come in competition.

What conclusion shall we draw then, in view of all these facts, as to the desirability of employment of women? The fact of their low wages and industrial dependence is not sufficient to lead one to condemn it. These are transitional phenomena and can be remedied. Women have always worked—on the farm, in the home, in making household supplies. When this work was taken over by the factory woman became a wage-worker in the modern sense. “The census records in respect to the labor of women, therefore, read in the light of collateral facts, are a history of industrial readjustment rather than a record of the relative extent of the employment of women, and it is impossible to say, so far as the census figures are concerned, whether a larger proportion of women are actively engaged in labor today than formerly or not. The one fact which is clear is that factory or shop work is displacing home work, and that this readjustment of industrial conditions is leading to the employment of women outside the home in constantly increasing numbers.”[23] The effect of this readjustment has been to increase greatly the production of wealth. The production of household supplies was removed from the family to the factory when it was handed over to machinery and done better and more cheaply. If the work of women thus released were expended for no useful purpose society would gain only in the increased leisure of the women. But if these then took up other new lines or set men free from old employments so that they could turn to still different ones, then the production of goods could be greatly increased. “Without women’s help,” says Mr. George L. Bolen,[24] “their work in stores and offices would be done by men taken from other employment. The latter’s present work would have to be stopped to that extent, lessening the quantity of goods produced by men. The effect would be the same as if a farmer had to stop plowing two hours before noon to go to the house and cook his dinner.... Women behind the counter, and at the typewriter, release men for work that women cannot do.” From the standpoint of woman herself, industrial independence must be regarded as a great gain. Set free from the necessity of contracting marriage for the sake of a home, and of depending upon mere sex attraction to attain that end, she will develop her capacities more fully and when she does enter upon marriage will do so as a result of mutual attraction. The entrance of women into gainful occupations must be regarded as an essential step in their own progress and the improvement of society.