THE VESTED INTERESTS AND THE COMMON MAN

The Vested Interests and the Common Man
by Thorstein Veblen
1919
Chapter 1
The Instability of Knowledge and Belief
As is true of any other point of view that may be
characteristic of any other period of history, so also the modern
point of view is a matter of habit. It is common to the modern
civilised peoples only in so far as these peoples have come
through substantially the same historical experience and have
thereby acquired substantially the same habits of thought and
have fallen into somewhat the same prevalent frame of mind. This
modern point of view, therefore, is limited both in time and
space. It is characteristic of the modern historical era and of
such peoples as lie within the range of that peculiar
civilisation which marks off the modern world from what has gone
before and from what still prevails outside of its range. In
other words, it is a trait of modern Christendom, of Occidental
civilisation as it has run within the past few centuries. This
general statement is not vitiated by the fact that there has been
some slight diffusion of these modern and Western ideas outside
of this range in recent times.
By historical accident it happens that the modern point of
view has reached its maturest formulation and prevails with the
least faltering among the French and English-speaking peoples; so
that these peoples may be said to constitute the center of
diffusion for that system of ideas which is called the modern
point of view. Outward from this broad center the same range of
ideas prevail throughout Christendom, but they prevail with less
singleness of conviction among the peoples who are culturally
more remote from this center; increasingly so with each farther
remove. These others have carried over a larger remainder of the
habits of thought of an earlier age, and have carried them over
in a better state of preservation. It may also be that these
others, or some of them, have acquired habits of thought of a new
order which do not altogether fit into that system of ideas that
is commonly spoken of as the modern point of view. That such is
the case need imply neither praise nor blame. It is only that, by
common usage, these remainders of ancient habits of thought and
these newer preconceptions that do not fit into the framework of
West-European conventional thinking are not ordinarily rated as
intrinsic to the modern point of view. They need not therefore be
less to the purpose as a guide and criterion of human living; it
is only that they are alien to those purposes which are
considered to be of prime consequence in civilised life as it is
guided and tested by the constituent principles of the modern
point of view.
What is spoken of as a point of view is always a composite
affair; some sort of a rounded and balanced system of principles
and standards, which are taken for granted, at least
provisionally, and which serve as a base of reference and
legitimation in all questions of deliberate opinion. So when any
given usage or any line of conduct or belief is seen and approved
from the modern point of view, it comes to the same as saying
that these things are seen and accepted in the light of those
principles which modern men habitually consider to be final and
sufficient. They are principles of right, equity, propriety,
duty, perhaps of knowledge, belief, and taste.
It is evident that these principles and standards of what is
right, good, true, and beautiful, will vary from one age to
another and from one people to another, in response to the
varying conditions of life; inasmuch as these principles are
always of the nature of habit; although the variation will of
course range only within the limits of that human nature that
finds expression in these same principles of right, good, truth,
and beauty. So also, it will be found that something in the way
of a common measure of truth and sufficiency runs through any
such body of principles that are accepted as final and
self-evident at any given time and place, -- in case this
habitual body of principles has reached such a degree of poise
and consistency that they can fairly be said to constitute a
stable point of view. It is only because there is such a degree
of consistency and such a common measure of validity among the
commonly accepted principles of conduct and belief today, that it
is possible to speak intelligently of the modern point of view,
and to contrast it with any other point of view which may have
prevailed earlier or elsewhere, as, e.g., in the Middle Ages or
in Pagan Antiquity.
The Romans were given to saying. Tempora mutantur, and the
Spanish have learned to speak indulgently in the name of
Costumbres del pais. The common law of the English-speaking
peoples does not coincide at all points with what was
indefeasibly right and good in the eyes of the Romans; and still
less do its principles countenance all the vagaries of the Mosaic
code. Yet, each and several, in their due time and institutional
setting, these have all been tried and found valid and have
approved themselves as securely and eternally right and good in
principle.
Evidently these principles, which so are made to serve as
standards of validity in law and custom, knowledge and belief,
are of the nature of canons, established rules, and have the
authority of precedent, prescription. They have been defined by
the attrition of use and wont and disputation, and they are
accepted in a somewhat deliberate manner by common consent, and
are upheld by a deliberate public opinion as to what is right and
seemly. In the popular apprehension, and indeed in the
apprehension of the trained jurists and scholars for the time
being, these constituent principles of the accepted point of view
are "fundamentally and eternally right and good." But this
perpetuity with which they so are habitually invested in the
popular apprehension, in their time, is evidently such a
qualified perpetuity only as belongs to any settled outgrowth of
use and wont. They are of an institutional character and they are
endowed with that degree of perpetuity only that belongs to any
institution. So soon as a marked change of circumstances comes
on, -- a change of a sufficiently profound, enduring and
comprehensive character, such as persistently to cross or to go
beyond those lines of use and wont out of which these settled
principles have emerged, -- then these principles and their
standards of validity and finality must presently undergo a
revision, such as to bring on a new balance of principles,
embodying the habits of thought enforced by a new situation, and
expressing itself in a revised scheme of authoritative use and
wont, law and custom. In the transition from the medieval to the
modern point of view, e. g., there is to be seen such a pervasive
change in men's habitual outlook, answering to the compulsion of
a new range of circumstances which then came to condition the
daily life of the peoples of Christendom. In this mutation of the
habitual outlook, between medieval and modern times, the contrast
is perhaps most neatly shown in the altered standards of
knowledge and belief, rather than in the settled domain of law
and morals. Not that the mutation of habits which then overtook
the Western world need have been less wide or less effectual in
matters of conduct; but the change which has taken effect in
science and philosophy, between the fourteenth century and the
nineteenth, e. g., appears to have been of a more recognizable
character, more easily defined in succinct and convincing terms.
It has also quite generally attracted the attention of those men
who have interested themselves in the course of historical
events, and it has therefore become something of a commonplace in
any standard historical survey of modern civilisation to say that
the scheme of knowledge and belief underwent a visible change
between the Middle Ages and modern times.
It will also be found true that the canons of knowledge and
belief, the principles governing what is fact and what is
credible, are more intimately and intrinsically involved in the
habitual behavior of the human spirit than any factors of human
habit in other bearings. Such is necessarily the case, because
the principles which guide and limit knowledge and belief are the
ways and means by which men take stock of what is to be done and
by which they take thought of how it is to be done. It is by the
use of their habitual canons of knowledge and belief, that men
construct those canons of conduct which serve as guide and
standards in practical life. Men do not pass appraisal on matters
which lie beyond the reach of their knowledge and belief, nor do
they formulate rules to govern the game of life beyond that
limit.
So, congenitally blind persons do not build color schemes;
nor will a man without an "ear for music" become a master of
musical composition. So also, "the medieval mind" took no thought
and made no provision for those later-arisen exigencies of life
and those later-known facts of material science which lay yet
beyond the bounds of its medieval knowledge and belief; but this
"medieval mind" at the same time spent much thought and took many
excellent precautions about things which have now come to be
accounted altogether fanciful, -- things which the maturer
insight, or perhaps the less fertile conceit, of a more
experienced age has disowned as being palpably not in accord with
fact.
That is to say, things which once were convincingly
substantial and demonstrable, according to the best knowledge and
belief of the medieval mind, can now no longer be discerned as
facts, according to those canons of knowledge and belief that are
now doing duty among modern men as conclusive standards of
reality. Not that all persons who are born within modern times
are thereby rendered unable to know and to believe in such
medieval facts, e. g., as horoscopes, or witchcraft, or gentle
birth, or the efficacy of prayer, or the divine right of kings;
but, taken by and large, and in so far as it falls under the
control of the modern point of view, the deliberate consensus of
knowledge and belief now runs to the effect that these and other
imponderables like them no longer belong among ascertained or
ascertainable facts; but that they are on the other hand wholly
illusory conceits, traceable to a mistaken point of view
prevalent in that earlier and cruder age.
The principles governing knowledge and belief at any given
time are primary and pervasive, beyond any others, in that they
underlie all human deliberation and comprise the necessary
elements of all human logic. But it is also to be noted that
these canons of knowledge and belief are more immediately exposed
to revision and correction by experience than the principles of
law and morals. So soon as the conditions of life shift and
change in any appreciable degree, experience will enforce a
revision of the habitual standards of actuality and credibility,
because of the habitual and increasingly obvious failure of what
has before habitually been regarded as an ascertained fact.
Things which, under the ancient canons of knowledge, have
habitually been regarded as known facts, -- as, e. g., witchcraft
or the action of bodies at a distance, -- will under altered
circumstances prove themselves by experience to have only a
supposititious reality.
Any knowledge that runs in such out-worn terms turns out to
be futile, misleading, meaningless; and the habit of imputing
qualities and behavior of this kind to everyday facts will then
fall into disuse, progressively as experience continues to bring
home the futility of all that kind of imputation. And presently
the habit of perceiving that class of qualities and behavior in
the known facts is therefore gradually lost. So also, in due time
the observances and the precautions and provisions embodied in
law and custom for the preservation or the control of these lost
imponderables will also fall into disuse and disappear out of the
scheme of institutions, by way of becoming dead letter or by
abrogation. Particularly will such a loss of belief and insight,
and the consequent loss of those imponderables whose ground has
thereby gone out from under them, take effect with the passing of
generations.
An Imponderable is an article of make-believe which has
become axiomatic by force of settled habit. It can accordingly
cease to be an Imponderable by a course of unsettling habit.
Those elders in whom the ancient habits of faith and insight have
been ingrained, and in whose knowledge and belief the
imponderables in question have therefore had a vital reality,
will presently fall away; and the new generation whose experience
has run on other lines are in a fair way to lose these articles
of faith and in. sight, by disuse. It is a case of obsolescence
by habitual disuse. And the habitual disuse which so allows the
ancient canons of knowledge and belief to fall away, and which
thereby cuts the ground from under the traditional system of law
and custom, is re-enforced by the advancing discipline of a new
order of experience, which exacts an habitual apprehension of
workday facts in terms of a different kind and thereby brings on
a revaluation and revision of the traditional rules governing
human relations. The new terms of workday knowledge and belief,
which do not conform to the ancient canons, go to enforce and
stabilise new canons and standards, of a character alien to the
traditional point of view. It is, in other words, a case of
obsolescence by displacement as well as by habitual disuse.
This unsettling discipline that is brought to bear by workday
experience is chiefly and most immediately the discipline
exercised by the material conditions of life, the exigencies that
beset men in their everyday dealings with the material means of
life; inasmuch as these material facts are insistent and
uncompromising. And the scope and method of knowledge and belief
which is forced on men in their everyday material concerns will
unavoidably, by habitual use, extend to other matters as well; so
as also to affect the scope and method of knowledge and belief in
all that concerns those imponderable facts which lie outside the
immediate range of material experience. It results that, the
further course of in changing habituation, those imponderable
relations, conventions, claims and perquisites, that make up the
time-worn system of law and custom will unavoidably also be
brought under review and will be revised and reorganised in the
light of the same new principles of validity that are found to be
sufficient in dealing with material facts.
Given time and a sufficiently exacting run of experience, and
it will follow necessarily that much the same standards of truth
and finality will come to govern men's knowledge and valuation of
facts throughout; whether the facts in question lie in the domain
of material things or in the domain of those imponderable
conventions and preconceptions that decide what is right and
proper in human intercourse. It follows necessarily, because the
same persons, bent by the same discipline and habituation, take
stock of both and are required to get along with both during the
same lifetime. More or less rigorously the same scope and method
of knowledge and valuation will control the thinking of the same
individuals throughout; at least to the extent that any given
article of faith and usage which is palpably at cross purposes
with this main intellectual bent will soon begin to seem
immaterial and irrelevant and will tend to become obsolete by
neglect.
Such has always been the fate which overtakes any notable
articles of faith and usage that belong to a bygone point of
view. Any established system of law and order will remain
securely stable only on condition that it he kept in line or
brought into line to conform with those canons of validity that
have the vogue for the time being; and the vogue is a matter of
habits of thought ingrained by everyday experience. And the moral
is that any established system of law and custom is due to
undergo a revision of its constituent principles so soon as a new
order of economic life has had time materially to affect the
community's habits of thought. But all the while the changeless
native proclivities of the race will assert themselves in some
measure in any eventual revision of the received institutional
system; and always they will stand ready eventually to break the
ordered scheme of things into a paralytic mass of confusion if it
can not be bent into some passable degree of congruity with the
paramount native needs of life.
What is likely to arrest the attention of any student of the
modern era from the outset is the peculiar character of its
industry and of its intellectual outlook; particularly the scope
and method of modern science and technology. The intellectual
life of modern Europe and its cultural dependencies differs
notably from what has gone before. There is all about it an air
of matter-of-fact both in its technology and in its science;
which culminates in a "mechanistic conception" of all those
things with which scientific inquiry is concerned and in the
light of which many of the dread realities of the Middle Ages
look like superfluous make-believe.
But it has been only during the later decades of the modern
era -- during that time interval that might fairly be called the
post-modern era -- that this mechanistic conception of things has
begun seriously to affect the current system of knowledge and
belief; and it has not hitherto seriously taken effect except in
technology and in the material sciences. So that it has not
hitherto seriously invaded the established scheme of
institutional arrangements, the system of law and custom, which
governs the relations of men to one another and defines their
mutual rights, obligations, advantages and disabilities. But it
should reasonably be expected that this established system of
rights, duties, proprieties and disabilities will also in due
time come in for something in the way of a revision, to bring it
all more nearly into congruity with that matter-of-fact
conception of things that lies at the root of the late-modern
civilisation.
The constituent principles of the established system of law
and custom are of the nature of imponderables, of course; but
they are imponderables which have been conceived and formulated
in terms of a different order from those that are convincing to
the twentieth-century scientists and engineers. Whereas the line
of advance of the scientists and engineers, dominated by their
mechanistic conception of things, appears to be the main line of
march for modern civilisation. It should seem reasonable to
expect, therefore, that the scheme of law and custom will also
fall into line with this mechanistic conception that appears to
mark the apex of growth in modern intellectual life. But hitherto
the "due time" needed for the adjustment has apparently not been
had, or perhaps the experience which drives men in the direction
of a mechanistic conception of all things has not hitherto been
driving them hard enough or unremittingly enough to carry such a
revision of ideas out in the system of law and custom. The modern
point of view in matters of law and custom appears to be somewhat
in arrears, as measured by the later advance in science and
technology.
But just now the attention of thoughtful men centers on
questions of practical concern, questions of law and usage,
brought to a focus by the flagrant miscarriage of that
organisation of Christendom that has brought the War upon the
civilised nations. The paramount question just now is, what to do
to save the civilised nations from irretrievable disaster, and
what further may be accomplished by taking thought so that no
similar epoch of calamities shall be put in train for the next
generation. It is realised that there must be something in the
way of a "reconstruction" of the scheme of things; and it is also
realised, though more dimly, that the reconstruction must be
carried out with a view to the security of life under such
conditions as men will put up with, rather than with a view to
the impeccable preservation of the received scheme of law and
custom. All of which is only saying that the constituent
principles of the modern point of view are to be taken under
advisement, reviewed and -- conceivably -- revised and brought
into line, in so far as these principles are constituent elements
of that received scheme of law and custom that is spoken of as
the status quo. It is the status quo in respect of law and
custom, not in respect of science and technology or of knowledge
and belief, that is to be brought under review. Law and custom,
it is believed, may be revised to meet the requirements of
civilised men's knowledge and belief; but no man of sound mind
hopes to revise the modern system of knowledge and belief so as
to bring it all into conformity with the time-worn scheme of law
and custom of the status quo.
Therefore the bearing of this stabilised modern point of
view, stabilised in the eighteenth century, on these questions of
practical concern is of present interest, -- its practical value
as ground for a reasonably hopeful reconstruction of the
war-shattered scheme of use and wont; its possible serviceability
as a basis of enduring settlement; as well as the share which its
constituent principles have had in the creation of that status
quo out of which this epoch of calamities has been precipitated.
The status quo ante, in which the roots of this growth of
misfortunes and impossibilities are to be found, lies within the
modern era, of course, and it is nowise to be decried as an
alien, or even as an unforeseen, outgrowth of this modern era. By
and large, this eighteenth-century stabilised modern point of
view has governed men's dealings within this era, and its
constituent principles of right and honest living must therefore,
presumptively, be held answerable for the disastrous event of it
all, -- at least to the extent that they have permissively
countenanced the growth of those sinister conditions which have
now ripened into a state of world-wide shame and confusion.
How and how far is this modern point of view, this body of
legal and moral principles established in the eighteenth century,
to be accounted an accessory to this crime? And if it be argued
that this complication of atrocities has come on, not because of
these principles of conduct which are so dear to civilised men
and so blameless in their sight, but only in spite of them; then,
what is the particular weakness or shortcoming inherent in this
body of principles which has allowed such a growth of malignant
conditions to go on and gather head? If the modern point of view,
these settled principles of conduct by which modern men
collectively are actuated in what they will do and in what they
will permit, -- if these canons and standards of clean and honest
living have proved to be a fatal snare; then it becomes an urgent
question: Is it safe, or sane to go into the future by the light
of these same established canons of right, equity, and propriety
that so have been tried and found wanting?
Perhaps the question should rather take the less didactic
form: Will the present experience of calamities induce men to
revise these established principles of conduct, and the
specifications of the code based on them, so effectually as to
guard against any chance of return to the same desperate
situation in the calculable future? Can the discipline of recent
experience and the insight bred by the new order of knowledge and
belief, re-enforced by the shock of the present miscarriage, be
counted on to bring such a revision of these principles of law
and custom as will preclude a return to that status quo ante from
which this miscarriage of civilisation has resulted? The latter
question is more to the point. History teaches that men, taken
collectively, learn by habituation rather than by precept and
reflection; particularly as touches those underlying principles
of truth and validity on which the effectual scheme of law and
custom finally rests.
In the last analysis it resolves itself into a question as to
how and how far the habituation of the recent past, mobilised by
the shock of the present conjuncture, will have affected the
frame of mind of the common man in these civilised countries; for
in the last analysis and with due allowance for a margin of
tolerance it is the frame of mind of the common man that makes
the foundation of society in the modern world; even though the
elder statesmen continue to direct its motions from day to day by
the light of those principles that were found good some time
before yesterday. And the fortunes of the civilised world, for
good or ill, have come to turn on the deeds of commission and of
omission of these advanced peoples among whom the frame of mind
of the common man is the finally conditioning circumstance in
what may safely be done or left undone. The advice and consent of
the common run has latterly come to be indispensable to the
conduct of affairs among civilised men, somewhat in the same
degree in which the community is to be accounted a civilised
people. It is indispensable at least in a permissive way, at
least to the extent that no line of policy can long be pursued
successfully without the permissive tolerance of the common run;
and the margin of tolerance in the case appears to be narrower
the more alert and the more matter-of-fact the frame of mind of
the common man.
Chapter 2
The Stability of Law and Custom
In so far as concerns the present question, that is to say as
regards those standards and principles which underlie the
established system of law and custom, the modern point of view
was stabilised and given a definitive formulation in the
eighteenth century; and in so far as concerns the subsequent
conduct of practical affairs, its constituent principles have
stood over without material change or revision since that time.
So that for practical purposes it is fair to say that the modern
point of view is now some one hundred and fifty years old.
It will not do to say that it is that much behind the times;
because its time-worn standards of truth and validity are a very
material factor in the makeup of "our time." That such is the
case is due in great part to the fact that this body of
principles was stabilised at that time and that they have
therefore stood over intact, in spite of other changes that have
taken place. It is only that the principles which had been tested
and found good under the conditions of life in the modern era up
to that time were at that time held fast, canvassed, defined,
approved, and stabilised by being reduced to documentary form. In
some sense they were then written into the constitution of
civilised society, and they have continued to make up the nucleus
of the document from that time forth; and so they have become
inflexible, after the fashion of written constitutions.
In the sight of those generations who so achieved the
definite acceptance of these enlightened modern principles, and
who finally made good their formal installation in law and usage
as self-balanced canons of human conduct, the principles which
they so arrived at had all the sanction of Natural Law, --
impersonal, dispassionate, indefeasible and immutable;
fundamentally and eternally right and good. That generation of
men held "these truths to be self-evident"; and they have
continued so to be held since that epoch by all those peoples who
make up the effectual body of modern civilisation. And the
backward peoples, those others who have since then been coming
into line and making their claim to a place in the scheme of
modern civilised life, have also successively been accepting and
(passably) assimilating the same enlightened principles of clean
and honest living. Christendom, as a going concern of civilised
peoples, has continued to regulate its affairs by the help of
these principles, which are still held to be a competent
formulation of the aspirations of civilised mankind. So that
these modern principles of the eighteenth century, stabilised in
documentary form a hundred and fifty years ago, have stood over
in immutable perfection until our time,a monument more enduring
than brass.
These principles are of the nature of habits of thought, of
course; and it is the nature of habits of thought forever to
shift and change in response to the changing impact of
experience, since they are creatures of habituation. But inasmuch
as they have once been stabilised in a thoroughly competent
fashion in the eighteenth century, and have been drafted into
finished documentary form, they have been enabled to stand over
unimpaired into the present with all that weight and stability
that a well-devised documentary formulation will give. It is
true, so far as regards the conditions of civilised life during
the interval that has passed since these modern principles of law
and custom took on their settled shape in the eighteenth century,
it has been a period of unexampled change, -- swift, varied,
profound and extensive beyond example. And it follows of
necessity that the principles of conduct which were approved and
stabilised in the eighteenth century, under the driving
exigencies of that age, have not altogether escaped the
complications of changing circumstances. They have at least come
in for some shrewd interpretation in the course of the nineteenth
century. There have been refinements of definition, extensions of
application, scrutiny and exposition of implications, as new
exigencies have arisen and the established canons have been
required to cover unforeseen contingencies; but it has all been
done with the explicit reservation that no material innovation
shall be allowed to touch the legacy of modern principles handed
down from the eighteenth century, and that the vital system of
Natural Rights installed in the eighteenth century must not be
deranged at any point or at any cost.
It is scarcely necessary to describe this modern system of
principles that still continues to govern human intercourse among
the civilised peoples, or to attempt an exposition of its
constituent articles. It is all to be had in exemplary form, ably
incorporated in such familiar documents as the American
Declaration of Independence, the French Declaration of the Rights
of Man, and the American Constitution; and it is all to be found
set forth with all the circumstance of philosophical and juristic
scholarship in the best work of such writers as John Locke.
Montesquieu. Adam Smith, or Blackstone. It has all been
sufficiently canvassed, through all its dips, spurs and angles,
by the most competent authorities, who have brought their best
will and their best abilities to bear on its elucidation at every
point, with full documentation. Besides which, there is no need
of recondite exposition for the present purpose; since all that
is required by the present argument is such a degree of
information on these matters as is familiar to English-speaking
persons by common notoriety.
At the same time it may be to the purpose to call to mind
that this secular profession of faith enters creatively into that
established order of things which has now fallen into a state of
havoc because it does not meet the requirements of the new order.
This eighteenth-century modern plan specifically makes provision
for certain untoward rights, perquisites and disabilities which
have, in the course of time and shifting circumstance, become
incompatible with continued peace on earth and good-will among
men.
There are two main counts included in this modern --
eighteenth-century -- plan, which appear unremittingly to make
for discomfort and dissension under the conditions offered by the
New Order of things: -- National Ambition, and the Vested Rights
of ownership. Neither of the two need be condemned as being
intrinsically mischievous. Indeed, it may be true, as has often
been argued, that both have served a good purpose in their due
time and place; at least there is no need of arguing the
contrary. Both belong in the settled order of civilised life; and
both alike are countenanced by those principles of truth, equity
and validity that go to make up the modern point of view. It is
only that now, as things have been turning during the later one
hundred years, both of these immemorially modern rights of man
have come to yield a net return of hardship and ill-will for all
those peoples who have bound up their fortunes with that kind of
enterprise. The case might be stated to this effect, that the
fault lies not in the nature of these untoward institutions of
national sovereignty and vested rights, nor in those principles
of self-help which underlie them, but only in those latter-day
facts which stubbornly refuse to fall into such lines as these
forms of human enterprise require for their perfect and
beneficent working. The facts, particularly the facts of industry
and science, have outrun these provisions of law and custom; and
so the scheme of things has got out of joint by that much,
through no inherent weakness in the underlying principles of law
and custom. The ancient and honorable principles of self-help are
as sound as ever; it is only that the facts have quite
unwarrantably not remained the same. The fault lies in the
latter-day facts, which have not continued in suitable shape.
Such, in effect, has been the view habitually spoken for by many
thoughtful persons of a conservative turn, who take an interest
in concerting measures for holding fast that which once was good,
in the face of distasteful facts.
The vested right of ownership in all kinds of property has
the sanction of the time-honored principles of individual
self-direction, equal opportunity, free contract, security of
earnings and belongings, self-help, in the simple and honest
meaning of the word. It would be quite bootless to find fault
with these reasonable principles of tolerance and security. Their
definitive acceptance and stabilisation in the eighteenth century
are among the illustrious achievements of Western civilisation;
and their roots lie deep in the native wisdom of mankind. They
are obvious corollaries under the rule of Live and let live, --
an Accidental version of the Golden Rule. Yet in practical effect
those vested rights which rest blamelessly on these reasonable
canons of tolerance and good faith have today become the focus of
vexation and misery in the life of the civilised peoples.
Circumstances have changed to such effect that provisions which
were once framed to uphold a system of neighborly good-will have
now begun to run counter to one another and are working mischief
to the common good.
Any impartial survey of the past one-hundred-fifty years will
show that the constituent principles of this modern point of view
governing the mutual rights and obligations of men within the
civilised nations have held their ground, on the whole, without
material net gain or net loss. It is the ground of Natural
Rights, of self-help and free bargaining. Civil rights and the
perquisites and obligations of ownership have remained
substantially intact over this interval of a hundred and fifty
years, but with some slight advance in the way of Live and let
live at certain points, and some slight retrenchment at other
points. So far as regards the formal stipulations, in law and
custom, the balance of class interests within these countries
has, on the whole, not been seriously disturbed. In this system
of Natural Rights, as it has worked out in practice, the rights
of ownership are paramount; largely because the other personal
rights in the case have come to be a matter of course and so have
ceased to hold men's attention.
So, in the matter of the franchise, e.g., the legal
provisions more nearly meet the popular ideals of the modern
point of view today than ever before. An the other hand the
guiding principles in the case at certain other points have
undergone a certain refinement of interpretation with a view to
greater ease and security for trade and investment; and there
has, in effect, been some slight abridgement of the freedom of
combination and concerted action at any point where an unguarded
exercise of such freedom would hamper trade or curtail the
profits of business, -- for the modern era has turned out to be
an era of business enterprise, dominated by the paramount claims
of trade and investment. In point of formal requirements, these
restrictions imposed on concerted action "in restraint of trade"
fall in equal measure on the vested interests engaged in business
and on the working population engaged in industry. So that the
measures taken to safeguard the natural rights of ownership apply
with equal force to those who own and those who do not. "The
majestic equality of the law forbids the rich as well as the poor
to sleep under bridges or to beg on the street corners." But it
has turned out on trial that the vested interests of business are
not seriously hampered by these restrictions; inasmuch as any
formal restriction on any concerted action between the owners of
such vested interests can always be got around by a formal
coalition of ownership in the shape of a corporation. The
extensive resort to corporate combination of ownership, which is
so marked a feature of the nineteenth century, was not foreseen
and was not taken into account in the eighteenth century, when
the constituent principles of the modern point of view found
their way into the common law. The system of Natural Rights is a
system of personal rights, among which the rights of ownership
are paramount; and among the rights of ownership is the right of
free disposal and security of ownership and of credit
obligations.
The same line of evasion is not available in the same degree
for concerted action between persons who own nothing. Still, in
neither case, neither as regards the owners of the country's
wealth nor as regards the common man, can these restrictions on
personal freedom of action be said to be a serious burden. And
any slight mutilation or abridgement of the rule of self-help in
their economic relations has been offset by an increasingly broad
and liberal construction of the principles of self-direction and
equality among men in their civil capacity and their personal
relations. Indeed, the increasingly exacting temper of the common
man in these countries during this period has made such an
outcome unavoidable. By and large, in its formal vindication of
personal liberty and equality before the law, the modern point of
view has with singular consistency remained intact in the shape
in which its principles were stabilised in the eighteenth
century, in spite of changing circumstances. In point of formal
compliance with their demands, the enlightened ideals of the
eighteenth century are, no doubt, more commonly realised in
practice today than at any earlier period. So that the modern
civilised countries are now, in point of legal form and perhaps
also in practical effect, more nearly a body of ungraded and
masterless men than any earlier generation has known how to be.
In this modern era, as well as elsewhere and in other times,
the circumstances that make for change and reconstruction have
been chiefly the material circumstances of everyday life, --
circumstances affecting the ordinary state of industry and
ordinary intercourse. These material circumstances have changed
notably during the modern era. There has been a progressive
change in the state of the industrial arts, which has materially
altered the scope and method of industry and the conditions under
which men live in all the civilised countries. Accordingly, as a
point of comparison, it will be to the purpose to call to mind
what were the material circumstances, and more particularly the
state of the industrial arts, which underlay and gave character
to the modern point of view at the period when its constituent
principles were found good and worked out as a stable and
articulate system, in the shape in which they have continued to
be held since then.
The material conditions of industry, trade and daily life
during the period of transition and approach to this modern
ground created that frame of mind which we call the modern point
of view and dictated that reconstruction of institutional
arrangements which has been worked out under its guidance.
Therefore the economic situation which so underlay and
conditioned this modern point of view at the period when it was
given its stable form becomes the necessary point of departure
for any argument bearing on the changes that have been going
forward since then, or on any prospective reconstruction that may
be due to follow from these changed conditions in the calculable
future. An this head, the students of history are in a singularly
fortunate position. The whole case is set forth in the works of
Adam Smith, with a comprehension and lucidity which no longer
calls for praise. Beyond all other men Adam Smith is the approved
and faithful spokesman of this modern point of view in all that
concerns the economic situation which it assumes as its material
ground; and his description of the state of civilised society,
trade and industry, as he saw it in his time and as he wished it
to stand over into the future, is to be taken without abatement
as a competent exposition of those material conditions which were
then conceived to underlie civilised society and to dictate the
only sound reconstruction of civil and economic institutions
according to the modern plan.
But like other men. Adam Smith was a creature of his own
time, and what he has to say applies to the state of things as he
saw them. What he describes and inquires into is that state of
things which was to him the "historical present"; which always
signifies the recent past, -- that is to say, the past as it had
come under his observation and as it had shaped his outlook.
As it is conventionally dated, the Industrial Revolution took
effect within Adam Smith's active lifetime, and some of its more
significant beginnings passed immediately under his eyes; indeed,
it is related that he took an active personal interest in at
least one of the epoch-making mechanical inventions from which
the era of the machine industry takes its date. Yet the
Industrial Revolution does not lie within Adam Smith's
"historical present," nor does his system of economic doctrines
make provision for any of its peculiar issues. What he has to say
on the mechanics of industry is conceived in terms derived from
an older order of things than that machine industry which was
beginning to get under way in his own life-time; and all his
illustrative instances and arguments on trade and industry are
also such as would apply to the state of things that was passing,
but they are not drawn with any view to that new order which was
then coming on in the world of business enterprise.
The economic situation contemplated by Adam Smith as the
natural (and ultimate) state of industry and trade in any
enlightened society, conducted on sane and sound lines according
to the natural order of human relations, was of a simple
structure and may be drawn in few lines, -- neglecting such minor
extensions and exceptions as would properly be taken account of
in any exhaustive description. Industry is conceived to be of the
nature of handicraft; not of the nature of mechanical
engineering, such as it has in effect and progressively come to
be since his time. It is described as a matter of workmanlike
labor, "and of the skill, dexterity and judgment with which it is
commonly applied." It is a question of the skilled workman and
his use of tools. Mechanical inventions are "labor-saving
devices," which "facilitate and abridge labor." The material
equipment is the ways and means by manipulation of which the
workman gets his work done. "Capital stock" is spoken of as
savings parsimoniously accumulated out of the past industry of
its owner, or out of the industry of those persons from whom he
has legally acquired it by inheritance or in exchange for the
products of his own labor. Business is of the nature of "petty
trade" and the business man is a "middle man" who is employed for
a livelihood in the distribution of goods to the consumers. Trade
is subsidiary to industry, and money is a vehicle designed to be
used for the distribution of goods. Credit is an expedient of the
needy; a dubious expedient. Profits (including interest) are
justified as a reasonable remuneration for productive work done,
and for the labor-saving use of property derived from the owner's
past labor. The efforts of masters and workmen alike are
conceived to be bent on turning out the largest and most
serviceable output of goods; and prices are competitively
determined by the labor-cost of the goods.
Like other men Adam Smith did not see into the future beyond
what was calculable on the data given by his own historical
present; and in his time that later and greater era of investment
and financial enterprise which has made industry subsidiary to
business was only beginning to get under way and only obscurely
so. So that he was still able to think of commercial enterprise
as a middle-man's traffic in merchandise, subsidiary to a
small-scale industry on the order of handicraft, and due to an
assumed propensity in men "to truck, barter, and exchange one
thing for another." And so much as he could not help seeing of
the new order of business enterprise which was coming in was not
rated by him as a sane outgrowth of that system of Natural
Liberty for which he spoke and about which his best affections
gathered. In all this he was at one with his thoughtful
contemporaries.
That generation of public-spirited men went, perforce, on the
scant data afforded by their own historical present, the economic
situation as they saw it in the perspective and with the
preconceptions of their own time; and to them it was accordingly
plain that when all unreasonable restrictions are taken away,
"the obvious and simple system of natural liberty establishes
itself of its own accord." To this "natural" plan of free
workmanship and free trade all restraint or retardation by
collusion among business men was wholly obnoxious, and all
collusive control of industry or of the market was accordingly
execrated as unnatural and subversive. It is true, there were
even then some appreciable beginnings of coercion and retardation
-- lowering of wages and limitation of output -- by collusion
between owners and employers who should by nature have been
competitive producers of an unrestrained output of goods and
services according to the principles of that modern point of view
which animated Adam Smith and his generation; but coercion and
unearned gain by a combination of ownership, of the now familiar
corporate type, was virtually unknown in his time. So Adam Smith
saw and denounced the dangers of unfair combination between
"masters" for the exploitation of their workmen, but the modern
use of credit and corporation finance for the collective control
of the labor market and the goods market of course does not come
within his horizon and does not engage his attention.
So also Adam Smith knows and denounces the use of protective
tariffs for private gain. That means of pilfering was familiar
enough in his time. But he spends little indignation on the
equally nefarious use of the national establishment for
safe-guarding and augmenting the profits of traders,
concessionaires, investors and creditors in foreign parts at the
cost of the home community. That method of taxing the common man
for the benefit of the vested interests has also grown to more
formidable proportions since his time. The constituent principles
of the modern point of view, as accepted advisedly or by
oversight by Adam Smith and his generation, supply all the
legitimation required for this larcenous use of the national
establishment; but the means of communication were still too
scant, and the larger use of credit was too nearly untried, as
contrasted with what has at a later date gone to make the
commercial ground and incentive of imperialist politics.
Therefore the imperialist policies of public enterprise for
private gain also do not come greatly within the range of Adam
Smith's vision of the future, nor does the "obvious and simple
system" on which he and his generation of thoughtful men take
their stand comprise anything like explicit declarations for or
against this later-matured chicane of the gentlemen-investors who
have been managing the affairs of the civilised nations.
Adam Smith's work and life-time falls in with the high tide
of eighteenth-century insight and understanding, and it marks an
epoch of spiritual achievement and stabilisation in civil
institutions, as well as in those principles of conduct that have
governed economic rights and relations since that date. But it
marks also the beginning of a new order in the state of the
industrial arts as well as in those material sciences which come
directly in touch with the industrial arts and which take their
logical bent from the same range of tangible experience. So it
happens that this modern point of view reached a stable and
symmetrical finality about the same date when the New Order of
experience and insight was beginning to bend men's habits of
thought into lines that run at cross purposes with this same
stabilised point of view. It is in the ways and means of industry
and in the material sciences that the new order of knowledge and
belief first comes into evidence; because it is in this domain of
workday facts that men's experience began about that time to take
a decisive turn at variance with the received canons. A
mechanistic conception of things began to displace those
essentially romantic notions of untrammeled initiative and
rationality that governed the intellectual life of the era of
enlightenment which was then drawing to a close.
It is logically due to follow that the same general
principles of knowledge and validity will presently undergo a
revision of the same character where they have to do with those
imponderable facts of human conduct and those conventions of law
and custom that govern the duties and obligations of men in
society. Here and now as elsewhere and in other times the
stubborn teaching that comes of men's experience with the
tangible facts of industry should confidently be counted on to
make the outcome, so as to bring on a corresponding revision of
what is right and good in that world of make-believe that always
underlies any established system of law and custom. The material
exigencies of the state of industry are unavoidable, and in great
part unbending; and the economic conditions which follow
immediately from these exigencies imposed by the ways and means
of industry are only less uncompromising than the mechanical
facts of industry itself. And the men who live under the rule of
these economic exigencies are constrained to make their peace
with them, to enter into such working arrangements with one
another as these unbending conditions of the state of the
industrial arts will tolerate, and to cast their system of
imponderables on lines which can be understood by the same men
who understand the industrial arts and the system of material
science which underlies the industrial arts. So that, in due
course, the accredited schedule of legal and moral rights,
perquisites and obligations will also presently be brought into
passable consistency with the ways and means whereby the
community gets its living.
But it is also logically to be expected that any revision of
the established rights, obligations, perquisites and vested
interests will trail along behind the change which has taken
effect in the material circumstances of the community and in the
community's knowledge and belief with regard to these material
circumstances; since any such revision of ancient rights and
perquisites will necessarily be consequent upon and conditioned
by that change, and since the axioms of law and custom that
underlie any established schedule of rights and perquisites are
always of the nature of make-believe; and the make-believe is
necessarily built up out of conceptions derived from the
accustomed range of knowledge and belief.
Out-worn axioms of this make-believe order become
superstitions when the scope and method of workday knowledge has
outgrown that particular range of preconceptions out of which
these make-believe axioms are constructed; which comes to saying
that the underlying principles of the system of law and morals
are therewith caught in a process of obsolescence, --
"depreciation by supersession and disuse." By a figure of speech
it might be said that the community's intangible assets embodied
in this particular range of imponderables have shrunk by that
much, through the decay of these imponderables that are no longer
seasonable, and through their displacement by other figments of
the human brain, -- a consensus of brains trained into closer
consonance with the latter-day material conditions of life.
Something of this kind, something in the way of depreciation by
displacement, appears now to be overtaking that system of
imponderables that has been handed down into current law and
custom out of that range of ideas and ideals that had the vogue
before the coming of the machine industry and the material
sciences.
Since the underlying principles of the established order are
of this make-believe character, that is to say, since they are
built up out of the range of conceptions that have habitually
been doing duty as the substance of knowledge and belief in the
past, it follows in the nature of the case that any
reconstruction of institutions will be made only tardily,
reluctantly, and sparingly; inasmuch as settled habits of thought
are given up tardily, reluctantly and sparingly. And this will
particularly be true when the reconstruction of unseasonable
institutions runs counter to a settled and honorable code of
ancient principles and a stubborn array of vested interests, as
in this instance. Such is the promise of the present situation,
and such is also the record of the shift that was once before
made from medieval to modern times. It should be a case of break
or bend.
Chapter 3
The State of the Industrial Arts
The modern point of view, with its constituent principles of
equal opportunity, self-help, and free bargaining, was given its
definitive formulation in the eighteenth century, as a balanced
system of Natural Rights; and it has stood over intact since that
time, and has served as the unquestioned and immutable ground of
public morals and expediency, on which the advocates of
enlightened and liberal policies have always been content to rest
in their case. The truths which it holds to be self-evident and
indefeasible are conceived to be intrinsically bound up in an
over-ruling Order of Nature; in which thoughtful men habitually
believed at that time and in which less thoughtful men have
continued to believe since then. This eighteenth-century order of
nature, in the magic name of which Adam Smith was in the habit of
speaking, was conceived on lines of personal initiative and
activity. It is an order of things in which men were conceived to
be effectually equal in all those respects that are of any
decided consequence, -- in intelligence, working capacity,
initiative, opportunity, and personal worth; in which the
creative factor engaged in industry was the workman, with his
personal skill, dexterity and judgment; in which, it was
believed, the employer ("master") served his own ends and sought
his own gain by consistently serving the needs of creative labor,
and thereby serving the common good; in which the traders
("middle-men") made an honest living by supplying goods to
consumers at a price determined by labor cost, and so serving the
common good.
This characterisation of the "obvious and simple system" that
lies at the root of the liberal ideals may seem too much of a
dream to any person who shuns "the scientific use of the
imagination"; its imponderables may seem to lack that axiomatic
self-sufficiency which one would like to find in the spiritual
foundations of a working system of law and custom. Indeed, the
best of its imponderables are in a fair way now to drop back into
the discard of uncertified make-believe. But in point of
historical fact it appears to have stood the test of time and
use, so far as appears formally on the face of law and custom.
For a hundred years and more it has continued to stand as a
familiar article of faith and aspiration among the advocates of a
Liberal policy in civil and economic affairs; and Adam Smith's
followers -- the economists and publicists of the Liberal
movement -- have spoken for it as being the normal system of
economic life, the "natural state of man," from which the course
of events has been conceived to depart only under pressure of
"disturbing causes," and to which the course of events must be
pruned back at all hazards in the event of any threatened advance
or departure beyond the "natural" bounds set by this working
ideal.
However, the subsequent course of events has shown no
indisposition to depart from this normal system of economic life,
this "natural state of man," on the effectual reality of which
the modern point of view rests its inviolate principles of law
and morals and economic expediency. A new order of things has
been taking effect in the state of the industrial arts and in the
material sciences that lie nearest to that tangible body of
experience out of which the state of the industrial arts is
framed. And the new order of industrial ways and means has been
progressively going out of touch with the essential requirements
of this established scheme of individual self-help and personal
initiative, on the realisation and maintenance of which the best
endeavors of the Liberals have habitually been spent.
Under the new order the first requisite of ordinary
productive industry is no longer the workman and his manual
skill, but rather the mechanical equipment and the standardised
processes in which the mechanical equipment is engaged. And this
latter-day industrial equipment and process embodies not the
manual skill, dexterity and judgment of an individual workman,
but rather the accumulated technological wisdom of the community.
Under the new order of things the mechanical equipment -- the
"industrial plant" -- takes the initiative, sets the pace, and
turns the workman to account in the carrying-on of those
standardised processes of production that embody this mechanistic
state of the industrial arts; very much as the individual
craftsman in his time held the initiative in industry, set the
pace, and made use of his tools according to his own discretion
in the exercise of his personal skill, dexterity and judgment,
under that now obsolescent industrial order which underlies the
eighteenth-century modern point of view, and which still colors
the aspirations of Liberal statesmen and economists, as well as
the standard economic theories.
The workman -- and indeed it is still the skilled workman --
is always indispensable to the due working of this mechanistic
industrial process, of course; very much as the craftsman's
tools, in his time, were indispensable to the work which he had
in hand. But the unit of industrial organization and procedure,
what may be called the "going concern" in production, is now the
outfit of industrial equipment, a works, engaged in a given
standardised mechanical process designed to turn out a given
output of standardised product; it is the plant, or the shop. And
under this new order of industrial methods and values it has
already come to be a commonplace of popular "knowledge and
belief" that the mechanical equipment is the creative factor in
industry, and the "production" of the output is credited to the
plant's working capacity and set down to its account as a going
concern; whereas the other factors engaged, as e.g., workmen and
materials, are counted in as auxiliary factors which are
indispensable but subsidiary -- items of production-cost which
are incorporated in the running expenses of the plant and its
productive process.
Under the new order the going concern in production is the
plant or shop, the works, not the individual workman. The plant
embodies a standardised industrial process. The workman is made
use of according as the needs of the given mechanical process may
require. The time, place, rate, and material conditions of the
work in hand are determined immediately by the mechanically
standardised process in which the given plant is engaged; and
beyond that all these matters are dependent on the exigencies and
manoeuvres of business, largely by way of moderating the rate of
production and keeping the output reasonably short of maximum
capacity. The workman has become subsidiary to the mechanical
equipment, and productive industry has become subservient to
business, in all those countries which have come in for the
latter-day state of the industrial arts, and which so have fallen
under the domination of the price system.
Such is the state of things throughout in those greater
industries that are characteristic of the New Order; and these
greater industries now set the pace and make the standards of
management and valuation for the rest. At the same time these
greater industries of the machine era extend their domination
beyond their own immediate work, and enforce a standardisation of
much the same mechanical character in the community at large; in
the ways and means of living as well as in the ways and means of
work. The effects of their mechanically standardised production,
in the way of goods and services as well as in the similarly
standardised traffic through which these goods and services are
distributed to the consumers, reach out into the everyday life of
all classes; but most immediately and imperatively they reach the
working class of the industrial centers. So they largely set the
pace for the ordinary occupations of the common man even apart
from any employment in the greater mechanical industries. It is
especially the latter-day system of transport and communication
as it works out under the new order highly mechanical and
exactingly scheduled for time, rate and place -- that so controls
and standardises the ordinary life of the common man on
mechanical lines.
The training enforced by this mechanical standardisation,
therefore, is of much the same order throughout the community as
it is within the mechanical industries proper, and it drives to
the same outcome, -- submergence of the personal equation. So
that the workday information and the reasoning by use of which
all men carry on their daily life under the new order is of the
same general character as that information and reasoning which
guides the mechanical engineers; and the unremitting habituation
to its scope and method, its principles of knowledge and belief,
leads headlong to a mechanistic conception of things, ways,
means, ends, and values, whether it is called by that name or
not. The resulting frame of mind is often spoken of as
Materialism. This impersonal character of workday habituation is
particularly to be counted on to take decisive effect wherever
the latter-day scheme of mechanical standardisation takes effect
with all that wide sweep and massive drift with which it now
dominates the larger centers of population.
Since the modern era began, the state of the industrial arts
has been undergoing a change of type. Such as the followers of
Mendel would call a "mutation." And in the course of this
mutation the workman and his part in the conduct of industry have
suffered as great a dislocation as any of the other factors
involved. But it is also to be admitted that the typical
owner-employer of the earlier modern time, such as he stood in
the mind's eye of the eighteenth-century doctrinaires, -- this
traditional owner-employer has also come through the period of
the mutation in a scarcely better state of preservation. At the
period of this stabilisation of principles in the eighteenth
century, he could still truthfully be spoken of as a "master," a
foreman of the shop, and he was then still invested with a large
reminiscence of the master-craftsman, as known in the time of the
craft-gilds. He stood forth in the eighteenth-century argument on
the Natural Order of things as the wise and workmanlike designer
and guide of his workmen's handiwork, and he was then still
presumed to be living in workday contact and communion with them
and to deal with them on an equitable footing of personal
interest.
Such a characterisation of the capitalist-employer who was
doing business at the time of the Industrial Revolution may seem
over-drawn; and there is no need of insisting on its precise
accuracy as a description of eighteenth-century facts. But it
should not be extremely difficult to show that substantially such
a figure of an employer-owner was had in mind by those who then
argued the questions of wages and employment and laid down the
lines on which the employment of labor would be expected to
arrange itself under the untroubled system of natural liberty.
But what is more to the point is that which is beyond question.
In practical fact, almost as fully as in the speculations of the
doctrinaires, the employer of labor in the staple industries of
that time was, in his own person, commonly also the owner of the
establishment in which his hired workmen were employed; and also
-- again in passable accord with the facts -- he was presumed
personally to come to terms with his workmen about wages and
conditions of work. Employment was considered to be a relation of
man to man. That much is explicit in the writings which bear the
date-mark of this modern Liberal point of view; and the same
assumption has continued to stand over as a self-sufficient
premise among the defenders of the free competitive system in
industry, for three or four generations after that period.
But the course of events has gone its own way, and about that
time -- somewhere along in the middle half of the eighteenth
century -- that type of employer began to be displaced in those
staple industries which have since then set the pace and made the
outcome for wages and conditions of work. So soon as the machine
industry began to make headway, the industrial plant increased in
size, and the number of workmen employed in each establishment
grew continually larger; until in the course of time the large
scale of organisation in industry has put any relation of man to
man out of the question between employers and workmen in the
leading industries. Indeed, it is not unusual to find that in an
industrial plant of a large or middling size, a factory, mill,
works, mine, shipyard or railway of the ordinary sort, very few
of the workmen would be able, under oath, to identify their
owner. At the same time, and owing to the same requirements of
large-scale and mechanical organisation, the ownership of the
works has also progressively been changing character; so that
today, in the large and leading industries, the place of the
personal employer-owner is taken by a composite business concern
which represents a combination of owners, no one of whom is
individually responsible for the concern's transactions. So true
is this, that even where the ownership of a given industrial
establishment still vests wholly or mainly in a single person, it
has commonly been found expedient to throw the ownership into the
corporate form, with limited liability.
The personal employer-owner has virtually disappeared from
the great industries. His place is now filled by a list of
corporation securities and a staff of corporation officials and
employees who exercise a limited discretion. The personal note is
no longer to be had in the wage relation, except in those
backward, obscure and subsidiary industries in which the
mechanical reorganisation of the new order has not taken effect.
So, even that contractual arrangement which defines the workman's
relation to the establishment in which he is employed, and to the
anonymous corporate ownership by which he is employed, now takes
the shape of a statistical reckoning, in which virtually no trace
of the relation of man to man is to be found. Yet the principles
of the modern point of view governing this contractual relation,
in current law and custom, are drawn on the assumption that wages
and conditions of work are arranged for by free bargaining
between man and man on a footing of personal understanding and
equal opportunity.
That the facts of the New Order have in this way departed
from the ground on which the constituent principles of the modern
point of view are based, and on which therefore the votaries of
the established system take their stand, -- this state of things
can not be charged to anyone's personal account and made a
subject of recrimination. In fact, it is not a case for personal
discretion and responsibility in detail, but rather for concerted
action looking to some practicable working arrangement.
The personal equation is no longer a material factor in the
situation. Ownership, too, has been caught in the net of the New
Order and has been depersonalised to a degree beyond what would
have been conceivable a hundred years ago, especially so far as
it has to do with the use of material resources and man power in
the greater industries. Ownership has been "denatured" by the
course of events; so that it no longer carries its earlier duties
and responsibilities. It used to be true that personally
responsible discretion in all details was the chief and abiding
power conferred by ownership; but wherever it has to do with the
machine industry and large-scale organisation, ownership now has
virtually lost this essential part of its ordinary functions. It
has taken the shape of an absentee ownership of anonymous
corporate capital, and in the ordinary management of this
corporate capital the greater proportion of the owners have no
voice.
This impersonal corporate capital, which is taking the place
of the personal employer-owner of earlier times, is the outcome
of a mutation of the scheme of things in business enterprise,
scarcely less profound than the change which has overtaken the
material equipment in the shift from handicraft methods to the
machine technology. In practical fact today, corporate capital is
the capitalised earning capacity of the corporation considered as
a going business concern; and the ownership of this capital
therefore foots up to a claim on the earnings of the corporation.
Corporate capital of this kind is impersonal in more than one
sense: it may be transferred piecemeal from one owner to another
without visibly affecting the management or the rating of the
concern whose securities change hands in this way; and the
personal identity of the owner of any given block of this capital
need not be known even to the concern itself, to its
administrative officers, or to those persons whose daily work and
needs are bound up with the daily transactions of the concern.
For most purposes and as regards the greater proportion of the
investors who in this way own the corporation's capital, these
owners are, in effect, anonymous creditors, whose sole effectual
relation to the enter prise is that of a fixed "overhead charge"
on its operations. Such is the case even in point of form as
regards the investors in corporate bonds and preferred stock. The
ordinary investor is, in effect, an anonymous pensioner on the
enterprise; his relation to industry is in the nature of a
liability, and his share in the conduct of this industry is much
like the share which the Old Man of the Sea once had in the
promenades of Sinbad.
No doubt, any reasonably skilful economist any certified
accountant of economic theory -- could successfully question the
goodness of this characterisation of corporate capital. It is, in
fact, not such a description as is commonly met with in those
theories of ownership and investment that trace back to the
formal definitions of Ricardo and Adam Smith. Nor is this
description of latter-day facts here set down as a formal
definition of corporate capital and its uses; nor is it designed
to fit into that traditional scheme of conceptions that still
holds the attention of the certified economists. Its aim is the
less ambitious one of describing, in a loose and informal way,
what is the nature and uses of this corporate capital and its
ownership, in the apprehension of the common man out of doors. He
is not so familiar with the recondite wisdom of the past, or with
subtle definitions, other than the latter-day subtleties of the
market, the crop season, the blast-furnace and refinery, the
internal-combustion engine, and such like hard and fast matters
with which he is required to get along from day to day. The
purpose here is only to bring out, without undue precision, what
these interesting phenomena of capital, investment, fixed
charges, and the like, may be expected to foot up to in terms of
tangible performance, in the unschooled reflections of the common
man, who always comes in as "the party of the second part" in all
these manoeuvres of corporation finance. He commonly has no more
than a slender and sliding grasp of those honorable principles of
certified make-believe that distinguish the modern point of view
in all that relates to property and its uses; but he has had the
benefit of some exacting experience in the ways of the new order
and its standards of reckoning. By consequence of much untempered
experience the common man is beginning to see these things in the
glaring though fitful light of that mechanistic conception that
rates men and things on grounds of tangible performance, --
without much afterthought. As seen in this light, and without
much afterthought, very much of the established system of
obligations, earnings, perquisites and emoluments, appears to
rest on a network of make-believe. Now, it may be deplorable,
perhaps inexcusable, that the New Order in industry should
engender habits of thought of this unprofitable kind; but then,
after all, regrets and excuses do not make the outcome, and with
sufficient reason attention today centers on the outcome.
To the common man who has taken to reckoning in terms of
tangible performance, in terms of man power and material
resources, these returns on investment that rest on productive
enterprise as an overhead charge are beginning to look like
unearned income. Indeed, the same unsympathetic preconception has
lately come in for a degree of official recognition. High
officials who are presumed to speak with authority, discretion
and an unbiassed mind have lately spoken of incomes from
investments as "unearned incomes," and have even entertained a
project for subjecting such incomes to a differential rate of
taxation above what should fairly be imposed on "earned incomes,"
All this may, of course, be nothing more than an unseasonable
lapse of circumspection on the part of the officials, who have
otherwise, on the whole, consistently lived up to the best
traditions of commercial sagacity; and a safe and sane
legislature has also canvassed the matter and solemnly disallowed
any such invidious distinction between earned and unearned
incomes. Still, this passing recognition of unearned incomes is
scarcely less significant for being unguarded; and the occurrence
lends a certain timeliness to any inquiry into the source and
nature of that net product of industry out of which any fixed
overhead charges of this kind are drawn.
To come to an understanding of the source and origin of this
margin of disposable revenue that goes to the earnings of
corporate capital, it is necessary to come to an understanding of
the industrial system out of which the disposable margin of
revenue arises. Productive industry yields a margin of net
product over cost, counting cost in terms of man power and
material resources; and under the established rule of self-help
and free bargaining as it works out in corporation finance, this
margin of net product has come to rest upon productive industry
as an overhead charge payable to anonymous outsiders who own the
corporation securities.
There need be no question of the equity of this arrangement,
as between the men at work in the industries and the
beneficiaries to whom the overhead charge is payable. At least
there is no intention here to question the equity of it, or to
defend the arrangement against any question that may be brought.
It is also to be remarked that the whole arrangement has this
appearance of gratuitous handicap and hardship only when it is
looked at from the crude ground level of tangible performance.
When seen in the dry light of the old and honest principles of
self-help and equal opportunity, as understood by the substantial
and well-meaning citizens, it all casts no shadow of iniquity or
inexpediency.
So, without prejudice to any ulterior question which may be
harbored by one and another, the question which is here had in
mind is quite simply as to the production of this disposable
margin of net product over human cost. And to pass muster today,
any attempted answer will be required to meet that exacting and
often inconvenient insistence on palpable fact which is of the
essence of the new order of knowledge and belief. It is necessary
to reach an understanding of these things in terms of tangible
performance, in such terms as are germane to that new order of
knowledge and belief out of which the perplexity arises, rather
than in those terms of equitable imputation that lie at the root
of the certified economic doctrines and of corporation finance.
These relevant facts are neither particularly obscure nor
particularly elusive; only, they have had little attention in the
argument of economists and politicians. Still less in the
speculations of the captains of finance. The partition of incomes
has always been more easily understood by these
practically-minded persons, and it is also a more engrossing
subject of argumentation than the production of goods. This would
be particularly true for these economists and politicians, who
are imbued with that legalistic spirit which pervades the modern
point of view and all its votaries.
But it is known to all, even to the most safely guarded
persons who do not come in contact with industry or production,
or even with the products of the staple industries, that industry
at large will always turn out something in the way of a net
margin of product over human cost, -- over human effort and
necessary consumption. It holds true as far back as the records
have anything to say. It is evidently a question of the
productivity of the industrial arts. Men at work turn out a net
product because they know how and are interested in doing it; and
their output is limited by the industrial methods which they have
the use of. But the output is limited in such a way that it
always exceeds the cost by more or less, barring accident. By and
large, throughout past time the industrial arts have been gaining
in efficiency, and the ordinary margin of net product over cost
has consequently gone on widening. This is much of the meaning of
"an advance in the industrial arts."
In an earlier time, by law and custom, the net margin of
product habitually went to a master class, so-called, as the
"earnings" or the due emoluments of their mastery over those
industrious classes who carried forward and gave effect to the
state of the industrial arts as known in their time. By virtue of
their mastery and its incorporation in the institutions of the
time, they had an equitable, and effectual, vested interest in
the net product of the community's industry; and by virtue of the
same settled principles of law and custom it was for them to see
to the due consumption of any such net product above cost. In
later times, and particularly in modern times and in the
civilised countries, those immemorial principles of privilege
equitably vested in the master class have fallen into discredit
as being not sufficiently grounded in fact; so that mastery and
servitude are disallowed and have disappeared from the range of
legitimate institutions. The enlightened principles of self-help
and personal equality do not tolerate these things. However, they
do tolerate free income from investments. Indeed, the most
consistent and most reputable votaries of the modern point of
view commonly subsist on such income.
Ever since these enlightened principles of the modern point
of view were first installed in the eighteenth century as the
self-evident rule of reason in civilised life, the industrial
arts have also continued to gain in productive efficiency, at an
ever-accelerated rate of gain; so that today the industrial
methods of the machine era are highly productive, beyond any
earlier state of the industrial arts or anything that is known
outside the range of this new order of industry. The output of
this industrial system yields a wider margin of net product over
cost than has ever been obtainable by any other or earlier known
method of work. It consequently affords ground for an uncommonly
substantial vested interest in this disposable net margin.
But the industrial system of the new order will work at the
high rate of efficiency of which it is capable, only under
suitable conditions. It is a comprehensive system of
interdependent working parts, organised on a large scale and with
an exacting articulation of parts, -- works, mills, railways,
shipping, groups and lines of industrial establishments, all
working together on a somewhat delicately balanced plan of mutual
give and take. No one member or section of this system is a
self-sufficient industrial enterprise, even if it is true that no
one member is strictly dependent on any other one. Indeed, no one
member or section, group or line of industrial establishments, in
this industrial universe of the new order, is a productive factor
at all, except as it fits into and duly gives and takes its share
in the work of the system as a whole. Such exceptions to this
rule of interlocking processes as may appear on first
examination, are likely to prove exceptions in appearance only.
They are chiefly the backward trades and occupations which have
not had the benefit of the Industrial Revolution and do not
belong under the new, mechanistic order of industry; or they are
trades, occupations and works devoted to the consumption of goods
or to the maintenance of the rules governing the distribution and
consumption of wealth, as, for instance, banking, menial service,
police service and the apparatus of the law, the learned
professions and the fine arts.
It is also of the essence of this industrial system and its
technology that it necessarily involves the industrial community
as a whole, its working population and its material resources;
and the measure of its successful operation is determined by the
effectual team-work of its constituent parts. And the industrial
system of the new order is drawn on a large scale and rests on a
comprehensive specialisation of processes and standardisation of
output; so that the "community" which is required for the
necessary team-work is necessarily a large community; larger than
the total population and resources that would have served the
like purpose under any earlier state of the industrial arts, at
the same time that the needed coordination of processes is also
wider and more delicately balanced than ever before. Indeed, the
"industrial community" of the new order is always and necessarily
larger than any existing national unit. The ramification of give
and take under the new industrial system invariably overlaps the
national frontiers, among all those peoples who occupy what would
be called an "advanced" place in industry. The system, and
therefore the industrial community engaged in team-work under
this system, is drawn on cosmopolitan or international lines,
both in respect of the body of technological knowledge which is
turned to account and in respect of the range and volume of
materials necessary to be used according to this new order in
productive industry.
Evidently the total output of product turned out under this
industrial system, the "annual production," to use Adam Smith's
phrase, or the "annual dividend," to use a phrase taken from
later usage, -- this total output is the output of the total
community working together as a balanced organisation of
industrial forces engaged in a moving equilibrium of production.
No part or fraction of the community is a productive factor in
its own right and taken by itself, since no work can be done by
any segment of the community in isolation from the rest; no one
plant or works would be a producer in the absence of all the
rest. The total product is the product of the total community's
work; or rather it is the product of the work of that fraction of
the people who are employed in productive work, which is not
quite the same thing, since there is much work spent on the
consumption of goods, and on ways and means for such consumption,
as well as on their production.
Indeed, it is by no means certain that there is not more
time, strain and ingenuity spent on the consumption of goods than
on their production. Apart from sports, menial service,
fashionable dress and equipage, pet animals and mandatory social
amenities, there would also have to be included under the ways
and means of consumption virtually all that goes into
salesmanship and advertising. Virtually all of these things have
to do with the organised consumption of goods; and virtually all
are therefore to be written off as waste motion, so far as
regards their effect on the net productive efficiency of the
industrial community, or of the industrial system whose tissues
are consumed in enterprise of that kind. The amount which is to
be written off as consumptive waste in this way is approximately
the same as the net margin of product over cost; and according to
the enlightened principles of self-help and equal opportunity, as
these principles work out under the new order of industry, it is
for the investors to take care of this consumptive waste and to
see that no unconsumed residue is left over to cumber the market
and produce a glut.
Evidently, too, the amount of the annual production depends
on the state of the industrial arts which the working population
has the use of for the time being; which is in the main a matter
of technological knowledge and popular education. So that the
question of productivity and net productivity may be stated in
general terms to the following effect: The possible or potential
productive capacity of any given community, having the disposal
of a given complement of man power and material resources, is a
matter of the state of the industrial arts, the technological
knowledge, which the community has the use of. This sets the
limit, determines the "maximum" production of which the community
is capable. The actual production in such a community will then
be determined by the extent to which the available technological
efficiency is turned to account; which is regulated in part by
the intelligence, or "education," of the working population, and
in greater part by market conditions which decide how large a
product it will be profitable for the business men to turn out.
The net product is the amount by which this actual production
exceeds its own cost, as counted in terms of subsistence, and
including the cost of the necessary mechanical equipment; this
net product will then approximately coincide with the annual
keep, the cost of maintenance and replacement, of the investors
or owners of capitalised property who are not engaged in
productive industry; and who are on this account sometimes spoken
of as the "kept classes," Indeed, it would seem that the number
and average cost per capita of the kept classes, communibus
annis, affords something of a rough measure of the net product
habitually derived from the community's annual production.
The state of the industrial arts, therefore, is the
indispensable conditioning circumstance which determines the
productive capacity of any given community; and this is true in a
peculiar degree under this new order of industry, in which the
industrial arts have reached an unexampled development. The same
decisive factor may also be described as "the community's joint
stock of technological knowledge." This common stock of
technological knowledge decides what will be the ordinary ways
and means of industry, and so it decides what will be the
character and volume of the output of product which a given man
power is capable of turning out. Evidently no man power and no
working population can turn out any annual product without the
use of something in the way of technological knowledge, that is
to say some state of the industrial arts. The working community
is a productive factor only by virtue of, and only up to the
limit set by, the state of the industrial arts which it has the
use of. The contrast of industrial Japan or of industrial Germany
before the middle of the nineteenth century and after the close
of the century will serve for illustration; that is to say before
and after those peoples had come in for the use of the technology
of the machine era. The disposable excess of the yearly product
over cost is a matter of the efficiency of the available state of
technological knowledge, and of the measure in which the working
population is put in a position to make use of it. These, of
course, are obvious facts, which it should scarcely be necessary
to recite, except that they are habitually overlooked, perhaps
because they are obvious.
The Industrial Revolution of the eighteenth century was a
revolution in the state of the industrial arts, of course; it was
a mutation of character in the common stock of technological
knowledge held and used by the industrial population of the
civilised countries from that time forward. The shift from the
older to the new order of industry was of such a nature as to
call for the use of an extensive equipment of mechanical
apparatus, progressively more and more extensive as the change to
the machine technology went on; and at the same time the
disposable margin of product above cost also progressively went
on increasing with each further increase of the community's joint
stock of technological knowledge.
This body of technological knowledge, the state of the
industrial arts, of course has always continued to be held as a
joint stock. Indeed this joint stock of technology is the
substance of the community's civilisation on the industrial side,
and therefore it constitutes the substantial core of that
civilisation. Like any other phase or element of the cultural
heritage, it is a joint possession of the community, so far as
concerns its custody, exercise, increase and transmission; but it
has turned out, under the peculiar circumstances that condition
the use of this technology among these civilised peoples, that
its ownership or usufruct has come to be effectually vested in a
relatively small number of persons. Unforeseen and undesigned,
the mechanical circumstances of the new order in industry have
reversed the practical effects of the common law in respect of
self-help, equal opportunity and free bargaining. The mechanics
of the case has worked out this result by cutting away the ground
on which those principles were based at the time of their
acceptance and installation.
The machine technology requires for its working a large and
specialised mechanical apparatus, an ever increasingly large and
increasingly elaborate material equipment. So also it requires a
large and diversified supply of material resources, both in raw
materials and in the way of motive power. It is only on condition
that these requirements are met in some passable fashion that
this industrial system will work at all, and it is only as these
requirements are freely met that the machine industry will work
at a high efficiency. At the same time the settled principles of
law and usage and public policy handed down from the eighteenth
century have in effect decided, and continue to decide, that all
material wealth is, rightly, to be held in private ownership, and
is to be made use of only subject to the unhampered discretion of
the legally rightful owner. Meantime the highly productive state
of the industrial arts embodied in the technological knowledge of
the new order can be turned to account only by use of this
material equipment and these natural resources which continue to
be held in private ownership. From which it follows that these
material means of industry, and the state of the industrial arts
which these material means are to serve, can be turned to
productive use only so far and on such conditions as the rightful
owners of the material equipment and resources may choose to
impose; which enables the owners of this indispensable material
wealth, in effect, to take over the use of these industrial arts
for their own sole profit. So that the usufruct of the
community's technological knowledge has come to vest in the
owners of such material wealth as is held in sufficiently large
blocks for the purpose.
Therefore, by award of the settled principles of equity and
self-help embodied in the modern point of view, as stabilised in
the eighteenth century, the owners of the community's material
resources -- that is to say the investors in industrial business
-- have in effect become "seized and possessed of" the
community's joint stock of technological knowledge and
efficiency. Not that this accumulated knowledge of industrial
forces and processes has passed into the intellectual keeping of
the investors and been assimilated into their mentality, even to
the extent of a reasonably scanty modicum. It remains true, of
course, that the investors, owners, kept classes, or whatever
designation is preferred, are quite exceptionally ignorant of all
that mechanics of industry whose usufruct is vested in them; they
are, in effect, fully occupied with other things, and their
knowledge of industry ordinarily does not, and need not, extend
to any rudiments of technology or industrial process. It is not
as intelligent persons, but only as owners of material ways and
means, as vested interests, that they come into the case. The
exceptions to this rule are only sufficiently numerous to call
attention to themselves as exceptions.
As an intellectual achievement and as a working force the
state of the industrial arts continues, of course, to be held
jointly in and by the community at large; but equitable title to
its usufruct has, in effect, passed to the owners of the
indispensable material means of industry. Though not hitherto by
formal specification and legal provision, their assets include,
in effect, the state of the industrial arts as well as the
mechanical appliances and the materials without which these
industrial arts are of no effect. It is true, a little something,
and indeed more than a little, has been done toward the due legal
recognition of the investor's usufruct of the community's
technological efficiency, in the recognition of vested interests
and intangible assets as articles of private property defensible
at law. But on the whole, and until a relatively recent date, the
investors' tenure of this usufruct has been allowed to rest
informally on their control of the community's material assets.
Still, the outlook now appears to be that something further may
presently be done toward a more secure and unambiguous tenure of
this usufruct, by suitable legal decisions bearing on the
inviolability of vested interests and intangible assets. The
outcome is, in effect, that these owners have equitably become
the sole legitimate beneficiaries of the possible margin of
product above cost.
These are also simple facts and patent, and should seem
sufficiently obvious without argument. They have also been
explained at some length elsewhere. But this recital of what
should already be commonplace information seems necessary here
for the sake of a more perspicuous continuity in the present
argument. To many persons, perhaps to the greater proportion of
those unpropertied persons that are often spoken of collectively
as "the common man," the state of things which has just been
outlined may seem untoward. And further reflection on the
character and prospective consequences of this arrangement is
likely to add something more to the common man's apprehension of
hardship and insecurity to come. Therefore it may be well to
recall that this state of things has been brought to pass not by
the failure of those principles of equity and self-help that lie
at the root of it all, but rather by the eminently unyielding
stability and sufficiency of these principles under new
conditions. It is not due to any inherent weakness or shiftiness
in these principles of law and custom; which have faithfully
remained the same as ever, and which all men admit were good and
sound at the period of their installation. But it is beginning to
appear now, after the event, that the inclusion of unrestricted
ownership among those rights and perquisites which were allowed
to stand over when the transition was made to the modern point of
view is likely to prove inexpedient in the further course of
growth and change.
Unrestricted ownership of property, with inheritance, free
contract, and self-help, is believed to have been highly
expedient as well as eminently equitable under the circumstances
which conditioned civilised life at the period when the civilised
world made up its mind to that effect. And the discrepancy which
has come in evidence in this later time is traceable to the fact
that other things have not remained the same. The odious outcome
has been made by disturbing causes, not by these enlightened
principles of honest living. Security and unlimited discretion in
the rights of ownership were once rightly made much of as a
simple and obvious safeguard of self-direction and self-help for
the common man; whereas, in the event, under a new order of
circumstances, it all promises to be nothing better than a means
of assured defeat and vexation for the common man.
Chapter 4
Free Income
Industry of the modern sort -- mechanical, specialised,
standardised, drawn on a large scale -- is highly productive.
When this industrial system of the new order is not hindered by
outside control it will yield a very large net return of output
over cost, -- counting cost in terms of man power and necessary
consumption; so large, indeed, that the cost of what is
necessarily consumed in productive work, in the way of materials,
mechanical appliances, and subsistence of the workmen, is
inconsiderable by comparison. The same thing may be described by
saying that the necessary consumption of subsistence and
industrial plant amounts to but an inconsiderable deduction from
the gross output of industry at any time. So inordinately
productive is this familiar new order of industry that in
ordinary times it is forever in danger of running into excesses
and turning out an output in excess of what the market -- that is
to say the business situation -- will tolerate. There is constant
danger of "overproduction," So that there is commonly a large
volume of man power unemployed and an appreciable proportion of
the industrial plant lying idle or half idle. It is quite
unusual, perhaps altogether out of the question, to let all or
nearly all the available plant and man power run at full capacity
even for a limited time.
It is, of course, impossible to say how large the net
aggregate product over cost would be -- counting the product in
percentages of the necessary cost -- in case this industrial
system were allowed to work at full capacity and with free use of
all the available technological knowledge. There is no safe
ground for an estimate, for such a thing has never been tried,
and no near approach to such a state of things is to be looked
for under the existing circumstances of ownership and control.
Even under the most favorable conditions of brisk times the
business situation will not permit it. There will at least always
be an indefinitely large allowance to be reckoned for work and
substance expended on salesmanship, advertising, and competitive
management designed to increase sales. This line of expenditures
is a necessary part of businesslike management, although it
contributes nothing to the output of goods, and in that sense it
is to be counted as a necessary deduction from the net productive
capacity of the industrial system as it runs. It would also be
extremely difficult to make allowance for this deduction, since
much of it is not recognised as such by the men in charge and
does not appear on their books under any special descriptive
heading. In one way and another, and for divers and various
reasons, the net production of goods serviceable for human use
falls considerably short of the gross output, and the gross
output is always short of the productive capacity of the
available plant and man power.
Still, taken as it goes, with whatever handicap of these
various kinds is to be allowed for, it remains patently true that
the net product greatly exceeds the cost. So much so that
whatever is required for the replacement of the material
equipment consumed in production, plus "reasonable returns" on
this equipment, commonly amounts to no more than a fraction of
the total output. The resulting margin of excess product over
cost plus reasonable returns on the material equipment is due to
the high productive efficiency of the current state of the
industrial arts and is the source of that free income which gives
rise to intangible assets. The distinction between tangible
assets and intangible is not a hard and fast one, of course, but
the difference is sufficiently broad and sufficiently well
understood for use in the present connection, so long as no pains
is taken to confuse these terms with needless technical verbiage.
To avoid debate and digression, it may be remarked that
"reasonable returns" is also here used in the ordinary sense of
the expression, without further definition, as being sufficiently
understood and precise enough for the argument. The play of
motives and transactions by which a rough common measure of
reasonable returns has been arrived at is taken for granted. A
detailed examination of all that matter would involve an extended
digression, and nothing would be gained for the argument.
According to the traditional view, which was handed on from the
period before the coming of corporation finance, and which still
stands over as an article of common belief in the certified
economic theories, "capital" represents the material equipment,
valued at its cost, together with funds in hand required as a
"working capital" to provide materials and a labor force. On this
view, corporation securities are taken to cover ownership of the
plant and the needed working capital; and there has been a
slow-dying prejudice against admitting that anything less
tangible than these items should properly be included in the
corporate capitalisation and made a basis on which to issue
corporate securities. Hence that stubborn popular prejudice
against "watered stock" which corporation finance had to contend
with all through the latter half of the nineteenth century.
"Watered stock" is now virtually a forgotten issue. Corporation
finance has disposed of the quarrel by discontinuing the relevant
facts.
There is still a recognised distinction between tangible
assets and intangible; but it has come to be recognised in
corporation practice that the only reasonable basis of
capitalisation for any assets, tangible or intangible, is the
earning-capacity which they represent. And the amount of capital
is a question of capitalisation of the available assets. So that,
if the material equipment, e.g., is duly capitalised on its
earning-capacity, any question as to its being "watered" is no
longer worth pursuing; since stock can be said to be "watered"
only by comparison with the cost of the assets which it covers,
not in relation to its earning-capacity. The latter point is
taken care of by the stock quotations of the market. On the other
hand, intangible assets neither have now nor ever have had any
other basis than capitalisation of earning capacity, and any
question of "water" in their case is consequently quite idle.
Intangible assets will not hold water.
Corporation finance is one of the outgrowths of the New
Order. And one of the effects wrought by corporation finance is a
blurring of the distinction between tangible assets and
intangible; inasmuch as both are now habitually determined by a
capitalisation of earning-capacity, rather than by their
ascertained cost, and it is difficult, if not impossible, to draw
a hard and fast line between that part of a concern's
earning-capacity which is properly to be assigned to its plant
and that which is due to its control of the market. Still, an
intelligible distinction is maintained in common usage, between
tangible assets and intangible, even if the distinction is
somewhat uncertain in detail; and such a distinction is
convenient, so long as too sharp a contrast between the two is
not insisted on.
The earning-capacity of the tangible assets is presumed to
represent the productive capacity of the plant, considered as a
mechanical apparatus engaged in an industrial process for the
production of goods or services; it is presumed to rest on the
market value of the mechanical output of the plant. The plant is
a productive factor because and in so far as it turns to
practical account the state of the industrial arts now in use, --
the community's joint stock of technological knowledge. So soon,
or so far, as the plant and its management falls short of meeting
the ordinary requirements of this current state of the industrial
arts, and fails to make use of such technological knowledge as is
commonly employed, the whole works ceases by that much to be a
productive factor. The productive efficiency, and the productive
value, of any given item of industrial equipment is measured by
its effective use of the technological knowledge current in the
community for the time being. So also, the productive value of
any given body of natural resources land, raw materials, motive
power -- is strictly dependent on the degree in which it fits
into the industrial system as it runs.
This dependence of productive value on conformity to and use
of the state of the industrial arts is constantly shown in the
case of land and similar natural resources, by the fluctuation of
rental values. Land and other resources will be more valuable the
more suitable they are for present and prospective use. The like
is true for the mechanical equipment, perhaps in a more
pronounced degree. Industrial plant, e.g., is always liable to
depreciation by obsolescence in case the state of the industrial
arts changes in such a way that the method of work embodied in
the particular article of equipment is displaced by new and more
suitable methods, more suitable under the altered circumstances.
In such a case, which is of very frequent occurrence under the
new order of industry, any given plant, machine, or similar
contrivance may lose all its value as a means of production. And
so also, on the other hand, a given plant, as, for instance, a
given railway system or dock, may acquire additional productive
value through changes in the industrial system which make it more
suitable for present use.
Evidently the chief, or at least the indispensable, element
of productive efficiency in any item of industrial equipment or
resources is the use which it makes of the available
technological knowledge; and evidently, too, its earning-capacity
as a productive factor depends strictly on the same fact, -- the
usufruct of the state of the industrial arts. And all the while
the state of the industrial arts, which the industrial equipment
so turns to account for the benefit of its owner, continues to be
a joint stock of industrial knowledge and proficiency
accumulated, held, exercised, increased and transmitted by the
community at large; and all the while the owner of the equipment
is some person who has contributed no more than his per-capita
quota to this state of the industrial arts out of which his
earnings arise. Indeed the chances are that the owner has
contributed less than his per-capita quota, if anything, to that
common fund of knowledge on the product of which he draws by
virtue of his ownership, because he is likely to be fully
occupied with other things, -- such things as lucrative business
transactions, e.g., or the decent consumption of superfluities.
And at this point the difference between tangible assets and
intangible comes in sight, or at least the ground of the habitual
distinction between the two. Tangible assets, it appears, are
such assets as represent the earning-capacity of any mechanically
productive property; whereas intangible assets represent assured
income which can not be assigned to any specific material factor
as its productive source. Intangible assets are the capitalised
value of income not otherwise accounted for. Such income arises
out of business relations rather than out of industry; it is
derived from advantages of salesmanship, rather than from
productive work; it represents no contribution to the output of
goods and services, but only an effectual claim to a share in the
"annual dividend," -- on grounds which appear to be legally
honest, but which can not be stated in terms of mechanical cause
and effect, or of productive efficiency, or indeed in any terms
that involve notions of physical dimensions or of mechanical
action.
When the theoreticians explain and justify these returns that
go to adroit salesmanship, or "managerial ability," as it is also
called, it invariably turns but that the grounds assigned for it
are of the nature of figures of speech -- metaphor or analogy.
Not that these standard theoretical explanations are to be set
aside as faulty, inadequate or incomplete; their great volume and
sincerity forbids that. It is rather that they are to be accepted
as a faithful account of an insubstantial fact in insubstantial
terms. And they are probably as good an account of the equitable
distribution of free income as the principles of the modern point
of view will tolerate.
But while intangible assets represent income which accrues
out of certain immaterial relations between their owners and the
industrial system, and while this income is accordingly not a
return for mechanically productive work done, it still remains
true, of course, that such income is drawn from the annual
product of industry, and that its productive source is therefore
the same as that of the returns on tangible assets. The material
source of both is the same; and it is only that the basis on
which the income is claimed is not the same for both. It is not a
difference in respect of the ways and means by which they are
created, but only in respect of the ways and means by which these
two classes of income are intercepted and secured by the
beneficiaries to whom they accrue. The returns on tangible assets
are assumed to be a return for the productive use of the plant;
returns on intangible assets are a return for the exercise of
certain immaterial relations involved in the ownership and
control of industry and trade.
Best known by name among intangible assets is the ancient
rubric of "good-will," technically so called; which has stood
over from before the coming of the new order in business
enterprise. This has long been considered the original type-form
of intangible assets as a class. By ancient usage the term
denotes a customary preferential advantage in trade; it is not
designed to describe a body of benevolent sentiments. Good-will
has long been known, discussed and allowed for as a legitimate,
ordinary and valuable immaterial possession of men engaged in
mercantile enterprise of all kinds. It has been held to be a
product of exemplary courtesy and fair dealing with customers,
due to turning out goods or services of an invariably sound
quality and honest measure, and indeed due to the conspicuous
practice of the ordinary Christian virtues, but chiefly to common
honesty. Similarly valuable, and of a similarly immaterial
nature, is the possession of a trade-secret, a trade-mark, a
patent-right, a franchise, any statutory monopoly, or a monopoly
secured by effectually cornering the supply or the market for any
given line of goods or services. From any one of these a
profitable advantage may be derived, and they have therefore a
market value. They afford their possessor a preferential gain, as
against his competitors or as against the general body of
customers which the state of the industrial arts and the
organisation of business throws in his way. After the analogy of
good-will, it has been usual to trace any such special run of
free income to the profitable use of a special advantage in the
market, which is then appraised as a valuable means of gain and
comes to figure as an asset of its possessor. But all this goes
to explain how these benefits go to these beneficiaries; it does
not account for the fact that there is produced a net output of
product available for free distribution to these persons.
These supernumerary and preferential gains, "excess profits,"
or whatever words may best describe this class of free income,
may be well deserved by these beneficiaries, or they may not. The
income in question is, in any case, not created by the good
deserts of the beneficiaries, however meritorious their conduct
may be. Honesty may conceivably be the best policy in mercantile
pursuits, and it may also greatly serve the convenience of any
community in which an honest merchant is found; yet honest
dealing, strictly speaking, is an agency of conservation rather
than of creation. A trade-secret may also be profitable to the
concern which has the use of it, and the special process which it
covers may be especially productive; but the same article of
technological knowledge would doubtless contribute more to the
total productivity of industry if it were shared freely by the
industrial community at large. Such technological knowledge is an
agency of production, but it is the monopoly of it that is
profitable to its possessor as a special source of gain. The like
applies to patent-rights, of course. Whereas monopolies of the
usual kind, which control any given line of industry by charter,
conspiracy, or combination of ownership, derive their special
gains from their ability to restrain trade, limit the output of
goods or services, and so "maintain prices."
Intangible assets of this familiar kind are very common among
the business concerns of the new order, particularly among the
larger and more prosperous of them, and they afford a rough
measure of the ability of these concerns profitably to restrict
production. The very large aggregate value of such assets
indicates how imperative it is for the conduct of industrial
business under the new order to restrict output within reasonable
limits, and at the same time how profitable it is to be able to
prevent the excessively high productive capacity of modern
industry from outrunning the needs of profitable business. For
the prosperity of business it is necessary to keep the output
within reasonable limits; that is to say, within such limits as
will serve to maintain reasonably profitable prices; that is to
say, such prices as will yield the largest obtainable net return
to the concerns engaged in the business. In this connection, and
under the existing conditions of investment and credit,
"reasonable returns" means the same thing as "the largest
practicable net returns." It all foots up to an application of
the familiar principle of "charging what the traffic will bear";
for in the matter of profitable business there is no reasonable
limit short of the maximum. In business, the best price is always
good enough; but, so also, nothing short of the best price is
good enough. Buy cheap and sell dear.
Intangibles of this kind, which represent a "conscientious
withdrawal of efficiency," an effectual control of the rate or
volume of output, are altogether the most common of immaterial
assets, and they make up altogether the largest class of
intangibles and the most considerable body of immaterial wealth
owned. Land values are of much the same nature as these corporate
assets which represent capitalised restriction of output, in that
the land values, too, rest mostly on the owner's ability to
withhold his property from productive use, and so to drive a
profitable bargain. Rent is also a case of charging what the
traffic will bear; and rental values should properly be classed
with these intangible assets of the larger corporations, which
are due to their effectual control of the rate and volume of
production. And apart from the rental values of land, which are
also in the nature of monopoly values, it is doubtful if the
total material wealth in any of the civilised countries will
nearly equal the total amount of this immaterial wealth that is
owned by the country's business men and the investors for whom
they do business. Which evidently comes to much the same as
saying that something more than one-half of the net product of
the country's industry goes to those persons in whom the existing
state of law and custom vests a plenary power to hinder
production.
It is doubtful if the total of this immaterial wealth exceeds
the total material wealth in the advanced industrial countries;
although it is at least highly probable that such is the case,
particularly in the richer and more enlightened of these
countries; as, e. g., in America or the United Kingdom, where the
principles of self-help and free bargain have consistently had
the benefit of a liberal -- that is a broad -- construction and
an unbending application. The evidence in the case is not to be
had in such unambiguous shape as to carry conviction, for the
distinction between tangible assets and intangible is not
consistently maintained or made a matter of record. So, e.g., it
is not unusual to find that corporation bonds -- railroad or
industrial -- which secure their owner a free income and are
carried as an overhead charge by the corporation, are at the same
time a lien on the corporation's real property; which in turn is
likely to be of less value than the corporation's total
liabilities. Evidently the case is sufficiently confusing,
considered as a problem in the economic theory of capital, but it
offers no particular difficulty when considered as a proposition
in corporation finance.
There is another curious question that will also have to be
left as a moot question, in the absence of more specific
information than that which is yet available; more a question of
idle curiosity, perhaps, than of substantial consequence. How
nearly is it likely that the total gains which accrue to these
prosperous business concerns and their investors from their
conscientious withdrawal of efficiency will equal the total loss
suffered by the community as a whole from the incidental
reduction of the output? Net production is kept down in order to
get a profitable price for the output; but it is not certain
whether the net production has to be lowered by as much or more
than the resulting increased gain which this businesslike
strategy brings to the businesslike strategists. The strategic
curtailment of net production below productive capacity is net
loss to the community as a whole, including both the business men
and their customers; the gains which go to these business
concerns in this way are net loss to the community as a whole,
exclusive of the business concerns and their investors. The
resulting question is, therefore, not whether the rest of the
community loses as much as the business men gain, -- that goes
without saying, since the gains of the business men in the case
are paid over to them by the rest of the community in the
enhanced (or maintained) price of the products, but rather it is
a question whether the rest of the community, the common man,
loses twice as much as the business concerns and their investors
gain.
The whole case has some analogy with the phenomena of
blackmail, ransom, and any similar enterprise that aims to get
something for nothing; although it is carefully to be noted that
its analogy with these illegitimate forms of gainful enterprise
must, of course, not be taken to cast any shadow of suspicion on
the legitimacy of all the businesslike sabotage that underlies
this immaterial corporate capital and its earning-capacity. In
the case of blackmail, ransom, and such like illegal traffic in
extortion, it is known that the net loss suffered by the loser
and the gainer together exceeds the net gain which accrues to the
beneficiary, by as much as the cost of enforcement plus the
incidental inconvenience to both parties to the transaction. At
the same time, the beneficiary's subsequent employment and
consumption of his "ill-gotten gains," as they are sometimes
called, whether he consumes them in riotous living or in the
further pursuit of the same profitable line of traffic, -- all
this, it is believed, does not in any degree benefit the rest of
the community. As seen in the perspective of the common good,
such enterprise in extortion is believed to be quite wastefully
disserviceable.
Now, this analogy may be taken for what it is worth;
"Analogies do not run on all-fours." But when seen in the same
perspective, the question of loss and gain involved in the case
of these intangible assets and their earning-capacity falls into
something like this shape: Does the total net loss suffered by
the community at large, exclusive of the owners of these
intangibles, exceed two-hundred percent of the returns which go
to these owners? or, Do these intangibles cost the community more
than twice what they are worth to the owners? -- the loss to the
community being represented by the sum of the overhead burden
carried on account of these intangibles plus the necessary
curtailment of production involved in maintaining profitable
prices. The overhead burden is paid out of the net annual
production, after the net annual production has been reduced by
so much as may be necessary to "maintain prices at a reasonably
profitable figure."
A few years ago any ordinarily observant person would
doubtless have answered this question in the negative, probably
without hesitation. So also, any ordinarily intelligent votary of
the established order, as, e.g., a corporation lawyer, a
commercial trade journal, or a trade-union official, would
doubtless, at that period, have talked down such a question out
of hand, as being fantastically preposterous. That would have
been before the war experience began to throw light into the dark
places of business enterprise as conducted under the new order of
industry. Today (October, 1918) -- it is to be admitted with such
emotion as may come to hand -- this question is one which can be
entertained quite seriously, in the light of experience. In the
recent past, as matters have stood up to the outbreak of the war,
the ordinary rate of production in the essential industries under
businesslike management has habitually and by deliberate
contrivance fallen greatly short of productive capacity. This is
an article of information which the experience of the war has
shifted from the rubric of "Interesting if True" to that of
"Common Notoriety."
The question as to how much this "incapacity by advisement"
has commonly amounted to may be attempted somewhat after this
fashion. Today, under compulsion of patriotic devotion, fear,
shame and bitter need, and under the unprecedentedly shrewd
surveillance of public officers bent on maximum production, the
great essential industries controlled by the vested interests
may, one with another, be considered to approach -- perhaps even
conceivably to exceed -- a fifty-percent efficiency; as counted
on the basis of what should ordinarily be accomplished by use of
an equally costly equipment having the disposal of an equally
large and efficient labor force and equally good natural
resources, in case the organisation were designed and managed
with an eye single to turning out a serviceable product, instead
of, as usual, being managed with an eye single to private gain in
terms of price.
To the spokesmen of "business as usual" this rating of
current production under the pressure of war needs may seem
extravagantly low; whereas, to the experts in industrial
engineering, who are in the habit of arguing in terms of material
cost and mechanical output, it will seem extravagantly high.
Publicly, and concessively, this latter class will speak of a 25
percent efficiency; in private and confidentially they appear
disposed to say that the rating should be nearer to 10 percent
than 25. To avoid any appearance of an ungenerous bias, then,
present actual production in these essential industries may be
placed at something approaching 50 percent of what should be
their normal productive capacity in the absence of a businesslike
control looking to "reasonable profits." It is necessary at this
point to call to mind that the state of the industrial arts under
the new order is highly productive, -- beyond example.
This state of the case, that production in the essential
industries presumably does not exceed 50 percent of the normal
productive capacity, even when driven under the jealous eye of
public officers vested with power to act, is presumably due in
great part to the fact that these officers, too, are capable
business men; that their past training and present bent is such
as has been given them by long, exacting and successful
experience in the businesslike management of industry; that their
horizon and perspective in all that concerns industry are limited
by the frame of mind that is native to the countinghouse. They,
too, have learned how to think of industry and its administration
in terms of profit on investment, and, indeed, in no other terms;
that being as near as their daily work has allowed them to take
stock of the ways and means of industry. So that they are still
guided, in some considerable part, by considerations of what is
decent, equitable and prudent in the sight of conservative
business men; and this bias necessarily goes with them in their
dealings with those ubiquitous, intricate and systematic
dislocations of the industrial system which have been found
profitable in the management of industry on a footing of
competitive sabotage. They still find it reasonable to avoid any
derangement of those vested interests that live on this margin of
intangible assets that represents capitalised withdrawal of
efficiency.
In so characterising the situation there is, of course, no
inclination to impute blame to these businesslike officials who
are patriotically giving their best abilities and endeavors to
this work of enforcing an increased production in the essential
industries and diverting needed labor and materials from the
channels of waste; nor is it intended to cast aspersions on the
good faith or the honorable motives of those grave captains of
industry whom the officials find it so difficult to divert from
the business man's straight and narrow path of charging what the
traffic will bear. "They are all honorable men," But like other
men they are creatures of habit; and their habit of mind is the
outcome of experience in that class of large, responsible and
remunerative business affairs that lie somewhat remote from the
domain of technology, from that field where the mechanistic logic
of the industrial arts has something to say. It is only that the
situation as here spoken of rests on settled usage, and that the
usage is such as the businesslike frame of mind is suited to; at
the same time that this businesslike usage, of fixed charges,
vested interests and reasonable profits, does not fully comport
with the free swing of the industrial arts as they run under the
new order of technology. Nor is there much chance of getting away
from this situation of "incapacity by advisement," even under
pressure of patriotic devotion, fear, shame and need, inasmuch as
the effectual public opinion has learned the same bias and will
scarcely entrust the conduct of its serious interests to any
other than business men and business methods.
To return to the argument. It may be conceded that production
in the essential industries, under pressure of the war needs,
rises to something like a 50 percent efficiency. At the same time
it is presumably well within the mark to say that this current
output in these essential industries will amount to something
like twice their ordinary output in time of peace and business as
usual, One-half of 50 percent is 25 percent; and so one comes in
sight of the provisional conclusion that under ordinary
conditions of businesslike management the habitual net production
is fairly to be rated at something like one-fourth of the
industrial community's productive capacity; presumably under that
figure rather than over.
In the absence of all reflection this crude estimate may seem
recklessly hasty, perhaps it may even be thought scandalously
unflattering to our substantial citizens who have the keeping of
the community's material welfare; but a degree of observation and
reflection will quickly ease any feeling of annoyance on that
score. So, e.g., if the account as presented above does not
appear to foot up to as much as the conclusion would seem to
require, further account may be taken of that side-line of
business enterprise that spends work and materials in an effort
to increase the work to be done, and to increase the cost per
unit of the increased work; all for the benefit of the earnings
of the concern for whose profit it is arranged. It may be called
to mind that there still are half-a-dozen railway passenger
stations in such a town as Chicago, especially designed to work
at cross purposes and hinder the traffic of competing railway
corporations; that on the basis of this ingeniously contrived
retardation of traffic there has been erected a highly prosperous
monopoly in the transfer of baggage and passengers, employing a
large equipment and labor force and costing the traveling public
some millions of useless outlay yearly; with nothing better to
show for it than delay, confusion, wear and tear, casualties and
wrangles, twenty-four hours a day; and that this arrangement is,
quite profitably, duplicated throughout the country as often and
on as large a scale as there are towns in which to install it. So
again, there is an exemplary weekly periodical of the most widely
reputable and most profitable class, with a circulation of more
than two million, which habitually carries some 60 to 80 large
pages of competitive advertising matter, at a time when the most
exacting economy of work and materials is a matter of urgent and
acknowledged public need; with nothing better to show for it than
an increased cost of all the goods advertised, most of which are
superfluities. This, too, is only a typical case, duplicated by
the thousand, as nearly as the businesslike management of the
other magazines and newspapers can achieve the same result. These
are familiar instances of business as usual under the new order
of industry. They are neither extreme nor extraordinary. Indeed
the whole business community is run through with enterprise of
this kind so thoroughly that this may fairly be said to be the
warp of the fabric. In effect, of course, it is an enterprise in
subreption; but in point of moral sentiment and conscious motive
it is nothing of the kind.
All these intricate arrangements for doing those things that
we ought not to have done and leaving undone those things that we
ought to have done are by no means maliciously intended. They are
only the ways and means of diverting a sufficient share of the
annual product to the benefit of the legitimate beneficiaries,
the kept classes. But this apparatus and procedure for capturing
and dividing this share of the community's annual dividend is
costly -- one is tempted to say unduly costly. It foots up to,
perhaps, something like one-half of the work done, and it is
occupied with taking over something like one-half of the output
produced by the remaining one-half of the year's work. And yet,
as a business proposition it seems sound enough, inasmuch as the
income which it brings to the beneficiaries will presumably foot
up to something like one-half of the country's annual production.
There is nothing gained by finding fault with any of this
businesslike enterprise that is bent on getting something for
nothing, at any cost. After all, it is safe and sane business,
sound and legitimate, and carried on blamelessly within the rules
of the game, One may also dutifully believe that there is really
no harm done, or at least that it might have been worse. It is
reassuring to note that at least hitherto the burden of this
overhead charge of 50 percent plus has not broken the back of the
industrial community. It also serves to bring under a strong
light the fact that the state of the industrial arts as it runs
under the new order is highly productive, inordinately
productive. And, finally, there should be some gain of serenity
in realising how singularly consistent has been the run of
economic law through the ages, and recalling, once more the
reflection which John Stuart Mill arrived at some half-a-century
ago, that, "Hitherto it is questionable if all the mechanical
inventions yet made have lightened the day's toil of any human
being."
Chapter 5
The Vested Interests
There are certain saving clauses in common use among persons
who speak for that well-known order of pecuniary rights and
obligations which the modern point of view assumes as "the
natural state of man." Among them are these: "Given the state of
the industrial arts"; "Other things remaining the same"; "In the
long run"; "In the absence of disturbing causes," It has been the
praiseworthy endeavor of the votaries of this established law and
custom to hold fast the good old plan on a strategic line of
interpretation resting on these provisos. There have been
painstaking elucidations of what is fundamental and intrinsic in
the way of human institutions, of what essentially ought to be,
and of what must eventually come to pass in the natural course of
time and change as it is believed to run along under the guidance
of those indefeasible principles that make up the modern point of
view. And the disquieting incursions of the New Order have been
disallowed as not being of the essence of Nature's contract with
mankind, within the constituent principles of the modern point of
view stabilised in the eighteenth century.
Now, as has already been remarked in an earlier passage, the
state of the industrial arts has at no time continued unchanged
during the modern era; consequently other things have never
remained the same; and in the long run the outcome has always
been shaped by the disturbing causes. All this reflects no
discredit on the economists and publicists who so have sketched
out the natural run of the present and future in the dry light of
the eighteenth-century principles, since their reservations have
not been observed. The arguments have been as good as the
premises on which they proceed, and the premises have once been
good enough to command unquestioning assent; although that is now
some time ago. The fault appears to lie in the unexampled shifty
behavior of the latter-day facts. Yet however shifty, these
facts, too, are as stubborn as others of their kind.
The system of free competition, self-help, equal opportunity
and free bargaining which is contemplated by the modern point of
view, assumes an industrial situation in which the work and
trading of any given individual or group can go on freely by
itself, without materially helping or hindering the equally
untrammeled working of the rest. It has, of course, always been
recognised that the country's industry makes up something of a
connected system; so that there would necessarily be some degree
of mutual adjustment and accommodation among the many
self-sufficient working units which together make up the
industrial community; but these working units have been conceived
to be so nearly independent of one another that the slight
measure of running adjustment needed could be sufficiently taken
care of by free competition in the market. This assumption has,
of course, never been altogether sound at any stage in the
industrial advance; but it has at least been within speaking
distance of facts so late as the eighteenth century. It was a
possible method of keeping the balance in the industrial system
before the coming of the machine industry. Quite evidently it
commended itself to the enlightened common sense of that time as
a sufficiently workable ideal. So much so that it then appeared
to be the most practical solution of the industrial and social
difficulties which beset that generation. It is fairly to be
presumed that the plan would still be workable in some fashion
today if the conditions which then prevailed had continued
unchanged through the intervening one hundred and fifty years, if
other things had remained the same. All that was, in effect,
before the coming of the machine technology and the later growth
of population.
But as it runs today, according to the new industrial order
set afoot by the machine technology, the carrying-on of the
community's industry is not well taken care of by the loose
corrective control which is exercised by a competitive market.
That method is too slow, at the best, and too disjointed. The
industrial system is now a wide-reaching organisation of
mechanical processes which work together on a comprehensive
interlocking plan of give and take, in which no one section,
group, or individual unit is free to work out its own industrial
salvation except in active copartnership with the rest; and the
whole of which runs on as a moving equilibrium of forces in
action. This system of interlocking processes and mutually
dependent working units is a more or less delicately balanced
affair. Evidently the system has to be taken as a whole, and
evidently it will work at its full productive capacity only on
condition that the coordination of its interlocking processes be
maintained at a faultless equilibrium, and only when its
constituent working units are allowed to run full and smooth. But
a moderate derangement will not put it out of commission. It will
work at a lower efficiency, and continue running, in spite of a
very considerable amount of dislocation; as is habitually the
case today.
At the same time any reasonably good working efficiency of
the industrial system is conditioned on a reasonably good
coordination of these working forces; such as will allow each and
several of the working units to carry on at the fullest working
capacity that will comport with the unhampered working of the
system as a balanced whole. But evidently, too, any dislocation,
derangement or retardation of the work at any critical point --
which comes near saying at any point -- in this balanced system
of work will cause a disproportionately large derangement of the
whole. The working units of the industrial system are no longer
independent of one another under the new order.
It is, perhaps, necessary to add that the industrial system
has not yet reached anything like the last degree of development
along this line; it is at least not yet a perfected automatic
mechanism. But it should also be added that with each successive
advance into the new order of industry created by the machine
technology, and at a continually accelerated rate of advance, the
processes of industry are being more thoroughly standardised, the
working units of the system as a whole demand a more undeviating
maintenance of its moving equilibrium, a more exacting mechanical
correlation of industrial operations and equipment. And it seems
reasonable to expect that things are due to move forward along
this line still farther in the calculable future, rather than the
reverse.
This state of things would reasonably suggest that the
control of the industrial system had best be entrusted to men
skilled in these matters of technology. The industrial system
does its work in terms of mechanical efficiency, not in terms of
price. It should accordingly seem reasonable to expect that its
control would be entrusted to men experienced in the ways and
means of technology, men who are in the habit of thinking about
these matters in such terms as are intelligible to the engineers.
The material welfare of the community is bound up with the due
working of this industrial system, which depends on the expert
knowledge, insight, and disinterested judgment with which it is
administered. It should accordingly have seemed expedient to
entrust its administration to the industrial engineers, rather
than to the captains of finance. The former have to do with
productive efficiency, the latter with the higgling of the
market.
However, by historical necessity the discretionary control in
all that concerns this highly technological system of industry
has come to vest in those persons who are highly skilled in the
higgling of the market, the masters of financial intrigue. And so
great is the stability of that system of law and custom by grace
of which these persons claim this power, that any disallowance of
their plenary control over the material fortunes of the community
is scarcely within reason. All the while the progressive shifting
of ground in the direction of a more thoroughly mechanistic
organisation of industry goes on and works out into a more and
more searching standardisation of works and methods and a more
exacting correlation of industries, in an ever increasingly large
and increasingly sensitive industrial system. All the while the
whole of it grows less and less manageable by business methods;
and with every successive move the control exercised by the
business men in charge grows wider, more arbitrary, and more
incompatible with the common good.
Business affairs, in the narrow sense of the expression, have
in time necessarily come in for an increasing share of the
attention of those who exercise the control. The businesslike
manager's attention is continually more taken up with "the
financial end" of the concern's interests; so that by enforced
neglect he is necessarily leaving more of the details of shop
management and supervision of the works to subordinates, largely
to subordinates who are presumed to have some knowledge of
technological matters and no immediate interest in the run of the
market. They are in fact persons who are presumed to have this
knowledge by the business men who have none of it. But the larger
and final discretion, which affects the working of the industrial
system as a whole, or the orderly management of any considerable
group of industries within the general system,- all that is still
under the immediate control of the businesslike managers, each of
whom works for his own concern's gain without much afterthought.
The final discretion still rests with the businesslike
directorate of each concern -- the owner or the board -- even in
all questions of physical organisation and technical management;
although this businesslike control of the details of production
necessarily comes to little else than acceptance, rejection, or
revision of measures proposed by the men immediately in charge of
the works; together with a constant check on the rate and volume
of output, with a view to the market.
In very great part the directorate's control of the industry
has practically taken the shape of a veto on such measures of
production as are not approved by the directorate for
businesslike reasons, that is to say for purposes of private
gain. Business is a pursuit of profits, and profits are to be had
from profitable sales, and profitable sales can be made only if
prices are maintained at a profitable level, and prices can be
maintained only if the volume of marketable output is kept within
reasonable limits; so that the paramount consideration in such
business as has to do with the staple industries is a reasonable
limitation of the output. "Reasonable" means "what the traffic
will bear"; that is to say, "what will yield the largest net
return."
Hence in the larger mechanical industries, which set the pace
for the rest and which are organised on a standardised and more
or less automatic plan, the current oversight of production by
their businesslike directorate does not effectually extend much
beyond the regulation of the output with a view to what the
traffic will bear; and in this connection there is very little
that the business men in charge can do except to keep the output
short of productive capacity by so much as the state of the
market seems to require; it does not lie within their competence
to increase the output beyond that point, or to increase the
productive capacity of their works, except by way of giving the
technical men permission to go ahead and do it.
The business man's place in the economy of nature is to "make
money," not to produce goods. The production of goods is a
mechanical process, incidental to the making of money; whereas
the making of money is a pecuniary operation, carried on by
bargain and sale, not by mechanical appliances and powers. The
business men make use of the mechanical appliances and powers of
the industrial system, but they make a pecuniary use of them. And
in point of fact the less use a business man can make of the
mechanical appliances and powers under his charge, and the
smaller a product he can contrive to turn out for a given return
in terms of price, the better it suits his purpose. The highest
achievement in business is the nearest approach to getting
something for nothing. What any given business concern gains must
come out of the total output of productive industry, of course;
and to that extent any given business concern has an interest in
the continued production of goods. But the less any given
business concern can contrive to give for what it gets, the more
profitable its own traffic will be. Business success means
"getting the best of the bargain."
The common good, so far as it is a question of material
welfare, is evidently best served by an unhampered working of the
industrial system at its full capacity, without interruption or
dislocation. But it is equally evident that the owner or manager
of any given concern or section of this industrial system may be
in a position to gain something for himself at the cost of the
rest by obstructing, retarding or dislocating this working system
at some critical point in such a way as will enable him to get
the best of the bargain in his dealings with the rest. This
appears constantly in the altogether usual, and altogether
legitimate, practice of holding out for a better price. So also
in the scarcely less usual, and no less legitimate, practice of
withholding needed ground or right of way, or needed materials or
information, from a business rival. Indeed it has been rumored
that one of the usual incentives which drew the patriotic
one-dollar-a-year men from their usual occupations to the service
of their country was the chance of controlling information by
means of which to "put it over" their business rivals. All these
things are usual and a matter of course, because business
management under the conditions created by the new order of
industry is in great part made up of these things. Sabotage of
this kind is indispensable to any large success in industrial
business.
But it is also evident that the private gain which the
business concerns come in for by this management entails a loss
on the rest of the community, and that the loss suffered by the
rest of the community is necessarily larger than the total gains
which these manoeuvres bring to the business concerns; inasmuch
as the friction, obstruction and retardation of the moving
equilibrium of production involved in this business-like sabotage
necessarily entails a disproportionate curtailment of output.
However, it is well to call to mind that the community will
still be able to get along, perhaps even to get along very
tolerably, in spite of a very appreciable volume of sabotage of
this kind; even though it does reduce the net productive capacity
to a fraction of what it would be in the absence of all this
interference and retardation; for the current state of the
industrial arts is highly productive. So much so that in spite of
all this deliberate waste and confusion that is set afoot in this
way for private gain, there still is left over an absolutely
large residue of net production over cost. The community still
has something to go on. The available margin of free income --
that is to say, the margin of production over cost -- is still
wide; so that it allows a large latitude for playing fast and
loose with the community's livelihood.
Now, these businesslike manoeuvres of deviation and delay are
by no means to be denounced as being iniquitous or unfair,
although they may have an unfortunate effect on the conditions of
life for the common man. That is his misfortune, which law and
custom count on his bearing with becoming fortitude. These are
the ordinary and approved means of carrying on business according
to the liberal principles of free bargain and self-help as
established in the eighteenth century; and they are in the main
still looked on as a meritorious exercise of thrift and sagacity
-- duly so looked on, it is to be presumed. At least such is the
prevailing view among the substantial citizens, who are in a
position to speak from first-hand knowledge. It is only that the
exercise of these homely virtues on the large scale on which
business is now conducted, and when dealing with the
wide-reaching articulations of the industrial system under the
new order of technology, -- under these uncalled-for
circumstances the unguarded exercise of these virtues entails
business disturbances which are necessarily large, and which
bring on mischievous consequences in industry which are
disproportionately larger still.
It is also true, the businesslike managers of industrial
enterprise have also other things to do, besides holding the
marketable supply of goods and services down to such an amount as
is expected to bring the most profitable prices, or diverting
credulous customers from one seller to another by competitive
advertising. But it should also be noted that there is next to no
business enterprise, if any, whose chief end is not profitable
sales, or profitable bargains which mean the same thing as
profitable sales. They are therefore engaged unremittingly in one
or another of the approved lines of competitive management with a
view to profitable traffic for themselves, and to creating an
advantage for themselves in the market. It is a poor-spirited
concern that does not constantly aim to create for itself such a
position of advantage as will give it something of a vested
interest in the traffic. Such a concern is scarcely fit to
survive; nor is it likely to.
It is not that business enterprise is wholly taken up with
such like manoeuvres of restraint, obstruction and competitive
selling. This is only part of the business men's everyday work,
although it is not a minor part. In any competitive business
community this line of duties will take up a large share of the
business men's attention and will engage their best and most
businesslike abilities. More particularly in the management of
the greater industrial enterprises of the present day, the larger
as well as the more lucrative part of the duties of those who
direct affairs appears commonly to be of this nature. That such
should be the case lies in the nature of things under the
circumstances which now prevail. It would not be far out of the
way to say that any occupations in which this rule does not apply
are occupations which have not, or have not yet, come into line
as members in good standing in that new order of business
enterprise which is based on the machine industry governed by the
liberal principles of the eighteenth century.
"Our people, moreover, do not wait to be coached and led.
They know their own business, are quick and resourceful at every
readjustment, definite in purpose, and self-reliant in action...
The American business man is of quick initiative. The ordinary
and normal processes of private initiative will not, however,
provide immediate employment for all of the men of our returning
armies," Such is the esteem in which American business men are
held by American popular opinion and such is also the view which
American business men are inclined to take of their own place and
value in the community. There need be no quarrel with it. But it
will be in place to call attention to the statement that "The
ordinary and normal processes of private initiative will not,
however, provide immediate employment for all the men." It should
be added, as is plain to all men, that these ordinary and normal
processes of private initiative never do provide employment for
all the men available. In fact, unemployment is an ordinary and
normal phenomenon. So that even in the present emergency, when
the peoples of Christendom are suffering privation together for
want of goods needed for immediate use, the ordinary and normal
processes of private initiative are not to be depended on to
employ all the available man power for productive industry. The
reason is well known to all men; so well known as to be uniformly
taken for granted as a circumstance which is beyond human remedy.
It is the simple and obvious fact that the ordinary and normal
processes of private initiative are the same thing as "business
as usual," which controls industry with a view to private gain in
terms of price; and the largest private, gain in terms of price
can not be had by employing all the available man power and
speeding up the industries to their highest productivity, even
when all the peoples of Christendom are suffering privation
together for want of the ordinary necessaries of life. Private
initiative means business enterprise, not industry.
But all the same, the profits of business come out of the
product of industry; and industry is controlled, accelerated and
slowed down with a view to business profits; and one outcome of
this arrangement so far, in America, has been the complacent
estimate of this business enterprise formulated in the passage
quoted above. The result of a businesslike management of industry
for private gain in America has on the whole been a fairly high
level of prosperity. For this there are two main reasons: (a) the
exceptionally great natural resources of the country; and (b) the
continued growth and spread of population, (a) Business
enterprise, that is to say private ownership, has taken over
these resources, by a process of legalised seizure, and has used
them up as rapidly as may be, with a view to private gain; all of
which has gone to make private business profitable to that
extent, although it has impoverished the underlying community by
using up its natural resources, (b) The continued growth and
spread of population, by natural increase and by immigration, has
furnished the business men of this country a continually
expanding market for goods; both for goods to be used in
production and transportation and for finished articles of
consumption. Hence the American business men have been in the
fortunate position of not having to curtail the output of
industry harshly and persistently at all points. It is, in
effect, for this continued growth of their market, caused by the
growth of population, that the business men claim credit when
they "point with pride" to the resourcefulness and quick
initiative with which they have "developed the country," To their
credit be it said, they have on the whole not hindered the
country's prosperity beyond what the traffic would bear; and the
peculiar situation of this country hitherto has been such that
the traffic of business would bear a nearly uninterrupted
expansion of industry at perhaps something like one-half of its
possible rate of expansion. To their own gain, and to the relief
of the underlying community, they have been enabled profitably to
let the country's industry run on a moderately high level of
efficiency,with more or less, but always a very appreciable
amount, of unemployment, idle plant, and waste of resources.
All that industry which comes in under the dominant machine
technology -- that is to say all that fairly belongs in the new
order of industry -- is now governed by business men for business
ends, in what is to be done and what is to be left undone. And
wherever business enterprise has taken over the direction of
things the management is directed in part to the production of a
marketable supply, and in part to arranging for a profitable sale
of the supply; and the strategy available for this latter, and
indispensable, work lies almost wholly within the lines of
competitive management already spoken of. In case these
manoeuvres of businesslike deviation and defeat are successful
and fall into an orderly system whose operation may be continued
at will, or in so far as this management creates an assured
strategic advantage for any given business concern, the result is
a vested interest. This may then eventually be capitalised in due
form, as a body of intangible assets. As such it goes to augment
the business community's accumulated wealth. And the country is
statistically richer per capita.
A vested interest is a marketable right to get something for
nothing. This does not mean that the vested interests cost
nothing. They may even come high. Particularly may their cost
seem high if the cost to the community is taken into account, as
well as the expenditure incurred by their owners for their
production and up-keep. Vested interests are immaterial wealth,
intangible assets. As regards their nature and origin, they are
the outgrowth of three main lines of businesslike management: (a)
Limitation of supply, with a view to profitable sales; (b)
Obstruction of traffic, with a view to profitable sales; and (c)
Meretricious publicity, with a view to profitable sales. It will
be remarked that these are matters of business, in the strict
sense. They are devices of salesmanship, not of workmanship; they
are ways and means of driving a bargain, not ways and means of
producing goods or services. The residue which stands over as a
product of these endeavors is in the nature of an intangible
asset, an article of immaterial wealth; not an increase of the
tangible equipment or the material resources in hand. The
enterprising owners of the concern may be richer by that much,
and so perhaps may the business community as a whole -- though
that is a precariously dubious point -- but the community at
large is no better off in any material respect.
This account, of course, assumes that all this business is
conducted strictly within the lines of commercial honesty. It
would only be tedious and misleading to follow up and take
account of that scattering recourse to force or fraud that will
never wholly be got rid of in the pursuit of gain, whether by way
of business traffic or by more direct methods. Still, it may well
be in place to recall that the code of commercial honesty applies
only between the parties to a bargain, and takes no account of
the interests of any third party, except by express injunction of
the, law, still less does it imply any degree of regard for the
common good. Commercial honesty, of course, is the honesty of
self-help, or caveat emptor, which is Latin for the same thing.
In the ordinary course of management some considerable amount
of means and effort is spent in the pursuit of profitable sales
and in creating or acquiring an advantage in their further
pursuit. The enduring result, if any, is a body of intangible
assets in the nature of what is called good-will. The ordinary
expenditure incurred for this purpose is so considerable, in
fact, that the "selling cost" will not infrequently be far and
away the larger part of those costs that are to be covered by the
price of advertised goods or advertised traffic. This necessary
consumption of work and means with a view to increase sales and
to create a prospective increase of profits is to be counted as
net waste, of course; in the sense that it contributes nothing to
the total output of serviceable goods, present or prospective.
The net aggregate result is to lay equipment idle, hinder
traffic, and induce credulous persons now and again to change
their mind about what things they will buy.
Roughly, any business concern which so comes in for an
habitual run of free income comes to have a vested right in this
"income stream," and this preferred standing of the concern in
this respect is recognised by calling such a concern a "vested
interest," or a "special interest," Free income of this kind, not
otherwise accounted for, may be capitalised if it promises to
continue, and it can then be entered on the books as an item of
immaterial wealth, a prospective source of gain. So long as it
has not been embodied in a marketable legal instrument, any such
item of intangible assets will be nothing more than a method of
notation, a book-keeper's expedient. But it can readily be
covered with some form of corporation security, as, e.g.,
preferred stock or bonds, and it then becomes an asset in due
standing and a vested interest endowed with legal tenure.
Ordinarily any reasonably uniform and permanent run of free
income of this kind will be covered by an issue of corporate
securities with a fixed rate of interest or dividends; whereupon
the free income in question becomes a fixed overhead charge on
the concern's business, to be carried as an item of ordinary and
unavoidable outlay and included in the necessary cost of
production of the concern's output of goods or services. But
whether it is covered by an issue of vendible securities or
carried in a less formal manner as a source of income not
otherwise accounted for, such a vested right to get something for
nothing will rightly be valued and defended against infraction
from outside as a proprietary right, an item of immaterial but
very substantial wealth.
There is nothing illegitimate or doubtful about this
incorporation of unearned income into the ordinary costs of
production on which "reasonable profits" are computed. "The law
allows it and the court awards it." To indicate how utterly
congruous it all is with the new order of business enterprise it
may be called to mind that not only do the captains of
corporation finance habitually handle the matter in that way, but
the same view is accepted by those public authorities who are
called in to review and regulate the traffic of the business
concerns governed by these captains of finance. The later
findings are apparently unequivocal, to the effect that when once
a run of free income has been capitalised and docketed as an
asset it becomes a legitimate overhead charge, and it is then
justly to be counted among necessary costs and covered by the
price which consumers should reasonably pay for the concern's
offering of goods or services.
Such a finding has come to be a fairly well settled matter of
course both among the officials and among the law-abiding
investors, so far as regards those intangible assets that are
covered by vendible securities carrying a fixed rate; and the
logic of this finding is doubtless sound according to the
principles of the modern point of view, which were put into
stable form before the coming of corporation finance. There may
still be a doubt or a question whether valuable perquisites of
the same nature, which continue to be held loosely as an informal
vested interest, as, e.g., merchantable good-will, are similarly
entitled to the benefit of the common law which secures any owner
in the usufruct of his property. To such effect have commonly
been the findings of courts and boards of inquiry, of Public
Utility Commissions, of such bodies as the Interstate Commerce
Commission, the Federal Trade Commission, and latterly of divers
recently installed agencies for the control of prices and output
in behalf of the public interest; so, for instance, right lately,
certain decisions and recommendations of the War Labor Board.
Any person with a taste for curiosities of human behavior
might well pursue this question of capitalised free income into
its further convolutions, and might find reasonable entertainment
in so doing. The topic also has merits as a subject for economic
theory. But for the present argument it may suffice to note that
this free income and the business-like contrivances by which it
is made secure and legitimate are of the essence of this new
order of business enterprise; that the abiding incentive to such
enterprise lies in this unearned income; and that the intangible
assets which are framed to cover this line of "earnings,"
therefore, constitute the substantial core of corporate capital
under the new order. In passing, it may also be noted that there
is room for a division of sentiment as regards this disposal of
the community's net production, and that peremptory questions of
class interest and public policy touching these matters may
presently be due to come to a hearing.
To some, this manner of presenting the case may seem
unfamiliar, and it may therefore be to the purpose to restate the
upshot of this account in the briefest fashion: Capital -- at
least under the new order of business enterprise -- is
capitalised prospective gain. From this arises one of the
singularities of the current situation in business and its
control of industry; viz., that the total face value, or even the
total market value of the vendible securities which cover any
given block of industrial equipment and material resources, and
which give title to its ownership, always and greatly exceeds the
total market value of the equipment and resources to which the
securities give title of ownership, and to which alone in the
last resort they do give title. The margin by which the
capitalised value of the going concern exceeds the value of its
material properties is commonly quite wide. Only in the case of
small and feeble corporations, or such concerns as are balancing
along the edge of bankruptcy, does this margin of intangible
values narrow down and tend to disappear. Any industrial business
concern which does not enjoy such a margin of capitalised free
earning-capacity has fallen short of ordinary business success
and is possessed of no vested interest.
This margin of free income which is capitalised in the value
of the going concern comes out of the net product of industry
over cost. It is secured by successful bargaining and an
advantageous position in the market; which involves some
derangement and retardation of the industrial system, -- so much
so as greatly to reduce the net margin of production over cost.
Approximately the whole of this remaining margin of free income
goes to the business men in charge, or to the business concerns
for whom this management is carried on. In case the free income
which is gained in this way promises to continue, it presently
becomes a vested right. It may then be formally capitalised as an
immaterial asset having a recognised earning-capacity equal to
this prospective free income. That is to say, the outcome is a
capitalised claim to get something for nothing; which constitutes
a vested interest. The total gains which hereby accrue to the
owners of these vested rights amount to something less than the
total loss suffered by the community at large through that delay
of production and derangement of industry that is involved in the
due exercise of these rights. In other words, and as seen from
the other side, this free income which the community allows its
kept classes in the way of returns on these vested rights and
intangible assets is the price which the community is paying to
the owners of this imponderable wealth for material damage
greatly exceeding that amount. But it should be kept in mind and
should be duly credited to the good intentions of these
businesslike managers, that the ulterior object sought by all
this management is not the 100 per cent of mischief to the
community but only the 10 per cent of private gain for themselves
and their clients,
So far as they bear immediately on the argument at this point
the main facts are substantially as set forth. But to avoid any
appearance of undue novelty, as well as to avoid the appearance
of neglecting relevant facts, something more is to be said in the
same connection. It is particularly to be noted that credit for
certain material benefits should be given to this same business
enterprise whose chief aim and effect is the creation of these
vested rights to unearned income. It will be apparent to anyone
who is at all familiar with the situation, that much of the
intangible assets included in the corporate capital of this
country, e.g., does not represent derangement which is actually
inflicted on the industrial system from day to day, but rather
the price of delivery from derangement which the businesslike
managers of industry have taken measures to discontinue and
disallow.
A concrete illustration will show what is intended. For some
time past, and very noticeably during the past quarter-century,
the ownership of the large industrial concerns has constantly
been drawing together into larger and larger aggregations, with a
more centralised control. The case of the steel industry is
typical. For a considerable period, beginning in the early
nineties, there went on a process of combination and
recombination of corporations in this industry, resulting in
larger and larger aggregations of corporate ownership. Commonly,
though perhaps not invariably, some of the unprofitable
duplication and work at cross purposes that was necessarily
involved in the earlier parcelment of ownership was got rid of in
this way, gradually with each successive move in this
concentration of ownership and control. Perhaps also invariably
there was a substantial saving made in the aggregate volume of
business dealings that would necessarily be involved in carrying
on the industry. Under the management of many concerns each
intent on its own pecuniary interest, the details of business
transactions would be voluminous and intricate, in the way of
contracts, orders, running accounts, working arrangements, as
well as the necessary financial operations, properly so called.
Much of this would be obviated by taking over the ownership of
these concerns into the hands of a centralised control; and there
would be a consequent lessening of that delay and uncertainty
that always is to be counted on wherever the industrial
operations have to wait on the completion of various business
arrangements, as they habitually do. There is circumstantial
evidence that very material gains in economy and expedition
commonly resulted from these successive moves of consolidation in
the steel business. And this discontinuance of businesslike delay
and calculated maladjustment was at each successive move brought
to a secure footing and capitalised in an increased issue of
negotiable corporation securities.
It will also be recalled that, as a matter of routine, each
successive consolidation of ownership involved a recapitalization
of the concerns so brought together under a common head, and that
commonly if not invariably the resulting recapitalisation would
be larger than the aggregate earlier capital of the underlying
corporations. Even where, as sometimes has happened, there was no
increase made in the nominal capitalisation, there would still
result an effectual increase; in that the market value of the
securities outstanding would be larger after the operation than
the value of the aggregate capital of the underlying corporations
had been before. There has commonly been some gain in aggregate
capitalisation, and the resulting increased capitalisation has
also commonly proved to be valid. The market value of the larger
and more stable capitalisation has presently proved to be larger
and more stable than the capitalisation of the same properties
under the earlier r�gime of divided ownership and control. What
has so been added to the aggregate capitalisation has in the main
been the relative absence of work at cross purposes, which has
resulted from the consolidation of ownership; and it is to be
accounted a typical instance of intangible assets. The new and
larger capitalisation has commonly made good; and this is
particularly true for those later, larger and more conclusive
recombinations of corporate ownership with which the so-called
era of trust-making in the steel business came to a provisional
conclusion. The U.S. Steel Corporation has vindicated the wisdom
of an unreserved advance on lines of consolidation and
recapitalisation in the financing of the large and technical
industries.
For reasons well understood by those who are acquainted with
these things, no one can offer a confident estimate, or even a
particularly intelligent opinion, as to the aggregate amount of
overhead burden and intangible assets which has been written into
the corporate capital of the steel business in the course of a
few years of consolidation. For reasons of depreciation, disuse,
replacement, extension, renewal, changes in market conditions and
in technical requirements, the case is too intricate to admit
anything like a clear-cut identification of the immaterial items
included in the capitalisation. But there is no chance to doubt
that in the aggregate these immaterial items foot up to a very
formidable proportion of the total capital.
And what is true for the steel business in this respect will
doubtless apply even more unreservedly in transportation, or in
such a case as the oil business. The latter may be taken as a
typical case, differing from steel in some of the circumstances
which condition its business organisation, but comparable with
steel in respect of the necessity for a centralised control. In
the oil business a rough classification of assets would take some
such shape as this: (a) Monopolisation of natural resources, (b)
Control of markets by limitation of the supply, (c) Plant. Of
these three, the last named, the material equipment, would
unquestionably be found to be altogether the slightest and least
valuable. What is not doubtful, in the steel business or in any
of the other industrial enterprises that run on a similar scale
and a similar level of technology, is that the owners of the
corporate capital have come in for a very substantial body of
intangible assets of this kind, and that these assets of
capitalised free income will foot up to several times the total
value of the material assets which underlie them.
It is evident that the businesslike management of industry
under these conditions need not involve derangement and cross
purposes at every turn. It should always be likely that the
business men in charge will find it to their profit to combine
forces, eliminate wasteful traffic, allow a reasonably free and
economical working of the country's productive powers within the
limits of a profitable price, and so come in for a larger total
of free income to be divided amicably among themselves on a
concerted plan. This can be done by means of a combination of
ownership, such as the corporations of the present time. But
there is a difficulty of principle involved in this use of
incorporation as a method of combining forces. Such a
consolidation of ownership and control on a large scale appears
to be, in effect, a combination of forces against the rest of the
community or in contravention of the principles of free
competition. In effect it foots up to the same thing as a
combination in restraint of trade; in form it is a concentration
of ownership. Combination of owners in restraint of trade is
obnoxious to the liberal principles of free bargaining and
self-help; consolidation of ownership by purchase or
incorporation appears to be a reasonable exercise of the right of
free bargaining and self-help. There is accordingly some chance
of a difference of opinion at this point and some risk of playing
fast and loose with these liberal principles that disallow
conspiracy in restraint of trade. This difficulty of principle
has been sought to be got over by believing that a combination of
ownership in restraint of trade does not amount to a conspiracy
in restraint of trade, within the purport of these liberal
principles. There is a great and pressing need of such a
construction of these principles, which would greatly facilitate
the work of corporation finance; but it is to be admitted that
some slight cloud still rests on this manner of disposing of
ownership. It involves abdication or delegation of that
discretionary exercise of property rights which has been held to
be of the essence of ownership.
The new state of things brought about by such a consolidation
is capitalised as a permanent source of free income. And if it
proves to be a sound business proposition the new capitalisation
will measure the increase of income which goes to its promoter or
to the corporation in whose name the move has been made; and if
the work is well and neatly done, no one else will get any gain
from it or be in any way benefited by the arrangement. It is a
business proposition, not a fanciful project of public utility.
The capitalised value of such a coalition of ownership is not
measured by any heightened production or any retrenchment of
waste that may come in its train, nor need the new move bring any
saving or any addition to the community's net productive
resources in any respect. Indeed, it happens not infrequently
that such a waste-conserving coalition of ownership leads
directly to a restriction of output, according to the familiar
run of monopoly rule. So frequently will restriction, enhanced
prices, unemployment, and hardship follow in such a case, that it
has come to be an article of popular knowledge and belief that
this is the logical aim and outcome of any successful manoeuvre
of the kind.
So also, though its output of marketable goods or services
may be got on easier terms, the new and larger business concern
which results from the coalition need be no more open-handed or
humane in its dealings with its workmen. There will, in fact, be
some provocation to the contrary. A more powerful corporation is
in a position to make its own terms with greater freedom, which
it then is for the workmen to take or leave, but ordinarily to
take; for the universal rule of businesslike management -- to
charge what the traffic will bear -- continues to hold unbroken
for any business concern, irrespective of its size or its
facilities. As has already been noted in an earlier passage,
charging what the traffic will bear is the same as charging what
will yield the largest net profit.
There stand over two main questions touching the nature and
uses of these vested interests: -- Why do not these powerful
business concerns exercise their autocratic powers to drive the
industrial system at its full productive capacity, seeing that
they are in a position to claim any increase of net production
over cost? and, What use is made of the free income which goes to
them as the perquisite of their vested interest? The answer to
the former question is to be found in the fact that the great
business concerns as well as the smaller ones are all bound by
the limitations of the price system, which holds them to the
pursuit of a profitable price, not to the pursuit of gain in
terms of material goods. Their vested rights are for the most
part carried as an overhead charge in terms of price and have to
be met in those terms, which will not allow an increase of net
production regardless of price. The latter question will find its
answer in the well-known formula of the economists, that "human
wants are indefinitely extensible," particularly as regards the
consumption of superfluities. The free income which is
capitalised in the intangible assets of the vested interests goes
to support the well-to-do investors, who are for this reason
called the kept classes, and whose keep consists in an
indefinitely extensible consumption of superfluities.
Chapter 6
The Divine Right of Nations
This sinister fact is patent, that the great war has arisen
out of a fateful entanglement of national pretensions. And it is
a fact scarcely less patent that this fateful status quo ante
arose out of the ordinary run of that system of law and custom
which has governed human intercourse among civilised nations in
our time. The underlying principles of this system of law and
custom have continued to govern human intercourse under a new
order of material circumstances which has come into effect since
these principles were first installed. These enlightened
principles that go to make up the modern point of view as regards
law and morals are of the eighteenth century, whereas the new
order in industry is of the twentieth, and between these two
dates lies an interval of unexampled change in the material
conditions of life.
To all this it will be said, of course, that warfare is not a
new invention, and that the national ambitions and animosities
out of which wars have always arisen are of older date than the
modern point of view and the machine industry; but it will also
not be denied that the great war which is now coming to a
provisional close is the largest and most atrocious epoch of
warfare known to history, and that it has, in point of fact,
arisen out of this status quo which has been created by these
enlightened principles of the modern point of view in working out
their consequences on the ground of the new order of industry.
The great war arose within that group of nations which have
the full use of the industrial arts, which conduct their business
and control their industries on the lines of these enlightened
principles of the eighteenth century, and whose national
ambitions and policies are guided by the preconceptions of
national self-determination and self-assertion which these modern
civilised peoples have habitually found to be good and valid. The
group of belligerents has included primarily the great industrial
nations, and the outcome of the war is being decided by the
industrial superiority of the advanced industrial peoples. A host
of slightly backward peoples -- backward in the industrial
respect -- have been drawn into this contest of the great powers,
but these have taken part only as interested outliers and as
auxiliaries to be drawn on at the discretion of the chief
belligerents. It has been a contest of technological superiority
and industrial resources, and in the end the decision of it rests
with the greater aggregation of industrial forces. Frightfulness
and warlike abandon and all the beastly devices of the heathen
have proved to be unavailing against the great industrial powers;
partly because these things do not enduringly serve the
technological needs of the contest, partly because they have run
counter to that massive drift of sentiment which animates the
great industrial peoples.
The center of the warlike disturbance has been the same as
the center of growth and diffusion of the new order of industry.
And in both respects, both as regards participation in the war
and as regards their share in the new order of industry, it is
not a question of geographical nearness to a geographical center,
but of industrial affiliation and technological maturity. The
center of disturbance and participation is a center in the
technological respect; and in the end the battle goes to those
few great industrial peoples who are nearest, technologically
speaking, to the apex of growth of the new order. These need be
superior in no other respect; the contest is decided on the
merits of the industrial arts. And in this connection it may be
in place to call to mind again that the state of the industrial
arts is always a joint stock of knowledge and proficiency held,
exercised, augmented and carried forward by the industrial
community at large as a going concern. What the war has
vindicated, hitherto, is the great efficiency of the mechanical
industry.
But the ambitions and animosities which precipitated this
contest, and which now stand ready to bring on a renewal of it in
due time, are not of the industrial order, and eminently not of
the new order of technology. They have been more nearly bound up
with those principles of self-help that have stood over from the
recent past, from the time before the new order of industry came
into bearing. And there is a curious parallel between the
consequences worked out by these principles in the economic
system within each of these nations, on the one hand, and in the
concert of nations, on the other hand. Within the nation the
enlightened principles of self-help and free contract have given
rise to vested interests which control the industrial system for
their own use and thereby come in for a legal right to the
community's net output of product over cost. Each of these vested
interests habitually aims to take over as much as it can of the
lucrative traffic that goes on and to get as much as it can out
of the traffic, at the cost of the rest of the community. After
the same analogy, and by sanction of the same liberal principles,
the civilised nations, each and several, are vested with an
inalienable right of "self-determination"; which being
interpreted means the self-aggrandisement of each and several at
the cost of the rest, by a reasonable use of force and fraud. And
there has been, on the whole, no sense of shame or of moral
obliquity attaching to the use of so much force and fraud as the
traffic would bear, in this national enterprise of
self-aggrandisement. Such has been use and wont among the
civilised nations.
Meantime the new order of industry has come into bearing,
with the result that any disturbance which is set afoot by any
one of these self-determining nations in pursuing its own ends is
sure to derange the conditions of life for all the others, just
so far as these others are bound up in the same comprehensive
organization of trade and industry. Full and free
self-determination runs counter to the rule of Live and let live.
After the same fashion the businesslike manoeuvres of the vested
interests within the nations, each managing its own affairs with
an eye single to its own advantage, deranges the ordinary
conditions of life for the common man, and violates the rule of
Live and let live by that much. Self-determination, full and
free, necessarily encroaches on the conditions of life for all
the others.
So, just now there is talk of disallowing or abridging the
inalienable right of free nations by so much as is imperatively
demanded for reasonably secure conditions of life among these
civilised peoples, and especially so far as is required for the
orderly pursuit of profitable business by the many vested
interests domiciled in these civilised countries. The project has
much in common with the measures which have been entertained for
the restraint of any insufferably extortionate vested interests
within the national frontiers.
In both cases alike, both in the proposed regulation of
businesslike excesses at home and in the proposed league of
pacific nations, the projected measures of sobriety and tolerance
appear to be an infraction of that inalienable right of
self-direction that makes up the substantial core of law and
custom according to the modern point of view. There is much alarm
felt by the demagogues at the danger which is said to threaten
the national "sovereignty"; just as the vested interests are
volubly apprehensive of the "sacred rights of property." And in
both cases alike the projected measure of sobriety, tolerance and
incidental infraction are designed to go no farther than is
unequivocally demanded by the imperative needs of continued life
on earth; leaving the benefit of the doubt always on the side of
the insufferable vested interests or the mischievous national
ambitions, as the case may be; and leaving the impression that it
all is a concessive surrender of principles under compulsion of
circumstances that will not wait. There is also in both cases
alike a well-assured likelihood that the tentative revision of
vested interests and of national pretensions is to be no more
than an incompetent remedial precaution, a makeshift shelter from
the wrath to come.
It is evident that in both cases alike we have to do with an
incursion of ideas and considerations that are alien to the
established liberal principles of human intercourse; but it is
also evident that these ideas and considerations have the
sanction of that new order of things that runs in terms of
tangible performance and enforces its requisitions with cruel and
unusual punishments. It is these punishments that are to be
evaded or suspended, and immunity is sought by diplomatic
measures of formality and delay rather than by tangible
performance. In such a case the keepers of the established order
will always look to evasion and entertain a hope of avoiding
casualties and holding the line by the use of a cleverly designed
masquerade.
It is the express purpose of the projected league of pacific
nations to keep the sovereign rights of national
self-determination intact for all comers; it is to be a league of
nations, not a league of peoples. But it should be sufficiently
obvious, whether it is avowed or not, that these sovereign rights
can be maintained by these means only in a mutilated form. Within
the framework of any such league or common understanding the
nations, each and several, can continue to exercise these rights
only on the basis of a mutual agreement to give up so much of
their national pretensions as are patently incompatible with the
common good. It involves a concessive surrender of the sovereign
right of self-aggrandisement, and perhaps also an extension of
the rule of Live and let live to cover minor nationalities within
the national frontiers; a mutual agreement to play fair under the
new rules that are to govern the conduct of national enterprise.
Any injunction to play fair is an infraction of national
sovereignty. Hitherto no liberal statesman has been so audacious
as to "imagine the king's death" and lay profane hands on the
divine right of nations to seek their own advantage at the cost
of the rest by such means as the rule of reason shall decide to
be permissible. It is only that licence is to be hedged about,
and all insufferable superfluity of naughtiness is provisionally
to be disallowed. There is this evident resemblance and kinship
between the vested interests of business and the sovereign rights
of nations, but it does not amount to identity.
There is always something more to the national sovereignty
and the national pretensions; although these precautionary
measures that are now under advisement as touches the legitimate
bounds of both do run on singularly similar lines and are of a
similarly tentative and equivocal nature. In the prudent measures
by which statesmen have set themselves to curb the excesses of
the greater vested interests within the nation their aim has
quite consistently been to guard the free income of the lesser
vested interests against the unseasonable rapacity of the greater
ones; all the while that the underlying community has come into
the case only as a fair field of business enterprise at large,
within which there is to be maintained a reasonable degree of
equal opportunity among these interests, big and little, in whom,
one with another, vests the effectual usufruct of the underlying
community.
It may be necessary to remark, by way of parenthesis, that
while this description of these corrective measures may seem to
hint at a fault, that is by no means its purpose. The fault may
be there, of course, but if so it has no bearing on the argument
at this point. It should also be remarked in the same connection
that this description of facts does not overlook the
well-conceived verbal reservations and preambles with which
cautious statesmen habitually surround the common good in the
face of any unseasonable rapacity on the part of the greater
vested interests; it is only that the run of the facts has been
quite patently to the effect so indicated. In the same connection
it may also not be out of place to recall that a vested interest
is a prescriptive right to get something for nothing; in which
again the kinship and resemblance between vested interests in
business and the sovereign rights of nations comes into view.
So, on the other hand, the great war has brought into a
strong light the obvious fact that, given the existing state of
the industrial arts, any unseasonable rapacity on the part of the
great Powers in exercising their inalienable right of national
self-determination will effectually suppress the similarly
inalienable right of self-determination in any minor nationality
that gets in the way. All of which is obnoxious to the liberal
principle of self-help or to that of equal opportunity.
Unhappily, these two guiding principles of the modern point of
view self-help and equal opportunity -- have proved to be
incompatible with one another under the circumstances of the new
order of things. So there has come into view this project of a
league, by which it is proposed to play fast and loose with the
inalienable right of national self-help by setting up some sort
of a collusive arrangement between the Powers, a conspiracy in
restraint of national intrigue, looking to a reasonable
disallowance of force and fraud in the pursuit of national
ambitions.
Under the material circumstances of the new order those
correctives that were once counted on to keep the run of things
within the margin of tolerance have ceased to be a sufficient
safeguard. By use and wont, in the Liberal scheme of statecraft
as well as in the scheme of freely competitive business, implicit
faith has hitherto been given to the remedial effect of punitive
competition and the punitive correction of excesses by law and
custom. It has been a system of adjustment by punitive
afterthought. All of which may once have been well enough in its
time, so long as the rate and scale of the movement of things
were slow enough and small enough to be effectually overtaken and
set to rights by afterthought. The modern -- eighteenth-century
-- point of view presumes an order of things which is amenable to
remedial adjustment after the event. But the new order of
industry, and that sweeping equilibrium of material forces that
embodies the new order, is not amenable to afterthought. Where
human life and human fortunes are exposed to the swing of the
machine system, or to the onset of national ambitions that are
served by the machine industry, it is safety first or none.
However, ripe statesmen and over-ripe captains of finance have so
secure a grasp of first principles that they are still able to
believe quite sincerely in the good old plan of remedial
afterthought, and it still commands the affectionate service of
the jurists and the diplomatic corps. Meantime the far-reaching,
swift-moving, wide-sweeping machine technology has been drawn
into the service of national pretensions, as well as of the
vested interests that find shelter under the national
pretensions, and both the remedial diplomats and the
self-determination of nations are on the way to become a tale
that was told.
The divine right of nations appears to be a blurred
after-image of the divine rights of kings. It rests on ground
more archaic and less open to scrutiny than the Natural Right of
self-direction as it applies in the case of individual persons.
It is a highly prized national asset, in the nature of an
imponderable; and, very much as is true of the divine right of
kings, any spoken doubt of its paramount validity comes near
being a sin against the Holy Ghost. It can not safely be
scrutinised or defined in matter-of-fact words. As is true of the
divine right of kings, so also as regards the divine right of
nations, it is extremely difficult to show that it serves the
common good in any material way, in any way that can be
formulated or verified in terms of tangible performance.
Evidently it does not come in under that mechanistic conception
that rules the scheme of knowledge and belief wherever and so far
as material science and the machine technology have reshaped
men's habits of thought. Indeed, it is not a technological
conception, late or early. It is not statable in terms of
mechanical efficiency, or even in terms of price. Hence it is
spoken of, often and eloquently, as being "beyond price." It is
more nearly akin to magic and religion. It should perhaps best be
conceived as an end in itself, or a thing-in-itself -- again in
close analogy with the divine right of kings. But there is no
question of its substantial reality and its paramount efficacy
for good and ill.
The divine -- that is to say inscrutable and irresponsible --
right of kings reached its best estate and put on divinity in the
stirring times of the Era of State-making; when the princes and
prelates "tore each other in the slime." It was of a proprietary
nature, a vested interest, something in the nature of intangible
assets which embodied the usufruct of the realm, including its
population and resources, and which could be turned to account in
the pursuit of princely or dynastic advantages at home and
abroad. This divine right of princes was disallowed among the
more civilised peoples on the transition to modern ways of
thinking, and the sovereign rights of the prince were then taken
over -- at least in form and principle -- by the people at large,
and they have continued to be held by them as some sort of
imponderable "community property," -- at least in point of form
and profession. The vested interest of the prince or the dynasty
in the usufruct of the underlying community is thereby presumed
to have become a collective interest vested in the people of the
nations and giving them a "right of user" in their own persons,
knowledge, skill and resources.
The mantle of princely sovereignty has fallen on the common
man -- formally and according to the letter of the legal
instruments. In practical effect, as "democratic sovereignty" it
has been converted into a cloak to cover the nakedness of a
government which does business for the kept classes. In practical
effect, the shift from the dynastic politics of the era of
state-making to the Liberal policies based on the enlightened
principles of the eighteenth century has been a shift from the
pursuit of princely dominion to an imperialistic enterprise for
the protection and furtherance of those vested interests that are
domiciled within the national frontiers. That such has been the
practical outcome is due to the fact that these enlightened
principles of the eighteenth century comprise as their chief
article the "natural" right of ownership. The later course of
events has decided that the ownership of property in sufficiently
large blocks will control the country's industrial system and
thereby take over the disposal of the community's net output of
product over cost; on which the vested interests live and on
which, therefore, the kept classes feed. Hence the chief concern
of those gentlemanly national governments that have displaced the
dynastic states is always and consistently the maintenance of the
rights of ownership and investment.
However, these pecuniary interests of investment and free
income are not all that is covered by the mantle of democratic
sovereignty. Nor will it hold true that the common man has no
share in the legacy of sovereignty and national enterprise which
the enlightened democratic commonwealth has taken over from the
departed dynastic r�gime. The divine right of the prince included
certain imponderables, as well as the usufruct of the material
resources of the realm. There were the princely dignity and
honor, which were no less substantial an object of value and
ambition and were no less tenaciously held by the princes of the
dynastic r�gime than the revenues and material "sinews of war" on
which the prestige and honor rested. And the common man of the
democratic commonwealth has at least come in for a ratable share
in these imponderables of prestige and honor that so are
comprised under the divine right of the nation. He has an
undivided interest in the glamour of national achievement, and he
can swell with just pride in contemplating the triumphs of his
gentlemanly government over the vested interests domiciled in any
foreign land, or with just indignation at any diplomatic setback
suffered by the vested interests domiciled in his own.
There is also a more tangible, though more petty, advantage
gained for the common man in having formally taken over the
sovereignty from the dead hand of the dynastic prince. The common
man being now vested with the divine right of national
sovereignty, held in undivided community ownership, it is
ceremonially necessary for the gentlemanly stewards of the kept
classes to consult the wishes of this their sovereign on any
matters of policy that can not wholly be carried through in a
diplomatic corner and under cover of night and cloud. He,
collectively, holds an eventual power of veto. And this power of
veto has in practice been found to be something of a safeguard
against any universal and enduring increase of hardship at the
hands of the gentlemen-investors to whom the conduct of the
nation's affairs has been "entrusted;" a very modest safeguard,
it is true, but always of some eventual consequence. There is the
difference that in the democratic commonwealth the common man has
to be managed rather than driven, -- except for minor groups of
common men who live on the lower-common levels, and except for
recurrent periods of legislative hysteria and judiciary
blind-staggers. And it is pleasanter to be managed than to be
driven. Chicane is a more humane art than corporal punishment.
Imperial England is, after all, a milder-mannered stepmother than
Imperial Germany.
And always the common man comes in for his ratable share in
the glamour of national achievement, in war and peace; and this
imponderable gain of the spirit is also something. The value of
these collective imponderables of national prestige and
collective honor is not to be made light of. These count for very
much in the drift and set of national sentiment, and moral issues
of national moment are wont to arise out of them. Indeed, they
constitute the chief incentive which holds the common man to an
unrepining constancy in the service of the "national interests,"
So that, while the tangible shell of material gain appears to
have fallen to the democratic community's kept classes, yet the
"psychic income" that springs from national enterprise, the
spiritual kernel of national elation they share with the common
man on an equitable footing of community interest.
The vested rights of the nation are of the essence of that
order of things which enjoys the unqualified sanction of the
modern point of view, Like any other vested interest, these
rights are conceived in other terms than those which are native
to the new order of material science and technology. They are of
an older and more spiritual order, so far as regards the
principles of knowledge and belief on which they rest. But
whatever may be their remoter pedigree, they have the sanction of
that body of principles that is called the modern point of view,
and they belong in the scheme of things handed on by the Liberal
movement of the eighteenth and nineteenth century. Apart from the
imponderable values which fall under the head of national
prestige, these vested rights of the nation can be defined as an
extension to the commonwealth of the same natural rights of
self-direction and personal security -- free contract and
self-help -- that are secured to the individual citizen under the
common law.
Yet, while the national policies of the democratic
commonwealths are managed by Liberal statesmen in behalf of the
vested interests, they still run on the ancient lines of dynastic
statecraft, as worked out by the statesmen of the ancient r�gime;
and the common man is still passably content to see the traffic
run along on those lines. The things which are considered
desirable to be done in the way of national enterprise, as well
as the sufficient reasons for doing them, still have much of the
medieval color. National pretensions, enterprise, rivalry,
intrigue and dissensions among the democratic commonwealths are
still such as would have been intelligible to Macchiavelli,
Frederick the Great, Metternich, Bismarck, or the Elder Statesmen
of Japan. Diplomatic intercourse still runs in the same terms of
systematised prevarication, and still turns about the same
schedule of national pretensions that contented the medieval
spirit of these masters of dynastic intrigue. As a matter of
course and of common sense the nations still conceive themselves
to be rivals, whose national interests are incompatible, and
whose divine right it is to gain something at one another's cost,
after the fashion of rival bandits or business concerns. They
still seek dominion and still conceive themselves to have
extra-territorial interests of a proprietary sort. They still
hold and still seek vested rights in colonial possessions and in
extra-territorial priorities and concessions of divers and
dubious kinds. There still are conferences, stipulations and
guarantees between the Powers, touching the "Open Door" in China,
or the equitable partition of Africa, which read like a chapter
on Honor among Thieves.
All this run of national pretensions, wrangles, dominion,
aggrandisement, chicane, and ill-will, is nothing more than the
old familiar trading stock of the diplomatic brokers who do
business in dynastic force and fraud -- also called Realpolitik.
The democratic nations have taken over in bulk the whole job-lot
of vested interests and divine rights that once made the monarch
of the old order an unfailing source of outrage and desolation.
In the hands of those "Elder Statesmen" who once did business
under the signature of the dynasty, the traffic in statecraft
yielded nothing better than a mess of superfluous affliction; and
there is no reason to apprehend that a continuation of the same
traffic under the management of the younger statesmen who now do
business in the name of the democratic commonwealth is likely to
bring anything more comfortable, even though the legal
instruments in the case may carry the rubber-stamp O. K. of the
common man. The same items will foot up to the same sum; and in
either case the net gain is always something appreciably less
than nothing.
These national interests are part of the medieval system of
ends, ways and means, as it stood, complete and useless, at that
juncture when the democratic commonwealth took over the divine
rights of the crown. It should not be extremely difficult to
understand why they have stood over, or why they still command
the dutiful approval of the common man. It is a case of aimless
survival, on the whole, due partly to the inertia of habit and
tradition, partly to the solicitous advocacy of these assumed
national interests by those classes -- the trading and
office-holding classes -- who stand to gain something by the
pursuit of them at the cost of the rest. By tenacious tradition
out of the barbarian past these peoples have continued to be
rival nations living in a state of habitual enmity and distrust,
for no better reason than that they have not taken thought and
changed their mind.
After some slackening of national animosities and some
disposition to neglect national pretensions during the earlier
decades of the great era of Liberalism, the democratic nations
have been gradually shifting back to a more truculent attitude
and a more crafty and more rapacious management in all
international relations. This aggressive chauvinistic policy has
been called Imperialism. The movement has visibly kept pace, more
or less closely, with the increasing range and volume of commerce
and foreign investments during the same period. And to further
this business enterprise there has been an ever increasing resort
to military power. It is reasonably believed that traders and
investors in foreign parts are able to derive a larger profit
from their business when they have the backing of a powerful and
aggressive national government; particularly in their dealings
with helpless and backward peoples, and more particularly if
their own national government is sufficiently unscrupulous and
overbearing, -- which may confidently be counted on so long as
these governments continue to be administered by the gentlemanly
delegates of the vested interests and the kept classes.
As regards the intrinsic value which is popularly attached to
the imponderable national possessions, in the way of honor and
prestige, there is little to be said, beyond the stale reflection
that there is no disputing about tastes. It all is at least a
profitable illusion, for the use of those who are in a position
to profit by it. Such as the crown and the officeholders. But the
people of the civilised nations believe themselves to have also a
material interest of some sort in enlarging the national
dominions and in extending the foreign trade of their business
men and safe-guarding the foreign claims of their vested
interests. And the Americans, like many others, harbor the
singular delusion that they can derive a collective benefit from
obstructing the country's trade at the national frontiers by
means of a tariff barrier, and so defeating their own industry by
that much. It is a survival out of the barbarian past, out of the
time when the dynastic politicians were occupied with isolating
the nation and making it self-sufficient, as an engine of warlike
enterprise for the pursuit of dynastic ambitions and the greater
discomfort of their neighbors. In an increasing degree as the new
order of industry has come into bearing, any such policy of
industrial isolation and self-sufficiency has become more
difficult and more injurious; for a free range and unhindered
specialisation is of the essence of the new industrial order.
The experience of the war has shown conclusively that no one
country can hereafter supply its own needs either in raw
materials or in finished goods. Both the winning and the losing
side have shown that. The new industrial order necessarily
overlaps the national frontiers, even in the case of a nation
possessed of so extensive and varied natural resources as
America. So that in spite of all the singularly ingenious
obstruction of the American tariff the Americans still continue
to draw on foreign sources for most or all of their tea, coffee,
sugar, tropical and semi-tropical fruits, vegetable oils,
vegetable gums and pigments, cordage fibers, silks, rubber, and a
bewildering multitude of minor articles of daily use. Even so
peculiarly American an industry as chewing-gum is wholly
dependent on foreign raw material, and quite unavoidably so. The
most that can be accomplished by any tariff under these
circumstances is more or less obstruction. Isolation and
self-sufficiency are already far out of the question.
But there are certain vested interests which find their
profit in maintaining a tariff barrier as a means of keeping the
price up and keeping the supply down; and the common man still
faithfully believes that the profits which these vested interests
derive in this way from increasing the cost of his livelihood and
decreasing the net productivity of his industry will benefit him
in some mysterious way. He is persuaded that high prices and a
scant supply of goods at a high labor cost is a desirable state
of things. This is incredible, but there is no denying the fact.
He knows, of course, that the profits of business go to the
business men, the vested interests, and to no one else; but he is
still beset with the picturesque hallucination that any unearned
income which goes to those vested interests whose central office
is in New Jersey is paid to himself in some underhand way, while
the gains of those vested interests that are domiciled in Canada
are obviously a grievous net loss to him. The tariff moves in a
mysterious way, its wonders to perform.
To all adult persons of sound mind, and not unduly clouded
with the superstitions of the price system, it is an obvious
matter of fact that any protective tariff is an obstruction to
industry and a means of impoverishment, just so far as it is
effective. The arguments to the contrary invariably turn out to
be pettifogger's special pleading for some vested interest or for
a warlike national policy, and these arguments convince only
those persons who are able to believe that a part is greater than
the whole. It also lies in the nature of protective tariffs that
they always cost the nation disproportionately much more than
they are worth to those vested interests which profit by them. In
this respect they are like any other method of businesslike
sabotage. Their aim, and presumably their effect, is to keep the
price up by keeping the supply down, to hinder competitors and
retard production. As in other instances of businesslike
sabotage, therefore, the net margin of advantage to those who
profit by it is greatly less than what it costs the community.
Yet it is to be noted that the Americans have prospered, on
the whole, under protective tariffs which have been as
ingeniously and comprehensively foolish as could well be
contrived. There is even some color of reason in the contentions
of the protectionists that the more reasonable tariffs have
commonly been more depressing to industry than the most imbecile
of them. All of which should be disquieting to the advocates of
free trade. The defect of the free-trade argument, and the
disappointment of free-trade policies, lies in overlooking the
fact that in the absence of an obstructive tariff substantially
the same amount of obstruction has to be accomplished by other
means, if business is to prosper. And business prosperity is the
only manner of prosperity known or provided for among the
civilised nations. It is the only manner of prosperity on which
the divine right of the nation gives it a claim. A protective
tariff is only an alternative method of businesslike sabotage. If
and so far as this method of keeping the supply of goods within
salutary bounds is not resorted to, other means of accomplishing
the same result must be employed. For so long as investment
continues to control industry the welfare of the community is
bound up with the prosperity of its business; and business can
not be carried on without reasonably profitable prices; and
reasonably profitable prices can not be maintained without a
salutary limitation of the supply; which means slowing down
production to such a rate and volume as the traffic will bear.
A protective tariff is only one means of crippling the
country's industrial forces, for the good of business. In its
absence all that matter will be taken care of by other means. The
tariff may perhaps be a little the most flagrant method of
sabotage by which the vested interests are enabled to do a
reasonably profitable business; but there is nothing more than a
difference of degree, and not a large difference at that. So long
as industry is managed with a view to a profitable price it is
quite indispensable to guard against an excessive rate and volume
of output. In the absence of all businesslike sabotage the
productive capacity of the industrial system would very shortly
pass all reasonable bounds, prices would decline disastrously and
overhead charges would not be covered, fixed charges on
corporation securities and other credit instruments could not be
met, and the whole structure of business enterprise would
collapse, as it occasionally has done in times of
"over-production." There is no doing business without a fair
price, since the net price over cost is the motive of business. A
protective tariff is, in effect, an auxiliary safeguard against
overproduction. Incidentally the fact that its imposition does
not result in insufferable hardship serves also to show that the
new order of industry is highly productive, quite inordinately
productive in fact. And it is a divine right of the nation to use
its discretion and offset this inordinate efficiency of its
common stock of knowledge by adroitly crippling its own commerce
and the commerce of its neighbors, for the benefit of those
vested interests that are domiciled within the national
frontiers.
But the divine right of national self-direction also covers
much else of the same description, besides the privilege of
setting up a tariff in restraint of trade. There are many
channels of such discrimination, of divers kinds, but always it
will be found that these channels are channels of sabotage and
that they serve the advantage of some group of vested interests
which do business under the shelter of the national pretensions.
There are foreign investments and concessions to be procured and
safeguarded for the nation's business men by moral suasion backed
with warlike force, and the common man pays the cost; there is
discrimination to be exercised and perhaps subsidies and credits
to be accorded those of the nation's business men who derive a
profit from shipping, for the discomfiture of alien competitors,
and the common man pays the cost; there are colonies to be
procured and administered at the public expense for the private
gain of certain traders, concessionaires and administrative
office-holders, and the common man pays the cost. Back of it all
is the nation's divine right to carry arms, to support a
competitive military and naval establishment, which has ceased,
under the new order, to have any other material use than to
enforce or defend the businesslike right of particular vested
interests to get something for nothing in some particular place
and in some particular way, and the common man pays the cost and
swells with pride.
Chapter 7
Live and Let Live
The Nation's inalienable right of self-direction and
self-help is of the same nature and derivation as the like
inalienable right of self-help vested in an irresponsible king by
the grace of God. In both cases alike it is a divine right, in
the sense that it is irresponsible and will not bear scrutiny,
being an arbitrary right of self-help at the cost of any whom it
may concern. There is the further parallel that in both cases
alike the ordinary exercise of these rights confers no material
benefit on the underlying community. In practical effect the
exercise of such divine rights, whether by a sovereign monarch or
by the officials of a sovereign nation, works damage and
discomfort to one and another, within the national frontiers or
beyond them, with nothing better to show for it than some
relatively slight gain in prestige or in wealth for some
relatively small group of privileged persons or vested interests.
And the gain of those who profit by this means is always got at
the cost of the common man at home and abroad. These inalienable
rights are an abundant source of grievances to be redressed at
the cost of the common man.
It has long been a stale commonplace that the quarrels of
competitive kings in pursuit of their divine rights have brought
nothing but damage and discomfort to the underlying peoples whose
material wealth and man power have been made use of for national
enterprise of this kind. And it is no less evident, though
perhaps less notorious, that the pursuit of national advantages
by competitive nations by use of the same material wealth and man
power unavoidably brings nothing better than the same net output
of damage and discomfort to all the peoples concerned. There is
of course the reservation that in the one case the kings and
their accomplices and pensioners have come in for some gain in
prestige and in perquisites, while in the case of the competitive
nations certain vested interests and certain groups of the kept
classes stand to gain something in the way of perquisites and
free income; but always and in the nature of the case the total
gain is less than the cost; and always the gain goes to the kept
classes and the cost falls on the common man. So much is
notorious, particularly so far as it is a question of material
gain and loss. So far as it is an immaterial question of jealousy
and prestige, the line of division runs between nations, but as
regards material gain and loss it is always a division between
the kept classes and the common man; and always the common man
has more to lose than the kept classes stand to gain.
The war is now concluded, provisionally, and peace is in
prospect for the immediate future, also provisionally. As is true
between individuals, so also among the nations, peace means the
same thing as Live and Let Live, which also means the same thing
as a world made safe for democracy. And the rule of Live and Let
Live means the discontinuance of animosity and discrimination
between the nations. Therefore it involves the disallowance of
such incompatible national pretensions as are likely to afford
ground for international grievances, -- which comes near
involving the disallowance of all those claims and perquisites
that habitually go in under the captions of "national
self-determination" and "national integrity," as these phrases
are employed in diplomatic intercourse. At the same time it
involves the disallowance of all those class pretensions and
vested interests that make for dissension within the nation.
Ill-will is not a practicable basis of peace, whether within the
nation or between the nations. So much is plain matter of course.
What may be the chances of peace and war, at home and abroad, in
the light of these blunt and obvious principles taken in
conjunction with the diplomatic negotiations now going forward at
home and abroad, -- all that is sufficiently perplexing.
At home in America for the transient time being, the war
administration has under pressure of necessity somewhat loosened
the strangle-hold of the vested interests on the country's
industry; and in so doing it has shocked the safe and sane
business men into a state of indignant trepidation and has at the
same time doubled the country's industrial output. But all that
has avowedly been only for the transient time being, "for the
period of the war," as a distasteful concession to demands that
would not wait. So that the country now faces a return to the
precarious conditions of a provisional peace on the lines of the
status quo ante. Already the vested interests are again
tightening their hold and are busily arranging for a return to
business as usual; which means working at cross-purposes as
usual, waste of work and materials as usual, restriction of
output as usual, unemployment as usual, labor quarrels as usual,
competitive selling as usual, mendacious advertising as usual,
waste of superfluities as usual by the kept classes, and
privation as usual for the common man. All of which may
conceivably be put up with by this people "lest a worse evil
befall," All this runs blamelessly in under the rule of Live and
Let Live as interpreted in the light of those enlightened
principles of self-help that have come down from the eighteenth
century and that go to make up the established scheme of law and
order, although it does not meet the needs of the same rule as it
would be enforced by the exigencies of the new order in industry.
Meanwhile, abroad, the gentlemen of the old school who direct
the affairs of the nations are laying down the lines on which
peace is to be established and maintained, with a painstaking
regard for all those national pretensions and discriminations
that have always made for international embroilment, and with an
equally painstaking disregard for all those exigencies of the new
order that call for a de facto observance of the rule of Live and
Let Live. It is notorious beyond need of specification that the
new order in industry, even more insistently than any industrial
situation that has gone before, calls for a wide and free
intercourse in trade and industry, regardless of national
frontiers and national jealousies. In this connection a national
frontier, as it is commonly made use of in current statecraft, is
a line of demarkation for working at cross-purposes, for mutual
obstruction and distrust, it is only necessary to recall that the
erection of a new national frontier across any community which
has previously enjoyed the privilege of free intercourse
unburdened with customs frontiers will be felt to be a grievous
burden; and that the erection of such a line of demarkation for
other diplomatic work at mutual cross-purposes is likewise an
unmistakable nuisance.
Yet, in the peace negotiations now going forward the
gentlemen of the old school to whom the affairs of the nations
have been "entrusted" -- by shrewd management on their own part
-- continue to safeguard all this apparatus of mutual defeat and
distrust, -- and indeed this is the chief or sole object of their
solicitude, as it also is the chief or sole object of those
vested interests for whose benefit the diplomatic gentlemen of
the old school continue to manage the affairs of the nations.
The state of the case is plainly to be seen in the proposals
of those nationalities that are now coming forward with a new
claim to national self-determination, invariably any examination
of the bill of particulars set up by the spokesmen of these
proposed new national establishments will show that the material
point of it all is an endeavor to set up a national apparatus for
working at mutual cross-purposes with their neighbors, to add
something to the waste and confusion caused by the national
discriminations already in force, to violate the rule of Live and
Let Live at some new point and by some further apparatus of
discomfort.
There are nationalities that get along well enough, to all
appearance, without being "nations" in that militant and
obstructive fashion that is aimed at in these projected creations
of the diplomatic nation-makers. Such are the Welsh and the
Scotch, for instance. But it is not the object-lesson of Welsh or
Scottish experience that guides the new projects. The
nationalities which are now escaping from a rapacious imperialism
of the old order are being organized and managed by the safe and
sane gentlemen of the old school, who have got their notions of
safety and sanity from the diplomatic intrigue of that outworn
imperialism out of which these oppressed nationalities aim to
escape. And these gentlemen of the old school are making no move
in the direction of tolerance and good will -- as how should they
when all their conceptions of what is right and expedient are the
diplomatic preconceptions of the old regime. They, being
gentlemen of the old school, will have none of that amicable and
unassuming nationality which contents the Welsh and the Scotch
who have tried out this matter and have in the end come to hold
fast only so much of their national pretensions as will do no
material harm. What is aimed at is not a disallowance of bootless
national jealousies, but only a shift from an intolerable
imperialism on a large scale to an ersatz-imperialism drawn on a
smaller scale, conducted on the same general lines of competitive
diplomacy and serving interests of the same general kind --
vested interests of business or of privilege.
The projected new nations are not patterned on the Welsh or
the Scottish model, but for all that there is nothing novel in
their design; and how should there be when they are the offspring
of the imagination of these safe and sane gentlemen of the old
school fertilised with the ancient conceptions of imperialistic
diplomacy and national prestige? In effect it is all drawn to the
scale and pattern already made notorious by the Balkan states. It
should also be safe to presume that the place and value of these
newly emerging nations in the comity of peoples under the
prospective r�gime of provisional peace will be something not
notably different from what the Balkan states have habitually
placed on view; which may be deprecated by many well-meaning
persons, but which is scarcely to be undone by well-wishing. The
chances of war and politics have thrown the fortunes of these
projected new nations into the hands of these politic gentlemen
of the old school, and by force of inveterate habit these very
practical persons are unable to conceive that anything else than
a Balkan state is fit to take the place of that imperial rule
that has now fallen into decay. So Balkan-state national
establishments appear to be the best there is in prospect in the
new world of safe democracy.
So true is this, that even in those instances, such as the
Finns and other fragments of the Russian imperial dominions,
where a newly emerging nation has set out to go on its way
without taking pains to safeguard the grievances of the old
order, -- even in these instances that should seem to concern no
one but themselves, the gentlemen of the old school who guard the
political institutions of the old order in the world at large
find it impossible to keep their Wands off and to let these
adventurous pilgrims of hope go about their own business in their
own way. Self-determination proves to be insufferable if it
partakes of the new order rather than of the old, at least so
long as the safe and sane gentlemen of the old school can hinder
it by any means at their command. It is felt that the vested
interests which underlie the gentlemen of the old school would
not be sufficiently secure in the keeping of these unshorn and
unshaven pilgrims of hope, and the doubt may be well taken. So
that, within the intellectual horizon of the practical statesmen,
the only safe, sane, and profitable manner of national
establishment and national policy for these newcomers is
something after the familiar fashion of the Balkan states; and it
may also be admitted quite broadly that these newly arriving
peoples commonly are content to seek their national fortunes
along precisely these Balkan state lines; although the Finns and
their like are perhaps to be counted as an unruly exception to
the rule.
These Balkan states, whose spirit, aims, and ways are so
admirable in the eyes of the gentlemanly keepers of the old
political and economic order, are simply a case of imperialism in
the raw. They are all and several still in the pickpocket stage
of dynastic state-making, comparable with the state of Prussia
before Frederick the Great Pickpocket came to the throne. And
now, with much sage counsel from the safe and sane statesmen of
the status quo ante. Czechs. Slovaks. Slovenes, Ruthenians,
Ukrainians, Croats, Poles and Polaks are breathlessly elbowing
their way into line with these minuscular Michiavellians. Quite
unchastened by their age-long experience in adversity they are
all alike clamoring for national establishments stocked up with
all the time-tried contrivances for discomfort and defeat. With
one hand they are making frantic gestures of distress for an
"outlet to the sea" by means of which to escape insufferable
obstruction of their overseas trade by their nationally minded
neighbors, while with the other hand they are feverishly at work
to contrive a customs frontier of their own, together with other
standard devices for obstructing their neighbors' trade and their
own, so soon as they shall have any trade to obstruct. Such is
the force of habit and tradition. In other words, these peoples
are aiming to become self-determining nations in good standing.
And all the while it is plain to all men that a national
"outlet to the sea" has no meaning in time of pence and in the
absence of national governments working at cross-purposes. Which
comes near to saying that the sole material object of these new
projects in nation-making is to work at cross-purposes with their
neighbors across the new-found national frontiers. So also it is
plain that this mutual working at cross-purposes between the
nations hinders the keeping of the peace, even when it is all
mitigated with all the approved apparatus of diplomatic
make-believe, compromise, and intrigue. Just as it is plain that
the peace is not to be kept by use of armaments, but all the
while national armaments are also included as an indispensable
adjunct of national life, in all the projects of these new
nations of the Balkan pattern. The right to carry arms is an
inalienable right of national self-determination and an
indispensable means of self-help, as understood by these
nation-makers of the old school. So also it is plain that
national pretensions in the field of foreign trade and
investment, and all the diversified expedients for furthering and
protecting the profitable enterprise of the vested interests in
foreign parts, run consistently at cross-purposes with the
keeping of the peace.
And all the while the rule of Live and Let Live, as it works
out within the framework of the new industrial order, will not
tolerate these things. But the rule of Live and Let Live, which
embodies the world's hope of peace on earth and a practicable
modicum of good will among men, is not of the essence of that
time-worn statesmanship which is now busily making the world safe
for the vested interests. Neglect and disallowance of those
things that make for embroilment does not enter into the counsels
of the nation-makers or of those stupendous figures of veiled
statecraft that now move in the background and are shaping the
destinies of these and other nations with a view to the status
quo ante.
All these peoples that now hope to be nations have long been
nationalities. A nation is an organisation for collective offence
and defence, in peace and war, -- essentially based on hate and
fear of other nations; a nationality is a cultural group, bound
together by home-bred affinities of language, tradition, use and
wont, and commonly also by a supposed community race, --
essentially based on sympathies and sentiments of
self-complacency within itself. The Welsh and the Scotch are
nationalities, more or less well defined, although they are not
nations in the ordinary meaning of the word; so also are the
Irish, with a difference, and such others as the Finns and the
Armenians. The American republic is a nation, but not a
nationality in any full measure. The Welsh and the Scotch have
learned the wisdom of Live and Let Live, within the peace of the
Empire, and they are not moving to break bounds and set up a
national integrity after the Balkan pattern.
The case of the Irish is peculiar; at least so they say.
They, that is to say the Irish by sentiment rather than by
domicile, the Irish people as contrasted with the vested
interests of Ulster, of the landlords, of the Church, and of the
bureaucracy,these Irish have long been a nationality and are now
mobilising all their force to set up a Balkan state, autonomous
and defensible, within the formal bounds of the Empire or
without. Their case is peculiar and instructive. It throws a
light on the margin of tolerance, of what the traffic will bear,
beyond which an increased pressure on a subject population will
bring no added profit to the vested interests for whose benefit
the pressure is brought to bear. It is a case of the Common Man
hard ridden in due legal form by the vested interests of the
Island, and of the neighboring island, which are duly backed by
an alien and biased bureaucracy aided and abetted by the priestly
pickpockets of the poor. So caught in this way between the devil
and the deep sea, it is small wonder if they have chosen in the
end to follow counsels of desperation and are moving to throw
their lot into the deep sea of national self-help and
international intrigue. They have reached the point where they
have ceased to say: "It might have been worse." The case of the
Finns, Jews, and Armenians is not greatly different in general
effect.
It is easy to fall into a state of perturbation about the
evil case of the submerged, exploited, and oppressed minor
nationalities; and it is not unusual to jump to the conclusion
that national self-determination will surely mend their evil
case. National self-determination and national integrity are
words to conjure with, and there is no denying that very
substantial results have been known to follow from such
conjuring. But self-determination is not a sovereign remedy,
particularly not as regards the material conditions of life for
the common man, for that somewhat more than nine-tenths of the
population who always finally have to bear the cost of any
national establishment. It has been tried, and the point is left
in doubt. So the case of Belgium or of Serbia during the past
four years has been scarcely less evil than that of the Armenians
or the Poles. Belgium and Serbia were nations, in due form, very
much after the pattern aimed at in the new projected nations
already spoken of, whereas the Armenians and the Poles have been
subject minor nationalities. Belgium. Serbia, and Poland have
been subject to the ravages of an imperial power which claims
rank as a civilised people, whereas the Armenians have been
manhandled by the Turks. So, again, the Irish are a subject minor
nationality, whereas the Roumanians are a nation in due form. In
fact the Roumanians are just such a balkan state as the Irish
aspire to become. But no doubt the common man is appreciably
worse off in his material circumstances in Roumania than in
Ireland. Japan, too, is not only a self-determining nation with a
full charge of national integrity, but it is a Great Power; yet
the common man -- the somewhat more than nine-tenths of the
population -- is doubtless worse off in point of hard usage and
privation in Japan than in Ireland.
In further illustration of this doubt and perplexity with
regard to the material value of national self-determination, the
case of the three Scandinavian countries may be worth citing.
They are all and several self-determining nations, in that
Pickwickian sense in which any country which is not a Great Power
may be self-determining in the twentieth century. But they differ
in size, population, wealth, power, and political consequence. In
these respects the sequence runs: Sweden, Denmark. Norway, the
latter being the smallest, poorest, least self-determining, and
in point of self-determining nationalism altogether the most
spectacularly foolish of the lot. But so far as concerns the
material conditions of life for the common man, they are
unmistakably the most favorable, or the most nearly tolerable, in
Norway, and the least so in Sweden. The upshot of evidence from
these, and from other instances that might be cited, is to leave
the point in doubt. It is not evident that the common man has
anything to gain by national self-determination, so far as
regards his material conditions of life; nor does it appear, on
the evidence of these instances, that he has much to lose by that
means.
These Scandinavians differ from the Balkan states in that
they perforce have no imperialistic ambitions. There may of
course be a question on this head so far as concerns the frame of
mind of the royal establishment in the greater one of the
Scandinavian kingdoms; there is not much that is worth saying
about that matter, and the less that is said, the less annoyance.
It is a matter of no significance, anyway. The Scandinavians are
in effect not imperialistic, perforce. Which means that in their
international relations they formally adhere to the rule of Live
and Let Live. Not so in their domestic policy, however. They have
all endowed themselves with all the encumbrances of national
pretensions and discrimination which their circumstances will
admit. Apart from a court and church which foot up to nothing
more comfortable than a gratuitous bill of expense, they are also
content to carry the burden of a national armament, a protective
tariff, a national consular service, and a diplomatic service
which takes care of a moderately burdensome series of treaty
agreements governing the trade relations of the Scandinavian
business community; all designed for the benefit of the vested
interests and the kept classes of the nation, and all at the cost
of the common man.
The case of these relatively free, relatively unassuming, and
relatively equitable national establishments is also instructive.
They come as near the rule of Live and Let Live as any national
establishment well can and still remain a national establishment
actuated by notions of competitive self-help. But all the while
the national administration runs along, with nothing better to
show to any impartial scrutiny than a considerable fiscal burden
and a moderate volume of hindrance to the country's industry,
together with some incidental benefit to the vested interests and
the kept classes at the cost of the underlying community. These
Scandinavians occupy a peculiar position in the industrial world.
They are each and several too small to make up anything like a
self-contained industrial community, even under the most
unreserved pressure of national exclusiveness. Their industries
necessarily are part and parcel of the industrial system at
large, with which they are bound in relations of give and take at
every point. Yet they are content to carry a customs tariff of
fairly grotesque dimensions and a national consular service of
more grotesque dimensions still. This situation is heightened by
their relatively sterile soil, their somewhat special and narrow
range of natural resources, and their high latitude, which
precludes any home growth of many of the indispensable materials
of industry under the new order. Yet they are content to carry
their customs tariff, their special commercial treaties, and
their consular service -- for the benefit of their vested
interests.
It should seem that this elaborate superfluity of national
outlay and obstruction should work great hardship to the
underlying community whose industry is called on to carry this
burden of lag, leak, and friction. And doubtless the burden is
sufficiently real. It amounts, of course, to the nation's working
at cross-purposes with itself, for the benefit of those special
interests that stand to gain a little something by it all. But in
this as in other works of sabotage there are compensating
effects, and these should not be overlooked; particularly since
the case is fairly typical of what commonly happens. The waste
and sabotage of the national establishment and its obstructive
policy works no intolerable hardship, because it all runs its
course and eats its fill within that margin of sabotage and
wasteful consumption that would have to be taken care of by some
other agency in the absence of this one. That is to say,
something like the same volume of sabotage and waste is
indispensable to the prosperity of business under the conditions
of the new order, so long as business and industry are managed
under the conditions imposed by the price system. By one means or
another prices must be maintained at a profitable level for
reasons of business; therefore the output must be restricted to a
reasonable rate and volume, and wasteful consumption must be
provided for, on pain of a failing market. And all this may as
well be taken care of by use of a princely court, an otiose
church, a picturesque army, a well-fed diplomatic and consular
service, and a customs frontier. In the absence of all this
national apparatus of sabotage substantially the same results
would have to be got at by the less seemly means of a furtive
conspiracy in restraint of trade among the vested interests.
There is always something to be said for the national integrity.
The case of these Scandinavian nations, taken in connection
and comparison with what is to be seen elsewhere, appears to say
that a national establishment which has no pretensions to power
and no imperialistic ambitions is preferable, in point of economy
and peaceable behavior, to an establishment which carries these
attributes of self-determination and self-help. The more nearly
the national integrity and self-determination approaches to make
believe the less mischief is it likely to work at home and the
more nearly will it be compatible with the rule of Live and Let
Live in dealing with its neighbors. And the further implication
is plain without argument, that the most beneficent change that
can conceivably overtake any national establishment would be to
let it fall into "innocuous desuetude." Apparently, the less of
it the better, with no apparent limit short of the vanishing
point.
Such appears to be the object-lesson enforced by recent and
current events, in so far as concerns the material fortunes of
the underlying community at large as well as the keeping of the
peace. But it does not therefore follow that all men and classes
will have the same interest in so neutralising the nation's
powers and disallowing the national pretensions. The existing
nations are not of a homogeneous make-up within themselves --
perhaps less so in proportion as they have progressively come
under the rule of the new order in industry and in business.
There is an increasingly evident cleavage of interest between
industry and business, or between production and ownership, or
between tangible performance and free income, -- one phrase may
serve as well as another, and neither is quite satisfactory to
mark the contrast of interest between the common man on the one
hand and the vested interests and kept classes on the other hand.
But it should be sufficiently plain that the national
establishment and its control of affairs has a value for the
vested interests different from what it has for the underlying
community.
Quite plainly the new order in industry has no use or place
for national discrimination or national pretensions of any kind;
and quite plainly such a phrase as "national integrity" has no
shadow of meaning for this new industrial order which overruns
national frontiers and overcomes national discrimination as best
it can, in all directions and all the time. For industry as
carried on under the new order, the overcoming of national
discrimination is part of the ordinary day's work. But it is
otherwise with the new order of business enterprise, --
large-scale, corporate, resting on intangible assets, and turning
on free income which flows from managerial sabotage. The business
community has urgent need of an efficient national establishment
both at home and abroad. A settled government, duly equipped with
national pretensions, and with legal and military power to
maintain the sacredness of contracts at home and to enforce the
claims of its business men abroad, -- such an establishment is
invaluable for the conduct of business, though its industrial
value may not unusually be less than nothing.
Industry is a matter of tangible performance in the way of
producing goods and services. And in this connection it is well
to recall that a vested interest is a prescriptive right to get
something for nothing. Now, any project of reconstruction, the
scope and method of which are governed by considerations of
tangible performance, is likely to allow only a subsidiary
consideration or something less to the legitimate claims of the
vested interests, whether they are vested interests of business
or of privilege. It is more than probable that in such a case
national pretensions in the way of preferential concessions in
commerce and investment will be allowed to fall into neglect, so
far as to lose all value to any vested interest whose fortunes
they touch. These things have no effect in the way of net
tangible performance. They only afford ground for preferential
pecuniary rights, always at the cost of someone else; but they
are of the essence of things in that pecuniary order within which
the vested interests of business live and move. So also such a
matter-of-fact project of reconstruction will be likely
materially to revise outstanding credit obligations, including
corporation securities, or perhaps even bluntly to disallow
claims of this character to free income on the part of
beneficiaries who can show no claim on grounds of current
tangible performance. All of which is inimical to the best good
of the vested interests and the kept classes.
Reconstruction which partakes of this character in any
sensible degree will necessarily be viewed with the liveliest
apprehension by the gentlemanly statesmen of the old school, by
the kept classes, and by the captains of finance. It will be
deplored as a subversion of the economic order, a destruction of
the country's wealth, a disorganisation of industry, and a sure
way to poverty, bloodshed, and pestilence. In point of fact, of
course, what such a project may be counted on to subvert is that
dominion of ownership by which the vested interests control and
retard the rate and volume of production. The destruction of
wealth, in such a case will touch, directly, only the value of
the securities, not the material objects to which these
securities have given title of ownership; it would be a
disallowance of ownership, not a destruction of useful goods. Nor
need any disorganisation or disability of productive industry
follow from such a move; indeed, the apprehended cancelment of
the claims to income covered by negotiable securities would by
that much cancel the fixed overhead charges resting on industrial
enterprise, and so further production by that much. But for those
persons and classes whose keep is drawn from prescriptive rights
of ownership or of privilege the consequences of such a shifting
of ground from vested interest to tangible performance would
doubtless be deplorable. In short, "Bolshevism is a menace"; and
the wayfaring man out of Armenia will be likely to ask: A menace
to whom?
Chapter 8
The Vested Interests and the Common Man
In the eighteenth century certain principles of enlightened
common sense were thrown into formal shape and adopted by the
civilised peoples of that time to govern the system of law and
order, use and wont, under which they chose to live. So far as
concerns economic relations the principles which so became
incorporated into the system of civilised law and custom at that
time were the principles of equal opportunity,
self-determination, and self-help. Chief among the specific
rights by which this civilised scheme of equal opportunity and
self-help were to be safeguarded were the rights of free contract
and security of property. These make up the substantial core of
that system of principles which is called the modern point of
view, in so far as concerns trade, industry, investment, credit
obligations, and whatever else may properly be spoken of as
economic institutions. And these still stand over today,
paramount among the inalienable rights of all free citizens in
all free countries; they are the groundwork of the economic
system as it runs today, and this existing system can undergo no
material change of character so long as these paramount rights of
civilised men continue to be inalienable. Any move to set these
rights aside would be subversive of the modern economic order;
whereas no revision or alteration of established rights and
usages will amount to a revolutionary move, so long as it does
not disallow these paramount economic rights.
When the constituent principles of the modern point of view
were accepted and the modern scheme of civilised life was
therewith endorsed by the civilised peoples, in the eighteenth
century, these rights of self-direction and self-help were
counted on as the particular and sufficient safeguard of equity
and industry in any civilised country. They were counted on to
establish equality among men in all their economic relations and
to maintain the industrial system at the highest practicable
degree of productive efficiency. They were counted on to give
enduring effect to the rule of Live and Let Live. And such is
still the value ascribed to these rights in the esteem of modern
men. The maintenance of law and order still means primarily and
chiefly the maintenance of these rights of ownership and
pecuniary obligation.
But things have changed since that time in such a way that
the rule of Live and Let Live is no longer completely safeguarded
by maintaining these rights in the shape given them in the
eighteenth century, -- or at least there are large sections of
the people in these civilised countries who are beginning to
think so, which is just as good for practical purposes. Things
have changed in such a way since that time, that the ownership of
property in large holdings now controls the nation's industry,
and therefore it controls the conditions of life for those who
are or wish to be engaged in industry; at the same time that the
same ownership of large wealth controls the markets and thereby
controls the conditions of life for those who have to resort to
the markets to sell or to buy. In other words, it has come to
pass with the change of circumstances that the rule of Live and
Let Live now waits on the discretion of the owners of large
wealth. In fact, those thoughtful men in the eighteenth century
who made so much of these constituent principles of the modern
point of view did not contemplate anything like the system of
large wealth, large-scale industry, and large-scale commerce and
credit which prevails today. They did not foresee the new order
in industry and business, and the system of rights and
obligations which they installed, therefore, made no provision
for the new order of things that has come on since their time.
The new order has brought the machine industry, corporation
finance, big business, and the world market, Under this new order
in business and industry, business controls industry. Invested
wealth in large holdings controls the country's industrial
system, directly by ownership of the plant, as in the mechanical
industries, or indirectly through the market, as in farming. So
that the population of these civilised countries now falls into
two main classes: those who own wealth invested in large holdings
and who thereby control the conditions of life for the rest; and
those who do not own wealth in sufficiently large holdings, and
whose conditions of life are therefore controlled by these
others. It is a division, not between those who have something
and those who have nothing -- as many socialists would be
inclined to describe it -- but between those who own wealth
enough to make it count, and those who do not.
And all the while the scale on which the control of industry
and the market is exercised goes on increasing; from which it
follows that what was large enough for assured independence
yesterday is no longer large enough for tomorrow. Seen from
another direction, it is at the same time a division between
those who live on free income and those who live by work, -- a
division between the kept classes and the underlying community
from which their keep is drawn. It is sometimes spoken of in this
bearing -- particularly by certain socialists -- as a division
between those who do no useful work and those who do; but this
would be a hasty generalisation, since not a few of those persons
who have no assured free income also do no work that is of
material use, as e.g., menial servants. But the gravest
significance of this cleavage that so runs through the population
of the advanced industrial countries lies in the fact that it is
a division between the vested interests and the common man. It is
a division between those who control the conditions of work and
the rate and volume of output and to whom the net output of
industry goes as free income, on the one hand, and those others
who have the work to do and to whom a livelihood is allowed by
these persons in control, on the other hand. In point of numbers
it is a very uneven division, of course.
A vested interest is a legitimate right to get something for
nothing, usually a prescriptive right to an income which is
secured by controlling the traffic at one point or another. The
owners of such a prescriptive right are also spoken of as a
vested interest. Such persons make up what are called the kept
classes. But the kept classes also comprise many persons who are
entitled to a free income on other grounds than their ownership
and control of industry or the market, as, e.g., landlords and
other persons classed as "gentry," the clergy, the Crown -- where
there is a Crown -- and its agents, civil and military.
Contrasted with these classes who make up the vested interests,
and who derive an income from the established order of ownership
and privilege, is the common man. He is common in the respect
that he is not vested with such a prescriptive right to get
something for nothing. And he is called common because such is
the common lot of men under the new order of business and
industry; and such will continue (increasingly) to be the common
lot so long as the enlightened principles of secure ownership and
self-help handed down from the eighteenth century continue to
rule human affairs by help of the new order of industry.
The kept classes, whose free income is secured to them by the
legitimate rights of the vested interests, are less numerous than
the common man -- less numerous by some ninety-five per cent or
thereabouts -- and less serviceable to the community at large in
perhaps the same proportion, so far as regards any conceivable
use for any material purpose. In this sense they are uncommon.
But it is not usual to speak of the kept classes as the uncommon
classes, inasmuch they personally differ from the common run of
mankind in no sensible respect. It is more usual to speak of them
as "the better classes," because they are in better circumstances
and are better able to do as they like. Their place in the
economic scheme of the civilised world is to consume the net
product of the country's industry over cost, and so prevent a
glut of the market.
But this broad distinction between the kept classes and their
vested interests on the one side and the common man on the other
side is by no means hard and fast. There are many doubtful cases,
and a shifting across the line occurs now and again, but the
broad distinction is not doubtful for all that. The great
distinguishing mark of the common man is that he is helpless
within the rules of the game as it is played in the twentieth
century under the enlightened principles of the eighteenth
century.
There are all degrees of this helplessness that characterises
the common lot. So much so that certain classes, professions, and
occupations -- such as the clergy, the military, the courts,
police, and legal profession -- are perhaps to be classed as
belonging primarily with the vested interests, although they can
scarcely be counted as vested interests in their own right, but
rather as outlying and subsidiary vested interests whose tenure
is conditioned on their serving the purposes of those principal
and self-directing vested interests whose tenure rests
immediately on large holdings of invested wealth. The income
which goes to these subsidiary or dependent vested interests is
of the nature of free income, in so far that it is drawn from the
yearly product of the underlying community; but in another sense
it is scarcely to be counted as "free" income, in that its
continuance depends on the good will of those controlling vested
interests whose power rests on the ownership of large invested
wealth. Still it will be found that on any test vote these
subsidiary or auxiliary vested interests uniformly range
themselves with their superiors in the same class, rather than
with the common man. By sentiment and habitual outlook they
belong with the kept classes, in that they are staunch defenders
of that established order of law and custom which secures the
great vested interests in power and insures the free income of
the kept classes. In any twofold division of the population these
are therefore, on the whole, to be ranged on the side of the old
order, the vested interests, and the kept classes, both in
sentiment and as regards the circumstances which condition their
life and comfort.
Beyond these, whose life-interests are, after all, closely
bound up with the kept classes, there are other vested interests
of a more doubtful and perplexing kind; classes and occupations
which would seem to belong with the common lot, but which range
themselves at least provisionally with the vested interests and
can scarcely be denied standing as such. Such, as an illustrative
instance, is the A. F. of L. Not that the constituency of the A.
F. of L. can be said to live on free income, and is therefore to
be counted in with the kept classes -- the only reservation on
that head would conceivably be the corps of officials in the A.
F. of L., who dominate the policies of that organisation and
exercise a prescriptive right to dispose of its forces, at the
same time that they habitually come in for an income drawn from
the underlying organisation. The rank and file assuredly are not
of the kept classes, nor do they visibly come in for a free
income. Yet they stand on the defensive in maintaining a vested
interest in the prerogatives and perquisites of their
organisation. They are apparently moved by a feeling that so long
as the established arrangements are maintained they will come in
for a little something over and above what would come to them if
they were to make common cause with the undistinguished common
lot. In other words, they have a vested interest in a narrow
margin of preference over and above what goes to the common man.
But this narrow margin of net gain over the common lot, this
vested right to get a narrow margin of something for nothing, has
hitherto been sufficient to shape their sentiments and outlook in
such a way as, in effect, to keep them loyal to the large
business interests with whom they negotiate for this narrow
margin of preference. As is true of the vested interests in
business, so in the case of the A. F. of L., the ordinary ways
and means of enforcing their claim to a little something over and
above is the use of a reasonable sabotage, in the way of
restriction, retardation, and unemployment. Yet the constituency
of the A. F. of L., taken man for man, is not readily to be
distinguished from the common sort so far as regards their
conditions of life. The spirit of vested interest which animates
them may, in fact, be nothing more to the point than an aimless
survival.
Farther along the same line, larger and even more perplexing,
is the case of the American farmers, who also are in the habit of
ranging themselves, on the whole, with the vested interests
rather than with the common man. By sentiment and outlook the
farmers are, commonly, steady votaries of that established order
which enables the vested interests to do a "big business" at
their expense. Such is the tradition which still binds the
farmers, however unequivocally their material circumstances under
the new order of business and industry might seem to drive the
other way. In the ordinary case the American farmer is now as
helpless to control his own conditions of life as the commonest
of the common run. He is caught between the vested interests who
buy cheap and the vested interests who sell dear, and it is for
him to take or leave what is offered, -- but ordinarily to take
it, on pain of "getting left."
There is still afloat among the rural population a slow-dying
tradition of the "Independent Farmer," who is reputed once upon a
time to have lived his own life and done his own work as good him
seemed, and who was content to let the world wag. But all that
has gone by now as completely as the other things that are told
in tales which begin with "Once upon a time." It has gone by into
the same waste of regrets with the like independence which the
country-town retailer is believed to have enjoyed once upon a
time. But the country-town retailer, too, still stands stiffly on
the vested rights of the trade and of the town; he is by
sentiment and habitual outlook a business man who guides, or
would like to guide, his enterprise by the principle of charging
what the traffic will bear, of buying cheap and selling dear. He
still manages to sell dear, but he does not commonly buy cheap,
except what he buys of the farmer, for the massive vested
interests in the background now decide for him, in the main, how
much his traffic will bear. He is not placed so very differently
from the farmer in this respect, except that, being a middleman,
he can in some appreciable degree shift the burden to a third
party. The third party in the case is the farmer; the massive
vested interests who move in the background of the market do not
lend themselves to that purpose.
Except for the increasing number of tenant farmers, the
American farmers of the large agricultural sections still are
owners who cultivate their own ground. They are owners of
property, who might be said to have an investment in their own
farms, and therefore they fancy that they have a vested interest
in the farm and its earning-capacity. They have carried over out
of the past and its old order of things a delusion to the effect
that they have something to lose. It is quite a natural and
rather an engaging delusion, since, barring incumbrances, they
are seized of a good and valid title at law, to a very tangible
and useful form of property. And by due provision of law and
custom they are quite free to use or abuse their holdings in the
land, to buy and sell it and its produce altogether at their own
pleasure. It is small wonder if the farmers, with the genial
traditions of the day before yesterday still running full and
free in their sophisticated brains, are given to consider
themselves typical holders of a legitimate vested interest of a
very substantial kind. In all of which they count without their
host; their host, under the new order of business, being those
massive vested interests that move obscurely in the background of
the market, and whose rule of life it is to buy cheap and sell
dear.
In the ordinary case the farmers of the great American
farming regions are owners of the land and improvements, except
for an increasing proportion of tenant farmers. But it is the
farmer-owner that is commonly had in mind in speaking of the
American farmers as a class. Barring incumbrances, these
farmer-owners have a good and valid title to their land and
improvements; but their title remains good only so long as the
run of the market for what they need and for what they have to
sell does not take such a turn that the title will pass by
process of liquidation into other hands, as may always happen.
And the run of the market which conditions the farmer's work and
livelihood has now come to depend on the highly impersonal
manoeuvres of those massive interests that move in the background
and find a profit in buying cheap and selling dear. In point of
law and custom there is, of course, nothing to hinder the
American farmer from considering himself to be possessed of a
vested interest in his farm and its working, if that pleases his
fancy. The circumstances which decide what he may do with his
farm and its equipment, however, are prescribed for him quite
deliberately and quite narrowly by those other vested interests
in the background, which are massive enough to regulate the
course of things in business and industry at large. He is caught
in the system, and he does not govern the set and motions of the
system. So that the question of his effectual standing as a
vested interest becomes a question of fact, not of preference and
genial tradition.
A vested interest is a legitimate right to get something for
nothing. The American farmer -- say, the ordinary farmer of the
grain-growing Middle West -- can be said to be possessed of such
a vested interest if he habitually and securely gets something in
the way of free income above cost, counting as cost the ordinary
rate of wages for work done on the farm plus ordinary returns on
the replacement value of the means of production which he
employs. Now it is notorious that, except for quite exceptional
cases, there are no intangible assets in farming; and intangible
assets are the chief and ordinary indication of free income, that
is to say, of getting something for nothing. Any concern that can
claim no intangible assets, in the way of valuable good-will,
monopoly rights, or outstanding corporation securities, has no
substantial claim to be rated as a vested interest. What
constitutes a valid claim to standing as a vested interest is the
assured customary ability to get something more in the way of
income than a full equivalent for tangible performance in the way
of productive work.
The returns which these farmers are in the habit of getting
from their own work and from the work of their household and
hired help do not ordinarily include anything that can be called
free or unearned income, -- unless one should go so far as to
declare that income reckoned at ordinary rates on the tangible
assets engaged in this industry is to be classed as unearned
income, which is not the usual meaning of the expression. It may
be that popular opinion on these matters will take such a turn
some time that men will come to consider that income which is
derived from the use of land and equipment is rightly to be
counted as unearned income, because it does not correspond to any
tangible performance in the way of productive work on the part of
the person to whom it goes. But for the present that is not the
popular sense of the matter, and that is not the meaning of the
words in popular usage. For the present, at least, reasonable
returns on the replacement value of tangible assets are not
considered to be unearned income.
It is true, the habits of thought engendered by the machine
system in industry and by the mechanically standardised
organisation of daily life under this new order, as well as by
the material sciences, are of such a character as would incline
the common man to rate all men and things in terms of tangible
performance rather than in terms of legal title and ancient
usage. And it may well come to pass, in time, that men will
consider any income unearned which exceeds a fair return for
tangible performance in the way of productive work on the part of
the person to whom the income goes. The mechanistic logic of the
new order of industry drives in that direction, and it may well
be that the frame of mind engendered by this training in
matter-of-fact ways of thinking will presently so shape popular
sentiment that all income from property, simply on the basis of
ownership, will be disallowed, whether the property is tangible
or intangible. All that is a speculative question running into
the future. It is to be recognised and taken account of that the
immutable principles of law and equity, in matters of ownership
and income as well as in other connections, are products of
habit, and that habits are always liable to change in response to
altered circumstances, and the drift of circumstances is now
apparently setting in that direction. But popular sentiment has
not yet reached that degree of emancipation from those good old
principles of self-help and secure ownership that go to make up
the modern (eighteenth-century) point of view in law and custom.
The equity of income derived from the use of tangible property
may presently become a moot question; but it is not so today,
outside of certain classes in the population whom the law and the
courts are endeavoring to discourage. It is the business of the
law and the courts to discourage any change of insight or
opinion.
It appears, therefore, that his conditions of life should
throw the American farmer in with the common man who has
substantially nothing to lose, beyond what the vested interests
of business can always take over at their own discretion and in
their own good time. In point of material fact he has ceased to
be a self-directing agent; and self-help has for him come
substantially to be a make-believe; although, of course, in point
of legal formality he still continues to enjoy all the ancient
rights and immunities of secure ownership and self-help. Yet it
is no less patent a fact of current history that the American
farmer continues, on the whole, to stand fast by those principles
of self-help and free bargaining which enable the vested
interests to play fast and loose with him and all his works. Such
is the force of habit and tradition.
The reason, or at least the preconception, by force of which
the American farmers have been led, in effect, to side with the
vested interests rather than with the common man, comes of the
fact that the farmers are not only farmers but also owners of
speculative real estate. And it is as speculators in land-values
that they find themselves on the side of unearned income. As
land-owners they aim and confidently hope to get something for
nothing in the unearned increase of land-values. But all the
while they overlook the fact that the future increase of
land-values, on which they pin their hopes, is already discounted
in the present price of the land,- except for exceptional and
fortuitous cases. As is known to all persons who are at all
informed on this topic, farmland holdings in the typical American
farming regions are over-capitalised, in the sense that the
current market value of these farm-lands is considerably greater
than the capitalised value of the income to be derived from their
current use as farmlands. This excess value of the farmlands is a
speculative value due to discounting the future increased value
which these lands are expected to gain with the further growth of
population and with increasing facilities for marketing the farm
products of the locality. It is therefore as a land speculator
holding his land for a rise, not as a husbandman cultivating the
soil for a livelihood, that the prairie farmer, e.g., comes in
for an excess value and an over-capitalisation of his holdings.
All of which has much in common with the intangible assets of the
vested interests, and all of which persuades the prairie farmer
that he is of a class apart from the common man who has nothing
to lose.
But he can come in for this unearned gain only by the
eventual sale of his holdings, not in their cur rent use as a
means of production in farming. As a business man doing a
speculative business in farmlands the American farmer, in a small
way, runs true to form and so is entitled to a modest place among
that class of substantial citizens who, get something for nothing
by cornering the supply and "sitting tight." And all the while
the massive interests that move obscurely in the background of
the market are increasingly in a position, in their own good
time, to disallow the farmer just so much of this still-born gain
as they may dispassionately consider to be convenient for their
own ends. And so the farmer-speculator of the prairie continues
to stand fast by the principles of equity which entitle these
vested interests to play fast and loose with him and all his
works.
The facts of the case stand somewhat different as regards the
American farmer's gains from his work as a husbandman, or from
the use which he makes of his land and stock in farming. His
returns from his work are notably scant. So much so that it is
still an open question whether, taken one with another, the
American farmer's assets in land and other equipment enable him,
one year with another, to earn more than what would count as
ordinary wages for the labor which these assets enable him to put
into his product. But it is beyond question that the common run
of those American farmers who "work their own land" get at the
best a very modest return for the use of their land and stock, --
so scant, indeed, that if usage admitted such an expression, it
would be fair to say that the farmer, considered as a going
concern, should be credited with an appreciable item of "negative
intangible assets," such as habitually to reduce the net average
return on his total active assets appreciably below the ordinary
rate of discount. His case, in other words, is the reverse of the
typical business concern of the larger sort, which comes in for a
net excess over ordinary rates of discount on its tangible
assets, and which is thereby enabled to write into its accounts a
certain amount of intangible assets, and so come into line as a
vested interest. The farmer, too, is caught in the net of the new
order; but his occupation does not belong to that new order of
business enterprise in which earning-capacity habitually outruns
the capitalised value of the underlying physical property.
Evidently the cleavage due to be brought on by the new order
in business and industry, between the vested interests and the
common man, has not vet fallen into clear lines, at least not in
America. The common man does not know himself as such, at least
not yet, and the sections of the population which go to make up
the common lot as contrasted with the vested interests have not
yet learned to make common cause. The American tradition stands
in the way. This tradition says that the people of the republic
are made up of ungraded masterless men who enjoy all the rights
and immunities of self-direction, self-help, free bargaining, and
equal opportunity, quite after the fashion that was sketched into
the great constituent documents of the eighteenth century.
Much doubt and some discontent is afoot. It is becoming
increasingly evident that the facts of everyday life under the
new order do not fall in with the inherited principles of law and
custom; but the farmers, farm laborers, factory hands, mine
workmen, lumber hands, and retail tradesmen have not come to
anything like a realisation of that new order of economic life
which throws them in together on one side of a line of division,
on the other side of which stand the vested interests and the
kept classes. They have not yet come to realise that all of them
together have nothing to lose except such things as the vested
interests can quite legally and legitimately deprive them of,
with full sanction of law and custom as it runs, so soon and so
far as it shall suit the convenience of the vested interests to
make such a move. These people of the variegated mass have no
safeguard, in fact, against the control of their conditions of
life exercised by those massive interests that move obscurely in
the background of the market, except such considerations of
expediency as may govern the manoeuvres of those massive ones who
so move obscurely in the background. That is to say, the
conditions of life for the variegated mass are determined by what
the traffic will bear, according to the calculations of self-help
which guide the vested interests, all the while that the farmers,
workmen, consumers, the common lot, are still animated with the
fancy that they have themselves something to say in these
premises.
It is otherwise with the vested interests, on the whole. They
take a more perspicuous view of their own case and of the
predicament of the common man, the party of the second part.
Whereas the variegated mass that makes up the common lot have not
hitherto deliberately taken sides together or defined their own
attitude toward the established system of law and order and its
continuance, and so are neither in the right nor in the wrong as
regards this matter, the vested interests and the kept classes,
on the other hand, have reached insight and definition of what
they need, want, and are entitled to. They have deliberated and
chosen their part in the division, partly by interest and partly
by ingrained habitual bent, no doubt, -- and they are always in
the right. They owe their position and the blessings that come of
it -- free income and social prerogative -- to the continued
enforcement of these eighteenth-century principles of law and
order under conditions created by the twentieth-century state of
the industrial arts. Therefore, it is incumbent on them, in point
of expediency, to stand strongly for the established order of
inalienable eighteenth-century rights; and they are at the same
time in the right, in point of law and morals, in so doing, since
what is right in law and morals is always a question of settled
habit, and settled habit is always a legacy out of the past. To
take their own part, therefore, the vested interests and the kept
classes have nothing more perplexing to do than simply to follow
the leadings of their settled code in all questions of law and
order and thereby to fall neatly in with the leading of their own
pecuniary advantage, and always and on both counts to keep their
poise as safe and sound citizens intelligently abiding by the
good old principles of right and honest living which safeguard
their vested rights.
The common man is not so fortunate. He cannot effectually
take his own part in this difficult conjuncture of circumstances
without getting on the wrong side of the established run of law
and morals, Unless he is content to go on as the party of the
second part in a traffic that is controlled by the massive
interests on the footing of what they consider that the traffic
will bear, he will find himself in the wrong and may even come in
for the comfortless attention of the courts. Whereas if he makes
his peace with the established run of law and custom, and so
continues to be rated as a good man and true, he will find that
his livelihood falls into a dubious and increasingly precarious
case. It is not for nothing that he is a common man.
So caught in a quandary, it is small wonder if the common man
is somewhat irresponsible and unsteady in his aims and conduct,
so far as touches industrial affairs. A pious regard for the
received code of right and honest living holds him to a
submissive quietism, a make-believe of self-help and fair
dealings; whereas the material and pecuniary circumstances that
condition his livelihood under this new order drive him to fall
back on the underlying rule of Live and Let Live, and to revise
the established code of law and custom to such purpose that this
underlying rule of life shall be brought into bearing in point of
fact as well as in point of legal formality. And the training to
which the hard matter-of-fact logic of the machine industry and
the mechanical organisation of life now subjects him, constantly
bends him to a matter-of-fact outlook, to a rating of men and
things in terms of tangible performance, and to an ever slighter
respect for the traditional principles that have come down from
the eighteenth century. The common man is constantly and
increasingly exposed to the risk of becoming an undesirable
citizen in the eyes of the votaries of law and order. In other
words, vested rights to free income are no longer felt to be
secure in case the common man should take over the direction of
affairs.
Such a vested right to free income, that is to say this
legitimate right of the kept classes to their keep at the cost of
the underlying community, does not fall in with the lines of that
mechanistic outlook and mechanistic logic which is forever
gaining ground as the new order of industry goes forward. Such
free income, which measures neither the investor's personal
contribution to the production of goods nor his necessary
consumption while engaged in industry, does not fit in with that
mechanistic reckoning that runs in terms of tangible performance,
and that grows ever increasingly habitual and convincing with
every further habituation to the new order of things in the
industrial world. Vested perquisites have no place in the new
scheme of things; hence the new scheme is a menace. It is true,
the well stabilised principles of the eighteenth century still
continue to rate the investor as a producer of goods; but it is
equally true that such a rating is palpable nonsense according to
the mechanistic calculus of the new order, brought into bearing
by the mechanical industry and material science. This may all be
an untoward and distasteful turn of circumstances, but there is
no gain of tranquillity to be got from ignoring it.
So it comes about that, increasingly, throughout broad
classes in these industrial countries there is coming to be
visible a lack of respect and affection for the vested interests,
whether of business or of privilege; and it rises to the pitch of
distrust and plain disallowance among those peoples on whom the
preconceptions of the eighteenth century sit more lightly and
loosely. It still is all vague and shifty. So much so that the
guardians of law and order are still persuaded that they "have
the situation in hand." But the popular feeling of incongruity
and uselessness in the current run of law and custom under the
rule of these timeworn preconceptions is visibly gaining ground
and gathering consistency, even in so well ordered a republic as
America. A cleavage of sentiment is beginning to run between the
vested interests and the variegated mass of the common lot., and
increasingly the common man is growing apathetic, or even
impervious, to appeals grounded on these timeworn preconceptions
of equity and good usage.
The fact of such a cleavage, as well as the existence of any
ground for it, is painstakingly denied by the spokesmen of the
vested interests; and in support of that comfortable delusion
they will cite the exemplary fashion in which certain
monopolistic labor organisations "stand pat," It is true, such a
quasi-vested interest of the A. F. of L., which unbidden assumes
to speak for the common man, can doubtless be counted on to
"stand pat" on that system of imponderables in which its vested
perquisites reside. So also the kept classes, and their stewards
among the keepers of law and custom, are inflexibly content to
let well enough alone. They can be counted on to see nothing more
to the point than a stupidly subversive rapacity in that
loosening of the bonds of convention that so makes light of the
sacred rights of vested interest. Interested motives may count
for something on both sides, but it is also true that the kept
classes and the businesslike managers of the vested interests,
whose place in the economy of nature it is to make money by
conforming to the received law and custom, have not in the same
degree undergone the shattering discipline of the New Order. They
are, therefore, still to be found standing blamelessly on the
stable principles of the Modern Point of View.
But a large fraction of the people in the industrial
countries is visibly growing uneasy under these principles as
they work out under existing circumstances. So, e.g., it is
evident that the common man within the United Kingdom, in so far
as the Labor Party is his accredited spokesman, is increasingly
restive under the state of "things as they are," and it is
scarcely less evident that he finds his abiding grievance in the
Vested Interests and that system of law and custom which
cherishes them. And these men, as well as their like in other
countries, are still in an unsettled state of advance to
positions more definitely at variance with the received law and
custom. In some instances, and indeed in more or less massive
formation, this movement of dissent has already reached the limit
of tolerance and has found itself sharply checked by the
constituted keepers of law and custom.
It is perhaps not unwarranted to count the I. W. W. as such a
vanguard of dissent, in spite of the slight consistency and the
exuberance of its movements. After all, these and their like,
here and in other countries are an element of appreciable weight
in the population. They are also increasingly numerous, in spite
of well-conceived repressive measures, and they appear to grow
increasingly sure. And it will not do to lose sight of the
presumption that, while they may be gravely in the wrong, they
are likely not to be far out of touch with the undistinguished
mass of the common sort who still continue to live within the
law. It should seem likely that the peculiar moral and
intellectual bent which marks them as "undesirable citizens"
will, all the while, be found to run closer to that of the common
man than the corresponding bent of the law-abiding beneficiaries
under the existing system.
Vaguely, perhaps, and with a picturesque irresponsibility,
these and their like are talking and thinking at cross-purposes
with the principles of free bargain and self-help. There is
reason to believe that to their own thinking, when cast in the
terms in which they conceive these things, their notions of
reasonable human intercourse are not equally fantastic and
inconclusive. So, there is the dread word. Syndicalism, which is
quite properly unintelligible to the kept classes and the adepts
of corporation finance, and which has no definable meaning within
the constituent principles of the eighteenth century. But the
notion of it seems to come easy, by mere lapse of habit, to these
others in whom the discipline of the New Order has begun to
displace the preconceptions of the eighteenth century.
Then there are, in this country, the agrarian syndicalists,
in the shape of the Nonpartisan League, large, loose, animated,
and untidy, but sure of itself in its settled disallowance of the
Vested Interests, and fast passing the limit of tolerance in its
inattention to the timeworn principles of equity. How serious is
the moral dereliction and the subversive stupidity of these
agrarian syndicalists, in the eyes of those who still hold fast
to the eighteenth century, may be gathered from the animation of
the business community, the commercial clubs, the Rotarians, and
the traveling salesmen, in any glace where the League raises its
untidy head. And as if advisedly to complete the case, these
agrarians, as well as their running-mates in the industrial
centers and along the open road, are found to be slack in respect
of their national spirit. So, at least, it is said by those who
are interested to know.
It is not that these and their like are ready with "a
satisfactory constructive program," such as the people of the
uplift require to be shown before they will believe that things
are due to change. It is something of the simpler and cruder
sort, such as history is full of, to the effect that whenever and
so far as the time-worn rules no longer fit the new material
circumstances they presently fail to carry conviction as they
once did. Such wear and tear of institutions is unavoidable where
circumstances change; and it is through the altered personal
equation of those elements of the population which are most
directly exposed to the changing circumstances that the wear and
tear of institutions may be expected to take effect. To these
untidy creatures of the New Order common honesty appears to mean
vaguely something else, perhaps something more exacting, than
what was "nominated in the bond" at the time when the free
bargain and self-help were written into the moral constitution of
Christendom by the handicraft industry and the petty trade. And
why should it not?
The End