 Chapters 8 and 9 of Problems in American Democracy. This is a LibriVox recording. All LibriVox recordings are in the public domain. For more information or to volunteer, please visit LibriVox.org. This reading by Allison Hester of Athens, Georgia. Problems in American Democracy by Times-Williamson. Chapter 8, Exchanging the Products of Industry. Relation of the Division of Labor to Exchange. In the self-sufficing stage that existed in industry a few hundred years ago, there was generally little necessity for the exchange of products. Each family produced most of the commodities which it needed, and depended relatively little upon the products of persons outside the family circle. But the complex division of labor which developed out of the Industrial Revolution has made the exchange of products increasingly important. Today, the typical workman concentrates upon one particular kind of work and is content to exchange a share of his earnings for the numerous goods and services which he cannot supply for himself. Exchange thus increases the total output of the community or nation by permitting individuals to specialize in those commodities which they can produce most effectively. 75, Relation of Transportation and Communication to Exchange. Exchange is largely dependent upon transportation and communication. In the United States, for example, not only do the individuals of a particular community specialize in various types of work, but the different sections of the country are devoted to the production of those commodities for which they are best suited. Thus, it is largely true that New England is best suited to manufacturing, the South to the growing of cotton, and certain parts of the West to the production of lumber and foodstuffs. The suitability of a region to a particular class of products is due partly to location, partly to the nature of the soil and climate, and partly to the inclination and training of the people. But whatever it causes, this territorial division of labor could not be carried out without an efficient system of transportation and communication. Communication by mail, telephone, and telegraph is necessary to allow producers and consumers in different parts of the country to keep in touch with one another. Transportation by land and water is necessary if the surplus products of one section are to be exchanged for the surplus products of other sections. 76. Types of Coordinators Those who perform the work of coordination in industry are commonly referred to indiscriminately as businessmen, middlemen, or entrepreneurs. Footnote. The term entrepreneur is awkward and little known, but no more satisfactory term is available. End of footnote. The meaning of these three terms is distinguished with difficulty, but to avoid confusion later on, the essential character of each should be pointed out here. The term businessman is very wide and is commonly inclusive of all who actively engage in any sort of business. The primary function of the middleman is to act as a connecting link between various industrial enterprises. The entrepreneur, on the other hand, is primarily an individual who coordinates land, labor, and capital with the intention of initiating and conducting a business enterprise. Insofar as he acts as a connecting link between other industrial agents, the entrepreneur is a middleman, but the middleman is usually thought of as an individual who connects up existing businesses rather than initiating a new enterprise. To the functions of the entrepreneur, we shall return in the next chapter. Here it is the middleman proper who is our chief concern. 77. Importance of the middleman. The chief stages of shoe manufacture may serve to illustrate the great importance of the middleman in exchange. The middleman, anticipating a demand for beef and hides, connects the cattle grower with the livestock market. Still later, it is a middleman who offers raw hides to the tanner and who sees that the wholesale leather merchant comes into business contact with the tanner. The banker or broker who connects the entrepreneur with the money with which to set up a shoe factory may be called a middleman, as may the individual who aids the entrepreneur in getting the required amounts of land and labor with which to start manufacturing. When under the direction of the entrepreneur, the shoe has been manufactured, it is often a middleman who connects the shoe wholesaler with the finished product. The jobber who buys large quantities of shoes from the wholesaler and sells them to the retailer in small lots is a middleman. The advertising man whose description and pictorial representation of the shoe causes the consumer to buy it of the retailer is also a middleman. Not all middlemen are socially necessary. By coordinating the work of these various individuals, many of whom themselves are middlemen, the middlemen whom we have been describing allow the community to secure the full benefit of the division of labor and of exchange. Where there exists just enough middlemen to coordinate with maximum efficiency the various industrial agents of a community, the community gains. When, on the other hand, there are more middlemen at work than are really needed to perform the work of industrial coordination, the community loses. This loss is a double one. First, the working energy of the superfluous middleman is wasted or at least is applied uneconomically. Second, middlemen are paid directly or indirectly out of the product which they handle so that the handling of a commodity by an unnecessarily large number of middlemen means higher prices for the ultimate consumers of that commodity. Seventy-nine, barter. We have seen what the middleman does. It remains to point out how or by means of what mechanism he performs his functions. When savages and civilized peoples living under primitive conditions wish to exchange their surplus goods, they generally resort to barter, i.e. they exchange one commodity directly for another. Where the division of labor has been so little developed that the goods to be exchanged are relatively few, this may work very well, but in modern industry barter would be inexpedient, if not impossible. The farmer who had a surplus of cattle and desired a piano might have great difficulty in finding a man who had a surplus piano and who also desired cattle. Even though the farmer liked the piano in question and even though the owner of the piano were pleased with the farmer's cattle, it might be impossible to measure the value of the piano in units of cattle. Eighty, nature in function of money. To facilitate exchange, civilized peoples make an extensive use of money. Money may be defined as anything that passes freely from hand to hand as a medium of exchange. Footnote. The terms money and capital are often used interchangeably. Strictly speaking, however, money is a form of capital. Moreover, it is only one form of capital and a footnote. In modern times, gold, silver, nickel, and copper coins have been the most familiar forms, though paper currency is also an important form of money. There is nothing mysterious about money. It is simply a means of facilitating exchange by saving time and guaranteeing accuracy in measuring the relative values of commodities. Let us see how money actually aids in the exchange, say of cattle and pianos. The farmer disposes of his cattle to a middleman, receiving in return money, the authenticity of which is guaranteed by the government stamp upon its face. There is no difficulty in making change, for money can be so minutely divided as to measure the value of an article rather exactly. The farmer does not fear that he could not use the money received for the cattle, for money is generally accepted in exchange for any commodity. The farmer now offers the money to the piano owner, who is probably a middleman. Again, the fact that money is finely divisible allows an accurate money measure of the value of the piano. The owner of the piano, if he is satisfied with the amount of money offered, does not hesitate to accept the farmer's money, since he, too, realizes that he can use the money to purchase the things that he in turn desires. 81. Value and Price We have used the term value several times. As part of our preparation for the study of the great problem of industrial reform, we must understand precisely what is meant by the term. Suppose, for the sake of clearness, that we speak of a market as a definite place where goods are bought and sold. Individuals take or send their surplus products to the market for sale. Individuals desiring to buy commodities likewise resort to the market. In the market, commodities are said to have value, that is to say, they have power in exchange. The power of a commodity in exchange is measured in money, and the amount of money for which a commodity will exchange is called its price. Price is thus a measure in terms of money of the value of a commodity. The value of a commodity in the market is dependent, partly upon its utility, or want satisfying power, and partly upon its scarcity. In other words, the value of a commodity depends partly upon the intensity with which it is desired by persons able and willing to purchase it, and partly upon its available supply. Price is set as the result of the interaction of forces of supply and demand. This interaction commonly taking the form of a bargaining process between prospective sellers and prospective buyers. End of Chapter 8, Chapter 9, Distributing the Income of Industry 82. The Problem Prior to the Industrial Revolution The distribution of industrial income has to do with dividing the products of industry or the money which represents those products among the various individuals who have aided in their creation. The problem of distribution has existed ever since men first combined for purposes of production, but until the period of the Industrial Revolution, the question was relatively unimportant. When, 300 years ago, most necessities were produced within the family circle, there was little or no question as to whether or not individuals outside the family ought to be rewarded for having helped in the production of those commodities. If one member of the family made an entire pair of shoes, for example, he was clearly entitled to those shoes, at least so far as economic principles are concerned. Even where different members of the family combined to produce a pair of shoes or an article of clothing, the small number of persons involved, as well as the close identity of interests among the family members, kept the problem of distribution from becoming a serious one. 83. A Fat of the Industrial Revolution Upon the Problem The Industrial Revolution greatly increased the importance of the problem of distribution. Indeed, the growth of the factory system and the greater and greater complexity of the division of labor have made the distribution of industrial income the basic problem in our economic and social life. Many commodities are still produced by individuals working independently or by the joint efforts of members of a family. But the vast majority of commodities are now produced by the joint efforts of numerous individuals who are not bound together by family ties. The production of a factory-made shoe, for example, involves large numbers of people, including the cattle grower, the transportation agent, the tanner, numerous laborers, the individuals who supply land and capital to the entrepreneur, and the entrepreneur who conducts the enterprise. The welfare of millions of people is involved in the distribution of industrial income among individuals who cooperate in such enterprises as this. 84. Difficulty of the Problem Under modern industrial conditions, most commodities are produced by the combined efforts of large numbers of people. All these people help along the productive process, though in different ways and to a varying degree. Since all help, all are entitled to payment, but this is less simple than it sounds. How shall we determine how much each one helps and how shall we decide how much each one is to receive? At the outset of this discussion, we can be sure of at least one fact, i.e., that since all the individuals involved in a given enterprise must be paid out of the value of the finished product, the combined sums received by them cannot long exceed the total value of that product. Unfortunately, this fact is often overlooked. Many of the individuals who aid in production often become so intent upon securing their share that they are over-ready to explain their contribution to the product, but loathe to give due credit to those who have cooperated with them. It is the belief that some individuals receive too little of the joint income of industry, while other individuals receive too large a share, which has given rise to the charge of injustice in the distribution of wealth. Significance of the Entrepreneur in Distribution For the sake of clearness, let us continue to illustrate the nature of distribution by reference to the shoe industry, carried on under conditions which are not unduly complicated. The individual having control of the actual manufacture of the shoes is the entrepreneur. It is he who, in anticipation of a demand for shoes, has initiated the enterprise. Suppose, for the sake of simplicity, that the entrepreneur has secured land from the landowner, capital from the capitalist, and labor from the workman. Protected in a legitimate enterprise by the government, he has set himself up as a manufacturer of shoes. Since he is in control of the enterprise, it is he who pays the landowner, the capitalist, and the laborers for their respective contributions toward the finished shoes. The amounts received by the individuals cooperating with the entrepreneur are not, however, arbitrarily determined. The entrepreneur must bow to economic law and give these individuals what free competition and industry sets as a proper reward for their respective services. Let us examine into this conformity to economic law. 86. The landowner receives rent. The landowner is rewarded because he extends the use of land to the entrepreneur. A landowner could not be expected to and will not allow the entrepreneur free use of this land. The landowner must therefore be paid for the use of the land. The entrepreneur, on the other hand, is able and willing to pay for the use of the land because upon it he expects to build a factory in which to manufacture shoes. He therefore pays the landowner an amount of money called rent. The amount of rent paid for a piece of land depends partly upon how much the entrepreneur wants the land and partly upon the available supply of land of the type wanted. This is equivalent to saying that rent is determined by the interaction of two forces of supply and demand. 87. The capitalist receives interest. Besides land, the entrepreneur needs machinery, office equipment, raw materials, the services of laborers, and numerous other aids in production. 88. Let us assume that the entrepreneur borrows of a capitalist the money required to procure these necessities. The entrepreneur can afford to pay interest for the use of this money. Since, with the aid of the goods and services which it will buy, he can produce more shoes than would otherwise be possible. Not only can he afford to pay interest, but he is obliged to pay it, since otherwise he could not secure the required loan. Though some people tend carelessly to overlook this fact, saving and abstinence are necessary to the accumulation of money. The individual who has money, therefore, cannot be expected to allow the entrepreneur to use it without payment. Especially not when, as we have just seen, the entrepreneur can acquire wealth by the use of the goods and services which that money will buy. The amount of interest which the capitalist receives for the use of his money will depend, as will rent, upon the law of supply and demand. If there is a large amount of funds available for investment, and, at the same time, few borrowers, then a given capitalist must be content to accept a relatively low rate of interest, lest his refusal cause the entrepreneur to close a bargain with a competing capitalist. If, on the other hand, available funds are scarce and entrepreneurs are greatly in need of money, then capitalists are at an advantage and entrepreneurs must offer relatively high rates of interest. 88. The laborers receive wages. The payment which the laborers receive for their part in the production of the shoes is called wages. Since the laborers help and shoe manufacture, the employer can afford to pay them. Not only can he afford to pay them, but he must pay them. Otherwise, the laborers would not work for this particular entrepreneur, but, in a freely competitive market, would offer their services to a competing employer. Wages, like rent and interest, depend upon the conditions of supply and demand. If, in comparison with other aides in production, the services of laborers are wanted badly, and if, at the same time, there is a scarcity of the desired type of labor, then wages will be high. If, on the other hand, there is an oversupply of laborers and also a small demand for that type of labor, then wages will tend to be low. 89. The government receives taxes. In addition to paying the landowner, the capitalist, and the laborers for their share in producing the shoes, the entrepreneur must pay taxes to the government. These taxes may be considered as payment for that maintenance of law in order without which the economical manufacture of shoes would be impossible. The share which goes to the government is determined by a unique method. The government does not try to secure as large a share of the product as possible, but strives, on the contrary, to exact as little as possible and still meet its expenses. The subject of taxation requires special treatment and does not, therefore, call for further mention in this chapter. 90. The entrepreneur receives profits. That share of the income derived from the sale of the shoes which goes to the entrepreneur is called profits. It is only fair that the entrepreneur receives some reward, for it is he who conceived the idea of shoe manufacture and then carried out the project. Without his efforts, the landowner, the capitalist, and the laborers would not have combined in this enterprise with the result that there would have been fewer shoes in the community. Fewer shoes would probably mean more expensive shoes, and not only does the entrepreneur deserve some reward for thus adding to the well-being of the community, but if he did not receive that reward, he would not go to the trouble of initiating and maintaining a shoe manufacturing establishment. The share going to the entrepreneur is determined less exactly than is the share of the landowner, the capitalist, and the laborers. In dividing up the income of the business, the shoe manufacturer must, in an important sense, put himself last. Before there are finished shoes to sell, he must pay the landowner rent, the capitalist interest, and the laborers' wages. Before he is allowed to count out his own share, he must also pay taxes to the government, pay insurance on his plant, and set aside an amount sufficient to keep his buildings in machinery and repair. He cannot evade the payment of rent, interest, or wages on the plea that these payments will diminish his profits. He is contracted to pay the landlord, the capitalist, and the laborers, and he must fulfill that contract. If, after paying all of his expenses, there is anything left, the entrepreneur retains it as profits. Sometimes this share is very large. Sometimes it is so small as to force the entrepreneur out of business. In any case, the chief risks and responsibilities of the whole enterprise are concentrated upon the entrepreneur rather than upon the landowner, the capitalist, or the laborers. 91. The determinants of each share. To sum up, the share of the joint industrial income going respectively to the landowner, the capitalist, and the laborers is determined by the interaction of the forces of supply and demand, operating under conditions of free competition. The entrepreneur's demand for land, labor, or capital will depend upon whether or not he sees an opportunity under a particular set of circumstances to add to his product by the employment of each or all of these factors. Where the supply of laborers is large, relatively to demand, the promised product of any one laborer is likely to be relatively small. And in this case, the entrepreneur or employer will be unwilling or even unable to offer a particular laborer high wages. Under these circumstances, the competition of the many laborers for the few jobs will accordingly bring about lower wages. Where, on the other hand, the supply of laborers is small, relatively to demand, the chances that a particular laborer will be able to add to the product are relatively great. And the competition of employers for laborers will result in higher wages. The same reasoning is applicable to rent and interest. The automatic operation of the law of supply and demand, functioning in a freely competitive market, determines the share which go to land, labor, and capital. The share going to the individual entrepreneur is, as has already been pointed out, a residual share, i.e. what is left over. End of Chapter 9, Chapter 10 of Problems in American Democracy. This is a LibriVox recording. All LibriVox recordings are in the public domain. For more information or to volunteer, please visit LibriVox.org. This reading by Allison Hester of Athens, Georgia. Problems in American Democracy by Times-Williamson. Chapter 10, Bases of the Capitalistic System. 92, The Capitalistic System. Modern industry is sometimes said to be headless, because the numerous individuals engaged in it are not systematically controlled or directed by a single agency. It is often said to be planless, since laborers, employers, and other industrial agents concentrate upon their individual desires and needs rather than upon the needs of the community or nation as a whole. And yet, there is in modern industry a certain regularity of outline and a general tendency to follow the economic laws discussed in the preceding three chapters. This circumstance prevents us from concluding that our industrial life is entirely a half-hazard affair. It may indeed be said that we have an industrial system because of the great importance of it in our capital. This system is commonly known as the Capitalistic System. The underlying principles of this system have already been mentioned or implied. Nevertheless, it will be to our interest in this chapter to develop and organize these principles so as to indicate just how they constitute the basis of capitalism. 93, Attitude of Government Towards Industry. It is the duty of government, Gladstone once said, to make it easy for the people to do right and difficult for them to do wrong. According to the theory of the Capitalistic System, that is right which renders the individual and the community stronger, happier, and more prosperous in useful pursuits, while that is wrong which weakens or demoralizes the citizen and the community. The chief economic function of government is thus to discourage men from harmful and destructive acts and to encourage them in activities which are helpful and productive. Professor Carver points out that the method by which animals get their living is either destructive, deceptive, persuasive, or productive. Any one of these four methods may at least temporarily increase the well-being of the individual, but only the productive method is certain to benefit the community as well. A good government will therefore seek to prevent people from advancing their individual interests by killing, robbing, or deceiving their fellows. This suppression of violence and fraud leaves open to individuals only the productive method of getting a living so that they cannot benefit themselves without, at the same time, adding to the prosperity of the community. From the standpoint of capitalism, thus, a good government maintains an attitude toward industry which is primarily negative. Such a government hampers the economic activities of individuals, very little or not at all, so as long as they do not practice harmful methods of getting a living. 94. Private Property Most men are self-centered. In even a highly developed society, men ordinarily will not work consistently except in their own behalf or in the behalf of a very few people for whom they care intensely. This instinct of self-interest is the kernel of industrial progress, but it can result in material prosperity only when government suppresses violence and fraud. The lowest savages are undoubtedly self-centered, but so long as they must rely upon brute force to retain their possessions, there is little inducement to acquire wealth. It is only when law suppresses robbery and fraud and otherwise protects the individual in his property rights that the acquisitive instinct will cause him to exert himself in productive ways. Because it satisfies the individual's desire to secure the good things of life, the institution of private property is the greatest known spur to economic activity. It is only in those countries where individuals are protected in their property rights that we find an active, progressive and prosperous people. 95. Enforcement of Contracts We have already seen that among the members of a modern industrial society, there is a high degree of interdependence corresponding in an important sense to the interdependence between the parts of a machine. As we have seen, the typical individual in industry is a specialist, concentrating upon one particular kind of work and depending upon his fellows to supply him with goods and services which he cannot supply for himself. Now, such a condition of interdependence could never have arisen were it not for the fact that government fosters the spirit of confidence among individuals. Many persons can be trusted to fulfill the agreements or contracts which they make with their fellows, but many cannot. A prime function of government, therefore, is to enforce contracts entered into voluntarily and in legal form. This is clearly essential to our material prosperity, for if men are to rely upon the word of those who sell them goods or services or to whom they sell goods or services, all of the individuals concerned must be dependable. 96. Competition A good government will shunt men into productive activities and it will insist upon the fulfillment of lawful contracts. Subject to these two limitations, individuals are relatively free to seek their own well-being, but an earmark of economic goods is scarcity. That is, there are at a given time and place fewer of them than desired. Men must, therefore, compete with one another for goods and services. The lower animals compete for food with tooth and claw. Among civilized men, government tries to raise competition to an ethical plane by tending to suppress all but the productive methods of competition. Where competition is so restricted and safeguarded, advocates of capitalism assert that the results are overwhelmingly good. Where there is free competition, i.e., free competition in productive enterprise, employers commonly pay their laborers as high a wage as they feel is justified under the particular circumstances, lest their workers abandon them for rival employers. Under similar conditions, laborers will generally endeavor to render the best possible service so that the employer will prefer them to other laborers. This assumes, of course, that competition is effective, i.e., that there is neither an oversupply or an undersupply of either employers or employees. Where, again, there is free competition in productive enterprise, the price of commodities produced by a given concern cannot rise too far, for consumers will either buy those commodities of rival producers or will use substitutes. If, on the other hand, prices drop so low that producers make little or no profits, they will withdraw from business. Free and effective competition thus means rivalry and satisfying wants, that rivalry being engaged in for the sake of private gain. Competition tends to harmonize the interests of the individual with the interests of the community by making the success of the individual depend primarily upon what he accomplishes for his fellows. 97. Value under conditions of free competition In a competitive market, as we have seen, value depends upon scarcity and utility. No one will ordinarily pay for a commodity unless it will satisfy his wants, i.e., unless it has utility. But even though a commodity has utility, no one will ordinarily pay for it unless it is so scarce that he cannot get as much of it as he wishes without paying for it. Air, for example, has great utility, but it is so abundant that it can ordinarily be secured without payment. Hence, it has no value. Price, the measure of value in terms of money, will be determined under conditions of free competition by the interaction of utility and scarcity. Diamonds are high in price because they satisfy intense desires and are scarce. Bread is cheap because, while possessing great utility, it is relatively abundant. Skilled labor receives high wages because, in addition to its utility, it is relatively scarce. Unskilled labor often receives low wages because, while possessing utility, it is relatively abundant. This principle is of the very greatest consequence, and in considering the programs of industrial reform, we shall come back to it again. 98. Freedom A large measure of personal liberty is a characteristic of the capitalistic system. To an increasing extent, government is restricting economic activity to productive channels. But with this qualification, the individual is comparatively free to do as he likes. The laborer is free to move about in search of work, free to seek a better job, free to accept or reject work offered to him. He may abandon his job when he chooses and remain idle as long as he chooses or is able. He is repressed by no paternalistic government, embarrassed by no feudal system. He is part and parcel of the competitive system, guiding his own actions and accepting responsibility for them. To a large extent, the employer is similarly free to hire or discharge men as he sees fit to initiate a new business or to withdraw from business altogether. In every case, the individual is free so far as legal restrictions are concerned to use his money as he chooses. Whether it is hoarded, invested or wasted is largely a matter for him to determine. 99. Benefits of the Capitalistic System The material prosperity of the modern world has been attained under the Capitalistic System of Industry. The system was not invented but has developed and spread from small beginnings because the experience of centuries has proved it to be the best known system which is applicable to human industry. The starting point of all material prosperity has been the gradual development of government which suppresses violence and fraud, which enforces contracts and which makes it possible the rise of the institution of private property. The inception of the Industrial Revolution and its spread beyond England to Europe, America and later to Asia were possible only because these bases of capitalism were already laid. To a large extent, thus, the steam engine, the railroad, the steamship, the electric light and countless other inventions which have helped to revolutionize the world we live in may be traced directly or indirectly to individual freedom and to the protection of property rights. Insofar as science, art and literature depend to a considerable degree upon material prosperity, we may go so far as to say that capitalism is the most important single basis of modern civilization. 100. Defects of the Capitalistic System But capitalism is not without its defects. The lack of centralized control in industry allows a planless production. Footnote. During our participation in the World War, it is largely true that much of the productive energy of the country was organized and directed as a unit. This was a temporary expedient, however, resorted to for the purpose of winning the war. End of footnote. Entrepreneurs frequently produce without adequate knowledge of demand and without knowledge of rival production. When business is booming and profits are high, it often happens that so many individuals go into business that eventually there is overproduction, i.e. there are more goods at a particular time than can be sold at profit. Crisis, unemployment, and hard times are often the direct result of this overproduction. Malnutrition, disease, vice, crime, and pauperism are often its indirect result. In still other ways, the capitalistic system allows of an uneconomical expenditure of labor and capital. There is no adequate method of directing labor and capital toward the production of durable and helpful commodities, and away from the production of luxuries and such harmful commodities as have not been made illegal. Under competitive conditions, too, a number of shops or stores may exist in a community that might easily be served by a single firm. This is a wasteful duplication. Just as advertising is a waste when it goes beyond the point of informing the public as to whereabouts and character of commodities. Still, another source of waste is traceable to an excessive number of middlemen, each of whom adds to the price of the product as it passes through his hands. 101. The Inequality of Wealth In all of the great industrial countries of the world, including the United States, the existing distribution of wealth is roughly in the form of a pyramid. I.e., at the top, or apex of the pyramid, there is a relatively small number of persons who enjoy large incomes. While at the base, there is a large number with relatively small incomes. This inequality is explained by Professor Talsig on two grounds. First, it is likely that some individuals originally secured an economic advantage over their fellows because of inborn superiority of some kind. Second, the economic advantage, thus secured, has been maintained from generation to generation by inheritance. Where, for example, wealth is invested so that the principal remains intact while a large annual income is thrown off as interest, the heirs may live in affluence, regardless of ability or desert. Thus, we have a leisure class emerging as the result of inborn differences between men, supplemented by the accumulation of wealth and its transmission by inheritance. 102. The Question of Industrial Reform It goes without saying that great inequalities of the distribution of wealth are undesirable. If any improvement is humanly possible, we ought not to rest content so long as millions of our citizens have too few of the good things of life, while others have much more than is necessary for comfort and happiness. The test of an economic system is whether or not it provides a good world to live in, and so long as large numbers of individuals have fewer necessities and comforts than it is possible to give them, our economic system must be considered defective. The people as a group are both the means and the end of progress. Democracy cannot rest upon any other basis than the greatest good to the greatest number. 103. Approaching the Problem In approaching the problem of industrial reform, it is necessary to cultivate a fair, insane attitude. We must attack all of the problems of American democracy, certainly. But in so far as some of these problems involve the integrity of the capitalistic system, we should distinguish between ills which are clearly traceable to that system, and defects which obviously would exist under any industrial system. Capitalism cannot be discredited, for example, by pointing out that crime exists in all capitalistic countries. Though capitalism may accentuate some types of crime, our knowledge of human nature leads us to suspect that a considerable amount of crime would exist under any known system of industry. Again, criticism should be constructive. It is easy to point out the defects of an institution, but it is quite another thing to provide a good substitute for that institution. The problem before us is a double one. First, can we remedy the defects of the capitalistic system? And if so, by what method shall we proceed? Second, if the defects of capitalism cannot be remedied, what industrial system shall be substituted for capitalism? It is not a question of whether or not capitalism is faulty, but of whether it is more faulty than the system that would be substituted for it. The virtues of capitalism, most authorities believe, clearly outweigh its defects. And though some other system may eventually prove to have great virtues with fewer defects, the burden of proof is upon those who advocate other systems than capitalism. Until the advantage is clearly shown to be on the side of a rival system, it will be wise to retain capitalism. End of chapter 10, chapters 11 and 12 of Problems in American Democracy. This is a LibriVox recording. Oh, LibriVox recordings are in the public domain. For more information or to volunteer, please visit LibriVox.org. This reading by Allison Hester of Athens, Georgia. Problems in American Democracy by Times-Williamson. Chapter 11, Part B. Programs of Industrial Reform. Chapter 11, Single Tax. 104, Definitions. The words single tax refer to a policy under which all public revenue is to be raised by a single tax on land value. All other taxes are to be abolished. By land value is meant the value of the land itself, irrespective of all improvements, such as ditches, drains, and buildings. Everything done on the land to increase its value would be counted as an improvement and would thus be exempt from taxation. This would leave only location value and fertility to be taxed. By location value is meant that value which is due to the situation of the land. For example, land in a wilderness has little or no location value. But if later schools, stores, railroads, and other elements of community life develop in that region, the land may take on great value because of its location in the community. The fertility value of land is that value which is due to natural endowment and the way of moisture, climate, and soil elements. 105, Henry George and his work. The doctrine of a single tax is closely associated with the name of Henry George, an American reformer who died in 1897. His theory was best developed in his book, Progress and Poverty, published in 1879. In this book, George points out that in spite of the progress of the world, poverty persists. This is due, cheaply, he contends, to the fact that landowners take advantage of the scarcity of good land to exact unduly high prices for its use. According to George, this monopoly of the gifts of nature allows landowners to profit from the increase in the community's productiveness, but keeps down the wages of landless laborers. Thus, all the advantages gained by the march of progress, George writes, go to the landowner and wages do not increase. George proposed to use the single tax as an engine of social reform. That is to say, to apply it with the primary view of leveling the inequalities of wealth. Value due to improvements was to be exempt from taxation so that landowners might not be discouraged from making improvements on their land. On the other hand, it was proposed that the single tax take all of the income due to location and fertility. This, according to George, would, quote, render it impossible for any man to exact from others a price for the privilege of using those bounties of nature to which all men have an equal right, end quote. 106. Results claimed for the single tax. George claimed that the application of the single tax was highly desirable. If, through the medium of this tax, the government were to take from the landowners all the location and fertility value of their land to great benefits were to result. First, rich landlords would be deprived of much unearned wealth. Second, the wealth so secured, called the unearned increment, could be used to make life easier for the poor. Ultimately, George went so far as to claim the single tax would, quote, raise wages, increase the earnings of capital, extirpate pauperism, abolish poverty, give remunerative employment to whoever wishes it, afford free scope to human powers, lessen crimes, elevate morals and taste and intelligence, purify government and carry civilization to yet nobler heights. The steps by which George arrived at this gratifying conclusion are obscure, and practically every modern economist agrees that too much has been claimed for the theory. Nevertheless, there is much to be said on both sides of this interesting question. 107. Arguments for the single tax. Single taxers claim that it is just to take from landowners that land value which is not due to their individual efforts. Fertility, on one hand, is due originally to the bounty of nature and as such belongs to all men alike rather than to particular individuals. Location value, on the other hand, is due to community growth and should therefore be taken for the benefit of the community at large. A very strong argument in favor of the single tax is that land cannot be hidden from the tax assessor as can stocks, bonds, jewels, and other forms of personal property. A single tax on land would, therefore, be relatively easy to apply. A tax on the location and fertility value of land would not discourage industry. Location value is largely or entirely due to community growth rather than to the efforts of the individual landowner. Fertility, of course, is largely a natural endowment and as such cannot be destroyed by a tax. The land would continue to have all of its location value and probably much of its fertility value whether or not the owner were taxed. Another argument is that a single tax on land would eliminate taxes on livestock, buildings, and all other forms of property except land and that this would encourage the development of the forms of property so exempted. This would stimulate business. It has also been said that the single tax would force into productive use land which is now being held for speculative purposes. It is claimed that many city tracts remain idle because the owners are holding them in hope of getting a higher price in the future. According to the single taxer, a heavy tax would offset this hope of gain and would force speculators either to put the land to a productive use or to sell it to someone who would so employ it. A last important argument in favor of the single tax is that it might force into productive work certain capable individuals who are now supported in idleness by land rents. Professor Carver has pointed out that if the single tax deprived such persons of their incomes, they would be forced to go to work and thus the community would gain by an increase in the number of its productive workers. 108. Arguments against the single tax The most important objection to the single tax is that the confiscation of land or what amounts to the same thing, the confiscation of the income which land yields is unjust. Pieces of land, Professor Seager points out, have changed hands on the average dozens of times in the United States and present owners, have in most cases, acquired them not as free gifts of nature nor as grants from the government, but by paying for them just as they have had to pay for other species of property. Where individuals have acquired land in good faith and under the protection of a government which guarantees the institution of private property, the confiscation of land value would be demoralizing to the community and unfair to its land-owning citizens. Another difficulty lies in the ease with which value due to permanent improvements is confused with value due to location or fertility. Where money has been expended in draining land, removing stones or applying fertilizer, it is hard to tell. For a few years, what part of the value of the land is due to improvements. The possibility of this confusion would cause some landowners to neglect to improve their land or might even cause them to neglect to take steps to retain the original fertility. Thus, the single tax might result in the deterioration of land values. It is also objected that the single tax would provide an inelastic taxation system. This means that it would tend to bring in an equal amount of revenue each year, whereas the revenue needs of government vary from year to year. A good tax system will accommodate itself to the varying needs of the government, always meeting the expenses of government, but at the same time, taking as little as possible from the people. But note, some opponents of the single tax declare that the heaviest possible tax on land would yield only a fraction of the revenue needed to finance the government. Single taxers, however, maintained that the tax would yield more than enough revenue to meet public expenditures. The merits of this argument are uncertain. It is doubtful whether the single tax would force into productive use land now being held by speculators. Even though a heavy tax were laid upon such land, it would not be utilized unless there were an immediate use to which it could profitably be put. A last important argument against the single tax is that there are no good reasons for removing the tax burden from all except landowners. Land is only one form of wealth, and it is unfair not to tax individuals who hold property in some other form. Some land value is indeed unearned, but there are other forms of unearned wealth, as, for example, monopoly gains and inherited property. Taxes ought to be levied upon these forms of unearned wealth, as well as upon the unearned income from land. It is desirable, too, to levy at least a light tax upon the propertyless classes in order to encourage them to feel an interest in and a sense of responsibility for the conduct of their government. 109. Service rendered by the single tax agitation. Economists are unanimous in agreeing that the single tax, as expounded by Henry George, is too drastic and special of reform to find wide favor. Nevertheless, the single taxors have performed a valuable service by emphasizing the fact that in many cases the income from land is largely or entirely unearned. It would be manifestly unjust to dispossess present-day landowners who have acquired land in good faith. On the other hand, most economists agree we ought to reform our tax system so as to take for the community a larger share of the future unearned increment of land values. As Professor Tossig has pointed out, no one has a vested right in the indefinite future. The taking of this future unearned increment is hardly necessary to add would not constitute a single tax, but rather a heavy land tax. Many other taxes would continue to be levied. End of Chapter 11 Chapter 12 Profit Sharing and Cooperation A. Profit Sharing 110. The Nature of Profit Sharing The essence of profit sharing is that the workmen in a given enterprise receive, in addition to their regular wages, a share in the profits which would ordinarily go entirely to the entrepreneur. The share going to the employees would be the establishment, but generally from one quarter to three quarters of the profits are divided among them. Distribution is by various methods. The workmen may receive their share in cash at the end of the year. Sometimes the money is placed in a provident fund for the workmen as a body. In other cases, it is deposited in a savings bank to the account of the individual workmen. In still other cases, the workmen receive dividends on this invested capital. In every case, however, the division of profits among the individual laborers is on the basis of the wages received. That is to say, the higher the regular wage received by a workman, the larger will be his share of the profit set aside for distribution. Generally, two, only workmen who are steadily employed are allowed to share in the distribution of profits. 111. Limits of profit sharing Profit sharing was once considered a remedy for many of our industrial troubles, but it is now generally conceded that the plan is decidedly limited in scope. Profit sharing increases the income of the workmen involved, but for this very reason, it is often bitterly opposed by the trade unions. The unions fear, of course, that the workmen interested chiefly in the employees of their particular establishment rather than in the workmen in the trade as a whole. The trade unions also maintain that profit sharing is often administered in a patronizing manner, which is offensive to the self-respect of the workmen. To a large extent, the spread of profit sharing depends upon the development of altruism among employers, and the majority of entrepreneurs will not adopt the profit sharing plan unless it promises to result in some distinct advantage to themselves. This attitude explains, in part, the failure of many profit sharing experiments. Employers have sometimes tried out profit sharing in the hope that it would prevent strikes and other labor troubles. In some cases, this expectation has been realized. In many other cases, labor troubles have continued. This continuance of labor troubles has rendered profit sharing less attractive to certain types of employers. In certain cases, employers have experimented with profit sharing in the hope that it would stimulate efficiency and economy on the part of the workmen. Sometimes the immediate effect of the adoption of the plan has been to make the workmen more efficient and more interested in their tasks. When the workmen turn off, they have generally fallen back into their former pace. In justice to the workmen, it should be noted here that in most enterprises, the conditions of the market and the employer's managerial ability have more influence upon profits than have the personal efforts of the individual workmen. Where workmen realize this, they tend to lose faith in their ability to influence a last important reason why profit sharing is limited in scope is that in many hazardous enterprises such as mining, agriculture, fishing, or building destruction, the refusal and inability of the workmen to share impossible losses prevent the adoption of the plan. A mining corporation, for example, may make large profits one year and lose heavily the second year. Profit sharing is here inadvisable, if not impossible. The distribution among the workmen of a large share of the profits accruing at the end of the first year might so deplete the financial reserves of the entrepreneur that he would be unable to meet the losses of the second year. B. Cooperation 112. Relation of profit sharing to cooperation Profit sharing permits the workmen to secure more than a regular wage from a given enterprise however giving them any control over the management of the business. Cooperation goes a step farther and attempts to dispense with either a number of middlemen or with the managing employer or with both middlemen and employer. In the case of a profit sharing scheme in which the share of the profits accruing to the workmen is invested in the business for them, ultimate control of the enterprise may come into the hands of the workmen through profit sharing. In such a case, the plant might be conducted cooperatively in practically every instance however cooperation does not grow out of profit sharing but arises independently. 113. Essence of cooperation The essence of cooperation is that a group of individuals undertake to perform for themselves those functions which are commonly carried on by the businessman. Cooperatives are often workmen though not necessarily so. Under the cooperative plan all of the profits of the enterprise are divided among the cooperators. On the other hand, the risks of the business must also be borne by them. Management of the enterprise is conducted partly by officers or committees serving without pay and partly by paid agents. The general policies of the business are settled by the cooperators acting as a body. Cooperation seeks to exchange the centralized control of the businessman for the diffuse control of a group of cooperators. This arrangement, its advocates hope will permit wealth and power to be distributed among more and more people and especially among those classes that possess relatively little property. Let us inquire briefly into the four types of cooperation. 114. Consumers cooperation Consumers cooperation also known as distributive cooperation or cooperation in retail trade is the most common form of cooperation. It is also probably the most successful form. In this form of cooperation a number of individuals contribute their savings to a common fund by certain desired commodities at wholesale prices and distribute these among themselves. Generally, the cooperative store sells to its members at the regular retail price but at stated intervals throughout the year the profits of the business are distributed among the cooperatives in proportion to the amount of their individual purchases. Thus, the difference between the wholesale and the retail price minus the expense of conducting the store goes to the cooperators instead of to a storekeeper or other middleman. One of the best examples of consumers cooperation is the Rockdale Society of Equitable Pioneers established in England in 1844. This type of cooperation has also been remarkably successful in Germany, Belgium and other continental countries. The idea was taken up in the United States about the middle of the 19th century and at the present time there are in this country about 2,000 cooperative stores many of them doing a thriving business. These stores are located chiefly in New England and the West being found in the South. 115. Cooperation and Credit Credit cooperation may take any one of a number of forms and one of the best known forms a group of persons form a credit society by contributing a proportion of their personal savings to a common fund. On the strength of this capital and of their own individual liability they borrow more capital. The total amounts, thus got together are then loaned to the members of the society at a specified rate of interest. This rate of interest is higher than at which the group had borrowed money from outside sources. Nevertheless, it is lower than the rate members would have to pay if they individually sought loans at a bank. This is the aim of cooperation and credit to enable persons of small means to secure loans without paying the high rates which as individuals they would ordinarily have to meet. They as individuals could secure loans under any conditions. Credit cooperation has been most successful in Germany particularly among artisans and small farmers. It has also attained considerable success among the small tradesmen and artisans of Italy. In the United States cooperation and credit is less highly developed but recently its influence has been slowly increasing. In many cases it supplies the principle underlying building and loan associations in this country. 116. Cooperation and marketing. The cooperative principle has also been applied to the marketing of agricultural products. In Denmark for example it has been found that farmers can market their dairy products cooperatively and thus save for themselves much of the profit that would otherwise go to commission agents and other middlemen. A similar saving has been affected in Holland Belgium and to some extent in France. Of recent years cooperation and marketing has become important in the United States finding particular favor among the farmers of the middle and far west. At the present time there are in this country more than 2,000 cooperative cheese factories and more than 3,000 cooperative creameries. There are also more than a thousand societies with cooperative marketing of fruit as well as numerous livestock selling agencies. 117. Cooperation and production. The three forms of cooperation which we have been considering seek to eliminate unnecessary middlemen from industry. In producers cooperation on the other hand the attempt is made to get rid of the entrepreneur or managing employer. A group of workmen get together, subscribe or borrow the required capital purchase tools, materials and plant and set up as producers. They seek markets for their product. Direct the enterprise either as a group or through salaried agents share the profits among themselves and accept the risks of the enterprise. Cooperation and production has been tried repeatedly in the various countries of Europe but without success. True producers cooperative associations have also met with almost universal failure in the United States though experiments have been made in a variety of industries and in nearly every part of the country. Formerly, the Minneapolis cooperers were a cooperative group which seemed destined to attain a considerable success in production but this group has now abandoned the cooperative principal. The cooperative marketing of fruit, cheese and other agricultural products is, of course, not true producers cooperation but rather the cooperative marketing of commodities produced by individual enterprises. 118 Backwardness of cooperation in the United States In all forms of cooperation progress has been much slower in this country than in Europe. There are several reasons for this. For one thing, American workmen move about to a greater extent than do European workmen whereas cooperation succeeds best where the cooperators have a fixed residence and develop a strong sense of group solidarity. The fact that our population is made up of diverse racial types likewise checks the growth of the feeling of solidarity. An important reason for the backwardness of the cooperative movement in this country is that American workmen make rather than save money whereas cooperation requires thrift and a willingness to practice small economies. Again, the efficiency and progressiveness of our industrial system renders cooperative ventures less necessary in this country than in some parts of Europe. It is particularly true that retail stores in the United States are more efficient than similar shops in England and on the continent. Altogether, the most successful cooperators in this country are not native born Americans but groups of Finns, Russians, Slovaks and other peoples of immediately foreign derivation. It is among these groups that the thrift and group solidarity demanded by cooperation are best found. 119. Limits of cooperation Consumers' cooperation cooperation and credit and cooperation and marketing all seek to improve the capitalistic system by eliminating some of the unnecessary middlemen from our industrial life. Insofar as this is true, these forms of cooperation are desirable developments and deserve to succeed. Though the movement is limited by the consideration set forth in the preceding section, it is to be hoped that these three forms of cooperation will in the future show a considerable development in this country. Producers' cooperation is a different affair. Rather than attempting to decrease the number of unnecessary middlemen, it attempts to supersede the entrepreneur or managing employer where he is most needed. For this reason producers' cooperation will probably continue a failure. To run a modern business of any size at all requires a degree of intelligence, imagination, judgment, courage and administrative ability which is altogether too rare to be found among casual groups of laborers. Veried experience, high ability the determination to accept the risk of the enterprise and a consistent singleness of purpose are necessary in modern production. Even though cooperators are able to secure an amount of capital sufficient to initiate production, they rarely have the requisite ability or experience. Too often, they object to accepting the risks of the enterprise. Practically never can they administer the business with that unity of control which characterizes the most successful enterprises. 120. Benefits of cooperation While no longer considered a far-reaching industrial reform, the cooperative movement brings with it many benefits. Cooperation in retail trade, credit and marketing cuts down the waste between consumer and producer and thus helps substantially to reduce the cost of living. Cooperation in production, though it fails to reach its chief objective, has the virtue of demonstrating to groups of workmen that the entrepreneur is a far more value in our industrial life than they might otherwise have realized. Aside from these advantages, cooperation in any form is an important, educated force. It fosters the spirit of solidarity and mutual helpfulness among members of a group or community. It teaches thrift. It trains the cooperating individuals to exercise foresight and self-control. Altogether, the training which it affords is productive of good citizenship. End of Chapter 12 Chapter 13 of Problems in American Democracy This is a LibriVox recording. All LibriVox recordings are in the public domain. For more information or to volunteer please visit LibriVox.org This reading by Allison Hester of Athens, Georgia Problems in American Democracy by Times Williamson Chapter 13 of Socialism Chapter 121 Socialism is a vague term. It is often said that the term socialism is so vague that it is useless to attempt to define it. The word is used to cover all sorts of schemes of industrial and social reform. Sometimes a person whose viewpoint concerning politics or business has become more liberal appears to himself or to others as a socialist. From the standpoint of many individuals, all those who advocate the extension of government control are socialists. Still, others label as socialists all reformers with whose ideas they are not in accord. It very often happens that persons who pass in the community for socialists are not recognized as such by the official socialist parties. Indeed, certain official socialist groups go so far as to declare that other official socialist groups are, quote, not really socialists either in thought or in action. Chapter 122 A Definition of Socialism In spite of this confusion, it is possible to formulate a rather precise definition of socialism. Leaving until later, the distinction between the chief socialist groups, we may say that the following definition covers all who are strictly socialists. Socialism is an economic theory which aims to abolish the capitalistic system and to substitute for it, quote, a system of collective ownership and democratic management of the socially necessary means of production and distribution, end quote. In rather more simple language, socialism intends that all income-producing property shall be owned and directed by the state. The state is to own and operate land, factories, workshops, railroads, and all other means of production. Private property and the competitive system are to be abolished. Footnote. Socialism does not seek to abolish the private ownership of food, clothing, and other forms of consumers' goods. Yet, both socialists and non-socialists accept the unqualified statement that socialism seeks to abolish private property because it is the private ownership of producers' goods rather than of consumers' goods, which constitutes a cornerstone of the capitalistic system. End the footnote. All business is to be conducted by the government and all persons are to be employees of the government. The distribution of wealth is to be directed by the government. 123. Relation of socialism to other radical theories. The terms communism and socialism call for distinction. What is now known as socialism was formerly known as communism. For example, Carl Marx, the founder of modern socialism, has called himself a communist. His followers later abandoned the name and began calling themselves socialists. Still later, during the World War, a group of Russian socialists, popularly known as Bolshevists, revived the term communist in the sense used by Marx. Strictly speaking, however, communism is generally thought of today as a type of small community organization in which all wealth, including both the instruments of production and consumers' goods, is owned by the community. Socialism, on the other hand, proposes that the state own and operate only the instruments of production, leaving food, clothing and other consumers' goods to be owned and enjoyed by individuals. Socialism is often thought of in connection with the doctrine of anarchy. Anarchism and socialism are alike in that both object to one man having authority over another. Anarchism agrees with socialism that capitalism is bad because it gives the employer power over the laborer. But, at this point, the two theories begin sharply to diverge. Socialism desires to abolish private property and to concentrate all authority in the hands of the state. The anarchist maintains that this is simply a transference of authority and declares that authority in any form is an evil. Thus, where socialism seeks to enlarge the powers of the state, anarchism objects to the existence of any governmental authority whatsoever. In addition to communism and anarchism, there are a number of interesting theories that are more or less closely associated with the socialist movement. These will not be discussed here for two reasons. First, an adequate treatment of them would permit the problem of industrial reform to take up a disproportionate share of our time. Second, many of these theories, while interesting, are relatively unimportant from the standpoint of American democracy at least. We may therefore confine ourselves to socialism proper as defined in section 122. 124 Karl Marx and his influence The germ of socialism can be traced back as far as Plato, but the modern movement takes its main impetus from the teachings of Karl Marx. Karl Marx was a German Jew who lived between 1818 and 1883. Marx early became known for his radical views on political and economic subjects. In 1848, he published in collaboration with Frederick Engels, the well-known Communist Manifesto. The Manifesto, which has been called the birth cry of modern socialism, gives in concise form the essence of the socialistic doctrine. In 1864, Marx helped organize the International, a federation of radical thinkers with affiliations in the different countries of Europe. In 1867, he published the first volume of his famous work, Capital, which elaborated the views set forth in the Manifesto and which has since been adopted as the Bible of socialism. Due to the great influence which Marx has exerted upon socialist doctrine, he may justly be called the founder in inspiration of modern socialism. 125 The Socialist Endicement The Claims of Socialism as formulated by Marx and elaborated by his followers constitute a serious indictment of present-day society. Socialists point out, for example, that the capitalistic system has numerous faults. They call attention to the fact that capitalism involves enormous waste in materials and men. They show that luxurious goods are produced, and they maintain that in the past natural resources have often been monopolized by a few. They believe the system of private property to be unjust and declare that free competition involves needless duplication of effort. At the present time it is contended all the good things of life go to a few while the masses remain in poverty and misery. Socialists declare that the fruits of capitalism are unemployment, industrial accidents, crime, vice, poverty, disease and premature death. These charges are serious and Chapter 16 will be devoted to their critical examination. In this chapter we are concerned chiefly with an exposition of the Socialist doctrine. 126. Economic Interpretation of History Formerly a great principle of socialism was the claim that all history has been determined by economic forces. According to this view social and political life including our basic ideas concerning religion, art, science and government are only the reflected result of economic forces. History, Marx contended is the record of how one class has gained wealth and power at the expense of another class. The present state of society he asserted is the result of the exploitation of the masses by a few. With this principle we need not further concern ourselves. It is an academic appendage to the socialist doctrine and at the present time is not stressed by socialists. The majority of socialists now concede that while economic forces have been important in history social, religious and political forces are also important. In view of this admission the chief importance of the doctrine of the economic interpretation of history is its theoretical connection with the two great cornerstones of socialism, the theory of surplus value and the theory of class struggle. 127 Theory of surplus value Marx claimed that practically all wealth has been created by laborers alone and that all persons other than laborers are parasites. To those who have carefully studied chapter 8 the error of this claim must appear self-evident. Nevertheless this concept of value is the basis of all socialist attacks upon government and industry. Marx developed this theory as follows The value of an article is determined solely by the amount of laborer expended upon its production. But although the laborer creates all wealth the capitalist is enabled by virtue of his monopolistic control over the instruments of production to prevent this wealth from going entirely to the laborer. Footnote By capitalists socialism means not only individuals with money to loan but employers in general whether middlemen entrepreneurs or true capitalists. In the footnote Socialism declares that the capitalists holds the laborer in virtual slavery. The laborer receiving only enough of the wealth created by him to enable him to keep alive while the surplus of this wealth goes to the capitalist The capitalist is thus a parasite who performs no useful task but robs the laborers of the fruits of their industry Marx did not regard profits as reward for business enterprise but called them plunder. Capitalism according to this view is a system of theft involving misery, oppression, slavery degradation and exploitation 128. Class Struggle Marx declared that the capitalistic system was doomed to destruction. He maintained that as time went on wealth would tend to concentrate more and more in the hands of the capitalistic or employing class. Trusts and monopolies would become more common and gradually capitalism would become so unwieldy and so unworkable a mechanism that it would finally fall to pieces of its own weight. Crisis, Panics and trade depressions were supposed to be indications of this inevitable disaster. The tendency for wealth to concentrate in the hands of a few was to be accompanied by the growing poverty of the masses. Marx believed that the middle classes would eventually disappear leaving only the wealthy employers and the miserable laborers. The individuals comprising these two classes would steadily draw apart into two great armies which were destined to battle to the death. Socialism denies that employers and laborers have anything in common and insists that between these two groups a struggle must go on until the employing class is abolished. 129. What is the ultimate aim of socialism? Nothing could here be more important than to know the ultimate aim of socialism. Nevertheless there is among socialists no agreement as to the framework of the system which they expect to substitute for capitalism. All socialists desire collective ownership and direction of the instruments of production. But beyond this there is practically nothing in the way of a constructive socialist program. Generally it is declared that when capitalism has been abolished the working classes will organize industry on the basis of communal ownership. In the socialist commonwealth there is to be no class struggle for the reason that there are to be no classes. There is to be a just distribution of wealth together with an abolition of poverty, unemployment and all forms of social injustice. But as to how this is to be accomplished we have no proof. The so called constructive program of socialism is not so much a definite agreement as to aims and methods as it is a confused and disordered expression of the attitude of different socialist groups toward capitalism. Indeed when socialists are asked to advance a concrete and definitely constructive program the reply is often made that the advent of socialism is so far distant that the constructive side of its program is of no immediate consequence. 130. Negative character of socialism but although the constructive program of socialism is vague and unreal it's destructive or negative program is definite and very real. Socialism is opposed to government as it exists today and to that extent it disapproves of the constitution of the United States. The capitalistic system is to be destroyed. The institution of private property is to be abolished. Free education and private initiative are to be abolished or greatly restricted. All business is to be done under the thumb of the government. Personal liberty is to be narrowed down. Some socialist even go so far as to declare war upon the family and the church. Indeed the average socialist is probably as friendly to these institutions as the average non socialist. 131. Socialist attitude toward violence It is important to understand the methods of socialism. Throughout the greater part of his life Carl Marx openly advocated violence and revolution as a means of securing the downfall of capitalism. Socialists says the communist manifesto quote disdain to conceal their views and aims. They openly declare that their ends can be attained only by the forcible overthrow of all existing social conditions end quote. Toward the end of his life Marx changed this view somewhat and apparently came to believe that the overthrow of the capitalistic system might come gradually and without bloodshed. In accordance with this later view there is today a considerable socialist group which disavows violence. Members of this group are known socialists. On the other hand many socialists cling to Marx's earlier insistence upon violence and bloodshed as a mean of attaining socialist ends. Members of the latter class are known as a militant socialist as opposed to those who disavow violence and rely chiefly upon political weapons. The two best known groups of militant socialists are the industrial workers of the world and the Russian Bolshevists. 132. Political socialism Many political socialists are personally so mild and agreeable that the thought of unlawful action would never be associated with them. The political socialist relies chiefly upon the growing political power of the working class to affect the abolition of capitalism. This emphasis upon political weapons has been particularly noticeable among socialists living in democratic countries where the franchise is widely extended and where the will of the people is reflected through the action of their chosen representatives. The political socialist makes a large use of propaganda. He tries to stir up the working man to create in him a feeling of solidarity with his fellow workmen and to incite a feeling of antipathy toward and dislike for the employing class. The political socialist emphasizes or exaggerates the undesirable side of the laborer's life and endeavors by promises of an industrial millennium to rouse him to political action. Working man of the world unite. You have nothing to lose but your chains is the slogan of the political socialist. 133. All socialist teachings tend toward violence. Though large numbers of political socialists are peaceful and responsible citizens, it should be noted that all socialist teachings tend to result in violence. The insistence of socialism upon the class struggle, the deliberate encouragement of industrial ill-will and the general policy of obstructing the activities of government all lead inevitably to violence. Strikes involving bloodshed have in many instances been traced to the teachings of political socialism. During the World War many political socialists in the United States supported our cause but others of this group opposed the selective draft attempted to demoralize our military forces and impeded the conduct of the war by giving aid and support to German agents. By a series of slight steps, political socialism theoretically law abiding and harmless may drift into treasonable and revolutionary acts. The difference between political and militant socialism is thus one of degree only. End of chapter 13. Chapters 14 and 15 of Problems in American Democracy This is a LibriVox recording. All LibriVox recordings are in the public domain. For more information or to volunteer please visit LibriVox.org This reading by Allison Hester of Athens, Georgia Problems in American Democracy by Times Williamson Chapter 14 Militant Socialism The IWW 134 Origin of the IWW The letters IWW are a convenient abbreviation which is used to designate a group of militant socialists calling themselves the industrial workers of the world. The IWW resembles a French socialist group known as syndicalists and on that account the IWW are sometimes called the American syndicalists. As a matter of fact the IWW are a distinct group and are in no way affiliated with the French syndicalists. The IWW movement can be traced to a minor strike in Colorado in 1903. As the result of the labor unrest, which this strike accentuated, a conference of radical labor leaders was called in Chicago in 1904 to discuss the question of forming a socialist organization which should advocate methods more drastic than those of political socialism. In the summer of 1905 a second convention was held in Chicago and a constitution was drawn up and subscribed to. Section 1 of article 1 of this constitution reads this organization shall be known as the industrial workers of the world. 135 The IWW and the political socialists similarities Like the political socialists the IWW go back marks for their basic teachings. William D. Haywood one of the IWW leaders accepted Marx's theory of surplus value in these terms. The theory of surplus value is the beginning of all socialist knowledge. It shows the capitalist in his true light that of an idler and a parasite. It proves to the workers that the capitalist should no longer be permitted to take any of their product. The IWW also stressed the class struggle. The preamble to their constitution declares that the working class and the employing class have nothing in common and asserts that between these two classes a struggle must go on until all the workers of the world organize as a class take possession of the earth and the machinery of production and abolish the wage system. In these important particulars there is agreement between the IWW and the political socialists. 136. The IWW and the political socialists differences The chief difference between the two groups is one of method. The political socialists prefer political action to violence. The IWW prefer violence to political action. The IWW believe that political methods are all together too slow and unreliable and accordingly they have so far refused to affiliate with any political party. The extreme limits to which the IWW have gone in the matter of violence have caused many political socialists to disavow this militant group. The attempt has even been made to prove that the IWW are not socialists at all as a matter of fact they are as truly so as any other socialist group. 137. IWW methods the strike The IWW use the strike not as a means of securing better working conditions but as a method of fomenting revolution. Instead of the conservative motto a fair day's wages for a fair day's work declares the preamble to their constitution and since grime on our banner the revolutionary watchword abolition of the wage system. In their use of the strike the IWW accordingly oppose consolation or arbitration of any kind and whether or not they gain their point they go back to work with the intention of striking again at the next opportune time. This policy has been formulated by the IWW in the following words strike when as much as possible go back to work recuperate strike again whatever concessions from capitalism the worker secure sooner or later they will strike again end quote The principle strikes initiated in pursuance of this policy occurred at McKees Rocks, Pennsylvania in 1909 Lawrence, Massachusetts in 1912 Booped Montana in 1914 and Bisbee, Arizona in 1916 violence and lawlessness have been prominent features of each of these strikes 138 IWW methods sabotage the word sabotage is a French origin and is used to describe any sort of deliberate action on the part of workmen which results in the destruction of the employer's property sabotage is a species of guerrilla warfare designed to foment the class struggle Louis Levine an IWW sympathizer has said that stirring up strife and accentuating the struggle as much as is in his power is the duty end quote of the IWW some of the commoner forms of sabotage are injuring delicate machinery exposing the employer's trade secrets to rival employers lying to customers about the quality of the goods crippling locomotives so that they cannot be operated slashing the harness of teamsters shipping the perishable goods to the wrong destination burning forests and wheat fields sawing lumber into unusual lengths and allowing foodstuffs to spoil or deteriorate 139 IWW methods destruction of life in their effort to destroy the existing order of society some of the IWW are frankly willing to go as far as assassination IWW leaders have advised their followers both orally and through their writings to extend the term sabotage to cover the destruction of human life during the world war the IWW caused a loss of life by putting poison in canned goods and by causing train wrecks they have advocated the placing of ground glass and food served in hotels and restaurants since the organization was formed in 1905 several bomb outrages resulting in the loss of life had been charged against the IWW but injustice to this group it must be observed that these crimes have never been proved to have been committed by authorized IWW agents 140 negative character of the IWW the IWW resemble the political socialists in their failure to offer a definite system which could be substituted for the capitalistic system some of the IWW, it is true have formulated a plan by means of which society is someday to be organized primarily on an industrial basis according to this program because of a given industry say the railroad industry will be organized into a single union rather than, as at present into a number of trade unions such as an engineers union as distinct from the firemen's union the breakmen's unions and so on the railroad union would in turn become a branch of a great transportation union and the transportation union would in turn become a division of the one big union which is to include all workers in all countries of the world if this plan were approved by the entire IWW organization it would mean that the IWW intended industry to be controlled by a super organization of working men all other persons to be excluded from any control whatsoever as a matter of fact this is the program of only a faction of the IWW the idea of one big union is opposed by a second group which insists that after the destruction of capitalism industry must be handed over to the exclusive control of small units of laborers unafflicted with and uncontrolled by any larger organization beyond the formulation of these two opposing views a constructive IWW program has never been developed attention continues to be centered upon the destruction of the present system 141 undemocratic character of the IWW the IWW oppose our present democracy they oppose our constitution and its fundamental guarantees of personal liberty, individual rights and private property they seek revolution not in order to secure justice for the masses but in order to place the laboring class in complete power in industry and government they announce their intention of continuing the class struggle until the working class is able to take possession and control of the machinery, premises and materials of production right from the capitalist's hands and to use that control to distribute the product of industry entirely among the workers 142 limited appeal of the IWW program it is a testimonial to the common sense of American workmen that the IWW have made little headway until the Lawrence strike in 1912 the movement centered in the far west and it is even now practically confined to those parts of the west where industry is less well organized and where family life is less stable miners, lumbermen and railway construction workers are prominent in the movement in general the IWW theory appeals chiefly to the lower strata of unskilled labor to young homeless workers to transience and to unassimilated immigrants the better trained and more intelligent American workmen reject the program of the IWW these latter workmen believe in bettering their condition through the gradual development and enforcement of industrial standards made possible by lawful cooperation with the employer the truth of this statement is borne out by the fact whereas the IWW number is scarcely 3,000 the American Federation of Labor has more than 4 million members numerically the IWW are unimportant and it is chiefly their violent and spectacular tactics which attract attention end of chapter 14 chapter 15 militant socialism the Bolshevists 143 significant of Bolshevism the term Bolshevists is used to designate a group of militant socialists that seized power in Russia in the fall of 1917 strictly speaking the Bolshevists were purely a Russian group nevertheless they are of interest to students of American democracy until the outbreak of the World War socialism was primarily a theory the claims of which could not definitely be settled for the reason that it had never been applied on a large scale Bolshevism is significant because it is the only instance in the history of the world where nationwide socialism has actually been put into operation the peculiar conditions surrounding the Russian experiment may prevent any detailed conclusions as to the availability of Bolshevist experience for other countries on the other hand the general results of that experiment must throw some light upon what we might expect if a socialist experiment were made in other countries it is important therefore that we inquire into the nature of the Russian socialist state 144 origin of the Bolshevists there is a popular impression that since the word Bolshevist means majority in the Russian language the Bolshevists represented or constituted a majority of the Russian people this is not true as the history of the group shows the origin of the Bolshevists dates from a convention of the Russian Social Democratic Party in 1903 at which time a majority took an extreme stand upon the politics then being discussed in convention in the years that followed the Bolshevists became known as the radical or extreme wing of the Russian Social Democratic Party as opposed to the Menshevists or moderate wing it appears that as early as 1905 the Bolshevists planned to secure control of the Russian government the opportunity presented itself during the world war which Russia had entered early in August 1914 in March 1917 a non-Bolshevist group initiated a revolution which overthrew the government of the Tsar and established a provisional government under the leadership of Alexander Kerensky this government immediately instituted a number of democratic reforms including the extension of the suffrage to all men and women who were Russian citizens these citizens elected delegates to a constituent assembly but at this point the Bolshevists seeing that the voters of Russia were overwhelmingly against Bolshevism attacked the new the constituent assembly was forcibly dissolved its defenders slaughtered and on November 7th 1917 the Bolshevists seized the reins of government thus Bolshevism as a government came into being as the result of suppressing the lawfully expressed will of the Russian people 145 the Bolshevist constitution liberal elements on July 10th 1918 the Bolshevists adopted a constitution this remarkable document was a strange compound of liberal and despotic elements it made a number of important promises to the people of Russia announcing for example that the new government would put an end to every ill that oppresses humanity in pursuit of this ideal the church was separated from the state and complete freedom of conscience was accorded all citizens of Russia citizens were to enjoy complete freedom of speech and of the press for the purpose of securing freedom of expression to the toiling masses provision was made for free circulation throughout the country of newspapers, books and pamphlets full and general education to the poorest peasantry was also promised capital punishment was declared abolished and a solemn protest against war and violence of every kind was adopted 146 the Bolshevist constitution restricted suffrage these liberal provisions were offset however by a number of important restrictions upon the voting rights of the people article 4 of the Bolshevist constitution declared that the right to vote should not be extended to the following groups all persons employing hired labors for profit including farmers who have even a single part-time helper all persons receiving incomes from interest rent or profits all persons engaged in private trade even to the smallest shopkeeper all ministers of religion of any kind all persons engaged in work which was not specifically designed by the proper authorities as productive and useful to society members of the old royal family and individuals formally employed the imperial police service the constitution further provided that representation in the various deliberative assemblies called soviets or councils should be arranged so that one urban Bolshevist would be equal in voting strength to five non-bolshevist peasants lastly the constitution significantly neglected to provide any machinery whereby the voters either as individuals or in groups could make nominations for any governmental office the power of nomination was assumed by various Bolshevist officials 147 the Bolshevist constitution provisioned for despotism the Bolshevist constitution frankly provided for a despotism quote for the purpose of securing the working class in the possession of complete power end quote reads the concluding section of chapter two of the constitution quote and in order to eliminate all possibility of restoring the power of the exploiters the capitalist or employing class it is decreed that all workers be armed and that a socialist red army be organized and the property class disarmed end quote these steps the constitution goes on to state were to be taken for the express purpose of a nationwide socialism into Russia 148 dictatorship of the proletariat shortly after the publication of the constitution Lenin and Trotsky the two Bolshevist leaders established what was called the dictatorship of the proletariat the word proletariat refers vaguely to the working classes but the Bolshevist interpreted the term to cover only that portion of the workers which was pledged to the support of socialist doctrine Lenin admitted that a small number of Bolshevized working men the proletariat was maintaining by force of arms a despotic control over the masses of the people just as 150,000 lordly landowners under czarism dominated 130 million of Russian peasants he once declared so 100,000 members of the Bolshevist party are imposing their will on the masses according to these figures the controlling element in Russia included less than one sixth of one percent of the people from the first the great majority of the peasants solidly resisted the socialization of the country but this did not discourage the Bolshevist leaders we have never spoken of liberty said Lenin early in 1921 we are exercising the dictatorship of the proletariat in the name of the minority because the peasant class in Russia is not yet with us we shall continue to exercise it until they submit I estimate the dictatorship will last about 40 years 149 suppression of democracy the democratic tendencies evidenced under the Kerensky regime and apparently encouraged by some of the divisions of the Bolshevist constitution were quickly checked by the dictatorship it became the policy of the government to deprive all individuals and groups of rights which could be utilized by them to the detriment of the socialist revolution the semblance of a representative system was retained but voting power was so distributed as to allow an oligarchic group to control the government's this group had the power to disallow elections which went against it as well as the power to force the dismissal from local Soviets of anti Bolshevist members the right to vote could be arbitrarily withdrawn by order of the central authorities free speech and the right to enjoy a free press were suppressed Lenin admitted that Bolshevism does not represent the toiling masses and declared that democracy cannot be scientifically applied to the Bolshevist party both Lenin and Trotsky declared that they had no fixed policy except to do whatever at the moment seemed expedient regardless of previous statements or promises 150 abolition of the capitalist system socialism so long a theory became a practical concern at the moment that Bolshevist secured control of the government private property and land was abolished the arable land of Russia being apportioned among agriculturalists without compensation to the former owners all mines forests and waterways of national importance were taken over by the central government while the smaller woods rivers and lakes became the property of local Soviets banking establishments were seized and looted by forces factories railroads and other means of production and transport were taken over inheritance was abolished private initiative in business was forbidden members of the capitalist or employing classes were imprisoned murdered or driven from the country in a word the capitalistic system was destroyed and the economic and political machinery of the country came under the full control of a small socialist group maintained in power by armed force 151 paralysis of industry under socialism the substitution of socialism for capitalism in Russia was followed by disaster the workers were unable to carry on the industries which had been handed over to them discouraged by repeated errors in administration and demoralized by their sudden rise to power they neglected their work and privileged the factories and shops in which they had formally been employed the elimination of the managing employers resulted in a decrease in output and to aggravate the situation the laborers continue to insist upon a shorter and shorter working day in desperation the government attempted to keep the people at their tasks by force the workers were exploited to a degree previously unknown even in Russia they worked longer hours and for less pay than formally in many places they were attached to their tasks like medieval serfs and even harness to carts like beasts of burden the trade unions were abolished and the workers were forbidden to strike on pain of imprisonment or death yet despite these measures the output of factories mills and mines steadily decreased industry stagnated and business fell away the millions of Russia were starving in a land of plenty 152 return to capitalistic methods to save the country from economic ruin then in turn to capitalism free initiative and open competition and trade were again allowed the socialization of railroads mills and natural resources was halted the arable land under which socialism had not grown enough food to support even the peasants living upon it was again cultivated under the wage system the capitalists and managing employers who were alive and still in Russia were gathered together and placed in charge of industry the laborers who had been promised an 8 or 6 hour day incomplete control of industry were now forced by the Bolshevist government to work long hours under their former employers for practically no pay by 1919 the essential features of the capitalistic system had been accepted by Lenin and Trotsky the Bolshevists continuing in power as a despotic group which maintained authority over the laborers and the employers by armed force the theory that all accept the laborers are parasites had been exploded 153 was socialism given a fair trial in Russia? to point out that an experiment has failed is one thing to prove that it has been attempted under fair conditions is quite another we cannot therefore condemn the Bolshevist experiment without some regard for the conditions under which it was conducted undoubtedly the Bolshevists had to contend against several important difficulties the majority of the Russian people are illiterate peasants who had, at the time of the overthrow of the Tsar in 1917 little or no training in self-government in 1917, Russia was moreover in a state of political demoralization the result of three years of war concluded by a military debacle and a disorderly peace the suddenness with which socialism was introduced was also a factor which handicapped the Bolshevists on the other hand, many favorable conditions were present with respect to natural resources Russia is one of the richest countries in the world she is practically everything necessary to a healthy and self-sufficing industrial life over this wealth the Bolshevist had full control Lenin, the Bolshevist chief is conceded to have been a remarkable executive so that the socialist experiment was conducted by a man not only well-versed in Marxian doctrine but capable of exercising an intelligent and authoritative control of the government the Bolshevist territory was blockaded by Great Britain, France and the United States but trade connections between Russia and the two last named countries had been unimportant trade connections with Germany and Sweden on the west and China on the east were not broken off it is clear that the socialist experiment in Russia was attended by important advantages and disadvantages whether or not Bolshevism had an absolutely fair trial is as yet impossible to say on the other hand, the disastrous failure of the experiment would seem to indicate that it could not have met with any great degree of success under fairly favorable conditions the admissions of the Bolshevist leaders themselves together with the conclusions of the most impartial investigators of the experiment justify the conclusion that socialism in Russia failed because it was based upon false principles the Bolshevists have been accused of having instituted a reign of terror bringing in its train lawlessness, murder, desecration of the church and the most brutal savagery into these charges we cannot go it is enough that the most reliable evidence goes to show that Bolshevism as a nationwide application of socialist doctrine was a failure 154 failure of Bolshevist propaganda beyond Russia Bolshevism in common with other varieties of socialism sought to break down national barriers and to establish a dictatorship of the proletariat in all of the countries of the world some of the milder socialists in western Europe and America disavowed the acts of the Russian group but the majority of socialists beyond Russia appear to have at least secretly sympathized with the Bolshevists encouraged by this attitude Lenin and Trotsky frankly admitted their intention of fomenting worldwide revolution the Bolshevist government appropriated large sums for propaganda in countries beyond Russia and socialist sympathizers everywhere advocated an attempt to overthrow world capitalism in the period of unrest immediately following the world war there was some response to Bolshevist propaganda in a number of countries but sounder opinion prevailed and in 1920 Lenin admitted that the working men of Europe and America had definitely rejected his program the one case of nationwide socialism had proved too great failure not to impress the laboring classes in the more advanced countries of the world as a visionary and unworkable scheme End of chapter 15