The facts, particularly the facts of industry and science, have outrun these provisions of law and custom; and so the scheme of things has got out of joint by that much, through no inherent weakness in the underlying principles of law and custom. The ancient and honorable principles of self-help are as sound as ever; it is only that the facts have quite unwarrantably not remained the same.
... the new order of industrial ways and means has been progressively going out of touch with the essential requirements of this established scheme of individual self-help and personal initiative, on the realization and maintenance of which the best endeavors of the Liberals have habitually been spent.
The employer of labor in the staple industries of that time was, in his own person, commonly also the owner of the establishment in which his hired workmen were employed; and also -- again in passable accord with the facts -- he was presumed personally to come to terms with his workmen about wages and conditions of work. Employment was considered to be a relation of man to man.
So soon as the machine industry began to make headway, the industrial plant increased in size, and the number of workmen employed in each establishment grew continually larger; until in the course of time the large scale of organization in industry has put any relation of man to man out of the question between employers and workmen in the leading industries.
Ownership has been "denatured" by the course of events; so that it no longer carries its earlier duties and responsibilities. It used to be true that personally responsible discretion in all details was the chief and abiding power conferred by ownership; but wherever it has to do with the machine industry and large-scale organization, ownership now has virtually lost this essential part of its ordinary functions.
The state of the industrial arts, therefore, is the indispensable conditioning circumstance which determines the productive capacity of any given community; and this is true in a peculiar degree under this new order of industry, in which the industrial arts have reached an unexampled development.
The owners of the community's material resources -- that is to say the investors in industrial business -- have in effect become "seized and possessed of" the community's joint stock of technological knowledge and efficiency.
So inordinately productive is this familiar new order of industry that in ordinary times it is forever in danger of running into excesses and turning out an output in excess of what the market -- that is to say the business situation -- will tolerate. There is constant danger of "overproduction," So that here is commonly a large volume of man power unemployed and an appreciable proportion of the industrial plant lying idle or half idle.
After the analogy of good-will, it has been usual to trace any such special run of free income to the profitable use of a special advantage in the market.
These supernumerary and preferential gains, "excess profits," or whatever words may best describe this class of free income, may be well deserved by these beneficiaries, or they may not. The income in question is, in any case, not created by the good deserts of the beneficiaries, however meritorious their conduct may be.
In this connection, and under the existing conditions of investment and credit, "reasonable returns" means the same thing as "the largest practicable net returns." It all foots up to an application of the familiar principle of "charging what the traffic will bear"; for in the matter of profitable business there is no reasonable limit short of the maximum. In business, the best price is always good enough; but, so also, nothing short of the best price is good enough. Buy cheap and sell dear.
The resulting question is, therefore, not whether the rest of the community loses as much as the business men gain, -- that goes without saying, since the gains of the business men in the case are paid over to them by the rest of the community in the enhanced (or maintained) price of the products, but rather it is a question whether the rest of the community, the common man, loses twice as much as the business concerns and their investors gain.
To the spokesmen of "business as usual" this rating of current production under the pressure of war needs may seem extravagantly low; whereas, to the experts in industrial engineering, who are in the habit of arguing in terms of material cost and mechanical output, it will seem extravagantly high. Publicly, and concessively, this latter class will speak of a 25 percent efficiency; in private and confidentially they appear disposed to say that the rating should be nearer to 10 percent than 25.
To avoid any appearance of an ungenerous bias, then, present actual production in these essential industries may be placed at something approaching 50 percent of what should be their normal productive capacity in the absence of a businesslike control looking to "reasonable profits." It is necessary at this point to call to mind that the state of the industrial arts under the new order is highly productive, -- beyond example.
And, finally, there should be some gain of serenity in realizing how singularly consistent has been the run of economic law through the ages, and recalling, once more the reflection which John Stuart Mill arrived at some half-a-century ago, that, "Hitherto it is questionable if all the mechanical inventions yet made have lightened the day's toil of any human being."
The system of free competition, self-help, equal opportunity and free bargaining which is contemplated by the modern point of view, assumes an industrial situation in which the work and trading of any given individual or group can go on freely by itself, without materially helping or hindering the equally untrammeled working of the rest.
It is, in effect, for this continued growth of their market, caused by the growth of population, that the business men claim credit when they "point with pride" to the resourcefulness and quick initiative with which they have "developed the country,".
There is circumstantial evidence that very material gains in economy and expedition commonly resulted from these successive moves of consolidation in the steel business.
The U.S. Steel Corporation has vindicated the wisdom of an unreserved advance on lines of consolidation and recapitalization in the financing of the large and technical industries.
What is not doubtful, in the steel business or in any of the other industrial enterprises that run on a similar scale and a similar level of technology, is that the owners of the corporate capital have come in for a very substantial body of intangible assets of this kind, and that these assets of capitalized free income will foot up to several times the total value of the material assets which underlie them.
There is a great and pressing need of such a construction of these principles, which would greatly facilitate the work of corporation finance; but it is to be admitted that some slight cloud still rests on this manner of disposing of ownership. It involves abdication or delegation of that discretionary exercise of property rights which has been held to be of the essence of ownership.
The free income which is capitalized in the intangible assets of the vested interests goes to support the well-to-do investors, who are for this reason called the kept classes, and whose keep consists in an indefinitely extensible consumption of superfluities.
Within the nation the enlightened principles of self-help and free contract have given rise to vested interests which control the industrial system for their own use and thereby come in for a legal right to the community's net output of product over cost. Each of these vested interests habitually aims to take over as much as it can of the lucrative traffic that goes on and to get as much as it can out of the traffic, at the cost of the rest of the community.
The keepers of the established order will always look to evasion and entertain a hope of avoiding casualties and holding the line by the use of a cleverly designed masquerade.
As is true of the divine right of kings, so also as regards the divine right of nations, it is extremely difficult to show that it serves the common good in any material way, in any way that can be formulated or verified in terms of tangible performance.
But there are certain vested interests which find their profit in maintaining a tariff barrier as a means of keeping the price up and keeping the supply down; and the common man still faithfully believes that the profits which these vested interests derive in this way from increasing the cost of his livelihood and decreasing the net productivity of his industry will benefit him in some mysterious way.
He is persuaded that high prices and a scant supply of goods at a high labor cost is a desirable state of things. This is incredible, but there is no denying the fact.
And it is a divine right of the nation to use its discretion and offset this inordinate efficiency of its common stock of knowledge by adroitly crippling its own commerce and the commerce of its neighbors, for the benefit of those vested interests that are domiciled within the national frontiers.
At home in America for the transient time being, the war administration has under pressure of necessity somewhat loosened the strangle-hold of the vested interests on the country's industry; and in so doing it has shocked the safe and sane business men into a state of indignant trepidation and has at the same time doubled the country's industrial output.
Already the vested interests are again tightening their hold and are busily arranging for a return to business as usual; which means working at cross-purposes as usual, waste of work and materials as usual, restriction of output as usual, unemployment as usual, labor quarrels as usual, competitive selling as usual, mendacious advertising as usual, waste of superfluities as usual by the kept classes, and privation as usual for the common man.
So also it is plain that national pretensions in the field of foreign trade and investment, and all the diversified expedients for furthering and protecting the profitable enterprise of the vested interests in foreign parts, run consistently at cross-purposes with the keeping of the peace.
All these peoples that now hope to be nations have long been nationalities. A nation is an organization for collective offence and defense, in peace and war, -- essentially based on hate and fear of other nations; a nationality is a cultural group, bound together by home-bred affinities of language, tradition, use and wont, and commonly also by a supposed community race, -- essentially based on sympathies and sentiments of self-complacency within itself.
But it is not usual to speak of the kept classes as the uncommon classes, inasmuch they personally differ from the common run of mankind in no sensible respect. It is more usual to speak of them as "the better classes," because they are in better circumstances and are better able to do as they like. Their place in the economic scheme of the civilized world is to consume the net product of the country's industry over cost, and so prevent a glut of the market.
The great distinguishing mark of the common man is that he is helpless within the rules of the game as it is played in the twentieth century under the enlightened principles of the eighteenth century.
It may well be that the frame of mind engendered by this training in matter-of-fact ways of thinking will presently so shape popular sentiment that all income from property, simply on the basis of ownership, will be disallowed, whether the property is tangible or intangible. All that is a speculative question running into the future.