Chapter THIRTEEN: The Economic Problems (2)

Everybody felt that, if the question of tariff should be opened up, unforeseen disputes might ensue. On questions of tariff every industry wields a lever in its own favour, and the Wilson Tariff had sufficiently shown how long and how tragi-comic can be the course from the law proposed to the law accomplished. It was felt everywhere that if the country should be brought into unrest by the fact that no industry could know for some years what its future was to be or where Congress might chance to take off protection, that all industry would be greatly injured. There could be no new undertakings for years, and whatever the ultimate result might be, the mere feeling of uncertainty would make a crisis sufficient to turn the tide of prosperity. And American reciprocity was after all only a matter of philanthropy; for the experience with Canada and Hawaii, it was said, only showed that reciprocity meant benevolence on the part of America.

If America is to be philanthropical, there is enough to do in other ways; but if America is to preserve her commercial interests and her prosperous industries, it is absolutely necessary not to stir up trouble and push the country once more into tariff disturbances and expose industry to doubts and misgivings. And this ghost has made its impression. McKinley’s words have aroused only a faint echo in the party. The need, however, which he instinctively felt remains, and public opinion knows it. It is only a question as to when public opinion will be stronger than party opinion.

There is another thing which gives the anti-protectionists a better chance. Democrats say that high tariff has favoured the trusts. This may be true or false, and statistics speak for both views. But here is a watchword for the party which makes a deep impression, for the trusts are popularly hated. This, too, may be right or wrong, and may be still more easily argued for both sides, but the fact remains, and the seductive idea that abolishing high tariff will deal a fatal blow to the hated, extortionate, and tyrannical trusts gets more hold on the masses day by day. In vain the protectionists say that there is not a real monopoly in the whole country; that every instance of extortionate price calls out competition at once, and injures the trust which charges such price; that protection benefits the small and poor companies as much as the large, and that an attempt to injure the large companies by free-trade enactments would kill all small companies on the instant. And, besides, politics ought not to be run in the spirit of hatred. But the embitterment exists, and arguments avail little. It is incontestable that, of all the motives which are to-day felt to work against protection, the one most effective with the masses is their hatred of the trusts. Herewith we are led from the tariff question to this other problem—the trusts.

_The Trust Question_

“_Von der Parteien Hass und Gunst verwirrt_”—to be hated and to be favoured by the parties is the fate of the trusts. But the odd thing is that they are not hated by one party and favoured by the other; but both parties alike openly profess their hatred and yet show their favour by refraining after all from any action. And this inconsistency is not due to any intentional deception.

To be sure, a good deal of it is political policy. The evils and dangers of many trust formations are so obvious that no party would like to praise them openly, and no party will dispense with the cheap and easy notoriety of declaring itself for open competition and against all monopolies. On the other hand, the power of the trusts is so great that neither party dares to break with them, and each has its special favourites, which could not be offended without prejudicing its campaign funds. Nevertheless, the deeper reason does not lie in the matter of expediency, but rather in the fact that no relief has been proposed which promises to be satisfactory. Some want to treat the evil superficially, as a quack doctor tries to allay secondary symptoms; and others want, as President Roosevelt has said, to end the disease by killing the patient. The fact that this inventive nation has still not solved its great economic problem, is probably because the trusts have grown necessarily from the organic conditions of American life, and would continue to exist in spite of all legislative hindrances which might be proposed against them.

When Queen Elizabeth, in violation of the spirit of Anglo-Saxon law, distributed in the course of a year nearly fifty industrial monopolies, and caused the price of some commodities to be doubled, the House of Commons protested in 1601, and the Queen solemnly declared that she would revoke all privileges which endangered industrial freedom; and from that time on, monopolies were done away with. The American people are their own sovereign, and the effect of monopolies is now about the same as it was in England three hundred years ago. But the New World sovereign cannot issue a proclamation revoking the monopolies which it has granted, or at least it knows that the monopolies, if taken from one, would be snatched by another. It is true that the present form of trusts could be made illegal for the future, but some other form would appear, to compass the same ends; and if certain economic departments should be liberated by a free-trade legislation, the same forces would gather at other points. We must consider the essence of the matter rather than its outward form.

The essence is certainly not, as the opponents of trusts like to represent, that a few persons are enriched at the expense of many; that the masses are plundered to heap up wealth for a small clique. The essence of the movement does not lie in the distribution of wealth, but in the distribution of power. The significance of the movement is that in recent times the control of economic agencies has had to become more strongly concentrated. It is a mere attendant circumstance that in the formation of the trusts large financiers have pocketed disproportionately large profits, and that the leading trust magnates are the richest men of the country. The significance of their position lies in the confidence which is put in them. But the actual economic endeavour has been for the organized control of larger and larger undertakings. It has been very natural for the necessary consolidation of smaller parts into new and larger units to be accomplished by men who are themselves rich enough to retain a controlling share in the whole business; but this is a secondary factor, and the same result could have been had if mere agents had been appointed by the owners to all the great positions of confidence.

Almost the same movement has gone on in other economic spheres than the industrial. Railroad companies are all the time being consolidated into large companies, controlled by fewer and fewer men, until finally a very few, like Morgan, Vanderbilt, Rockefeller, Harriman, Gould, Hill, and Cassatt, virtually control the whole railroad system. But this economic movement in the railroad world would not really stop if the state were to take over all the railroads, and a single badly paid secretary of railroads should be substituted for the group of millionaires. The main point is that the savings of the whole country are invested in these undertakings, and are looking for the largest possible returns, and get these only when leadership and control are strongly centralized.

The very obvious opulence of the leaders naturally excites popular criticism, but it has been often shown that the wealth of these rich people has not increased relatively to the average prosperity of other classes, and the corporations themselves make it possible to distribute the profits saved by concentration throughout the population. The famous United States Steel Company had last year 69,000 stockholders, and the shares of American railroads are owned by more than a million people. For instance, the Pennsylvania Railroad alone has 34,000 stock and bond holders, who intrust the control to a very few capitalists. In fact, the whole railway system belonging to a million people is controlled by about a dozen men; and the Steel Company with its 69,000 owners is managed by twenty-four directors, who in turn are guided by the two presidents of the administration and finance committees. The chief point is thus not the concentration of ownership, but the concentration of power.

This same movement toward concentration has taken place in the banking business; and here the point is certainly, not that one man or a few men own a main share in the banks, but only that a few men are put in charge of a group of financial institutions for the sake of organized management. In this way the public is more uniformly and systematically served, and the banks are more secure, by reason of their mutual co-operation.

Among the directors of the Bank of Commerce there are, for instance, directors of two life-insurance companies which have a capital of $750,000,000, and of eight trust companies; and the directors of these trust companies are at the same time directors of other banks, so that they all make a complete chain of financial institutions. And they stand more or less under the influence of Morgan. There is, likewise, another system of banks, of which the chief is the National City Bank, which is dominated by Rockefeller; and these personal connections between banks are continued to the industrial enterprises, and then on to the railroad companies. For instance, the Rockefeller influence dominates not only banks and trust companies whose capital is more than $400,000,000, the famous Standard Oil Company with a capital of $100,000,000, the Lackawanna Steel Company worth $60,000,000, and the gas companies of New York worth $147,000,000, but also the St. Paul Railroad, which is capitalized at $230,000,000, the Missouri, Kansas and Texas at $148,000,000, and the Missouri Pacific at $212,000,000.

It is certainly true that such tremendous influence under present conditions can be gotten only by men who actually own a huge capital. And yet the essential economic feature is always the consolidation of control, which is found necessary in every province of industry, and which entirely overtops the question of ownership. It has been estimated that the twenty-four directors of the United States Steel Company exert a controlling influence in two hundred other corporations; that back of them are the largest banks in the whole country, about half the railroads, the largest coal, oil, and electric companies, and the leading telegraph, express, and life-insurance companies, etc. They control corporations with a capital of nine billions of dollars: and such consolidation is not to be undone by any artificial devices of legislation.

If economic life, by reason of the dimensions which it has assumed in the last decades, requires this welding together of interests in every department, then the formation of syndicates and trusts is only a phase in the necessary development; and to prevent the formation of trusts would affect the form, and not the essence of the movement. Indeed, the form has already changed a number of times. The earliest trusts were so organized that a number of stock companies united as such and intrusted their business to a new company, which was the “trust.” That system was successfully abolished; the trust itself seemed unassailable, but the state could revoke the charters of the subsidiary companies, because by the law of most states these latter might continue only so long as they carried on the functions named in their charters; that is, so long as they carried on the transaction of their affairs themselves. A stock company has not the right, possessed by an individual, to intrust its property to another. And if the stock companies which came together into a trust were dissolved, the trust did not exist. In this way the State of New York proceeded against the Sugar Trust, Ohio against the Standard Oil Company, and Illinois against the Chicago Gas Company.

But the course of events has shown that nothing was gained by this. Although it was recognized that corporations could not legally combine to form a trust, nevertheless the stockholders controlling the stock of separate companies could join as individuals and contribute their personal holdings to a new company which was virtually a trust; and in this form the trusts which had been demolished were at once reorganized. Moreover, of course any number of stock companies can simply dissolve and merge into one large company, or they may keep their individuality but make important trade agreements with one another, and so indirectly fulfil the purposes of a trust. In short, the ways of bringing assenting industrial enterprises under one management and so of virtually making a given industry into a monopoly, are manifold.

To promote the development of trusts, there was nothing necessary but success at the outset. If the first trusts were successful, the device would be imitated so long as there was any prospect of profit. It really happened that this imitation went on finally as a sort of mania, where no special saving of profits could be predicted; one trust followed another, and the year 1903 saw 233 purely industrial trusts incorporated, of which 31 had a capital of over $50,000,000 each, and of which the total capitalization was over nine billions.

At first sight it might look as if this movement would be really sympathetic to the American people in general. The love of size generated in the nation by the lavishness of nature must welcome this consolidation of interest, and the strong spirit of self-initiative claiming the right of individuals to unite and work together must surely favour all sorts of co-operation. As a fact now an opposite tendency operates, which after all springs from the same spirit of self-initiative. The freely acting individual must not be prevented by a stronger force from using the strength he has. Everything which excludes free competition and makes the individual economically helpless seems immoral to the American. That is old Anglo-Saxon law.

The common law of England has at all times condemned agreements which tend toward monopoly, and this view dominates the American mind with a force quite surprising to the European who has become accustomed at least to monopolies owned by the state. The laws of almost all the separate states declare agreements tending toward a monopoly to be illegal; and federal legislation, in its anti-trust measures of 1887 and 1890, has seconded this idea without doing more than formulating the national idea of justice. The law of the country forbids, for instance, all agreements looking to the restriction of trade between different states of the country or with foreign nations. Senator Foraker, in February, 1904, called down public displeasure by proposing a law which permitted such agreements restricting commerce so long as the restriction was reasonable. It was feared at once that the courts would think themselves justified in excusing every sort of restraint and monopolistic hindrance. And yet there is no doubt that the interpretation of what should constitute “restriction” to commerce was quite as arbitrary a matter as the interpretation of what should be “reasonable.” Indeed, the economic consolidation of competing organizations by no means necessarily cuts off the beneficent effects of competition. When, for instance, the Northern Securities Company united several parallel railway lines, it asserted justly that the several roads under their separate corps of officials would still compete for public favour. Yet the public and the court objected to the consolidation. The one real hindrance to the propagation of trusts lies in this general dread of every artificial check to free competition.

Many circumstances which have favoured the formation of trusts are obvious. In the first place, the trust can carry on business more cheaply than the component companies individually. The general administration is simplified by doing away with parallel positions, and all expenses incident to business competition are saved. Then, too, it can make larger profits since when competition stops, the fixing of prices lies quite with itself. This is of course not true, in so far as other countries are able to compete; but here comes in the function of the protective tariff, which permits the trust to raise its prices until they equal those of foreign markets plus the tariff.

The good times which America has enjoyed for some years have also favoured the development of trusts. When the harvests are good and the factories all busy, high prices are readily paid. The trusts can do even better than single companies by shutting down unprofitable plants and adapting the various remaining plants for mutual co-operation. Then, too, their great resources enable them to procure the best business intelligence. In addition to all this came a series of favourable external circumstances. First was the rapid growth of American capital which was seeking investment. In the seventies, the best railroad companies had to pay a rate of 7 per cent. in order to attract investors; now they pay 3½ per cent. Capital lies idle in great quantities and accumulates faster than it can find investment. This has necessarily put a premium on the organization of new trusts. Then, too, there was the well-known uniformity of the market, so characteristic of America. The desire to imitate on the one side, and patience and good nature on the other, give to this tremendous region of consumption extending from the Atlantic to the Pacific Ocean a uniformity of demand which greatly favours manufacture on a gigantic scale. This is in sharp contrast with the diversity of requirements in Europe.

It has been, doubtless, also important that the American feels relatively little attached to his special business. Just as he loves his Fatherland really as a conception, as an ideal system, but feels less bound to the special piece of soil where he was born and will leave his own farm if he is a farmer and go westward in search of better land, so the American passionately loves business as a method, without being over attached to his own particular firm. If the opening is favourable, he gives up his business readily to embark on another, just as he gives up an old-fashioned machine in favour of an improved one.

Just this quality of mind is so different from the German that here would be probably the greatest hindrance to the organization of trusts in Germany. The German feels himself to have grown up in his special business, which he may have inherited from his father, just as the peasant has grown up on his farm, and he does not care to become the mere employee of a large trust. Another contributory mental trait has been the friendly confidence which the American business man puts in his neighbour. The name is here appropriate; the trusts in fact repose to a high degree on mutual trust, and trusts like the American could not develop wherever there should be mutual distrust or jealousy in the business world. Finally, the laws themselves have been favourable, in so far as they have favoured the issue of preferred stock in a way very convenient to trusts, but one which would not have been approved in Europe. And, moreover, the trusts have made considerable use of the diversity existing between the laws of different states.

There have been retarding factors, too. We have mentioned the most important of all—the legal discountenance of all business agreements tending to create a monopoly or to restrain trade. There have been others, however. One purpose of the trusts is to put prices up and so to make the necessities of life dearer. It is the people who pay the prices—the same people who elect Congress and determine the tariffs and the laws; so that every trust works in the knowledge that putting up prices tends immediately to work back on business by calling forth tariff revision and anti-trust laws.

One source of great profit to the trusts has been the possibility of restricting output. This method promised gain where natural products were in question, such as oil, tobacco, and sugar, of which the quantity is limited, and further for all technical patents. Where, however, there is no such limitation the most powerful corporation will not be able to avoid competition, and if it tries to buy up competing factories to stop such competition, still more are built at once, solely with the purpose of extorting a high ransom from the trusts; and this game is ruinous. In other departments again consolidation of business means very little economy; Morgan’s marine trust is said not to have succeeded for this reason. In short, not all industries are susceptible of being organized as trusts, and the dazzling profits of certain favoured trusts too easily misled those who were in pursuit of fortune into forgetting the difference between different businesses. Trusts were formed where they could not be profitable. Perhaps the real founders themselves did not overlook the difference; but they counted on the great hungry public to overlook it, until at least most of the shares should have been disposed of.

As a fact, however, the reluctance of the great investing public has been a decidedly restraining factor too. The securities spoiled before the public had absorbed them; everywhere the complaint went up of undigested securities. The public came early to suspect that the promoters were making their profits not out of the legitimate economies to be saved by the trusts, but by enormously overcapitalizing them and taking large blocks of stock for themselves.

There was still another unfavourable influence on public opinion. The main profits of a protected trust lie in its being able to sell more dearly than it could if exposed to foreign competition. But now if the consolidated industry itself proposes to sell to other countries, it must of course step down to the prevailing level of prices. It must therefore sell more cheaply abroad than at home. But this is soon found out, and creates a very unfavourable impression. The American is willing to pay high prices, as far as that goes; but when he has to pay a price double what the same factory charges for the same goods when delivered in Europe, he finds the thing wholly unnatural, and will protest at the next election. Thus there have been plenty of factors to counteract the favourable conditions, and the history of trusts has certainly not been for their promoters a simple tale of easy profits.

Now, if we do not ask what has favoured or hindered the trusts, nor how they have benefited or jeopardized their founders, but rather look about to see what their effect on the nation has been and will be, some good features appear at once. However much money may have been lost, or rather, however fictitious values may have been wiped out in the market, the great enterprises are after all increasing the productive capacity of the nation and its industrial strength in the fight with other peoples. They give a broad scope to business, and bring about relations and mutual adaptations which would never have developed in the chaotic struggling of small concerns. They produce at the same time by the concentration of control an inner solidarity which allows one part to function for another in case there are hindrances or disasters to any part of the great organism, and this is undoubtedly a tremendous factor for the general good. A mischance which, under former conditions, would have been disastrous can be survived now under this system of mutual interdependence: thus it can hardly be doubted that the combined action of the banks in the year 1903 prevented a panic; since, when stocks began to fall, the banks were able to co-operate as they would not have been able previously to their close affiliation.

Furthermore, economic wealth can now be created more advantageously for the nation. The saving of funds which were formerly spent in direct competition is a true economy, and the trusts have asserted again and again that as a matter of fact they do not put up prices, but that they make sufficient profits in saving what had formerly been wasted in business hostilities. Certainly the trusts make it possible to isolate useless or superannuated plants, without causing a heavy loss to the owners, and thus the national industry is even more freely adaptable to changing circumstances than before; and this advantage accrues to the entire country. The spirit of enterprise is remarkably encouraged and the highest premiums are put on individual achievement. Almost all the men who hold responsible positions in the mammoth works of the Steel Trust have worked up, like Carnegie himself, from the bottom of the ladder, and made their millions simply by working better than their fellows.

On the other hand, the trusts have their drawbacks. One of the most regrettable to the American mind is their moral effect. The American distrusts such extreme concentration of power and capital; it looks toward aristocracy, oligarchy, and tyranny. At the same time the masses are demoralized, and in very many cases individual initiative is strangled. There are, as it were, nothing but officials obeying orders; no men acting wholly on their own responsibility. Work ceases to be a pleasure, because everything goes by clock-work; the trust supersedes the independent merchant and manufacturer just as the machine has superseded the independent artisan.

The trusts have other demoralizing effects. Their resources are so tremendous as in the end to do away with all opposition. The independent man who hopes to oppose the great rival, can too easily be put in a position in which he is made to choose between beggary and the repudiation of all his principles. Everybody knows the shameless history of the Standard Oil Company, which has strangled not merely weak proprietors, but, much more, has strangled strong consciences. Then, too, the whole system of over-capitalization is immoral. Large trusts can hardly be formed except by purchasing the subsidiary companies at fancy prices, and issuing stock which in large part represents the premium paid to the promoters. Indeed, this whole system of community of interests which puts thousands of corporations into the hands of a few men who everywhere play into one another’s hands, must bring it about that these men will soon grow careless and overlook one another’s irregularities in a way which will threaten sober business traditions. The whole country was shocked on hearing the revelations of the Shipbuilding Trust, and seeing with what criminal carelessness the organization went on in a little group of friends, and how the methods of poker-playing were applied to transactions of great moment. The fundamental objection, however, is always that it is immoral to kill competition by agreements which create a monopoly.

Now, what can be done to obviate these evils? Apparently the first thing would be a revision of the tariff; and yet even their opponents must agree that there is only an indirect relation between the protective tariff and the trusts. It is true that the high tariffs have helped to create those industries which have now come together in trusts, and if the industries were to be wiped out, of course there would be nothing left of consolidations. But it is surely not true that the trusts are the immediate effect of the tariff, and the more a revised tariff were to let in foreign competition so much the more would the national industries need to form themselves into trusts for the sake of the benefits of consolidated management. All the business advantages and all the moral evils of trusts would still remain, even though the dividends were to sink. And the trusts would not be carried off the field unless American industry itself should utterly succumb to the foreign enemy.

Most of all, however, it seems clear that any policy prejudicial to the conditions of production and distribution would first of all, and most sadly, hit the competitors of the trusts. There is no absolute monopoly in any American industry. Indeed, even the Sugar Refining Company has a few outside competitors, and there is a legion of independent producers outside of the Steel Trust who are themselves in part organized in groups, and in many industries the trusts do not comprise even half of the manufacturers. Now, if the high tariff wall should be torn down so that a flood of cheap foreign manufactures could come in, it is certain that the first sufferers would be the small independent companies, which would be drowned out, while the mighty trusts would swim for a long time. Indeed, the destruction of such home competition would greatly benefit the trusts. Some of the strongest of these would hardly be reached at all by a reduction of the tariff—as, for instance, the strongest of them, the Petroleum Trust, which does not enjoy any protection. And it is also to be asked if trusts do not prosper in free-trade England? So soon as the water is squeezed out of their stocks, as has in good part lately happened, the trusts would still have a great advantage after protective duties should be abolished. And at the same time the necessary depression of wages which would result from that movement would endanger the whole industrial fabric. Moreover, the social and moral evils of the trusts would persist. Therefore the Republican party, which is just now in power, will take no part in solving the trust question by reducing the tariff.

Those Republicans who oppose the trusts are much more inclined to proceed to federal legislation. President Roosevelt has, in a number of speeches which are among the most significant contributions to the whole discussion, pointed to this way again and again. The situation is complicated and has shifted from time to time. The real difficulty lies in the double system of legislative power which we have already explicitly described. We have seen that all legislative power which is not expressly conferred on the Union belongs to the several states; specially has each state the right to regulate the commercial companies to which it has given charters. But if the company is such a one as operates between several states—as, for instance, one which transports goods from one state to another—it is regulated by federal law. Now, as long ago as the year 1890, in the so-called Sherman Act, Congress passed draconic regulations against interstate trusts. The law threatens with fine and imprisonment any party to a contract which restricts interstate commerce. It can be said of this law that it entirely did away with the trusts in their original form, in which the various companies themselves composed the trust. At the same time the federal officials were strongly seconded by the judicial doings of the separate states, as we have already seen. But the effect has only been to drive industry into new forms, and forms which are not amenable to federal regulations, but fall under the jurisdiction of the separate states. Corporations were formed which have their home in a certain state, but which by the tremendous capital of their members have been able to acquire factories distributed all through the country. Indeed, they are not real trusts any more, and the name is kept up only because the new corporations have descended from trusts and accomplish the same purpose.

Of course, this change would have been of no advantage for the several companies if the stern spirit shown by Congress in this legislation had been manifested once more by the separate states, that is, if each separate state had forbidden what the Union had forbidden; but so long as a single state in the whole forty-five permitted greater freedom to business than the others, of course all new companies would be careful to seek out that state and settle there. And, what was more important, would there pay taxes—a fact which tended to persuade every state to enact convenient trust laws.

Now, it is not a question between one state and forty-four others, but rather between the diversities of all the forty-five. Almost every state has its peculiar provisions, and if its laws are favourable to the trusts this is because, as each state says, if it were to stand on high moral grounds it would only hurt itself by driving away profitable trusts, and would not benefit the whole country, because the trusts would simply fly away and roost in some other state. More especially the industrially backward Western States would be always ready to entertain the trusts and pass most hospitable laws, for the sake of the revenue which they could thereby get for their local purposes. And so it is quite hopeless to expect the trusts to be uprooted by the legislation of the separate states. If all forty-five states were to pass laws such as govern stock companies in Massachusetts, there would be no need of further legislation; and it is also no accident, of course, that there are very few trusts in the State of New York. All the great trusts whose directors reside in the metropolis have their official home across the river in the State of New Jersey, which has made great concessions to the companies.

If these companies are to be reached by law, the surest way seems to be by taking a radical step and removing the supervision of large stock companies from the single states, and transferring it to the federal government; this is the way which President Roosevelt has repeatedly recommended. In our political section we have explicitly shown that such a change cannot be introduced by an act of Congress, but only by an amendment to the Constitution, which cannot be made by Congress, since it is in itself a product of the Constitution. Congress would be able only to take the initiative, and two-thirds of both houses would have to support the proposition to change the Constitution; and this change would have to be ratified by three-fourths of the state legislatures themselves. Now, it would be difficult to get a two-thirds majority in both houses on any question hostile to trusts; but it is quite out of the question to induce the three-fourths of the states to cripple their own rights in so important a matter as the regulation of stock companies; particularly as in economic matters local power is necessary to local optimism, and the weaker states would never consent to give up such rights, since they would be forced to see industrial laws framed according to the requirements of the more highly developed states. Was the President, then, in his speeches, like Don Quixote, tilting against the windmills; or was he proposing, as some of his opponents said, quite impracticable solutions in order to divert attention from such a handy solution as that of tariff reduction? And was he declaiming loudly against the trusts before the public in order really to help on the friends of capital?

Perhaps another point of view may be found. It may be that President Roosevelt proposed a constitutional amendment in order to arouse discussion along certain lines, and in order specially to have the chance of demonstrating that federal control of those overgrown business enterprises is necessary, and that their control by the several states is dangerous. It looks indeed as if such discussion would have been highly superfluous if not insincere, if it were true that the sole way of helping the situation were the quite impossible constitutional amendment.

But such is not the case; there is another way of reaching the same end without meeting the difficulties involved in changing the Constitution. Of course, the President was not free to discuss this means, nor even to mention it. This way is, we think, for the Supreme Court to reverse its former decision, and to modify its definition of interstate commerce in closer accord with the latest developments of the trusts. We have seen that there are drastic laws relating to interstate commerce which have overthrown all the earlier trusts; but a corporation claiming home in New Jersey, although owning factories in different states and dependent on the co-operation of several states for its output, is to-day treated by the Supreme Court as a corporation pertaining to one state. If, now, the Supreme Court were to decide that such a corporation transacts interstate commerce, then all the severity of the existing federal laws would apply to such corporations, and everything which could be accomplished by an amendment to the Constitution would be effected by that one decision. Of course, the President could not suggest this, since the Supreme Court is co-ordinate with the Executive; yet if public attention should be awakened by such a discussion, even the judges of the Supreme Court might consider the matter in a new light.

To be sure, this would at the same time require the Supreme Court somewhat to modify its previous interpretation of the Anti-Trust Law itself, and not merely its application; since otherwise, if the trusts come under federal jurisdiction, the law might wipe out the new trusts, as it did the old, instead merely of regulating them. In view of the recently published memoirs of Senator Hoar, there can be no doubt that the Supreme Court has interpreted the law forbidding the restraint of trade more strictly than was originally intended in the bill which Hoar himself drew up. Congress meant to refer to agreements in restraint of trade in a narrow, technical sense, while the court has interpreted this law as if it were to apply to every agreement which merely regulates production or sale in any place. But this unnecessarily severe construction of the law by the unexpected verdict of the court can of course be set aside by a further Congressional measure, and therefore offers no difficulty.

The Administration might proceed in still another way. A good deal has been said of greater publicity in public affairs, and in the last few years energetic measures have already been taken at the instance of the President. Many of the evils of trusts lie in their concealment of the conditions under which they have been organized; and the new Department of Commerce is empowered to take official testimony concerning all such matters, and to demand this under oath. Whether this will be an ultimate gain is doubted by many, since those acquainted with the matter say that the secrets of modern book-keeping make it impossible to inspect the general condition of a large industrial concern when its promoters desire to conceal the truth. While if one were to go back of the books and lay bare every individual fact to the public eye, the corporations would be considerably injured in their legitimate business. And in any case, this new effort at publicity has so far no judicial sanction. One large trust has already refused to give the information desired because its counsel holds the Congressional law to be unconstitutional, and this matter will have to be settled by the Supreme Court.

The most thoughtful minds are coming slowly to the opinion that neither tariff provisions nor legislation is necessary, but that the matter will eventually regulate itself. The great collapse of market values has opened the eyes of many people, and the fall in the price of commodities manufactured by trusts works in much the same direction. People see, more and more, that most of the evils are merely such troubles as all infant organisms pass through. The railroads of the country were also at first enormously overcapitalized, but the trouble has cured itself in the course of time. The surpluses have been spent on improvements, and railroad shares to-day represent actual values. Such a change has in fact already set in among the trusts. Paternal regulation by the government, which prescribes how industry shall go on, is always essentially distasteful to Americans. Exact regulative measures which shall be just cannot be framed beforehand by any government. Even Adam Smith believed, for instance, that the form of organization known as a stock company was suitable for only a few kinds of business. The American prefers to submit all such questions to the actual business test. All experimental undertakings are sifted by natural selection, and the undesirable and unnecessary ones fall through. It is true that many lose their property in such experiments, but that is only a wholesome warning against thoughtless undertakings and against hasty belief that the methods profitable in one field must be profitable in every other. It is true that here and there a man will make large profits rather too easily, but Roosevelt has well said that it is better that a few people become too rich than that none prosper.

The development of affairs shows most of all that prices can be inflated for a short time, but that they slowly come back to a reasonable figure so long as there are no real monopolies. The experience of the last ten years teaches, moreover, that the most important factor which works against the trusts is the desire for independence on the part of capitalists, who do not for a long time willingly subordinate themselves to any corporation, but are always tempted to break away and start once more an independent concern.

And comparing the situation in 1904 with that of 1900, one sees that in spite of the seeming growth of the trust idea, the trusts themselves have become more solid by the squeezing out of fictitious valuations; they are more modest, content themselves with less profits, and they are much less dangerous because of the competition which has grown up around them. The trusts which originally ruled some whole industry through the country are to-day satisfied if they control two-thirds of it. A single fundamental thought remains firm, that the development of industry demands a centralized control. This idea works itself out more and more, and would remain in spite of any artificial obstruction which might be put before it. But the opposite tendencies are too deeply rooted in human nature, in Anglo-Saxon law, and in the American’s desire for self-initiative, to let this centralization go to dangerous limits.

But those who will not believe that the trusts, with their enormous capitals, can be adequately restrained in this way, may easily content themselves with that factor which, as the last few years have shown, speaks more energetically than could Congress itself—this is organized labour. The question of capital in American economy is regulated finally by the question of labour.

_The Labour Question_

As the negro question is the most important problem of internal politics, so the labour question is the most important in American economic life; and one who has watched the great strikes of recent years, the tremendous losses due to the conflicts between capital and labour, may well believe that, like the negro question, this is a problem which is far from being solved. Yet this may not be the case. With the negro pessimism is justified, because the difficulties are not only unsolved, but seem unsolvable. The labour question, however, has reached a point in which a real organic solution is no longer impossible. Of course, prophecies are dangerous; and yet it looks as if, in spite of hard words, the United States have come to a condition in which labourers and capitalists are pretty well satisfied, and more so perhaps than in any other large industrial nation. It might be more exact to say that the Americans are nearer the ideal condition for the American capitalist and the American labourer, since the same question in other countries may need to be solved on wholly different lines.

In fact, the American problem cannot be looked into without carefully scrutinizing how far the factors are peculiar to this nation. Merely because certain general factors are common to the whole industrial world, such as capital, machinery, land values, labour, markets, and profits, the social politician is inclined to leave out of account the specific form which the problem takes on in each country. The differences are chiefly of temperament, of opinions, and of mode of life.

It is, indeed, a psychological factor which makes the American labour question very different from the German problem. This fact is neglected, time after time, in the discussions of German theorists and business men. It is, for instance, almost invariably affirmed in Germany that the American government has done almost nothing toward insuring the labourer against illness, accident, or old age, and that therefore America is in this respect far inferior to Germany. It can easily be foreseen, they say, that American manufacturers will be considerably impeded in the world’s market as soon as the progress of civilization forces them to yield this to the working-man.

The fact is that such an opprobrium betrays a lack of understanding of American character. The satisfaction felt in Germany with the laws for working-men’s insurance is fully justified; for they are doubtless excellent under German conditions, but they might not seem so satisfactory to the average American nor to the average American labourer. He looks on it as an interesting economic experiment, admirable for the ill-paid German working-man, but wholly undesirable for the American. The accusation that the American government fails in its duty by not providing for those who have served the community, is the more unjust, since America expends on the average $140,000,000 in pensions for invalid veterans and their widows, and is equally generous wherever public opinion sees good cause for generosity.

It cannot be doubted that the American labourer is a different sort of creature from the Continental labourer; his material surroundings are different, and his way of life, his dwelling, clothes and food, his intellectual nourishment and his pleasures, would seem to the European workmen like luxuries. The number of industrial labourers in the year 1880 was 2.7 million, and they earned $947,000,000; in 1890 it was 4.2 million earning $1,891,000,000; and in 1900 there were 5.3 million labourers earning $2,320,000,000; therefore, at the time of the last census, the average annual wage was $437. This average figure, however, includes men, women, and children. The average pay of grown men alone amounts to $500. This figure gives to the German no clear idea of the relative prosperity of the working-man without some idea of the relation between German and American prices.

One reads often that everything is twice as expensive in America as in Germany, while some say that the American dollar is worth only as much as the German mark—that is, that the American prices are four times the German; and still others say that American prices are not a bit higher than German. The large German-American steamships buy all their provisions of meat in New York rather than in Hamburg or Bremen, because the American prices are less. If one consults, on the other hand, a doctor or lawyer in New York, or employs a barber or any one else for his personal services, he will find it a fact that the American price is four times as high as the German. The same may be said of articles of luxury; for bouquets and theatre tickets the dollar is equal to the mark. It is the same with household service in a large town; an ordinary cook receives five dollars per week, and the pay of better ones increases as the square of their abilities. Thus we see at once that an actual comparison of prices between the United States and Europe cannot be made. A dollar buys five marks’ worth of roast beef and one mark’s worth of roses.

In general, it can be said that the American is better off as regards all articles which can be made in large quantities, and worse off in articles of luxury and matters of personal service. The ready-made suit of clothes is no dearer in America than in Germany and probably better for the price, while the custom-made suit of a first-class tailor costs about four times what it would cost in Germany. All in all, we might say that an American who lives in great style and spends $50,000 a year can get no greater material comforts than the man in Germany who spends a third as much—that is, 70,000 marks. On the other hand, the man who keeps house with servants, but without luxuries, spending, say, $5,000 a year, lives about like a man in Germany who spends 10,000 marks—that is, about half as much. But any one who, like the average labourer, spends $500 in America, unquestionably gets quite as much as he would get with the equal amount of 2,100 marks in Germany.

But the more skilled artisan gets $900 on the average—that is, about three times as much as the German skilled workman; so that, compared with the wages of higher-paid classes, the working-men are paid relatively much more than in Europe. The average labourer lives on the same plane as the German master artisan; and if he is dissatisfied with the furnishings of his home it is not because he needs more chairs and tables, but because he has a fancy for a new carpet or a new bath-tub. In this connection we are speaking always of course of the real American, not the recent immigrants from Southern and Eastern Europe, who are herded together in the worst parts of large cities, and who sell their labour at the lowest rate. The native American labourer and the better class of German and Irish immigrants are well clothed and fed and read the newspapers, and only a small part of their wages goes for liquor.

More important than the economic prosperity of the American working-man, though not wholly independent of it, is the social self-respect which he enjoys. The American working-man feels himself to be quite the equal of any other citizen, and this not merely in the legal sense. This results chiefly from the intense political life of the country and the democratic form of government, which knows no social prerogatives. It results also from the absence of social caste. There is a considerable class feeling, but no artificial lines which hinder any man from working up into any position. The most modest labourer knows that he may, if he is able, work up to a distinguished position in the social structure of the nation.

And the most important thing of all is probably the high value put on industry as such. We have spoken of this in depicting the spirit of self-initiative. In fact, the background of national conceptions as to the worth of labour must be the chief factor in determining the social condition of the working-man. When a nation comes to that way of thinking which makes intellectual activities the whole of its culture, while economic life merely serves the function of securing the—outward comforts of the nation as it stretches on toward its goal of culture, then the industrial classes must content themselves with an inferior position, and those who do bodily labour, with the least possible amount of personal consideration. But when a nation, on the other hand, believes in the intrinsic worth of industrial culture, then the labour by which a man lives becomes a measure of his moral worth, and even intellectual effort finds its immediate ethical justification only in ministering to the complex social life; that is, only so far as it is industry.

Such now is the conception of the American. Whether a person makes laws, or poetry, or railway ties, or shoes, or darning-needles, the thing which gives moral value to his life’s work is merely its general usefulness. In spite of all intellectual and æsthetic differences, this most important element of activity is common to all, and the manual labourer, so far as he is industrious, is equal to those who work with their brains. On the other hand, the social parasite, who perhaps has inherited money and uses it only for enjoyment, is generally felt to be on a lower plane than the factory hand who does his duty. For the American this is not an artificial principle, but an instinctive feeling, which may not do away with all the thousand different shadings of social position, but nevertheless consigns them to a secondary place. One may disapprove of such an industrial conception of society, and like better, for example, the æsthetic conception of the Japanese, who teach their youth to despise mercantile business and tastefully to arrange flowers. But it is clear that where such an industrial conception prevails in a nation the working-man will feel a greater self-respect and greater independence of his surroundings, since the millionaire is also then only a fellow-workman.