Chapter 14

The vital importance of this truth cannot be over-estimated. For so long as we refuse to recognize it, so long as we attempt to stop the present evils of monopoly by trying to add a feeble _one_ to the number of competing units, or by trying to legislate against special monopolies, we are only building a temporary dam to shut out a flood which can only be controlled at the fountain head.

The facts of history testify to the truth of this law. Monopolies were never so abundant as to-day, never so powerful, never so threatening; and with unimportant exceptions they have all sprung up with our modern industrial development. The last fifteen years have seen a greater industrial advancement than did the thirty preceding, but they have also witnessed a more than proportionate growth of monopolies. How worse than foolish, then, is the short-sightedness that ascribes monopolies to the personal wickedness of the men who form them. It is as foolish to decry the wickedness of trust makers as it is to curse the schemes of labor monopolists. Each is working unconsciously in obedience to a natural law; and the only reason that almost every man is not engaged in forming or maintaining a similar monopoly is that he is not placed in similar circumstances. Away, then, with the pessimism which declares that the prevalence of monopolies evidences the decay of the nobler aspirations of humanity. The monopolies of to-day are a natural outgrowth of the laws of modern competition, and they are as actually a result of the application of steam, electricity, and machinery to the service of man, as are our factories and railways. Great evils though they may have become, there is naught of evil omen in them to make us fear for the ultimate welfare of our liberties.

To the practical mind, however, the question at once occurs, what light have we gained toward the proper method of counteracting this evil? Can it be true that the conditions of modern civilization necessitates our subjection to monopolies, and that all our vaunted progress in the arts of peace only brings us nearer to an inevitable and deplorable end, in which a few holders of the strongest monopolies shall ride rough shod over the industrial liberties of the vast mass of humanity? Were this true, perhaps we had better take a step backward; relinquish the factory for the workshop, the railway for the stage-coach. "Better it is to be of an humble spirit with the lowly, than to divide spoil with the proud." But the law we have found commits us to no such fate. We cannot, indeed, abolish the causes of monopolies. We cannot create new gifts of Nature, and it would be nonsense to attempt to bring about an increase in the number of competing units and a decrease in the capitalization of each by exchanging our factories and works of to-day for the workshops of our grandfathers. But while monopolies are inevitable, our _subjection_ to them is not inevitable; and when the public once comes to fully understand that _the remedy for the evils of monopoly is not abolition, but control_, we shall have taken a great step toward the settlement of our existing social evils. To discuss the details of the remedy, so far as it can be done in a volume of this sort, belongs properly to a later chapter. Before undertaking it, however, it seems well to devote some further attention to the evils which the attempt to abolish monopolies and adhere to the ideal system of universal competition has brought upon us, and to make, also, some further study of the general evils due to monopoly.

XII.

THE EVILS DUE TO MONOPOLY AND INTENSE COMPETITION.

It is a strange thing when we come to analyze the various social evils which demand our attention, and which every true man longs to cure, to find how great a proportion can be traced back to the one great evil of faulty competition. As a preliminary to a survey of these evils, in order that we may understand the necessity that all good men and true should exert themselves in applying the remedy, let us see just what conditions of our industrial society we should seek to work toward. What is the theoretical perfection of human industry?

Probably all thinking men, whatever their belief and practice, will acquiesce in the proposition that the end we should aim to secure is "the largest good to the greatest number." As we are discussing here only economic questions, this means that the end to be sought is that the largest number of people should have secured to them the greatest possible amount of the necessaries and comforts of life; or, more simply, that the total of human happiness to be derived from the world's production of wealth should be the greatest possible. Now for our present purpose we may assume that since all men desire wealth, the greater its production, the greater will be the number of human desires gratified. From this it follows that our social organization should be such as to increase to the greatest possible degree the world's stock of wealth.

There is no easier or safer way of studying questions of economics than to consider the community as a unit, and see what is for the interest of the people as a whole; what conduces most to the "common wealth"; and if we do this, whenever the question concerns production alone, the task is simple, because the interests of the people as a whole are judged in the same way as the interests of a single person. Whatever tends to increase the total amount of wealth in the world, therefore, benefits the community as a whole; and whatever diminishes the supply is an injury. All work of every sort which tends to aid in the economical production of wealth and its transfer to the consumer is a benefit to the community; and any thing which destroys wealth, lessens its production, or hinders men from exerting themselves to produce it, is an economic injury.

What, then, are we to say of the condition known as over-production? Is it not a fact that some lines of industry are so overdone that the production is far in excess of the demand, and is not this an evil rather than a benefit? Do not periods of business depression occur when all industries stagnate for want of a market for their goods? The true answer to this question is: Over-production is not a fault of _production_, but of _distribution_. It is true that, in special industries, a surplus of production sometimes occurs, due to over-stimulation, or too rapid growth; but over-production as commonly spoken of, refers to a general state of trade, in which demand for all sorts of goods seems to fall far below the market supply. But this lack of demand is not due to lack of desire. The desires of men are always in excess of their abilities to supply them; it follows, therefore, that the condition known as over-production consists in a lack of _ability_ to purchase goods rather than in a lack of _desire_ to purchase them. This lack of ability has evidently to do with the distribution of wealth rather than its production.

While it is easy to formulate laws to govern the theoretically perfect production of wealth, to whose justice all men will consent, we cannot go far in the details of the ideal distribution of wealth without reaching points upon which the views of different parties are diametrically opposed. Some foundation principles, however, let us state, believing that in their truth the great majority of men will concur.

In the chapter on the theory of competition we saw that, if we conceived the results of the labor of the whole community to be placed in a common storehouse and gave to each man the right to draw from it an amount just equal to the benefit derived from the goods which he had placed within it, the ideal of a perfect system of distribution of wealth would be realized. No human judgment, however, is, or ever can be, competent to measure the exact industrial benefits which each person confers upon the community at large. We must inevitably permit men to measure the result of their own work by securing for it such an amount of the results of others' work as they can induce them to give in exchange. But while we cannot measure exactly the benefit which each person confers, we can see cases in which the reward received is manifestly out of all proportion to the benefit conferred. Consider the fortunes which have been accumulated by some of our Midases of the present decade. It is quite certain that the benefits which Cornelius Vanderbilt, for instance, conferred on the community by his enterprise and business sagacity, by his work in opening new fields of industry, forming new channels for commerce, etc., were so valuable that he honestly earned the right to enjoy a large fortune. It is equally certain that a great part of his gains had nothing whatever to do with any benefit conferred upon the community, and that the fortune of $100,000,000 or so which he accumulated was an example of inequitable distribution of the products of the world's industry. Stating this in the form of a general principle, we should say: _The amount of wealth which any man receives should bear some approximate relation to the benefit which he confers upon the world._

We have already stated that, by the law of supply and demand, the rewards of each worker are regulated in theory even more perfectly in accordance with our ideas of liberty than they could be on the basis of actual benefit conferred. For it is inconceivable that people would submit to pay for what was beneficial to them instead of what they desired. A man who prefers to purchase wines instead of books with his surplus money would think it a great injustice if he were prevented from doing as he preferred with his own. But so long as every one is at liberty to use his income in buying whatever he desires most, _demand_--the willingness to pay money for the gratification of the desire--will exist, and so long as demand exists it will be met by a supply, furnished by those who are desirous of money and what it will bring. It is inconceivable, then, that any juster arrangement than this law of supply and demand can ever be practicable for regulating the compensation of each individual. The man who can drive a locomotive will receive larger wages than the man who shovels the earth to form its pathway, because the supply of men competent to drive an engine is small in proportion to the number of men who are wanted for that work, while almost any man can shovel dirt. Let us state, then, for our second principle: _The amount of wealth which any man receives should depend on the ratio between the demand which exists for his services and the supply of those able to render like service._ Farther than these statements of the ideal principles governing the economical production and equitable distribution of wealth we need not go at present.

Let us turn now to examine the result of a violation of these principles in some of the crying evils of the present day which are wholly or in part due to the growth of monopoly and the waste of competition.

Every candid man will acknowledge that the enormous congestion of wealth in a few hands which exists to-day is a danger to be feared. We have had it constantly dinned in our ears that in this free land the ups and downs of fortune were such that the rich man of to-day was apt to be the beggar to-morrow; also that almost invariably a rich man's sons were reckless spendthrifts. These things, aided by the abolition of primogeniture and entails, it was said, were to prevent the growth of a moneyed aristocracy in this country. The propounders of this amiable theory never explained how the community received reparation for the destruction of wealth which the spendthrift sons were to carry on; but so long as the theory has failed to work in practice, that does not matter so much.

A few years ago it was a favorite occupation of newspaper paragraphers to estimate the Gould and Vanderbilt fortunes; but lately they seem to have given them up as beyond the limits of even their robust guessing abilities. Some idea of the latter's fortune may be gained, however, by realizing the fact that the Vanderbilt railway system now has a total extent of nearly 12,000 miles, the total value of which can hardly be less than one thousand millions of dollars. Probably not less than half of the securities of these companies are owned by the Vanderbilt family, and it is well known that their investments are by no means confined to railways. The important fact is, that this fortune grows so fast now that it is sure to increase; and will double itself every fifteen or twenty years, because all that its owners can spend is but a drop in the bucket toward using up their income. But this fortune, while the largest which is still under one name, is but one of many enormous ones. The names of Gould, Flagler, Astor, Rockefeller, Stanford, Huntington, and a host of others follow close after the Vanderbilts. In the days of our grandfathers, millionaires were no more plentiful than hundred-millionaires are to-day.

We have next to show the present and prospective evils which result from this congestion of wealth. The first and most obvious one is its injury to the remainder of the people of the country, by the diversion from them of wealth which they have rightfully earned and which they would receive were it not for the tax of monopoly. It is obvious that a certain amount of wealth is annually produced by the industry of the country from which the whole wants of the country must be supplied. This amount may be greater, indeed, when a Gould or a Flagler or a Crocker directs the enterprise; but for the most part it is indisputable that the owners of these colossal fortunes have made them, not by any stimulus of the production of wealth by their owners, but by a diversion of the produced wealth in the general distribution from others' pockets to their own. In short, all other men are poorer that these many times millionaires may be richer. To show how these fortunes have in many cases been obtained, I cannot do better than to quote a writer not at all likely to err by undue severity to our millionaires, as he is himself the president of a railway system a thousand miles in extent:

The great majority of the phenomenal fortunes of the day are the result of what may be called lucky gambling.... Man is a gambling animal by nature, and modern methods have enormously developed both its facilities and its temptations and have opened large fields in which gambling is not held to be disreputable.

Under such stimulus is it wonderful that its growth has been phenomenal? Wall street is its head-quarters, and millions upon millions of dollars are accumulated there to meet the wants of the players. Railroad stocks are its favorite cards to bet upon, for their valuation is liable to constant fluctuation on account of weather, crops, new combinations, wars, strikes, deaths, and legislation. They can also be easily affected by personal manipulations.... Money makes money, and money in great masses has its attractive power increased. The aspect of phenomenal fortunes, therefore, is a social problem of some importance. Their manner of growth and their manner of use are to be observed, and what restrictions, if any, should be placed on their accumulation should be considered.[5]

[5] "Railway Practice." By E. P. Alexander, President Central Railroad and Banking Co. of Georgia.

The fact pointed out by General Alexander in the above quotation is one which is far too lightly appreciated. The evils of railway management by which the owners of the stocks and bonds of the company are victimized to enrich stock speculators are much too complex and numerous to be described here. The state of affairs can be briefly summed up, however, with the statement that our present system of conducting corporate enterprises results inevitably in the gravitation of their ownership into the hands of the holders of large fortunes. The railways of the country are an instance in point. Time was when the stocks and bonds of railways were owned by people of small means all over the country. But after many severe lessons in the shape of stocks wiped out, and bond interest scaled down, these small holders were taught the folly of investing their savings in business over which they had practically no control, and thus placing them at the mercy of irresponsible corporate officers. Broadly speaking, the railway property of the country is owned by men worth their millions; and the small holdings are being rapidly absorbed every day. But the case is not true of railways alone. Telegraph lines, telephone, and electric light plants, our mines, and to a large extent our factories, which were once held by private owners, are now controlled by corporations whose shares are quoted on the exchanges and are consequently subject to a forced variation, dictated according as "bull" or "bear" has the ascendancy. And when the ownership of a property is once brought into this channel, it is no longer a suitable investment for the man of small means. It is the prey of men who practically make bets as to what its future price will be, and manipulate the price, if possible, to win their bets. If it is ever again held for investment simply, it is when it is locked in the safe of some modern Croesus.

We have shown now the extent to which the congestion of wealth has gone. We have shown that other men are poorer that these men may be richer. We have explained that these great fortunes have been made, not by legitimate enterprise, but largely by "lucky gambling." And finally we have seen how the transfer of each enterprise to the control of stock speculators adds it eventually to some already overgrown fortune. The connection with the subject of the present volume is obvious. The cotton-seed oil mills of the South, once held by private owners, are now in the hands of a trust whose certificates are quoted on the stock-exchanges, and are held only by men of large capital, or by stock gamblers. This is a typical example of the change which is everywhere occurring. Private enterprise gives way to the stock company, and that in turn gives way to the trust. The salient fact, then, we may express in similar terms to those of our first law of competition, as follows: _The congestion of wealth tends to increase inversely with the number of competing units._

The facts we have stated make it impossible for the greater monopolies to defend themselves, on the ground that their profits inure to the benefit of any great number of people. But this is not an innocuous state of affairs. It is one of serious injustice and evil. The workman who struggles hard to save a hundred dollars a year can receive only a paltry three dollars and a half of interest or less, if he deposits it in a saving-bank. But the capitalist who is clearing a hundred thousand a year may make twice or thrice that interest from his investments. In short, the charge is: That monopoly and intense competition, with the variation in price which they cause, have shut out the small capitalists of the country from the ownership of the most profitable sorts of property; and by confining them to other lines, have decreased their possible income from their investments.

A further evil resulting from the congestion of wealth is what is commonly spoken of as over-production. We are confronted of late years with the strange spectacle of factories and mills shut down for months at a time, of markets which, at various times, are glutted with every sort of commodity. All sorts of causes are given; all sorts of remedies are suggested and tried. Where is the true one? With the exception of a few special cases, the fault is not that there are no people who want the goods. Probably ninety-nine families out of every hundred would buy more if they had the money to buy with. In many cases the lack of money to buy with is due to the fact that the bread-winners are out of employment because of the glutted markets and idle mills. In this way the evil tends to perpetuate itself and grow worse. Now combine this fact with the fact that the holders of monopolies are in the receipt of incomes so great that, in many cases, they are quite unable to spend them. Also, that this income is largely locked up to wait the chance of profitable investment, or is used in speculation. Is it not obvious, now, that the reason why people cannot afford to purchase the goods, with which the storehouses are glutted, is that too large a proportion of profits has been diverted to swell fortunes already enormous? Have we not in this way accounted for a large amount, at least, of the over-production which is throwing out of employment thousands of workmen, rendering useless a vast amount of valuable capital, and affecting from time to time the business of the whole country with a veritable paralysis?

The facts bear out this theory. For, at many times when producers in every industry are complaining of dull times because people who buy have no money to spend, there is an abundance of money to be had for investment. Fortunately, the evil seen from this aspect must, to a certain extent, be but a temporary one, and will tend to work its own cure. For as the world's stock of invested wealth continues to grow, there is less opportunity for its profitable investment in improving undeveloped natural resources. The greater portion of our wealth we save and invest, the faster will the rate of interest tend downward. But, as this occurs, the operators of mills and mines have to pay less out of their receipts as interest on their borrowed capital, and can, therefore, pay more to their workmen.

There is another way in which monopoly works to cause over-production, with its attendant evils. Suppose a trust is formed in some manufacturing industry, where the working capacity is just equal to supplying the demand. The first work of the trust is to raise the prices perhaps 20, 30, or 40 per cent. Of course this causes a falling off in the demand, and the trust has to shut down some of its mills to ward off over-production. The true cause of over-production in this case is, that the prices are not in equilibrium with the relation between supply and demand. Let prices come down, and the demand will increase. The working of this special case gives us an idea of the way in which general over-production is caused. For it is well known that monopolies have raised the prices and reduced the consumption not of one, but of hundreds of articles. If the men who are made idle by the over-production in these industries flock into other occupations to secure work, they reduce wages there; so that, in any case, their purchasing power is reduced, and this tends to perpetuate and increase the evil. Of course it is not pretended to claim that all industrial depressions have been due to over-production, or the local congestion of the world's income. But that a large part of it may be justly laid to this cause, seems to be beyond question.