CHAPTER I

CAPITALISM IS STUPID

Sec. 1. OVERPRODUCTION

The first and most glaring evil of the competitive system is that it is stupid. In support of this I shall call as witnesses captains of industry whom the business men regard as the greatest authorities in the world: John D. Rockefeller[24], Henry O. Havemeyer[25], Elbert H. Gary[26] and others.

Socialists are accused of being impractical. I shall have failed in properly presenting the Socialist case if I do not succeed in demonstrating that the impractical people are the bourgeois, the Roosevelts, Tafts and Bryans who, though aware of the waste of the competitive system, insist upon maintaining it; and that the only practical people are those who, like the Socialists, having perceived the waste that attends the competitive system, seek to replace it by a more economic plan.

No one will, I think, deny that the most practical business men to-day in America are Rockefeller, Pierpont Morgan, Havemeyer, and the others who have been engaged in organizing our great trusts. Now the only object of a trust is to eliminate the unnecessary waste of competition; and the only difference between the Socialist and the trust magnate is that the Socialist wants the benefit derived from reducing competition to be shared by all; whereas Rockefeller, Pierpont Morgan and the other trust magnates want the profit secured by the elimination of waste all to themselves.

I do not suppose there is any man living so prejudiced or so dull as to deny that, if Socialism could present a system by which all could be made to profit from the elimination of the waste of the competitive system in such a manner that the profit of each shall be proportional to the amount which each contributes, Socialism would be justified. The only point upon which there can be discussion is whether it is possible to suggest a workable plan under which the evils of competition can be eliminated, and the blessings of cooperation take their place. In other words, is cooperation a practical cure for competition? It is obviously impossible to decide whether a given treatment would constitute a cure for a given disease, without a thorough knowledge of the disease. It is therefore essential that we should be clear as regards the defects of the competitive system, and how far these defects are curable and how far incurable.

The beauty of the competitive system upon which the bourgeois loves to dwell is that it is automatic; whenever there is overproduction in an industry prices fall, profits disappear and therefore capital flows away from it; as soon as overproduction comes to an end prices rise, profits reappear and capital flows back to it. And the beauty of this automatic system is the more commended because it closely follows Nature; and indeed, the system of Nature is beautiful in the extreme. The sun draws the vapor of pure water from the salt ocean; lifts it high into the air, wafts it by propitious breezes to the continent; sheds it in beneficent rain upon the thirsty land, and deposits it in gigantic reservoirs of ice and snow upon our mountain heights; there is the supply upon which during hot summers we depend; and the hotter the summer, and the more therefore we need moisture, the more the snow and glaciers melt and furnish us with torrents of refreshing streams; so that at last the vapor that has been drawn by the sun from the ocean, in obedience to the inevitable law of gravitation, returns to it in a thousand rivers, after having performed its function of nutrition and refreshment on the way.

In the same fashion demand is ever beckoning labor and capital to seek new fields, tempting them from the low levels of low interest to high levels of high profit; and supply, increasing through their efforts, is forever bringing them back, like the force of gravitation, to the point whence they started; and the cycle is repeated over and over again, performing its mission of production and distribution on the way.

Unfortunately, Nature, though beneficial in the main, does not accomplish its work without distressing incidents. Breezes are not always propitious; they sometimes create disastrous havoc; torrents are sometimes more than refreshing, and summers unduly hot.

For example, the more abundant a crop is, the more prosperous the country which grows the crop ought to that extent to be; but it sometimes happens that, in such case, prices fall so low as to bring disaster to those who have grown it.[27]

Nature is not always to be depended on. Occasionally a crop entirely fails, and when this happens, as lately in India, millions are exposed to starvation and thousands actually starve.

Even when Nature is most bountiful the competitive system results in misfortune. For example, the President of the Boston Chamber of Commerce in a speech to the Chamber said in 1891:

"In 1890 we harvested a cotton crop of over eight million bales--several hundred thousand bales more than the world could consume. Had the crop of the present year been equally large, it would have been an _appalling calamity_ to the section of our country that devotes so large a portion of its labor and capital to the raising of cotton."[28]

In 1905 the newspapers announced "the South is proposing to burn cotton so as to keep up its price."[29] And still more recently the same suggestion has been made regarding the tobacco crop in Kentucky.

Again, the competitive system under which every man goes into the business where he sees most profit, inevitably leads to periods of overproduction, and overproduction leads to unemployment and misery.

No political economist denies the obvious fact that whenever an industry is known to be profitable, capitalists are likely to engage in this industry--indeed, this is one of the automatic processes which the Manchester school has put forward as constituting the chief merit of the system. It is, of course, important for the community at large that prices should in no one industry become excessive; and obviously the disposition of capital to rush into industries where profits are high, does by competition tend to reduce prices, and thus prevent them from becoming excessive. But economists, especially those of the Manchester school, have not been willing to recognize that this disposition of capital to flow into productive enterprises may, though sometimes beneficial, be also sometimes ruinous; may, indeed, often result in a devastating deluge. These economists, therefore, it may be well to confront with a brief history of one or two of our largest combinations. Let us take as a first example the sugar trust.

Just before the organization of this trust, overproduction had become so excessive that of forty refiners in the United States eighteen became bankrupt. Of the twenty-two that remained, eighteen combined. Of the refineries belonging to these eighteen, eleven were closed, leaving seven to do profitably the work which had previously been done unprofitably by forty.

The history of the whisky trust shows overproduction to a still more aggravated degree. Before the organization of the Distilling and Cattle-Feeding Company, agreements were entered into by the majority of the distillers; under one of them they agreed to reduce production to forty per cent of what it at that time was; subsequently they agreed to reduce still further to twenty-eight per cent; and of eighty of the principal distillers who organized the Distilling and Cattle-Feeding Company, the establishments of sixty-eight were closed, leaving only twelve distilleries operating.

The same succession of events is found in the history of the American Steel and Wire Company, and indeed of practically all American trusts.

This inevitable tendency towards overproduction vitally concerns workingmen, for it is upon them that the evil consequences of this process first and most fatally fall. As soon as the process results in the inevitable reduction of prices to near cost, the manufacturer must either throw workmen out of employment or reduce wages. Wages constitute the only elastic element in cost, and it is therefore the workingman who first pays for the evil working of this system. And not only does the workingman pay for it, but the employer pays for it also; for workingmen, to protect their interests, strike, and only the wealthiest employers can stand the strain of a strike; the rest are ruined by it.

Even a reduction of the hours of work or the days of employment in the week will, if it lasts long enough, ruin the employer, for he has still to pay the fixed charges of the factory, and if prices get low enough, and he cannot sell his goods except at a ruinous loss, he ends by not having means to pay these charges; and this process is illustrated in the cases just mentioned; for example, eighteen out of forty sugar refiners became bankrupt; and it was not till the eighteen were ruined that a combination was possible amongst the rest.

One method employed by trusts to keep up prices at home is to sell their excess of goods in foreign markets at prices below cost.

Mr. Gary, President of the Federal Steel Company, testified before the Industrial Committee that steel had been recently shipped to Japan at a price below the domestic price.[30]

Mr. J.W. Lee, President of the three independent pipe-line organizations, testified that prior to 1895 "oil for export was sold below the cost of crude at the refinery."[31]

Again, at a time when the American trade was paying $28 for steel rails, the same steel rails were sold in Japan at $20.[32]

Obviously, the nations who are the victims of this process are not long going to tolerate it; but this is a relatively small part of the international complications produced by overproduction. The most serious consequence of overproduction is that manufacturers, when they can no longer get a remunerative price for their goods in the home markets, are inevitably driven to seek it elsewhere. They seek foreign markets, and failing foreign markets, they seek new markets by colonization or conquest.

It is impossible to read the history of the British Empire during the last 150 years without becoming persuaded that its so-called greed for conquest inevitably results from the necessity under which English manufacturers have been to secure markets for their increasing goods. Either British factories had to close, and British workmen to be thrown out of employment, or England must, by colonization or conquest, secure a price outside her own borders for the goods which competition perpetually tended to make her factories overproduce.

Indeed, the war through which England compelled China to purchase Indian opium looks like the greatest of international crimes; yet, when we understand this so-called crime of England, it turns out to have been a commercial necessity; for the remunerative prices obtained by the production of opium in India had so developed this branch of business that millions of Indians depended for their lives upon it, and either Chinese must poison themselves with opium, or Indians must die of hunger. The responsibilities of England were to her subjects first. The Chinese had to pay the price of this responsibility.

No better illustration of the wicked despotism that results from existing industrial conditions could be given than this; it brought about a condition of things under which England must commit a crime against China, or millions of her subjects must perish in Hindustan.

The millions that would starve in India if the opium market were suddenly closed remind us of the millions who are on the verge of starvation here in the United States,[33] and have been for two years past because of inherent and incurable defects in our industrial system. It is no answer to say that the evil results of overproduction are promptly remedied by the fluidity of capital to flow towards profitable and to withdraw from unprofitable manufactures. Every time such withdrawal takes place a corresponding number of workmen are thrown out of employment, are subjected to want and anguish of anxiety. The evil of this system cannot be explained away by pointing out that the capital withdrawn from one manufacture will soon be reinvested in another. A cotton-spinner cannot in a week or a month become a boilermaker. The commercial system which makes it easy for a capitalist to maintain income at cost of agony to the workingman does not recommend itself to the political student seeking the establishment of Justice in economic conditions. For, unfortunately, labor is not as "fluid" or insensible as capital. The workingman is a human being with the capacity for pain and anxiety that characterizes our race; and every time that capital profits by its fluidity to flow from one industry to another, the lives of men, women, and children are threatened by want. Even in prosperous times memories of the last panic and the certainty of a recurring panic keep their hearts haunted by fear.

Overproduction is by no means the only cause for these periods of unemployment. Indeed, the panic of 1907 was not the result of overproduction, but of overinvestment, or what the French call the "immobilization of capital." Every nation has two very different uses for wealth: one for keeping its population alive and comfortable, the other for developing the resources of the country, e.g., building roads and railroads, exploiting mines and quarries, etc. If too much wealth is immobilized in the latter, there is not enough for the former. The important function of regulating this matter is in the hands of bankers who make money not only out of the prosperity of prosperous times, but out of the panic of panic periods. Thus in May, 1907, the bankers, knowing that there had been overinvestment, took care of themselves by selling securities at top-notch prices, occasioning what was called the "rich man's panic," because the rich men of leisure were its victims; so that when the poor man's panic came in October and stocks tumbled to one-half of May prices, the bankers were able to reinvest the proceeds of May sales at fifty per cent profit. One of the consequences of this operation was that in October, 1907, neither manufacturers nor railroad men could get money to keep their work going; gangs of five thousand men at a time were summarily dismissed by railroads, and manufactures shut down.

Of course, the bankers did not "make the panic," as has been sometimes ignorantly asserted; they only made money out of it both ways--out of high prices in May and out of low prices in November. And this illustrates one of the great defects of the competitive system--that it puts different sets of men in a position where they can make individual profit out of the misfortunes of their neighbors; bankers out of panics; distillers and liquor dealers out of drunkenness; manufacturers and retailers out of adulteration, and so down the whole gamut of production and distribution; and this is the process which the bourgeois approves because it "makes character."

But the unemployment that is the necessary result of all periods of depression, whether produced by overproduction or overinvestment, deserves more than passing mention for its fruits in the shape of misery, pauperism, prostitution and crime, are menacing and prejudicial to the race.

Sec. 2. UNEMPLOYMENT

The subject of Unemployment has just been treated by an expert in a book[34] hailed by the press as the final word on the subject. All the theories ever propounded as to the cause of unemployment have been reviewed in this book, from overproduction, underconsumption, competition, to "spots on the sun." And the author concludes in favor of competition.[35] As regards the facts and the explanation of these facts, there seems to be no essential disagreement between orthodox economists and Socialists. Both trace unemployment back to competition. And in addition to the arguments given by Mr. Beveridge for tracing unemployment to competition, I venture to add that competition must be decided to be the primary cause, because it is itself the cause of the other so-called causes occasionally proposed--overproduction, underconsumption, underemployment, underpayment--in fact, all except "spots on the sun," which can, I think, except for purposes of hilarity be definitely abandoned.

But although we are agreed as to facts, we very much differ as to emphasis. Mr. Beveridge, and indeed all orthodox economists, pass lightly over the injustice, the immorality and the agony of unemployment. He refers to the "cyclical fluctuation" which gives rise to unemployment as a mere failure of adjustment between demand and supply. "No doubt," he says, "the adjustment takes time and may only[36] be accomplished with a certain amount of friction and loss." Now this "friction and loss," when expressed in money and wealth, seem to us socialists stupid because avoidable; but when expressed in human life and misery, they seem so intolerable that we are prepared if necessary to shatter to bits the whole system that underlies them, in order to "remould it nearer to the heart's desire." We are relieved then when we discover that by applying wisdom instead of temper to the solution of the problem, it is unnecessary to do any shattering, that we can remould it without violence, and that this is what Socialism proposes to do. Mr. Beveridge disposes of the Socialist solution in a sentence: "To abolish the competitive stimulus," he says, "is to abolish 'either the possibility of, or the principal factor in material progress.'"[37] But these few words beg the whole question: Need we abolish the competitive stimulus in the adoption of the Socialist cure? Can we not confine ourselves to eliminating the gambling element in it? Can we not diminish the stakes without abandoning them altogether? Can we not take our arsenic in tonic instead of in fatal doses? These questions belong to our constructive chapters at the end of the book. I shall take up here only a few other points about unemployment which orthodox economists do not sufficiently emphasize, in order that there may be no doubt as to the magnitude of this evil and as to the duty upon us to eliminate it if we can.

Few things irritate the bourgeois more than to speak of workingmen as "wage slaves." I have seen college professors lose their temper over this word so often that they have served to suggest that in using it we are, as children say, getting "warm." We are very near the Negro we are looking for in the woodpile. Unemployment will help us in our search.

Not only the slave, but the savage, has a great advantage over the workingman, in that the former is never unemployed and the latter need never be so unless he chooses. Unemployment then is the peculiar product of our civilization. It is only under this competitive system of ours that a strong, hearty, able-bodied man, not only willing, but burning to work, with plenty of work to be done and with plenty of food to be eaten, is refused both. Although there are vacant lots in the heart of our cities and deserted farms within a few miles of them, the unemployed and the women and children dependent on them are to starve because owing to the "failure of adjustment between supply and demand," no one for two years past has been able to make money by employing them. Why this is so will more fully appear in Book II,